================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR
___ 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
incorporation or organization) Identification No.)
1 IMATION PLACE
OAKDALE, MINNESOTA 55128
(Address of principal executive offices)
(612) 704-4000
(Registrant's telephone number, including area code)
--------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 36,521,691 shares of Common
Stock, par value $0.01 per share, were outstanding at August 3, 1999.
================================================================================
<PAGE>
IMATION CORP.
INDEX
PAGE(S)
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations
for the three and six months ended June 30,
1999 and 1998 3
Condensed Consolidated Balance Sheets as
of June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash
Flows for the six months ended
June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-10
Report of Independent Accountants 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12-20
PART II. OTHER INFORMATION 20-22
SIGNATURE 23
EXHIBIT INDEX 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
Net revenues $ 354.2 $ 311.8 $ 695.4 $ 660.9
Cost of goods sold 246.5 215.1 484.8 453.9
------- ------- ------- -------
Gross profit 107.7 96.7 210.6 207.0
Operating expenses:
Selling, general and
administrative 72.1 89.1 151.1 182.6
Research and development 18.9 19.0 38.1 42.5
Restructuring -- (3.6) -- (3.6)
------- ------- ------- -------
Total 91.0 104.5 189.2 221.5
Operating income (loss) 16.7 (7.8) 21.4 (14.5)
Other income and expense:
Interest expense 0.2 3.2 0.9 6.2
Other, net (1.2) 1.1 (3.1) 2.6
------- ------- ------- -------
Total (1.0) 4.3 (2.2) 8.8
Income (loss) from continuing
operations before taxes 17.7 (12.1) 23.6 (23.3)
Income tax provision (benefit) 7.0 (5.1) 9.4 (9.8)
------- ------- ------- -------
Income (loss) from continuing
operations 10.7 (7.0) 14.2 (13.5)
Income from operations of
discontinued businesses,
net of taxes 2.0 11.8 4.6 20.3
------- ------- ------- -------
Net income $ 12.7 $ 4.8 $ 18.8 $ 6.8
======= ======= ======= =======
Basic and diluted earnings
(loss) per common share:
Continuing operations $ 0.29 $ (0.18) $ 0.37 $ (0.35)
Discontinued operations $ 0.05 $ 0.30 $ 0.12 $ 0.52
------- ------- ------- -------
Net income $ 0.34 $ 0.12 $ 0.49 $ 0.17
======= ======= ======= =======
Weighted average basic
shares outstanding 36.9 39.3 38.1 39.2
======= ======= ======= =======
Weighted average diluted
shares outstanding 37.0 39.5 38.1 39.4
======= ======= ======= =======
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
3
<PAGE>
IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Per Share Amounts)
June 30,
1999 December 31,
(Unaudited) 1998
--------- ---------
ASSETS
Current assets
Cash and equivalents $ 153.0 $ 64.2
Accounts receivable - net 253.0 326.3
Inventories 197.1 263.7
Net assets of discontinued operations 73.5 --
Other current assets 109.6 265.7
--------- ---------
Total current assets 786.2 919.9
Property, plant and equipment - net 205.1 233.8
Other assets 138.4 159.6
--------- ---------
Total assets $1,129.7 $1,313.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 119.9 $ 128.9
Accrued payroll 32.9 30.3
Short-term debt 15.3 25.2
Other current liabilities 199.9 228.8
--------- ---------
Total current liabilities 368.0 413.2
Other liabilities 53.7 106.3
Long-term debt 1.2 32.7
Shareholders' equity
Preferred stock, $0.01 par value, authorized 25
million shares, none issued and outstanding -- --
Common stock, $0.01 par value, authorized 100
million shares, 42.9 million issued 0.4 0.4
Additional paid-in capital 1,028.1 1,027.7
Accumulated deficit (106.9) (123.9)
Unearned ESOP shares (23.6) (27.6)
Cumulative translation adjustments (84.1) (68.5)
Treasury stock, at cost, 5.4 million and 1.9
million shares as of June 30, 1999
and December 31, 1998, respectively (107.1) (47.0)
--------- ---------
Total shareholders' equity 706.8 761.1
--------- ---------
Total liabilities and shareholders' equity $1,129.7 $1,313.3
========= =========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
4
<PAGE>
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Six months ended
June 30,
-----------------
1999 1998
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18.8 $ 6.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 47.8 60.8
Deferred income taxes (0.5) 24.9
Inventory, accounts receivable and payable changes 29.7 (28.8)
Other working capital changes (14.0) (9.0)
Other (7.1) (9.3)
------ ------
Net cash provided by operating activities 74.7 45.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (30.3) (36.1)
Capitalized software -- (48.3)
Proceeds from sale of medical imaging business 143.0 --
Other 4.0 4.4
------ ------
Net cash provided by (used in) investing activities 116.7 (80.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt (7.4) 18.4
Other borrowings of debt -- 21.9
Other repayments of debt (31.0) (90.0)
Purchases of treasury stock (61.5) --
Decrease in unearned ESOP shares 3.8 5.6
Exercise of stock options and other 0.4 1.2
------ ------
Net cash used in financing activities (95.7) (42.9)
Effect of exchange rate changes on cash (6.9) (2.4)
------ ------
Net change in cash and equivalents 88.8 (79.9)
Cash and equivalents - beginning of period 64.2 103.5
------ ------
Cash and equivalents - end of period $153.0 $ 23.6
====== ======
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
5
<PAGE>
IMATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENTS
The interim consolidated financial statements are unaudited but, in the opinion
of management, reflect all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. Except as otherwise disclosed herein; these adjustments consist of
normal, recurring items. The results of operations for any interim period are
not necessarily indicative of results for the full year. The consolidated
financial statements and notes are presented as permitted by the requirements
for Form 10-Q and do not contain certain information included in the Company's
annual consolidated financial statements and notes. This Form 10-Q should be
read in conjunction with the Company's consolidated financial statements and
notes included in its 1998 Annual Report on Form 10-K. Certain balance sheet
amounts in the prior year's financial statements have been reclassified to be
consistent with the current period's presentation.
2. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period adjusted for ESOP shares not committed.
Diluted earnings per share is computed on the basis of the weighted average
basic shares outstanding plus the dilutive effect of outstanding stock options
using the "treasury stock" method. The following table sets forth the
computation of the weighted average basic and diluted shares outstanding:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In millions) 1999 1998 1999 1998
---- ---- ---- ----
Weighted average
shares outstanding 37.9 40.7 39.1 40.7
Weighted average ESOP
shares not committed (1.0) (1.4) (1.0) (1.5)
---- ---- ---- ----
Weighted average
basic shares outstanding 36.9 39.3 38.1 39.2
Dilutive effect of
employee stock options 0.1 0.2 -- 0.2
---- ---- ---- ----
Weighted average diluted
shares outstanding 37.0 39.5 38.1 39.4
==== ==== ==== ====
6
<PAGE>
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
June 30,
1999 December 31,
(In millions) (Unaudited) 1998
---------- -------------
Inventories
Finished goods $ 145.0 $ 166.4
Work in process 32.2 48.8
Raw materials and supplies 19.9 48.5
---------- -------------
Total inventories $ 197.1 $ 263.7
========== =============
Property, Plant and Equipment
Property, plant and equipment $ 970.5 $ 1,354.6
Less accumulated depreciation (765.4) (1,120.8)
---------- -------------
Property, plant and equipment - net $ 205.1 $ 233.8
========== =============
The June 30,1999 amounts exclude the Photo Color business assets, which were
reclassified to net assets of discontinued operations in the balance sheet. (See
Note 6 to the consolidated financial statements.)
4. COMMITMENTS AND CONTINGENCIES
Discussion of legal matters is cross-referenced to this Form 10-Q, Part II, Item
1, Legal Proceedings, and should be considered an integral part of the
Consolidated Financial Statements and Notes.
5. RESTRUCTURING
In the fourth quarter of 1997 and in 1998, the Company recorded charges for the
restructuring of its worldwide operations in order to improve the Company's
competitive position, to focus resources on areas of strength and on growth
opportunities, and to reduce costs and eliminate unnecessary structure.
The following table represents the cumulative activity related to the Company's
1997 and 1998 restructuring programs:
(In millions) Program Cumulative June 30, 1999
Amounts Usage Balance
------- -------- -------
Severance $ 62.6 $ (45.8) $ 16.8
Asset impairments 55.3 (55.3) -
Other 38.9 (27.2) 11.7
------- -------- -------
Total $ 156.8 $(128.3) $ 28.5
======= ======== =======
During the three months ended June 30, 1999 the Company made cash payments of
$3.8 million related to the restructuring programs, compared to $9.4 million
paid in the same period of 1998. Remaining severance payments related to
employee separations are expected to be made throughout the remainder of 1999.
Since initiation of the program, total headcount has been reduced by
approximately 2000.
During the second quarter of 1998, the Company recorded a $3.6 million benefit
in the restructuring line of the Statement of Operations as a final adjustment
of restructuring charges recorded in the fourth quarter of 1995.
7
<PAGE>
6. DISPOSAL OF MEDICAL IMAGING AND PHOTO COLOR SYSTEMS SEGMENT
On June 21, 1999, the Company and Schroder Ventures, through its wholly owned
affiliate Ferrania Lux, S.A.R.L., entered into an asset purchase agreement for
the sale of the Company's worldwide Photo Color Systems business and the
Ferrania, Italy, manufacturing facility and associated businesses. The agreement
provides that Imation will lease certain manufacturing space and provide
administrative services to Schroder Ventures during a transition period. In
addition, Schroder Ventures will assume responsibility for manufacturing and
selling medical imaging x-ray and wet laser film to Eastman Kodak Company
(Kodak) in fulfillment of the Ferrania Supply Agreement (defined below) between
Imation and Kodak. The transaction closed on August 2, 1999, and is ultimately
expected to generate after-tax cash of approximately $55 million in 1999. The
Company expects to record approximately a break-even result on final closing in
the Company's statement of operations in the third quarter, net of taxes.
On November 30, 1998, the Company sold its worldwide medical imaging business to
Kodak. In connection with the sale, Kodak immediately acquired the assets and
assumed the liabilities of the Company's Medical Imaging Systems businesses in
North America, Latin America and Asia. The formal closings of the sale of the
related businesses in Europe to Kodak occurred on a country-by-country basis
during the first quarter of 1999.
The Company receives reimbursement from Kodak for certain services under
transition services and distribution agreements that the Company has agreed to
provide Kodak, for a period of up to two years. Kodak, at its option, may
terminate the transition services agreement upon prior notice.
The Company retained its manufacturing facility in Ferrania, Italy, from which
the Company agreed to manufacture x-ray and wet laser medical imaging film for
Kodak for a minimum of two years under a supply agreement which became effective
on November 30, 1998 (the Ferrania Supply Agreement). As a result of the Photo
Color Systems business and Ferrania Manufacturing Facility sale, Schroder
Ventures assumed responsibility for fulfillment of the Supply Agreement with
Kodak.
As a result of the sale of the Photo Color Systems business and the
manufacturing facility in Ferrania, Italy, the Company has completed the
disposition of its Medical Imaging and Photo Color Systems segment. As such, the
Company's consolidated statement of operations present Photo Color Systems and
the Medical Imaging businesses as discontinued operations. The Company's
Consolidated Balance Sheet includes $73.5 million representing the Photo Color
Systems' net assets of discontinued operations as of June 30, 1999 consisting
principally of accounts receivable, inventory, fixed assets, trade accounts
payable, and employee severance indemnities. Revenues from discontinued
businesses were $63.9 million and $124.7 million for the three and six months
ended June 30, 1999, respectively, and $205.3 million and $375.6 million for the
three and six months ended June 30, 1998, respectively. Income from operations
of discontinued businesses have been reduced by taxes of $2.4 million and $4.7
million for the three and six months ended June 30, 1999, respectively, and by
$11.2 million and $17.4 million for the three and six months ended June 30,
1998, respectively.
8
<PAGE>
7. COMPREHENSIVE INCOME
Comprehensive income for the six month periods ended June, 30 1999 and 1998 was
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
(In millions) 1999 1998 1999 1998
--------- --------- --------- --------
Net income $ 12.7 $ 4.8 $ 18.8 $ 6.8
Changes in cumulative
translation adjustments (9.5) 2.4 (15.6) (1.6)
------- ------ ------- ------
Comprehensive
income $ 3.2 $ 7.2 $ 3.2 $ 5.2
======= ====== ======= =======
8. SEGMENT INFORMATION
The Company's continuing businesses are organized, managed and internally
reported as three segments differentiated primarily by their products and
services, but also by the markets they serve. These segments, whose results are
shown below, are Data Storage and Information Management, providing removable
data storage media for use in the mobile and desktop, network and enterprise
data center markets; Product Technologies, whose principle products include
printing and color proofing systems, printing films and plates for the graphic
arts marketplace, and carbonless paper, such as multi-part business forms; and
Digital Solutions and Services, which provides 24-hour technical service and
support for equipment sold by the Company as well as by other third party
equipment vendors, digital workflow solutions principally in the areas of color
and data management, and document imaging products for large format engineering
documentation.
<TABLE>
<CAPTION>
(1)Divested
Business Data Digital Business,
Segment Storage and Solutions Corporate,
Information Second Information Product and Other and Total
(In millions) Quarter Management Technologies Services Unallocated Company
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net revenues 1999 $237.7 $85.8 $29.7 $1.0 $354.2
1998 155.8 105.4 33.3 17.3 311.8
- -------------------------------------------------------------------------------------------------------
Operating 1999 $5.7 $13.0 $(0.5) $(1.5) $16.7
income(loss) 1998 (15.9) 13.4 (4.0) (1.3) (7.8)
- -------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
(1)Divested
Business Six Data Digital Business,
Segment Months Storage and Solutions Corporate,
Information to Information Product and Other and Total
(In millions) Date Management Technologies Services Unallocated Company
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net revenues 1999 $457.6 $174.7 $60.5 $2.6 $695.4
1998 333.5 210.3 75.0 42.1 660.9
- -------------------------------------------------------------------------------------------------------
Operating 1999 $6.4 $19.1 $(1.3) $(2.8) $21.4
income(loss) 1998 (19.1) 20.1 (4.1) (11.4) (14.5)
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes results for the CD ROM business until divested in quarter 3, 1998,
restructuring reserve adjustments ($3.6 million of income in quarter 2,
1998), and general overhead which was previously allocated to the Medical
Imaging and Photo Color businesses.
Intersegment revenues are not material. Except for asset reductions in Product
Technologies as a result of the Photo Color Systems business sale, total assets
by segment have not changed materially from December 31, 1998. See Note 6 to the
consolidated financial statements regarding the sale of the Photo Color Systems
business and related discontinued operations Financial Statement presentation.
9. LEGAL SETTLEMENT OF BUSINESS DISPUTE
The Company recorded a one time $20.7 million pre-tax gain resulting from the
cash settlement in June 1999 of a Product Technologies segment business dispute.
This gain is reflected in selling, general and administrative expenses in the
second quarter of 1999.
10. WRITE-OFF OF CERTAIN CAPITALIZED SOFTWARE COSTS
The Company recorded an $18 million pre-tax charge related to the write-off of
certain capitalized software costs associated with the abandonment of certain of
the Company's information system functionality. This is reflected in selling,
general and administrative expenses in the second quarter of 1999.
11. DERIVATIVES AND HEDGING
In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This standard
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company must adopt this standard no later than January
1, 2000. Adoption of this standard is not expected to have a material impact on
the financial statements of the Company.
****
PricewaterhouseCoopers LLP, the Company's independent accountants, has performed
a review of the unaudited interim consolidated financial statements included
herein and their report thereon accompanies this filing. This report is not a
"report" within the meaning of Sections 7 and 11 of the 1933 Act and the
independent accountants liability under Section 11 does not extend to it.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Imation Corp.:
We have reviewed the accompanying condensed consolidated balance sheet of
Imation Corp. (the "Company") as of June 30, 1999, and the related consolidated
statements of operations for the three and six months ended June 30, 1999 and
1998 and condensed consolidated statements of cash flows for the six months
ended June 30, 1999 and 1998. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 8, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
July 29, 1999
11
<PAGE>
IMATION CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
Imation Corp. (the Company) began operations as an independent, publicly held
company on July 1, 1996 when Minnesota Mining and Manufacturing Company (3M)
spun off substantially all of the businesses previously operated within its data
storage and imaging systems groups.
With the sale of the Photo Color Systems business, the Company has completed the
disposition of its Medical Imaging and Photo Color Systems segment and
therefore, these operations are presented in the Company's Statements of
Operations as discontinued operations. Management's discussion and analysis of
the results of operations focuses on the Company's continuing operations.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net revenues from continuing operations for the second quarter of 1999 were
$354.2 million, an increase of $42.4 million or 14 percent from the same period
in 1998. Solid volume increases were partially offset by price declines and a
slight negative effect of changes in currency exchange rates.
Data Storage and Information Management revenues grew 53 percent, with growth in
all three of its major customer markets: mobile and desktop, network and
enterprise data center. Product Technologies revenues declined 19 percent driven
primarily by the plates and film business. Digital Solutions and Services
revenues declined by $3.6 million driven by the anticipated slowing of the
Company's more mature Document Imaging business.
Gross profit from continuing operations in the second quarter of 1999 was $107.7
million, or 30.4 percent of revenues, compared with the second quarter of 1998
which was $96.7 million, or 31.0 percent of revenues. Improved volume growth and
productivity improvements were off-set by the negative effects of continuing
price erosion and changes in product mix.
Selling, general and administrative (SG&A) expenses from continuing operations
in the second quarter of 1999 were $72.1 million, or 20.4 percent of revenues.
Comparable SG&A expenses in the second quarter of 1998 were $89.1 million, or
28.6 percent of revenues. The 19 percent, or $17.0 million, reduction in SG&A
reflects the combined impact of a number of items: the Company's restructuring
program reduced headcount from continuing operations; the Company's investment
in SuperDisk sales promotions peaked in the second quarter of 1998 and has
subsequently declined; Kodak transitional services payments in 1999 offset
certain SG&A costs; the Company settled a business dispute during the second
quarter of 1999 for a net benefit of approximately $21 million; and, offsetting
some of these benefits, the Company recorded a $18 million write-off of
capitalized software costs related to abandoned
12
<PAGE>
functionality. During the second half of the year the Company anticipates that
the amount of transitional services provided to Kodak will decline which will
negatively impact SG&A expenses. Actions will be taken to offset this situation,
however, the Company does not anticipate being able to fully offset the
financial impact of the loss of this source of funding. While the Company cannot
currently predict with certainty the timing or dollar impact, SG&A, as a
percentage of revenue, may be negatively impacted by 1 to 2 percentage points
over the next 6 to 12 months due to Kodak's reduced need for transitional
services.
Research and development (R&D) costs from continuing operations totaled $18.9
million, or 5.3 percent of revenues in the second quarter of 1999, which is
relatively flat with the comparable amount from the same period in 1998.
Management continues to expect ongoing R&D investment as a percent of total
revenues to range from 5-7% during the next several years.
Operating income from continuing operations for the second quarter of 1999 was
$16.7 million compared to a loss of $7.8 million for the same period last year.
This improvement is primarily due to the strong sales growth and the reduction
in SG&A expenses discussed above.
Second quarter 1999 interest expense from continuing operations was $0.2
million, compared to $3.2 million in the same quarter last year. This decrease
was driven by the use of proceeds from the sale of the Medical Imaging Systems
business in the fourth quarter of 1998 to reduce debt.
Net other income and expense in the second quarter of 1999 totaled $1.2 million
of income, primarily interest earned on cash invested. In the same period of
1998, net other income and expense was $1.1 million of expense primarily related
to the negative impact of foreign currency transactions.
The continuing operations tax rate for the quarter was approximately 40 percent,
an improvement of 800 basis points from 1998's published full-year tax rate of
approximately 48.0 percent from all operations. This reflects the benefit of the
divestiture of the Photo Color Systems business and Ferrania, Italy,
manufacturing plant. The Company currently anticipates that 40 percent will be
the tax rate from continuing operations for the full year.
Net income from continuing operations in the second quarter of 1999 was $10.7
million, or $0.29 per basic and diluted share, compared with a loss from
continuing operations of $7.0 million, or ($0.18) per basic and diluted share,
for the same period in 1998 for the reasons discussed above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND 1998
On a year to date basis, net revenues from continuing operations were $695.4
million, an increase of $34.5 million or 5 percent from the same period in 1998.
Solid volume increases were partially offset by price declines and a slight
negative effect of changes in currency exchange rates.
Data Storage revenues grew 37 percent, with growth in all three of its major
customer markets. Product Technologies revenues declined 17 percent driven
primarily by the plates and film business. Digital Solutions and Services
13
<PAGE>
revenues declined by $14.5 million driven by the anticipated slowing of the
Company's more mature Document Imaging business.
Gross profit from continuing operations for the first six months of 1999 was
$210.6 million or 30.3 percent of revenues. This compares with $207.0 million,
or 31.3 percent of revenues in 1998. Volume growth and productivity improvements
were offset by price reductions and changes in product mix.
Selling, general and administrative (SG&A) expenses for the first six months of
1999 were $151.1 million, or 21.7 percent of revenues. This compares with $182.6
million, or 27.6 percent of revenues in the first six months of 1998. As
discussed in the comparison of three month results above, the reduction in SGA
expenses results from a large number of factors including a reduction in
SuperDisk promotional costs, headcount reductions, Kodak transitional services
payments, a $21 million gain from the settlement of a business dispute, and an
$18 million write-off of capitalized software. Additionally, the first half of
1999 benefited from a $3.5 million gain on the sale of a facility in Bracknell,
United Kingdom.
Research and development costs totaled $38.1 million, or 5.5 percent of revenues
in the first six months of 1999, down from $42.5 million, or 6.4 percent of
sales in the same period in 1998. This decrease reflects the impact of the
Company's restructuring programs.
The Company recorded a $3.6 million benefit in the second quarter of 1998 in the
restructuring line of the Statement of Operations reflecting final adjustments
of the restructuring reserves established in the fourth quarter of 1995 and the
first half of 1996 in connection with the Company's spin-off from 3M.
Operating income from continuing operations for the first six months of 1999 was
$21.4 million, or 3.1 percent of revenues. This represents a $35.9 million
improvement over the operating loss of $14.5 million in the same period of 1998.
This reflects the combination of year on year revenue growth and the SG&A
expense reductions discussed above.
First half 1999 interest expense from continuing operations was $0.9 million,
compared to $6.2 million in the same period last year. This decrease was driven
by the use of proceeds from the sale of the medical imaging business to reduce
debt.
Net other income and expense in the first six months of 1999 totaled $3.1
million of income, primarily interest income, compared to $2.7 million of
expense in the comparable period of 1998.
The continuing operations tax rate for the first six months of 1999 was
approximately 40 percent, an improvement of 800 basis points from 1998's
published full-year tax rate of approximately 48.0 percent from all operations.
This reflects the benefit of the expected divestiture of the Photo Color Systems
business and Ferrania, Italy, manufacturing plant. The Company currently
anticipates that 40 percent will be the tax rate from continuing operations for
the full year.
Year to date net income from continuing operations in 1999 was $14.2 million, or
$0.37 per share. Net loss from continuing operations in the comparable period of
1998 was $13.5 million, or ($0.35) per share for the reasons discussed above.
14
<PAGE>
FINANCIAL POSITION
The Company had 2.7 months of inventory on hand at June 30, 1999, down from 3.2
months as of December 31, 1998 due to both operational improvements and the
disposal of the Photo Color Systems business. Similarly, the accounts receivable
days sales outstanding (DSO) was 65 days as of June 30, 1999, down from 80 days
as of December 31, 1998 due to operational improvements and the disposal of the
Photo Color Systems business.
The book value of property, plant and equipment as of June 30, 1999 was $205.1,
a decrease of $28.7 million from December 31, 1998. Approximately $9 million of
this decline related to the sale of the Photo Color Systems business, $6 million
to the sale of land and building in Bracknell, U.K., and $8 million due to
changes in the rates of foreign currency translation.
LIQUIDITY
Cash provided by operating activities was $74.7 million during the six months
ended June 30, 1999, compared with $45.4 million during the same period in 1998.
Depreciation and amortization was $47.8 million in the first six months of 1999,
down from $60.8 million in 1998 because of the sale of Medical Imaging Systems
and Photo Color Systems assets (see note 6 to the Consolidated Financial
Statements). Changes in inventory, accounts receivable, and accounts payable
(adjusted for currency impact) provided $29.7 million in cash during the first
half of 1999 compared to a $28.8 million use of cash in the first half of 1998.
Other working capital changes used $14.0 million of cash, in part due to
payments related to restructuring.
Cash provided by investing activities was $116.7 million for the six months
ended June 30, 1999 compared with cash used of $80.0 million in the comparable
period of 1998. Cash restrictions on $143 million of proceeds related to the
sale of the medical imaging business were removed during the first quarter of
1999 as the sale of the European entities of that business was completed. The
remaining $26.3 million of cash used by investing activities during the six
months ended June 30, 1999 is down from last year's $80.0 million because no
software costs were capitalized in the first six months of 1999, while $48.3
million was spent on capitalized software in the same period in 1998. These
expenditures related primarily to the design, implementation and testing of the
Company's new IT systems. Amortization of these costs began during the second
quarter of 1998. Capital expenditures of $30.3 million for the first six months
of 1999 included approximately $7 million related to the purchase of an
administrative building previously leased under a synthetic lease. Adjusted for
this, capital spending decreased from the same period in 1998 which totaled
$36.1 million, reflecting the sale of the Medical Imaging Systems business.
Net financing activities during the first six months of 1999 used cash of $95.7
million compared with a $42.9 million use of cash in the comparable
15
<PAGE>
1998 period. The 1999 amount includes $61.5 million in expenditures for the
repurchase of approximately 3.6 million shares of the Company's common stock and
the repayment of $31.0 million of debt.
On December 31, 1998, the Company entered into a three-year $175.0 million Loan
and Security Agreement (the Loan Agreement) with a group of banks. The Loan
Agreement provides for a revolving credit, including letters of credit, with
borrowing availability based on eligible accounts receivable, inventories and
manufacturing machinery and equipment not to exceed $175.0 million. Borrowing
availability as of June 30, 1999 was $163.2 million. The Loan Agreement is
collateralized by substantially all the domestic assets of the Company,
excluding the land and buildings at the Company's headquarters in Oakdale,
Minnesota, and a pledge of 65 percent of the stock of certain of the Company's
foreign subsidiaries. Covenants include maintenance of a minimum tangible net
worth and borrowing base availability, with certain restrictions on the
incurrence of additional indebtedness, sale of assets, mergers and
consolidation, transactions with affiliates, creation of liens, and certain
other matters.
As of June 30, 1999, the Company's ratio of total debt to total capital was 2.3%
as compared to 7.1% as of December 31, 1998. The Company expects that cash and
equivalents, together with cash flow from operations and availability of
borrowings under its current credit facility will provide sufficient liquidity
to operate the Company.
YEAR 2000 COMPLIANCE
Introduction (Phases)
In preparation for the change in the millennium, the Company's Year 2000 (Y2K)
Operating Team has instituted a seven-phase plan to address the Company's Y2K
readiness in the following areas: internal IT systems, non-IT systems (including
plants, facilities, process control and building control equipment,
communications systems, laboratory and test equipment, etc.), the Company's
products, and external business relationships. The seven phases of the plan are:
(1) perform inventory of all items potentially subject to Y2K effect and
prioritize on the basis of business criticality; (2) develop a plan for
assessing Y2K compliance of all inventoried items; (3) determine whether
inventoried items are Y2K compliant; (4) design a remediation strategy (e.g.,
remediate, replace, retire, etc.) for non-compliant inventoried items and
develop contingency plans; (5) develop and test remediation solutions; (6)
implement remediation solutions; and (7) document verification of compliance of
remediated solutions.
Inventories of each area have been completed and determinations have been made
regarding Y2K impact. Inventoried items have been prioritized, assessment plans
have been completed and remediation solutions have been developed. Field
implementation of remediation solutions for critical Y2K items was completed by
the end of June 1999, with remediation of least critical items expected to be
completed by the end of September 1999. Verification of compliance of remediated
solutions is planned to occur contemporaneously with the field installation of
solutions. Contingency plans are being developed to address potential Y2K
related failures that could affect critical Company operations.
16
<PAGE>
IT System
A significant portion of the Company's global IT infrastructure has been
replaced with the remaining portion expected to be remediated and tested by
September 1999. The Company required a new IT system after the Company's
spin-off from 3M and a significant factor in the Company's selection of this
system was its Y2K compliance status. The Company believes that the new system
has significantly reduced the likelihood of Y2K-related interruptions to normal
operations. The Company must, however, complete system testing of software
applications and custom code written for the system, as well as certain other
systems not replaced by the new global IT infrastructure, for Y2K compliance.
Although the Company does not foresee a material adverse effect on its business,
results of operations, or financial position related to Y2K issues and the
Company's IT system, risk is not eliminated until the system is fully installed,
tested, and all non-compliant code identified, corrected and re-verified.
Non-IT Systems
The Company is assessing its non-IT systems in its plants and facilities on a
world-wide basis for issues of Y2K compliance. This assessment includes
reviewing not only the Company's manufacturing process control equipment, but
also systems that control temperature, utility equipment, telephone systems, and
security systems. Laboratory and test equipment are also being evaluated. While
the Company does not believe that it is likely to experience material adverse
effects related to Y2K in the area of non-IT systems, failure to identify all
Y2K vulnerable controls or equipment, or failure to remediate them in a timely
way, could result in the inability of a particular plant or facility to
manufacture or test product or conduct business in the ordinary course.
Products
The majority of Company products do not have electronic date functionality.
Those products that do have electronic date functionality have been assessed and
remediation strategies are being implemented to address any issues of Y2K
non-compliance. The Company believes it has sufficient resources dedicated to
product compliance activities and it does not foresee any material adverse
impact on the Company's business, results of operations, or financial position
due to Y2K product issues. However, there remains the possibility that the
Company could fail to identify all susceptible products or be unable to
implement all field remediations for which it is responsible prior to January 1,
2000.
External Business Relationships
Y2K preparedness of third parties with whom the Company does business could
impact the Company's ability to deliver products and services in the new
millennium. This constitutes an area of potentially significant risk to the
Company's business, results of operations, and financial position. Suppliers of
critical raw materials and providers of utility and communication services could
particularly impair the Company's ability to conduct business in the ordinary
course if those third parties fail to successfully assess and remediate their
own products and internal operations. While third party risk related to the Y2K
problem is difficult to quantify or control, the Company is taking steps in an
effort to try to minimize the potential adverse effect of Y2K problems that
could arise based on Company's external business relationships.
17
<PAGE>
Y2K surveys have been sent to the Company's suppliers asking them for the Y2K
compliance status of their products and internal operations. The Company has
re-contacted its critical and significant suppliers and conducted Y2K phone
surveys with them. The feedback received from the phone surveys has been
favorable.
The Company is developing contingency plans as it identifies third parties
posing a significant risk to business continuity. Contingency plans may include
plans to accumulate extra inventory and/or establish alternative sources of
supply and channels of distribution. However, even with diligent planning, third
party providers pose an uncertain risk which cannot be entirely eliminated.
Expenditures
Based on current information and resources, the Company estimates that the total
cost of its Y2K program could approach $6 million, excluding costs related to
the completion of the Company's IT system. These costs are primarily in the
non-IT systems area. Through June 30, 1999, approximately $2.5 million of this
total has been spent, and an additional $2 million is expected to be spent for
final testing and verification in 1999. Contingency response activities through
June 30, 2000 are expected to require the balance of the $6 million. This
estimate is subject to change as the Company moves through final phases of its
Y2K plan.
While the Company's management does not believe that the Company's Y2K costs
will have a material adverse effect on the Company's business, results of
operations, or financial position, Y2K costs could increase if currently unknown
Y2K deficiencies are discovered in Company IT systems, non-IT systems or
products, or with external business partners.
Summary
Due to the uncertain nature of the Y2K problem, the Company's management cannot
state with certainty whether Y2K issues will have a material adverse effect on
the Company's business, results of operations, or financial position. The
Company believes it is taking reasonable steps to address the Y2K problem, but
the Y2K problem is a very complex one. If several of Company's external business
partners should fail to implement successful Y2K programs, or if the Company
should fail to identify Y2K deficiencies in critical IT and non-IT systems, or
if Company's product remediations should fail to be implemented in the field by
January 1, 2000, Y2K problems could have a material adverse effect on the
Company's business, results of operations, or financial position.
The projected expenditures and dates contained in this discussion are based on
the Company's best estimates and are derived from assumptions about future
events, including the availability of resources and other factors. The Company
does not guarantee that these estimates will be achieved and results may vary
due to uncertainties.
The forward-looking statements contained in this section under the heading "Year
2000 Compliance" should be read in conjunction with the Company's disclosure
below under the heading "Forward-Looking Statements."
18
<PAGE>
EURO CONVERSION STATUS
On January 1, 1999, eleven of the fifteen member countries of the European Union
adopted the Euro as their new common currency. The Euro trades on currency
exchanges and is used for non-cash transactions. Effective January 1, 2002 and
through July 1, 2002 the participating countries will begin using the Euro as
the legal tender and will withdraw all legacy currencies.
The Euro conversion may involve transparency of the market (i.e. with a common
currency, the prices in different countries are more readily comparable) which
may lead to increased competition between countries and potential erosion of
margins. The Company is reviewing its marketing strategies to address possible
increased competition and is also reviewing and testing its software
compatibility with the Euro conversion. The Company will continue to review the
impact of the conversion to the Euro, however, the Company does not expect that
the Euro conversion will have a material impact on the Company's financial
position and results of operations.
SALE OF MEDICAL IMAGING AND PHOTO COLOR SYSTEMS BUSINESSES
As discussed in Note 6 of the Notes to Consolidated Financial Statements, on
November 30, 1998, the Company sold its worldwide Medical Imaging Systems
business to Kodak. The Company, however, retained its manufacturing facility in
Ferrania, Italy, from which the Company agreed to manufacture x-ray and wet
laser medical imaging film for Kodak for a minimum of two years under a supply
agreement which became effective on November 30, 1998. The Company is also
prohibited from selling medical imaging products to third parties other than
Kodak during the term of and after the termination of the supply agreement.
On August 2, 1999, the Company sold its Photo Color Systems business and the
manufacturing facility in Ferrania, Italy, to Schroder Ventures (see Note 6 to
the Consolidated Financial Statements). Under the terms of that sale, Schroder
Ventures will assume responsibility for fullfilment of the supply agreement with
Kodak.
Associated with the Company's sale of its Medical Imaging Business to Kodak, the
Company receives reimbursement from Kodak for certain services under transition
services and distribution agreements that the Company has agreed to provide
Kodak for a period of up to two years. Kodak, at its option, may terminate the
transition services agreement with respect to individual categories of service
upon prior notice, the length of which varies according to the nature of the
service. While the Company can not project with certainty the duration of and
expected cost reimbursements associated with the transition services and
distribution agreements, or the potential impact if the transition services
agreement is terminated, SG&A expenses, as a percentage of revenue, may be
negatively impacted by 1 to 2 percentage points over the next 6 to 12 months due
to Kodak's declining need for transition services.
Similarly, the Company will provide certain transitional services to Schroder
Ventures while it integrates the Photo Color business into its accounting and
information systems. The Company cannot project with certainty the length of
19
<PAGE>
time the services will be provided to Schroder and the total of cost
reimbursements that will be received by the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This standard
establishes accounting and reporting standards for derivative instruments and
hedging activities. Under SFAS No. 133, the Company must adopt this standard no
later than January 1, 2000. Adoption of this standard would not have a material
impact on the financial statements of the company.
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 which 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 Company's ability to meet its cost reduction and revenue growth
targets, lower SG&A reimbursements from Kodak as the Company provides fewer
transitional services to Kodak associated with the sale of the Medical Imaging
Systems business, certain seasonal factors, the competitive pricing environment,
foreign currency fluctuations, the ability of Imation to secure an adequate
supply of certain high demand products, the market acceptance of newly
introduced product and service offerings, the rate of decline for certain
existing products as well as various factors set forth in the Company's filings
with the Securities and Exchange Commission, including its 1998 Annual Report on
Form 10-K and subsequent 10Q filing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. "Legal Proceedings" included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998. The
following legal proceedings had significant developments during the second
quarter of 1999:
On May 10, 1999, Jazz Photo Corp. served the Company and its affiliate, Imation
S.p.A., with a civil complaint filed in New Jersey Superior Court.
20
<PAGE>
The complaint charges breach of contract, breach of warranty, fraud, and
racketeering activity in connection with the Company's sale of allegedly
defective film to Jazz Photo. In the complaint Jazz Photo seeks unspecified
compensatory damages, treble damages, punitive damages and equitable relief. The
Company disputes any liability to Jazz Photo and intends to vigorously defend
the action.
The Company has received a notice of infringement from the Lemelson Medical,
Education & Research Foundation, Limited Partnership (Lemelson) asserting that
Imation has infringed upon various patents owned by Lemelson and offering to
license those patents to Imation. Management is reviewing those claims and
cannot currently conclude as to their legitimacy or estimate what, if any,
financial liability may result from the claim.
The Company is also the subject of various pending or threatened legal actions
in the ordinary course of its business. All such matters are subject to many
uncertainties and outcomes that are not predictable with assurance.
Consequently, the Company is unable to ascertain the ultimate aggregate amount
of any monetary liability or financial impact that may be incurred by the
Company with respect to these matters. While these matters 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 June 30, 1999 would not be material to the Company's financial
position or annual results of operations or cash flows.
Items 2-3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1999 Annual Meeting of Shareholders held on June 9, 1999, the
shareholders approved the following:
(a) A proposal to elect three Class III directors of the Company
to serve for three-year terms ending in 2002 as follows:
Directors Votes For Votes Withheld
- ----------------- --------- --------------
Richard E. Belluzzo 31,439,326 465,154
Linda W. Hart 31,428,892 475,588
William T. Monahan 31,335,713 568,767
There were no broker non-votes. In addition, the terms of the
following directors continued after the meeting: Class I directors for a term
ending in 2000 - Lawrence E. Eaton, Michael S. Fields, and Ronald T. LeMay, and
class II directors for a term ending in 2001 - William W. George, Marvin L.
Mann, and Daryl J. White.
(b) A proposal to ratify the appointment of PricewaterhouseCoopers
LLP to serve as independent accountants of the Company for the
year ending December 31, 1999. The proposal received
31,654,124 votes for, and 160,679 against, ratification. There
were 88,677 abstentions and no broker non-votes.
21
<PAGE>
Item 5. Not Applicable
Item 6(a). Exhibits
The following documents are filed as exhibits to this Report.
2.1 An agreement between the Company and Ferrania Lux S.A.R.L. for
the sale of the Company's Photo Color Systems business and its
manufacturing facility in Ferrania, Italy.
10.1 Form of severance agreement between the Company and its
executive officers.
15.1 An awareness letter from the Company's independent accountants
regarding unaudited interim financial statements. Page 24.
27.1 Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1999.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Imation Corp.
(REGISTRANT)
Date: August 13, 1999 By:
/s/Robert L. Edwards
--------------------
Robert L. Edwards
Senior Vice President,
Chief Financial Officer
and Chief Administrative
Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- --------------------------------------------------------------
2.1 An agreement between the Company and Ferrania Lux
S.A.R.L. for the sale of the Company's Photo Color Systems
business and its manufacturing facility in Ferrania, Italy.
10.1 Form of severance agreement between the Company and its
executive officers.
15.1 An awareness letter from the Company's independent accountants
regarding unaudited interim financial statements.
27.1 Financial data schedule.
24
Exhibit 2.1
AGREEMENT
BY AND AMONG
FERRANIA LUX S.a.r.l., a company incorporated in Luxembourg, whose registered
office is at 8, Boulevard Joseph II, L-1840 Luxembourg, represented by its
Attorney in-fact Francesca de Fraja, who executes this Agreement (as defined in
Section 1.01.03) by virtue of the Power of Attorney dated June 17, 1999,
- on the first part -
and
IMATION ENTERPRISES CORP., a corporation incorporated in Delaware, whose
principal place of business is at 1 Imation Place, Oakdale, Minnesota 55428 ,
represented by its proxy, James J. Wales, who executes this Agreement by virtue
of the proxy dated June 19, 1999; IMATION S.p.A., a company incorporated in
Italy, whose registered office is at Cairo Montenotte (SV)- Frazione Ferrania,
Viale della Liberta n. 57, represented by its Sole Administrator, Giorgio
Gambetti, who executes this Agreement by virtue of Ordinary Shareholders Meeting
Decision on January 27, 1999, and IMATION RICERCHE S.p.A., a company
incorporated in Italy, whose registered office is at Cairo Montenotte (SV)-
Frazione Ferrania, Viale della Liberta n. 57, represented by its Attorney
in-fact, Giorgio Gambetti, who executes this Agreement by virtue of General
Proxy dated November 13, 1997.
- of the second part -
RECITALS
(a) The US Vendor (as defined in Section 1.01.57), the Italian Vendors (as
defined in Section 1.01.36) as well as the Vendors' Subsidiaries (as defined in
Section 1.01.63) currently own and operate the Businesses (as defined in Section
1.01.10).
(b) The Italian Vendors desire to sell the Italian Business (as defined in
Section 1.01.33).
(c) The Purchaser (as defined in Section 1.01.46) has indicated its
willingness to acquire, own and operate the Italian Business subject to the
Vendors (as defined in Section 1.01.64) agreeing to sell and transfer the
Italian Business for nominal consideration and agreeing, further, to sell the
USA Business (as defined in Section 1.01.58), the European
<PAGE>
Associated Assets and Liabilities (as defined in Section 1.01.24), and the
Residual Inventory (as defined in Section 1.01.32).
(d) The Vendors are willing to accept the proposal of the Purchaser.
(e) The Vendors and the Purchaser desire to effect the transfer of the
Businesses through:
(i) the purchase and sale of the shares representing the entire
capital stock of Italian Newco (as defined in Section 1.01.35) which will have
become the owner of the Italian Business;
(ii) the acquisition by the Italian Newco of
(x) the entire capital stock of the USA Company (as defined in
Section 1.01.60) which will have become the owner of the USA Business and
(y) the Residual Inventory, and
(iii) the acquisition by the Purchaser Subsidiaries (as defined in
Section 1.01.47) of the European Associated Assets and Liabilities.
NOW THEREFORE, the Parties (as defined in Section 1.01.41) hereby agree and
covenant as follows.
ARTICLE 1
CERTAIN DEFINITIONS AND CONSTRUCTION
1.01 Defined Terms. In addition to any other word elsewhere defined in this
Agreement, the following words and expressions and abbreviations have, in this
Agreement (including its Schedules) the following designated meanings:
1.01.01 "Accounting Principles" : generally accepted accounting principles in
the United States (US GAAP), applied on a consistent basis, as used by the
Vendors in the preparation of its December 31, 1998 consolidated financial
statements of which the Businesses were a component, as supplemented by the
accounting principles set forth in the document attached hereto as Schedule
1.01.01.
1.01.02 "Affiliate" : with respect to any Person (as defined in Section
1.01.42), an individual, corporation, partnership, firm, association,
unincorporated organization or other entity directly or indirectly controlling,
controlled by or under common control with such Person, it being understood
that, for the purposes of this definition, control shall be determined in
accordance with Article 2359 of the Code (as defined in Section 1.01.12).
1.01.03 "Agreement": this agreement executed and exchanged by and among the
2
<PAGE>
Purchaser and the Vendors in the place and as of the date first above written,
including amendment, deletion and/or addendum thereto.
1.01.04 "Amnesty" : shall have the meaning provided in Section 9.08.
1.01.05 "Ancillary Agreements" : collectively the Transition Services Agreement
(as defined in Section 1.01.56), the Supply Agreement (as defined in Section
1.01.53), the Weatherford Lease Agreement (as defined in Section 1.01.65), the
Woodbury Lease Agreement (as defined in Section 1.01.39) and the Italian
Sub-Lease Agreement (as defined in Section 1.01.34).
1.01.06 "Appraisal" : the appraisal of the Italian Business as of May 31, 1999
to be prepared pursuant to and for the purposes of Article 2343 of the Code by
the independent appraiser appointed by the President of the Tribunal of Savona.
1.01.07 "Assets and Liabilities" : the assigned assets and the assumed
liabilities arising out of the Businesses as listed by category in Schedule
1.01.07, as well as any other asset Related to the Businesses (other than the
Excluded Assets and the Excluded Liabilities).
1.01.08 "Best Knowledge" "Knowledge" or "To Know" : if referred to the Vendors
in the context of their representations and warranties contained in Article 7 of
this Agreement, shall be construed to include any fact which any of the
following individuals knew or, by virtue of their respective positions or
responsibilities consistent with their past practices, should have known :
(i) Alberto Silva-PCS Sourcing mgr., Flavio Mangini-US Sales & Marketing
Director, John Mathes-Weatherford PCS Plant mgr., Mauro Leandro-Silver Halide
R&D mgr, Alberto Ferrario-South Europe and MOW Sales & Mktg mgr. ,Tim
Burton-Europe Sales & Mktg mgr, Riccardo Genta-PCS General mgr., Joe
Gote-Director Legal Europe, Roberto Pedrina-Legal Italy mgr., Enrico Luerti-
European Controller,-Tom Foyer-Finance & Administration Director, Gary Mol-
Weatherford sourcing mgr., Raymond Yeung-H.K. managing Director for the purposes
of Sections 7.01.02(ii), 7.01.12(a)(i), (iii), (iv), (v) and (vi) of this
Agreement;
(ii) Riccardo Genta-PCS General mgr, Giorgio Gambetti-Imation Italy Sole
Administrator, John Sullivan-V.P.Imation Legal, Joe Gote-Director Legal Europe
and Roberto Pedrina-Legal Italy mgr., for the purposes of Section
7.01.02(a)(iii) of this Agreement;
(iii) Galen Johnson-Finance & Admin. mgr, Emanuele Loglio-Silver Halide
Controller,
3
<PAGE>
Giorgio Gambetti-Imation Italy Sole Administrator, Enrico Luerti-
European Controller, Paul Zeller-Imation Finance&Admin.mgr., Vittorio
Levati-Ferrania I.T. mgr, Mark Arps-Europe I.T. mgr., Bob Hibbard-Imation I.T.
Director, and Robert Stewart- Weatherford Plant mgr. for the purposes of Section
7.01.11(b) of this Agreement;
(iv) in addition to the persons named in paragraph (i) above, Roberto
Allaix-Silver Halide I.P. mgr., Bill Bauer-Legal dept. mgr. Bill
Weimer-I.P.mgr., and Enrico Luerti, European Controller, for the purposes of
Section 7.01.12(a)(vi) of this Agreement;
(v) in addition to the persons named in paragraph (i) above, John
Sullivan-V.P.Imation Legal and Joe Gote-Director Legal Europe for the purposes
of Section 7.01.12(a)(vii) of this Agreement;
(vi) Riccardo Genta-PCS General mgr, Roberto Pedrina-Legal Italy mgr., Joe
Gote-Director Legal Europe, John Sullivan-V.P.Imation Legal, Sara Ethier-Health
& Safety Director, Adriano Brero-Chemical Plant mgr., Vittorio Levati-Ferrania
I.T. mgr, Mark Arps-Europe I.T. mgr. Bob Hibbard-Imation I.T. Director, and
Robert Stewart- Weatherford Plant mgr for the purposes of Section 7.01.13 of
this Agreement;
(vii) Riccardo Genta-PCS General mgr, Pino Corizia-Ferrania H.R. mgr.,
Marco Tagliabue- Italy H.R. mgr, Mark Schaefer-Europe H.R. mgr, Roberto
Pedrina-Legal Italy mgr, Joe Gote-Director Legal Europe, John Sullivan
- -V.P.Imation Legal and Sara Ethier-Health & Safety Director for the purposes of
Section 7.01.14 of this Agreement;
(viii) Riccardo Genta-PCS General mgr, Pino Corizia-Ferrania H.R. mgr.,
Marco Tagliabue- Italy H.R. mgr, Mark Schaefer-Europe H.R. mgr, John
Mathes-Weatherford PCS Plant mgr., Mark O'Sell-H.R. Legal mgr. and Terry
Dudgeon- P.T. H.R. Director for the purposes of Section 7.01.15 of this
Agreement;
(ix) Silvano Pastorino-B&W Manufacturing mgr. Marco Descalzo-PCS
Manufacturing mgr., and Rolf Kaiser-Product responsibilty mgr. for the purposes
of Section 7.01.16 of this Agreement;
1.01.09 "Business Day" : any day (excluding Saturday) on which banks generally
are open in Milan (Italy) for transactions of normal banking business.
1.01.10 "Businesses": collectively the Assets related to and the Liabilities
arising out of the following :
(i) Photo Color System business which means the materials, equipment,
systems and sub-systems, and the software for running them, for the development,
manufacture, distribution and sale of wet-processed, silver halide-based
photographic film
4
<PAGE>
and single use cameras that include such film and intended for the creation of
graphics for consumer or professional photography, generally of the type
described as, but not limited to, camera films and cartridges, cameras, and
supplies for camera films (the "P&C Business"). The term "consumer" in the
previous sentence refers to the general public that makes photographs of family,
friends, and the like; and the term "professional" refers to those who create
and sell family portraits, graduation portraits, and the like;
(ii) Medical Imaging System business which means the materials,
equipment, systems and sub-systems and the software for running them intended
for the operations related to the development and manufacture of certain medical
products for medical imaging of the body and medical image management (the
"Kodak Supply Products") as defined in the Kodak Supply Agreement (as defined in
Section 1.01.30) and the future opportunity to distribute and sell to third
parties other than Kodak such Kodak Supply Products as provided for in the Kodak
Transaction Documents (as defined in Section 1.01.31) (the "Medical Imaging
System Business");
(iii) Imagesetting business which means the materials, equipment,
systems and subsystems, and the software for running them, for the development,
manufacture, and the opportunity to distribute and sell wet processed, silver
based imagesetting media intended for the creation of graphics (the
"Imagesetting Business"). The term "imagesetting" in the previous sentence means
the process of applying an image to a light-sensitive media to form a film mask
and subsequently passing light through the film mask to apply the image to a
light-sensitive printing plate;
(iv) Ink-jet business which means the materials, equipment, systems
and sub-systems, and the software for running them, intended for the development
manufacture, distribution and sale of paper and polymeric films having a coating
suited to receive inkjet-applied ink and intended for use as inkjet receptors,
but excluding that which relates to inkjet receptors to make proofs (the "Inkjet
Business"); and
(v) Fluorene polyester polymers and films business which means the
development, manufacture, distribution and sale of fluorene polyester polymers
and films for use in displays and electrical applications, including but not
limited to capacitors and flexible circuitry, (the "FPE Business").
1.01.11 "Calculation Methodology": the methodology for the calculation of the
Provisional Purchase Prices (as defined in Section 1.01.45) and Final Purchase
Prices (as defined in Section 1.01.28) of the Italian Business, the USA
Business, the European
5
<PAGE>
Associated Assets and Liabilities, and the Residual Inventory set forth in the
document attached hereto as Schedule 1.01.11.
1.01.12 "Code" : the Italian Civil Code.
1.01.13 "Completion": the completion of the sale and purchase of the Shares, the
USA Shares, the European Associated Assets and LIABILITIES, and the Residual
Inventory and, in general, the execution and exchange of all documents and
agreements and the performance and consummation of all obligations and
transactions, respectively required to be executed and exchanged and performed
and consummated on the Completion Date (as defined in Section 1.01.14) pursuant
to this Agreement.
1.01.14 "Completion Date": the date on which Completion will actually occur, in
accordance with the applicable provisions of this Agreement.
1.01.15 "Contracts": all oral or written contracts, leases, licenses, subleases,
indentures, agreements, and all other binding agreements that are Related, in
whole or in part, to the Businesses, including any purchase or sale orders.
1.01.16 "Contribution in Kind" : the transfer by the Italian Vendors to Italian
Newco of all of the Italian Vendors' right, title and interest in the Italian
Business in consideration of an interest in the capital of the Italian Newco, to
be carried out pursuant to Articles 2343 of the Code and in accordance with the
applicable provisions of this Agreement.
1.01.17 "Contribution Adjustment Payment": the payment (if any) to be made by
the Italian Vendors to Italian Newco or by Italian Newco to the Italian Vendors
(as the case may be) pursuant to and in accordance with Section 6.05.
1.01.18 "Data Room": the data room relating to the Businesses assembled
for review by the Purchaser in the offices of Bain Cuneo Associati in Milan.
1.01.19 "Deed of Transfer" : the public deed of transfer (complying with the
terms hereof) by virtue of which the Italian Business shall be transferred by
the Italian Vendors to Italian Newco by way of the Contribution in Kind in
accordance with this Agreement as well as such other deeds or documents of
transfer as are required under applicable local law to effect the transfer of
the European Assets and Liabilities, and the Residual Inventory in any given
country.
1.01.20 "Disputed Matters" : shall have the meaning provided in Section 6.02.
1.01.21 "Effective Date": July 31, 1999.
6
<PAGE>
1.01.22 "Effective Date Balance Sheets" : the balance sheets of the Italian
Business, the USA Business, the European Associated Assets and Liabilities, and
the statement indicating the value of the Residual Inventory as at the Effective
Date prepared by Vendors on a country by country basis in accordance with the
Accounting Principles and the applicable provisions of this Agreement.
1.01.23 "Encumbrance": any mortgage, charge, pledge, lien, hypothecation, trust,
right of set off or other Person's right and interest including any right of
pre-emption, right of first refusal, assignment by way of security, reservation
or restriction of title or any other security interest of any kind however
created or arising or any other agreement or arrangement having similar effect.
1.01.24 "European Associated Assets and Liabilities": the Assets and Liabilities
of the Businesses located within France, Germany, UK, Spain and Netherlands,
including, but not limited to, the tangible Assets identified on a country by
country basis in Schedule 1.01.24, Parts 1, 2, 3, 4 and 5 respectively.
1.01.25 "Excluded Assets" : the assets identified by category in Schedule
1.01.25, that shall not be transferred pursuant to this Agreement.
1.01.26 "Excluded Liabilities" : the liabilities listed by category in Schedule
1.01.26, that shall not be assumed by the Purchaser pursuant to this Agreement.
1.01.27 "Expert" : the firm of independent certified public accountants known as
KPMG, Milan office, or if KPMG does not agree to perform, or is unable or
unwilling to complete the services called for under Section 6.04, and the
Parties fail to agree in good faith on its replacement within the following five
(5) Business Days, such replacement will thereupon be designated, with
preference being given, for the purposes of such designation, to primary
international accounting firms, by the then President of the Tribunal of Milan
upon request of either Party, but after having allowed sufficient time for the
hearing of the other.
1.01.28 "Final Purchase Prices" : collectively
(i) the final purchase price of the Shares after the Contribution in Kind;
(ii) the final purchase price of the USA Business;
(iii) the final purchase price of the European Associated Assets and
Liabilities; and
(iv) the final purchase price of the Residual Inventory, in each case
determined by applying the Calculation Methodology to the Effective Date Balance
Sheets in accordance with applicable provisions of this Agreement.
7
<PAGE>
1.01.29 "First Auditor" : the firm of independent certified public accountants
known as PricewaterhouseCoopers, Milan office.
1.01.30 "Kodak Supply Agreement" : the Amended and Restated X-Ray/Wet Laser
Supply Agreement between Imation S.p.A. and the Eastman Kodak Company dated
November 30, 1998, as it may be amended to the extent that such amendments are
related to the Section 3.01 and Section 3.03(b) of the signed copy dated
November 30, 1998, a current copy of which is attached hereto as Schedule
1.01.30.
1.01.31 "Kodak Transaction Documents" : the Asset Purchase Agreement and the
Transitional Support Services Agreement each as between the Eastman Kodak
Company and Imation Corp. as Amended and Restated effective November 30, 1998,
copy of which is attached hereto as Schedule 1.01.31 (with the exception of the
Kodak Supply Agreement).
1.01.32 "Residual Inventory": collectively the Inventory located in Spain,
Germany and Netherlands, and the Inventory required for the final finishing
operations at P38 in France.
1.01.33 "Italian Business" : all Assets and Liabilities of the Businesses
operated by the Italian Vendors at the facility in Ferrania (Italy) owned and
operated by Imation S.p.A. and Imation Ricerche S.p.A., as well as in the
offices located in Milan, Segrate - San Felice, at Via San Bovio 3, with the
exception of the Excluded Assets and the Excluded Liabilities (as defined in
Sections 1.01.25 and 1.01.26 respectively).
1.01.34 "Italian Sub-Lease Agreement" : the agreement for the sub-leasing of
office space in the Imation S.p.A. premises in Milan (Italy) between Imation
S.p.A., on the one hand, and Italian Newco, on the other hand, attached hereto
in the agreed form as Schedule 1.01.34; it being understood and agreed that
Imation S.p.A. will provide written evidence of the consent of the landlord to
such Italian Sub-Lease Agreement.
1.01.35 "Italian Newco" : Ferrania S.p.A. a joint stock company incorporated by
the Italian Vendors under the laws of Italy the entire share capital of which
(except for the initial capitalization of Lira 200 million) will be subscribed
to and paid in by the Italian Vendors by means of the Contribution in Kind.
1.01.36 "Italian Vendors" : collectively Imation S.p.A. and Imation Ricerche
S.p.A., as more fully identified in the introductory part of this Agreement.
1.01.37 "Notice of Disagreement": shall have the meaning provided in Section
6.02.
1.01.38 "Material Contracts": those Contracts listed in Schedule 1.01.38.
8
<PAGE>
1.01.39 "Woodbury Lease Agreement" : the agreement for the leasing of space in
the Imation Voyager Building located in Woodbury (Minnesota) to be entered into
on the Completion Date between the USA Company on one hand, and the US Vendor,
on the other hand, in the agreed form attached hereto as Schedule 1.01.39.
1.01.40 "Extraordinary Contracts": the Material Contract having a value in terms
of annual sales or purchases in excess of 5(five) billion Lira for Products or
services and not terminable by the Vendors with notice in excess of 12 months.
1.01.41 "Party" or "Parties" : the Purchaser, Purchaser's Subsidiaries, Target
Companies, or the Vendors , one or more as the context may require.
1.01.42 "Person" : any individual, corporation, partnership, firm, association,
unincorporated organization or other party.
1.01.43 "Pro-Forma Balance Sheets": collectively
(i) the accounts of the Assets and Liabilities related to
(x) the Italian Business,
(y) the USA Business,
(z) the European Associated Assets and Liabilities and
(ii) the statement indicating the value of the Residual Inventory all as of
March 31, 1999 in all cases prepared by segregating data relating to the
Businesses from the books of accounts of the Vendors in each country on the
basis of the Accounting Principles applied with a varying degree of accuracy as
indicated in Schedule 1.01.43 which contains copy of such Pro-Forma Balance
Sheets.
1.01.44 "Products": any and all products and goods Related to the Businesses
manufactured, sold or distributed or being developed by the Vendors.
1.01.45 "Provisional Purchase Prices": collectively
(i) the provisional purchase price of the Shares after the Contribution in
Kind;
(ii) the provisional purchase price of the USA Business;
(iii) the provisional purchase price of the European Associated Assets and
Liabilities, and
(iv) the provisional purchase price of the Residual Inventory. 1.01.46
"Purchaser" : Ferrania Lux S.a.r.l., as more fully identified in the
introductory part of this Agreement.
1.01.47 "Purchaser Subsidiaries" : the wholly owned Affiliates of the Purchaser
which will be established by the Purchaser before Completion in France, Germany,
Spain and UK, and the corporate name of which should be Ferrania Spain, Ferrania
France, Ferrania Germany and Ferrania UK.
1.01.48 "Receivables": all trade accounts and notes receivable and other
miscellaneous receivables of Vendors on the Effective Date solely arising out of
the sale or other dispositions of Products by the Businesses or otherwise
arising out of the operation
9
<PAGE>
or conduct of the Businesses, including amounts owning to the Vendors on the
Effective Date from any Transferred Employees.
1.01.49 "Related to the Businesses" : in the event of any uncertainty in the
attribution of any asset to the Businesses in spite of the contents of the
relevant Schedules identifying the Assets and Liabilities, any assets used
primarily in or held for use primarily (within the meaning of Section 1.02(e)),
in the operation or conduct of the Businesses as operated by the Vendors since
January 1, 1999 and including the activity presently under development in the
framework of the Businesses.
1.01.50 "ROW Outstanding Orders": all orders for the sale to any third party of
Products Related to the Businesses outstanding as of the Effective Date not
included in the Italian Business, the USA Business and the European Associated
Assets and Liabilities.
1.01.51 "Second Auditor" : the firm of independent certified public accountants
known as Deloitte & Touche S.p.A., Milan office.
1.01.52 "Shares" : the shares representing the entire stated capital of Italian
Newco after the Contribution in Kind, free and clear of any Encumbrance.
1.01.53 "Supply Agreement" : the agreement for the supply of certain
imagesetting films and inks to be entered into on the Completion Date between
the Italian Newco on the one hand and Imation Enterprises Corp. on the other
hand, attached hereto in the agreed form as Schedule 1.01.53.
1.01.54 "Target Companies": collectively, the Italian Newco and the USA Company.
1.01.55 "Transferred Employees" : the employees engaged in the Businesses and
listed in Schedule 1.01.55.
1.01.56 "Transition Services Agreement" : the agreement to be entered into on
the Completion Date between the Target Companies and the Purchaser Subsidiaries
on the one hand and the Vendors on the other hand, attached hereto in the agreed
form as Schedule 1.01.56.
1.01.57 "US Vendor" : Imation Enterprises Corp., as more fully identified in the
introductory part of this Agreement.
1.01.58 "USA Business" : all Assets and Liabilities of the Businesses operated
by the US Vendor, including, but not limited to, the tangible Assets identified
in Schedule 1.01.58.
1.01.59 "USA Business Transfer Agreement": the agreement for the transfer of the
USA Business, to be entered prior the Completion Date, by the US Vendor, on one
hand,
10
<PAGE>
and the USA Company, on the other hand, the text of which shall be timely agreed
by the Parties in compliance with the provisions of this Agreement.
1.01.60 "USA Company" : a company to be incorporated by the US Vendor under the
laws of the State of Delaware to acquire the USA Business.
1.01.61 "USA Shares" : the shares representing the entire share capital of the
USA Company, free and clear from any Encumbrance.
1.01.62 "USA Shares Purchase Price": the amount equal to the paid-in capital of
the USA Company which will be in such minimum amount as prescribed under
Delaware law and payable upon the transfer of the USA Shares to the Italian
Newco.
1.01.63 "Vendors' Subsidiaries": the following companies: Imation U.K. Ltd.
(England), Imation France S.A. (France), Imation Deutschland Gmbh (Germany),
Imation International B.V. (The Netherlands), Imation Europe B.V. (The
Netherlands), and Imation Espana S.A. (Spain).
1.01.64 "Vendors" : collectively, the US Vendor, the Italian Vendors and the
Vendors' Subsidiaries.
1.01.65 "Weatherford Lease Agreement" : the agreement for the leasing of the
Weatherford (Oklahoma) manufacturing facility to be entered into on the
Completion Date between the USA Company on one hand and the US Vendor on the
other hand, attached hereto in the agreed form as Schedule 1.01.65.
1.02 Construction. In this Agreement unless otherwise specified, reference to :
(a) a document in the "agreed terms" or in the "agreed form" is a reference
to that document in the form approved and for the purposes of identification
signed by or on behalf of each Party;
(b) a "statute" or "statutory instrument" or any of their provisions is to
be construed as a reference to that statute or statutory instrument or such
provision as the same may have been amended or re-enacted before the date of
this Agreement;
(c) "section", "paragraphs" or "schedules" are section, paragraphs of and
schedules, to this Agreement;
(d) "writing" includes any methods of representing words in a legible form
other than writing on an electronic or visual display screen or in other
non-transitory form;
(e) "primarily" with reference to usage of an asset means the use of such
asset for more than 50% of its operating, used, or usable time;
11
<PAGE>
(f) words denoting the singular shall include the plural and vice versa and
words denoting any gender shall include all genders unless otherwise specified;
(h) the time of day is reference to time in Milan, Italy.
ARTICLE 2
CERTAIN PRE-COMPLETION ACTIONS
2.01 The Contribution in Kind.
(a) The Parties agree and undertake as follows :
(i) subject to the satisfaction of the conditions precedent set forth
in Article 15, on or prior to the Effective Date the Italian Vendors shall
execute and exchange with Italian Newco the Deed of Transfer related to the
Italian Business, by way of the Contribution in Kind, effective as of the time
referred to in Paragraph (b) below, in accordance with all applicable provisions
of law and of this Agreement and the fiscal regime provided for in Article 4,
Paragraph 1, of D. Lgs. n. 358, dated October 8, 1997, it being understood that
both the Italian Vendors and the Italian Newco shall be in possession of all the
requirements provided for in the above mentioned Article 4, Paragraph 1, of D.
Lgs. N. 358, dated October 8, 1997 and the relative Deed of Transfer shall
expressly exclude any option for any other fiscal regimes other than the one
provided in such Article 4, Paragraph 1;
(ii) the Italian Vendors shall pass and cause the appropriate
corporate bodies of Italian Newco to pass such resolutions and take such other
actions as shall be necessary, under applicable law, to
(x) carry out the Contribution in Kind in a timely fashion and
(y) execute and exchange with Italian Newco and cause Italian
Newco to execute and exchange with the Italian Vendors, on or prior to the
Effective Date, the Deed of Transfer to enable Italian Newco to thereby acquire,
effective as of the time referred to in Paragraph (b) below, all of the Italian
Vendors' right, title and interest in the Italian Business, in accordance with
the applicable provisions of law and of this Agreement.
(b) As a result of the Contribution in Kind and effective as of 24:00 hours
on the Effective Date, the Italian Business shall become the sole and exclusive
property of Italian Newco.
(c) Attached hereto as Schedule 2.01(c) is a copy of the deed of
incorporation and by-laws of Italian Newco.
2.02 Transfer of the USA Business.
12
<PAGE>
(a) The US Vendor and the Italian Vendors, each as applicable, undertake to
take all necessary steps in order to incorporate as soon as practicable after
the date hereof the USA Company in accordance with applicable law it being
understood and agreed that a draft of the articles of incorporation and of the
by-laws of the USA Company shall be submitted to the Purchaser for review and
approval before the incorporation of the USA Company;
(b) The US Vendor and the Italian Vendors, each as applicable, undertake to
execute with the USA Company, and cause the latter to execute, the USA Business
Transfer Agreement whereby the USA Business will be sold and transferred to the
USA Company on or effective as of the Effective Date for an amount equal to the
Provisional Purchase Price of the USA Business (that shall be adjusted in
accordance with procedure set forth in Article 6 hereto) against issuance by the
USA Company of a vendor note in the agreed form attached hereto as Schedule 2.02
(b) (the "Vendor Note");
(c) The Purchaser undertakes, in accordance with the provisions set forth
in Section 5.03, to pass and cause the appropriate corporate bodies of the
Italian Newco to pass such resolutions and take such other actions as shall be
necessary, under any applicable law, to execute the Deed of Transfer related to
the USA Shares, by way of which, on the Completion, the Italian Newco shall
acquire, effective as of the Effective Date, the USA Shares in consideration for
the USA Shares Purchase Price and Italian Newco shall make available to the USA
Company the funds necessary to settle and discharge the Vendor Note.
2.03 Obtaining Consents. Where required in relation to applicable law or to the
terms of the relevant Material Contract, the Vendors will attempt, with the
co-operation, if necessary, of Purchaser, to secure, as promptly as practicable,
the consent to assign to the Target Companies as of the Effective Date such
Material Contracts as are listed in Schedule 2.03 attached hereto pursuant to
the procedures set forth therein; provided however that the Vendors shall bear
any actual out-of-pocket costs incurred in fulfilling such procedures.
(b) If any Transferred Employee working in the Ferrania plant refuses to
transfer with the relevant Italian Businesses (for reasons other than the fact
that he/she was not working for such Italian Businesses), the costs (if any)
incurred by the Vendors to terminate any such Transferred Employee shall be
reimbursed by the Purchaser to the relevant Vendor upon presentation of an
invoice.
13
<PAGE>
2.04 Transfers of the European Associated Assets and Liabilities - European
Transfers. On or prior to the Completion:
(a) Except for the Netherlands, the Purchaser shall take all actions
necessary in order to incorporate the Purchaser Subsidiaries in all relevant
countries where the European Associated Assets and Liabilities are located so
that each such Purchaser Subsidiary is duly registered and ready to operate no
later than 5 (five) Business Days prior to the Completion Date (without any
prejudice to the provisions of Section 11.06); it being understood that the
European Associated Assets and Liabilities located in Netherlands will be bought
by Italian Newco after the Shares have been transferred to the Purchaser.
(b) The Parties shall take and shall cause their respective Affiliates to
take all actions necessary to ensure that effective as of the Effective Date the
European Associated Assets and Liabilities are sold and transferred by the
relevant Vendors' Subsidiary to the relevant Purchaser Subsidiary, provided
however that, to the extent any local Deed of Transfer is executed before
Completion, each such local Deed of Transfer shall contain a clause providing
for the cancellation of the transfer and the return of the relevant European
Associated Assets and Liabilities if Completion does not occur by August 15,
1999.
2.05 Transfer of the Residual Inventory.
(a) The Vendors' Subsidiaries will use commercially reasonable best efforts
to reduce by the Effective Date the Residual Inventory. Effective as of the
Effective Date but only after the shares of Italian Newco have been sold to the
Purchaser, any Residual Inventory shall be sold and transferred to the Italian
Newco for the Provisional Purchase Price of the Residual Inventory, that shall
be adjusted in accordance with procedure set forth in Article 6 hereof, provided
however that such transfer and the payment of the relevant Provisional Purchase
Price shall be made on the Completion Date in accordance with the provisions set
forth in Article 5. As the Residual Inventory is depleted until and including
the Effective Date, deliveries to fill outstanding orders will be effected
directly from Imation S.p.A.
(b) For the above purposes, in accordance with provisions of Section 5.03,
the Vendors shall pass and cause the appropriate corporate bodies of the Italian
Newco to pass such resolutions and take such other actions as shall be
necessary, under any applicable law, to purchase, effective as of the Effective
Date but only after the shares of Italian Newco
14
<PAGE>
have been sold to the Purchaser, any residual Residual Inventory in accordance
with the provisions set forth in Article 5.
2.06 Trade Union Consultation Procedures. Whenever required under applicable
law, the Parties shall make all filings and notifications to be made in relation
to the sale and transfer of the Businesses and shall take all subsequent actions
requested under applicable law or regulations (including, without limitation, in
Italy art. 47 of Law n. 428 of December 29, 1990 and in the US pursuant to the
Hart-Scott Rodino-Antitrust Improvement Act of 1976.).
2.07 Tax Certificate related to the Italian Business. The Italian Vendors, also
on behalf of the Italian Newco, undertake to ask, within the 15 (fifteen)
Business Days following the execution date of this Agreement, to the Tax Office
of Savona (Italy), and to any other Tax Office which shall be indicated in
advance by the Purchaser, the certification related to
(i) any existing and pending tax dispute with such offices and
(ii) any tax liability already defined but not yet paid; in both cases
as of the execution date of this Agreement and as provided for in Article 14,
Paragraph 3, of the D. Lgs. n. 472, dated December 18, 1997 (the "Tax
Certificate").
2.08 Compliance.
(a) All remaining steps necessary to complete in a timely and orderly
manner the Contribution in Kind, the USA Business transfer, the transfer of the
European Associated Assets and Liabilities and the Residual Inventory, and any
other action however provided, shall be carried out in full compliance with this
Agreement and with all applicable provisions of law or regulation.
(b) Except as otherwise expressly provided in Section 11.08, revenues and
charges relating to the Businesses shall belong exclusively to the relevant
Vendor up to the Effective Date (included) and to the relevant Purchaser from
such date and shall be allotted to one or the other of such periods in
accordance with the Accounting Principles.
(c) Each Party shall consult with the other and its advisors in advance
prior to taking any step concerning the implementation of the above transfers
(including to agree upon the texts of the Deeds of Transfer and the USA Business
Transfer Agreement) and the transactions relating thereto.
(d) In the event of any conflict between the terms and conditions of this
Agreement and the terms and conditions set forth in any Deed of Transfer or in
the USA Business Transfer Agreement, the terms of this Agreement shall prevail.
2.09 Financing. Within and not later than July 15, 1999, the Purchaser shall
make
15
<PAGE>
available to the Vendors (pursuant to Section 17.05 (b)) a copy of one or more
highly confident letters issued by one or more primary banks confirming the
availability of the funds necessary to pay the Provisional Purchase Prices.
ARTICLE 3
INTERIM MANAGEMENT OF THE BUSINESSES
3.01 Undertaking.
(a) Except as otherwise expressly provided in other clauses of this
Agreement, the Ancillary Agreements, or otherwise agreed upon in writing by the
Purchaser or required in relation to the obligations set forth in the Kodak
Transaction Documents, during the period from the date of this Agreement to the
Completion Date, the Vendors:
(i) shall conduct the Businesses in the ordinary course consistent in
all material respects with past practices ( in particular, but without
limitation, in as much as it relates to prices and terms of sale and working
capital practices) on a going concern basis;
(ii) shall use reasonable efforts to :
(1) preserve substantially intact the business organization of
the Businesses;
(2) keep available to the Purchaser the services of the
Transferred Employees;
(3) preserve the current relationships of the Businesses with its
customers, suppliers and other Persons with which the Businesses have
significant business relationships; and
(iii) except as necessary in the ordinary course of the Businesses and
except for the purposes of the development of the IT system referred to in
Section 11.06, shall (in each instance only insofar as the Businesses are
concerned):
(1) not acquire or dispose of, or agree to acquire or dispose of,
any Asset except in the usual course of trade or assume or incur, or agree to
assume or incur, a liability, obligation or expense (actual or contingent);
(2) not create, or agree to create, an Encumbrance over an Asset;
(3) not fail to maintain coverages comparable to those provided
by the insurance policies currently in effect;
(4) not terminate, or give a notice to terminate, a property
lease, tenancy or licence;
(5) not enter into a material long-term, arrangement or
obligation;
(6) not amend or terminate a Material Contract to which it is a
party;
16
<PAGE>
(7) not amend the terms of employment or engagement of any
officer or Transferred Employee (except in the usual course of its business) or
provide, or agree to provide, a gratuitous payment or benefit to any Transferred
Employee (or any of their dependants) or employ, engage any individual, or
terminate the employment or engagement of any Transferred Employee;
(8) not amend, or agree to amend, the terms of its borrowing or
indebtedness in the nature of borrowing or create, incur, or agree to create or
incur, borrowing or indebtedness in the nature of borrowing;
(9) not give, or agree to give, a guarantee, indemnity or other
agreement to secure, or incur financial or other obligations with respect to,
another Person's obligation;
(10) not start litigation or arbitration proceedings, except
where delays may lapse or right may be forfeited;
(11) not compromise, settle, release or discharge litigation or
arbitration proceedings or a liability, claim, action, demand or dispute, or
waive a material right in relation to litigation or arbitration proceedings;
(12) not enter into an agreement, arrangement or obligation in
which the Vendors and any of their Affiliates or a Person connected with any of
them is interested;
(13) keep properly and in material compliance with all applicable
laws and rules all books and records, including any accounting records related
to the Businesses and make therein (in a manner consistent with past practice)
true and complete entries of all dealings and transactions related to the
Businesses;
(14) not dismiss any of the Transferred Employees listed in
Schedule 3.01(a)(iii)(14) (the "Key Employees") except for cause ("GIUSTA
causa"); it being further understood and agreed that the duties assigned to each
such key employee and the powers conferred upon each of them for the conduct of
the Businesses shall not be materially varied without the consent of Mr.
Riccardo Genta.
(b) The Vendors furthermore shall ensure that, between the later of the
date hereof and the date of incorporation, and the Completion Date and except as
expressly provided in other clauses of this Agreement or of any Ancillary
Agreement each Target Company shall not:
(i) create, allot, issue, acquire, reduce, repay or redeem any share
or agree, arrange or undertake to do any of those things, or
(ii) acquire or agree to acquire an interest in any undertaking; or
17
<PAGE>
(iii) declare, pay or make a dividend or distribution.
3.02 Further Undertakings relating to the interim management.
(a) Without prejudice to the provisions of Sections 3.01, 11.06 and 11.8
(b), hereof, from the date of this Agreement through the Completion Date,
the Vendors shall use their commercially reasonable best efforts to ensure that
any business decision outside the ordinary course of business consistent with
past practices (the "Extraordinary Business Decisions"), shall be submitted by
the Vendors to Mr. Nicola Volpi, acting as Purchaser's representative. The
Purchaser shall finance, directly or indirectly, the estimated disbursements to
be made prior to the Effective Date in respect to any Extraordinary Business
Decisions approved by the Purchaser's representative, if any, it being
understood that
(i) the Assets resulting from such Extraordinary Business Decisions
shall be contributed together with the Businesses as well as the relevant debts
arising out of such financing, and
(ii) such Assets and relevant debts shall be taken into account for
the determination of the Final Purchase Price respectively for the book value
and the nominal value. If any disagreement arises between the Vendors and the
Purchaser's representative on the matters submitted, then the opinion of the
Purchaser's representative will prevail. Purchaser shall indemnify and hold
Vendors harmless from any and all consequences relating to such decisions.
Vendors shall not be obligated to implement the Purchaser's decision if such
actions would contravene applicable law or constitute a material breach of a
Contract.
(b) If requested by one or more of the Key Employees as listed on Schedule
3.01 (a)(iii)(14), the Italian Vendors shall pay to those Key Employees (if so
entitled), the "pay-out" amount relating to TFR obligations of the Italian
Vendors.
3.03 Access. Subject to all confidentiality obligations between
the Vendors and other Persons, pending Completion:
(i) the Purchaser and any advisor authorized by it shall be given
full access (upon reasonable notice, during regular business hours and to the
extent such access does not interfere with Vendors' obligations hereunder) to
the Transferred Employees and to the premises, plant, machinery, books of
account, work papers and any other record and document of Imation, the Vendors
and/or each Target Company as may be reasonably required for the purposes of
this Agreement, and
(ii) the Vendor Subsidiaries and each Target Company shall be
instructed to give promptly all such information and explanations relating to
the Businesses as the Purchaser or advisors authorized by it may reasonably
request.
18
<PAGE>
3.04 Limited Review.
(a) Pending Completion, the Vendors shall cause the Vendors' auditors to
perform a limited review of the Pro-Forma Balance Sheets and to issue a report
thereon to the Vendors and the Purchaser before the Completion Date. Such
limited review shall be conducted on the basis of the Accounting Principles used
for the preparation of the Pro-Forma Balance Sheets.
(b) Upon request of the Purchaser, subject to any obligation of
confidentiality to a third Person, the work papers of the Vendors auditors
relating to such limited review shall be made available to the Purchaser and/or
its advisors (as the Purchaser may elect).
ARTICLE 4
PURCHASE AND SALE
4.01 Undertakings of the Parties. Upon the terms and subject to the conditions
set forth in this Agreement :
(i) the Purchaser undertakes to purchase from the Italian Vendors and
the Italian Vendors undertake to sell to the Purchaser on Completion the Shares
in consideration for the portion of the Final Purchase Price attributable to the
Shares, with effect as of the Effective Date;
(ii) the Purchaser undertakes to cause the Purchaser Subsidiaries to
acquire from the Vendors' Subsidiaries the European Associated Assets and
Liabilities (with the exception for those located in the Netherlands) and
Vendors undertake to sell same to the Purchaser's Subsidiaries in consideration
for the portion of the Final Purchase Price attributable to the European
Associated Assets and Liabilities, with effect as from the Effective Date;
(iii) the Purchaser agrees to acquire, through the Italian Newco, the
USA Shares, the European Associated Assets and Liabilities located in the
Netherlands and the Residual Inventory, and the Vendors' undertake to sell same
to the Italian Newco in consideration for the portion of the Final Purchase
Price attributable to the USA Shares, the European Associated Assets and
Liabilities located in the Netherlands and the Residual Inventory; in each case
with effect as of the Effective Date;
(iv) the Purchaser undertakes to procure and make available through
Italian Newco to the USA Company the funds necessary to settle in full the
Vendor Note on Completion;
19
<PAGE>
4.02 Price Determination.
(a) Subject to and at the terms and conditions provided for in Article 5,
on the Completion Date, the Purchaser shall pay or cause to be paid to the
Vendors the Provisional Purchase Prices as follows:
(i) for the Shares, Italian Lira 300,000,000;
(ii) for the USA Business, US Dollars 27,600,000;
(iii) for the European Associated Assets and Liabilities located in:
(1) United Kingdom, UK Pounds 18,000;
(2) France, French Francs 170,000;
(3) Germany, Deutsche Marks 55,000;
(4) Spain, Pesetas 4,300,000;
(5) Netherlands, Guilders 55,000; and
(iv) for the Residual Inventory, the overall amount of US Dollars
$1000 to be allocated to the various countries where the portions of the same
are located and converted in local currencies as provided for by Section 17.09.
Three (3) Business Days before Effective Date, the Vendors shall inform the
Purchaser of the expected value of the Residual Inventory as of the Effective
Date giving written evidence of the same and the Provisional Purchase Price of
the Residual Inventory as stated in the preceding sentence shall be adjusted to
reflect the expected value; it being understood that such notice shall identify
the allocation of the Provisional Purchase Price for the Residual Inventory to
be paid to each relevant Vendors' Subsidiary and/or Affiliate.
(b) The Provisional Purchase Prices set forth above have been calculated by
mutual agreement of the Vendors and the Purchaser by applying the Calculation
Methodology to the Businesses as resulting from the Pro-Forma Balance Sheets as
adjusted in good faith by the Parties on the basis of a reasonable estimate of
the Assets and Liabilities as of the Effective Date, except for those Assets and
Liabilities related to the Italian Business, the reasonable estimate of which
has been made as of May 31, 1999 (as reflected in the Pro-Forma Balance Sheets).
(c) The Parties agree to meet prior to the Completion in order to mutually
review in good faith the Provisional Purchase Price for the Shares by comparing
the same with the Appraisal, it being understood that, unless otherwise agreed
by the Parties, the Provisional Purchase Price set forth in Section 4.02 (a) (i)
shall apply.
(d) The portions of the Final Purchase Price attributable respectively to
the Shares, the USA Business, the European Associated Assets and Liabilities,
and the Residual
20
<PAGE>
Inventory shall be conclusively determined as provided in Article 6 below and
shall be payable as provided in Sections 5.04 and 6.05 below.
4.03 Right to Designate.
(a) Notwithstanding anything to the contrary contained in this Agreement,
the Purchaser may designate, pursuant to Article 1401 of the Code, among the
Purchaser Subsidiaries the Person(s) which will purchase any or all of the
European Associated Assets and Liabilities. The Purchaser shall exercise such
right to designate within and not later 5 (five) Business Days prior to the
Completion Date; provided, however, that:
(i) any such designation shall be made in writing and shall be
accompanied by the acceptance of the designated Person; and
(ii) no such designation shall relieve the Purchaser of any of its
obligations to the Vendors hereunder, and further provided that in the event of
total or even partial election of the person or persons to be a purchaser under
this Agreement, the term "Purchaser" shall automatically include such Persons
for all the purposes of this Agreement and any Person being the Purchaser shall
severally assume any obligation and liability hereunder and shall be severally
entitled to exercise any right hereunder also on behalf of any other Purchaser
being Purchaser hereunder.
(b) Pursuant to provisions set forth in Paragraph (a) above, the Purchaser
hereby designates, subject to the transfer to the Purchaser of the Shares,
(i) the Italian Newco as the purchasing Person of the USA Shares and
the Residual Inventory, and
(ii) each of the Purchaser's Subsidiary as the purchasing Person of
the European Associated Assets and Liabilities located in the same jurisdiction
of incorporation of each Purchaser's Subsidiary, except with respect to the
Netherlands, where the respective European Assets and Liabilities shall be
purchased by Italian Newco, it being understood and agreed that the Purchaser
shall deliver the relevant written acceptances of the Purchaser Subsidiaries so
designated not later than 5 (five) Business Days prior to the Completion Date.
ARTICLE 5
COMPLETION
5.01 Date and Place of Completion.
(a) Completion shall take place in Milan at the office of such Italian
Notary Public or such Bank as shall be designated by the Purchaser not later
than 5 (five) Business Days prior to the Effective Date, at 9:00 a.m.
21
<PAGE>
(local time) of the first Business Day following the Effective Date and in any
event not later than August 15, 1999.
(b) The Italian Vendors hereby undertake to use all commercially reasonable
best efforts pursuant to Article 1381 of the Code, in order to have the matters
contemplated by Article 2343, Paragraph 3, of the Code passed upon by the
directors and statutory auditors of Italian Newco on or prior to the Completion
Date, but in any event before the occurrence of Completion.
5.02 Completion. On the Completion Date:
(a) The Italian Vendors shall deliver and/or cause to be delivered to the
Purchaser the share certificates representing the Shares, duly endorsed as
necessary to transfer to the Purchaser good and marketable title to the Shares
and procure that Italian Newco shall enter the name of the Purchaser in the
register of members as registered holder of the Shares;
(b) The US Vendor shall deliver to the Purchaser executed stock powers or
other instrument evidencing ownership of the USA Shares in the name of Italian
Newco which shall be effective as of the Effective Date.
(c) The Parties and their Affiliates shall procure and cause that the USA
Business Transfer Agreement and each Deed of Transfer related to the Residual
Inventory is executed and delivered (as a certified copy or equivalent) to the
Purchaser in a manner consistent with applicable law and the provisions of this
Agreement, so that
(i) the Residual Inventory is sold and transferred effective as of the
Effective Date to the Italian Newco and
(ii) the US Business is transferred effective as of the Effective Date
to the USA Company; it being understood that all the ROW Outstanding Orders
shall be transferred and assigned to one or more of the Purchaser's Subsidiaries
and/or the Target Companies (as the Purchaser shall timely designate) by the
relevant Vendors' Affiliates effective as of the Effective Date.
(d) the Parties shall procure that each Deed of Transfer related to the
European Associated Assets and Liabilities (if not already executed) is executed
in a manner consistent with any applicable law so that the European Associated
Assets and Liabilities are transferred effective, as of the Effective Date, in
each relevant country (with the exception of those located in the Netherlands,
which shall be bought by the Italian Newco);
22
<PAGE>
(e) the Parties shall procure that each Ancillary Agreement shall be
executed and exchanged between the respective parties thereto;
(f) The Vendors shall appoint the First Auditor and the Purchaser shall
appoint the Second Auditor, and obtain the respective written acceptance, for
the purposes of Article 6.
5.03 Certain Corporate Actions. To the extent any director or statutory auditor
of any Target Company is not an individual approved by the Purchaser, on or
prior to Completion the Vendors shall procure:
(a) the written resignations of the directors and statutory auditors of
each Target Company containing an acknowledgement that they have no claim
against any Target Company for compensation for loss of office, professional
fees or otherwise; and
(b) the passing of board resolutions or shareholders resolutions (as the
case may be) of each Target Company:
(i) appointing the directors of each Target Company; and
(ii) appointing the statutory auditors of each Target Company, in both
cases set forth under (i) and (ii) above following the specific instructions
which shall be communicated in advance by the Purchaser to the Vendors, by
written notice delivered to the Vendors within and not later than 10 (ten)
Business Days prior to the Completion Date.
5.04 Payments by the Purchaser. Simultaneously with the satisfaction of each of
Vendors' obligations provided for in Section 5.02 hereof, the Purchaser shall
pay or cause Italian Newco and the Purchaser Subsidiaries to pay the Provisional
Purchase Prices and the USA Shares Price, by crediting in immediately available
funds (via a wire transfer or other transfer method with a similar simultaneous
effect) the relevant amount to such bank account(s) to be specified by the
Vendors by written notice delivered to the Purchaser at least 10 (ten) Business
Days prior to the Completion Date, it being understood that the payment of the
Provisional Purchase Price of the USA Business shall be made in a manner to
settle and fully discharge the Vendor Note.
5.05 One Transaction. All actions and transactions constituting the Completion
(including, without limitation, the transfer of the Shares, the payment of the
Provisional Purchase Prices, the execution and exchange of all agreements to be
executed and exchanged on the Completion Date, pursuant to this Agreement,
including, without limitation each Deed of Transfer and each Ancillary Agreement
and all other actions
23
<PAGE>
necessary to consummate the transfer of the Businesses on a going concern basis)
shall be regarded, for the purposes of the Completion, as one and single
transaction so that no action or transaction shall be deemed to have taken place
unless and until all other actions and transactions constituting the Completion
shall have taken place as provided in this Agreement.
ARTICLE 6
DETERMINATION OF THE FINAL PURCHASE PRICES
6.01 Preparation of the Effective Date Balance Sheets.
(a) As soon as practicable but in any event not later than 90 (ninety)
Business Days following the Completion Date, the Vendors shall:
(i) prepare the Effective Date Balance Sheets on the basis of the
Accounting Principles, except that as to the Italian Business an update of the
Appraisal shall be also prepared on the basis of the same accounting principles
used by the Appraiser, consistently applied (the "Italian Business Update");
(ii) calculate the Final Purchase Prices by applying the Calculation
Methodology to the Assets and Liabilities set forth in the Effective Date
Balance Sheets (the "Price Calculations"); and
(iii) submit the Effective Date Balance Sheets and the Price
Calculations to the First Auditor in order to obtain their written opinion as to
their contents and the correct and consistent application of the Accounting
Principles.
(b) The Effective Date Balance Sheets, the Italian Business Update, the
Price Calculations and the opinion of the First Auditor thereon shall be
delivered to the Purchaser before the expiration of the term provided for in
Paragraph (a).
6.02 Purchaser's Right.
(a) Without prejudice to the provisions of Section 6.04, within 45
(forty-five) Business Days following the receipt of the documents delivered
pursuant to Section 6.01, the Purchaser shall submit the Effective Date Balance
Sheets, the Italian Business Update, the Price Calculations and the opinion of
the First Auditor to the Second Auditor, which within the same 45 (forty five)
Business Day period shall render its opinion thereon. If any disagreement arises
with respect to the Effective Date Balance Sheets, the Italian Business Update
and/or the Price Calculations, the Purchaser shall promptly (but in any event
within the above mentioned period of 45 (forty-five) Business
24
<PAGE>
Days) notify the Vendors with respect to such disagreement in writing (the
"Notice of Disagreement"), enclosing also a copy of the Second Auditor opinion.
(b) If no disagreement is expressed by the Purchaser within the above
mentioned term, the Effective Date Balance Sheets, the Italian Business Update
and the Price Calculation, as transmitted pursuant to Section 6.01, shall become
binding and conclusive for the Parties.
(c) If, on the contrary, a Notice of Disagreement is communicated by the
Purchaser, the Parties shall try, within the following 30 (thirty) Business Days
period, to resolve amicably the points in dispute set forth in such Notice of
Disagreement (the "Disputed Matters"). Failing such agreement, Section 6.04
shall apply.
6.03 Co-operation. Each Party shall co-operate with the other Party, and the
First Auditor and the Second Auditor (collectively the "Auditors") and shall
furnish to them such workpapers, or other documents and information as the
Auditors may reasonably require and are available to that Party and/or its
Affiliates (or its auditors) and shall have the right to be present during all
the Auditors activities. The Vendors and the Purchaser shall each bear the fees
and costs of the First Auditor and the Second Auditor respectively.
6.04 Resolution of Disputed Matters. If any Disputed Matters arise and the
Parties are not able to resolve Disputed Matters as provided in Section 6.02,
then the Disputed Matters shall be referred to the Expert. If any Disputed
Matters are submitted to the Expert for resolution, the determination by the
Expert shall be binding and conclusive on the parties. The Expert shall give its
determination within 30 (thirty) Business Days following its appointment by
means of a notice to be delivered to both Parties and the Auditors stating how
its determination was rendered on the basis of the Accounting Principles and the
Calculation Methodology. The fees and costs of the Expert shall be borne by the
Vendors and the Purchaser as allocated by the Expert in its determination on the
basis of the merit of the Disputed Matters submitted to it and which it will
have accepted or rejected.
6.05 Effects.
(a) On the 10th (tenth) Business Day following the expiration of the period
provided for in Section 6.02 without any Notice of Disagreement having been
timely communicated by the Purchaser, or following the determination of the
Expert, as the case may be:
(i) if the amount determined by the Italian Business Update is higher
or lower
25
<PAGE>
than the amount set forth in the Appraisal, then the excess or
shortfall shall result in a Contribution Adjustment Payment to be made by
Italian Newco to the Italian Vendors or by the Italian Vendors to Italian Newco,
as the case may be;
(ii) if any of the Final Purchase Prices as conclusively determined
pursuant to the provisions of this Article 6 results in an amount higher or
lower than the corresponding Provisional Purchase Prices, as set forth in
Section 4.02 then each excess or shortfall shall be, respectively, paid by the
Purchaser to the Vendors or paid-back by the Vendors to the Purchaser, as the
case may be, except that the Final Purchase Price of the Italian Business shall
be previously rectified by the Contribution Adjustment Payment (if any).
(b) All such payments (if any) shall be made by the paying Party to the
entitled Party in accordance with the provisions of Section 5.04.
6.06 Delayed Payments. If any of the Parties fails to make any payment due
pursuant to Section 6.05 or other clauses of this Agreement when due, interest
at the rate of 6 (six) % per annum shall accrue on the unpaid amount for the
entire period of delay.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
7.01 Undertakings of the Vendors. In lieu of any other representation and
warranty however applicable, the Vendors make the representations and warranties
specified below, and acknowledge that they are correct and true as of the date
of this Agreement and that they shall be correct and true as of both the
Effective Date and the Completion Date, except as affected by transactions
contemplated herein or otherwise approved in writing by the Purchaser or made in
the ordinary course of business consistently with Article 3, and that the
Purchaser is relying upon such representations and warranties in connection with
the purchase by it of the Businesses.
7.01.01 Authorization and Authority. The Vendors, as legal and beneficial owners
of the Businesses and, upon issuance, of the Shares and the USA Shares, are
corporations duly incorporated and validly existing and in good standing under
the laws of the respective jurisdiction of incorporation and have the necessary
corporate powers and authority to enter into this Agreement and the Ancillary
Agreements to which each of them is a party, to carry out the obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The Vendors and each Vendors' Subsidiary have the corporate powers
and authority to own, operate or lease the properties and assets owned,
26
<PAGE>
or operated or leased by each of them and to carry out that portion of the
Businesses conducted by each of them in the manner in which the same is
currently conducted. The execution and delivery of this Agreement by the Vendors
and of each of the Ancillary Agreements by either the Vendors and/or each
Vendors' Subsidiary or Affiliate which is a party thereto, the performance by
the Vendors of their obligations hereunder and thereunder, and the consummation
by the Vendors and each Vendors' Subsidiary of the transactions contemplated
hereby and thereby have been duly authorized by the requisite corporate action
on the part of the Vendors and/or each Vendors' Subsidiary or Affiliate,
respectively. This Agreement has been duly executed and delivered by the
Vendors, and upon their execution and delivery the Ancillary Agreements shall be
duly executed and delivered by either the Vendors and/or each Vendors'
Subsidiary or Affiliate that is a party thereto, and this Agreement, and, upon
their execution and delivery, each Ancillary Agreements will constitute a legal,
valid and binding obligation of, in the case of this Agreement, the Vendors
and/or each Vendors' Subsidiary or Affiliate, and in the case of the Ancillary
Agreements, of either the Vendors and/or each Vendors' Subsidiary or Affiliate
that is a party thereto, enforceable against the Vendors and/or each Vendor's
Subsidiary or Affiliate that is a party thereto in accordance with the
respective terms.
7.01.02 Non Contravention. The execution, delivery and performance of this
Agreement and any transaction contemplated hereby and the Ancillary Agreements
do not, and with respect to the Ancillary Agreements upon their execution and
delivery shall not:
(i) constitute a violation of the articles of association, by-laws or
other constitutional document of the Vendors and each Vendors' Subsidiary or of
the provisions of any material law or regulation applicable to the Vendors or to
a Vendors' Subsidiary, as the case may be;
(ii) give the right of termination, amendment, acceleration or
cancellation to the other party of the Material Contracts listed in Schedule
7.01.02 (ii)(a) attached hereto and, to the Best Knowledge of the Vendors, give
to any third party such rights with respect to any Material Contract other than
those listed in Schedule 7.01.02 (ii)(b), and
(iii) to the Best Knowledge of the Vendors, materially conflict with
any judgement, decree, or order vis-a-vis the Vendors issued by any judiciary or
administrative authority of competent jurisdiction.
27
<PAGE>
7.01.03 Consents and Approvals.
(a) Other than the consents which are the subject of Section 2.03, the
execution, delivery and performance of this Agreement and all Ancillary
Agreements (other than with respect to the Transition Services Agreement to the
extent of any third party Service Provider's consent) by the Vendors as parties
hereto and thereto do not and will not require the consent of the other party or
parties to any Material Contract.
(b) Except for the approvals and authorizations described in Article 15 of
this Agreement and except as may be required for the transfer of any Permit (as
defined in Section 7.01.13), the execution, delivery and performance of this
Agreement and all Ancillary Agreements by the Vendors as parties hereto and
thereto do not and will not require any approval, authorization or other action
by any competent authority.
7.01.04 The Shares and USA Shares.
(a) The Vendors will be, upon issuance, the absolute legal and beneficial
owner of the Shares and the USA Shares and able to procure the sale of the
Shares and the USA Shares free and clear of all Encumbrances in accordance with
this Agreement.
(b) Other than this Agreement, there is no agreement or arrangement
requiring the creation, allotment, issue, sale, transfer, redemption or
repayment of, or the grant to a Person of the right to require the allotment,
issue, sale, transfer, redemption or repayment of, a share in the capital of any
Target Company.
(c) The Shares, upon issuance, shall constitute all the issued and
outstanding shares of the share capital of Italian Newco and the USA Shares,
upon issuance, shall constitute all the issued and outstanding shares of the
share capital of the USA Company and both the Shares and the USA Shares shall
have been duly authorized and validly issued and fully paid-in.
7.01.05 Group Companies. On Completion and except as otherwise provided in this
Agreement, none of the Target Companies shall own any shares or stock nor will
any of them have any beneficial interest in any other Person.
7.01.06 Insolvency. On Completion, neither Target Company shall have at any time
had any liquidator, receiver or any other similar official appointed or been
subject to any insolvency process whatsoever and no such appointment or process
shall be pending or threatened, nor shall have they ever been insolvent.
7.01.07 Financial Information.
(a) The Pro-Forma Balance Sheets and other accounting data heretofore
provided to the Purchaser as part of the Data Room have been
28
<PAGE>
prepared in good faith by the Vendors by segregating the data related to the
Businesses from management and accounting records relating to the overall
activities of the companies conducting the Businesses on the basis of the
Accounting Principles applied with a varying degree of accuracy as indicated in
the Schedule 1.01.43 for the purposes of fairly presenting the Businesses to the
Purchaser.
(b) For the sole purpose of Section 9.07, the Profits and Loss Account as
of December 31, 1998 (the "1998 P&L") annexed hereto as Schedule 7.01.07 (b):
(i) has been prepared in good faith by the Vendors in accordance with
the books and other financial records of the Businesses;
(ii) has been prepared by segregating the data Related to the
Businesses from management and accounting records relating to the overall
activities of the companies conducting the Businesses in accordance with the
Accounting Principles;
(iii) fairly presents in all material respects the profits and the
costs related to the Businesses as of December 31, 1998, and
(iv) fairly presents any specific item which is under the EBIT
(earnings before interest and taxes). Items not included in the EBIT calculation
are set forth in Schedule 7.01.07(b)(iv).
7.01.08 Absence of Undisclosed Liabilities. With respect to the Businesses,
there will be neither
(i) liabilities (required to be reflected pursuant to the Accounting
Principles) related to the Businesses other than those Liabilities which shall
be reflected in the Effective Date Balance Sheets and for the amounts specified
therein; nor
(ii) undisclosed or contingent liabilities which, should they have
been disclosed and/or become actual and definitive on or prior to the Effective
Date, would be required to be registered in the Effective Date Balance Sheets,
nor
(iii) any fact, event or occurrence causing a diminution of the value
of any Asset as reflected in the Effective Date Balance Sheets which, if known
or become actual and definitive on or prior to the Effective Date, would be
required to be reflected in the Effective Date Balance Sheets.
7.01.09 Receivables.
(a) For the sole purpose of Section 9.06, the Receivables are
(i) valid and existing and,
(ii) as of both the Effective Date and the Completion Date, shall be
valid and existing, and free and clear from any Encumbrance. All Receivables
arose and shall arise from ordinary course of the Businesses.
29
<PAGE>
(b) Except to the extent of any specific provision or reserve made or which
shall be made in the Effective Date Balance Sheets, all Receivables shall be
collected or indemnified as provided in Section 9.06.
7.01.10 Absence of Certain Changes. Except as expressly provided in other
articles of this Agreement or in Schedule 7.01.10 attached hereto, since January
1, 1999 (and to the date hereof), the Businesses have been conducted in the
ordinary course consistent with past practices. In particular, since January 1,
1999, there has not been any salary increase in favor of the Transferred
Employees, other than such increase made in accordance with any applicable law
or any provisions of any applicable collective bargaining Agreement.
7.01.11 Title to and Condition of Assets.
(a) The Vendors have good and marketable title to the Assets used for the
operation of the part of the Businesses carried out by each of them, and, in
particular, without limitation, Imation S.p.A. (as an Italian Vendor and fully
identified in the introductory part of this Agreement) has good and marketable
title to the land, buildings and appurtenances comprised in the Ferrania
facility and such real property is clear of any Encumbrance.
(b) Except as otherwise indicated in Schedule 7.01.11 (b) attached hereto,
there are no Encumbrances over any part of the Assets and, to the Best Knowledge
of the Vendors, none of the Vendors have agreed to create any Encumbrances over
any part of the Assets.
7.01.12 Material Contracts.
(a) Except as set forth in Schedule 7.01.12 (a):
(i) to the Best Knowledge of the Vendors, each Material Contract is
valid and existing;
(ii) no party with whom the Vendors have entered into a Material
Contract has given written notice of its intention: to terminate, or to
repudiate or to disclaim, such Material Contract.
(iii) to the Best Knowledge of the Vendors, no party with whom the
Vendors has entered into a Material Contract is in material breach of such
Material Contract;
(iv) to the Best Knowledge of the Vendors, the Vendors are not in
material breach of any Material Contract;
(v) to the Best Knowledge of the Vendors, except as otherwise
indicated in Schedule 7.01.12 (a)(v), no Material Contract contains
non-competition covenants or other undertakings which are not presently
applicable to the Vendors and
30
<PAGE>
which would materially prevent, impair, limit or confine to a particular place
the conduct of the Businesses following the Completion;
(vi) to the Best Knowledge of the Vendors, neither the Purchaser, nor
any Purchaser's Subsidiary nor Target Company shall be liable, with respect to
the Businesses, for the payment of any royalty or amount of similar nature under
any agreement, contract, (including any Contract), except for those royalties
and similar amounts listed in Schedule 7.01.12.(a) (vi) hereto, which specifies
the relevant title, beneficiary, criteria of determination and term of payment;
(vii) to the Best Knowledge of the Vendors, there are no Contracts
Related to the Businesses providing for joint ventures, partnerships or similar
corporate arrangements.
(b) Except as otherwise indicated in Schedule 7.01.12(b), there are no
Contracts Related to the Businesses in effect with the Vendors and/or a Person,
directly and/or indirectly, controlled by Vendors or any Affiliate of the
Vendors.
7.01.13 Permits. Where permitted by applicable law and where possible by using
their (the Vendors) commercially reasonable best efforts, on both the Effective
Date and the Completion Date, all permits, licenses, consents or other
authorizations (issued or granted to a Vendor by a governmental authority)
currently in place for the conduct of the Businesses (collectively the
"Permits") shall have been transferred to the relevant Target Company in
accordance with and pursuant to, the laws applicable to the Italian Contribution
and the USA Business Transfer Agreement. In the event that a single Permit
applies to the Businesses and to other businesses of the Vendors, where
permitted by applicable law and where possible by using Vendors' commercially
reasonable best efforts, such Permit shall also enure to the benefit of the
Purchaser. If any of such Permits can not be transferred and/or shared, the
Vendors shall timely inform the Purchaser of such circumstances. To the Best
Knowledge of the Vendors, each of the Vendors has complied with the terms of
such Permits in all material respects and Vendors have not been notified in
writing of any pending or threatened proceedings which might materially affect
any of the same.
7.01.14 Investigations. Except as otherwise indicated in Schedule 7.01.14
attached hereto, to the Best Knowledge of the Vendors, none of the Vendors has
been notified in writing that it is subject to any investigation, enquiry or
disciplinary proceeding (whether judicial, quasi-judicial or otherwise) related
to the Businesses in any jurisdiction.
31
<PAGE>
7.01.15 Industrial Relations. Except as otherwise indicated in Schedule 7.01.15
attached hereto, to the Best Knowledge of the Vendors:
(i) there is no pending dispute with any trade union, staff
association or any other body representing the Transferred Employees, no such
dispute has been threatened in writing and no event has occurred which is likely
to give rise to any such dispute; and
(ii) none of the Vendors has been charged with any unfair labor
practice in connection with the Businesses.
7.01.16 Products Compliance. Except as otherwise indicated in Schedule 7.01.16
attached hereto, to the Best Knowledge of the Vendors:
I.(a) Each Product produced or sold by the Vendors is in compliance in all
material respects with
(i) any applicable law or regulation and
(ii) any applicable standards (including those relating to safety)
promulgated by any competent governmental Person.
(b) Each Product conforms in all material respects to any
(i) promises or affirmations of fact made on container or label on the
Products and
(ii) warranties, whether express or implied, or affirmations of fact
made on container or label on the Product.
(c) All labels on the Products are in all material respects in compliance
with any applicable law and regulation.
II. All certifications required by any applicable law and regulation have
been obtained in any country where the Products are manufactured and/or sold and
all Products are in compliance in all material respects with the specifications
and standards provided for in such certifications.
III. (a) Except as otherwise indicated in Schedule 7.01.16 III (a), the
Vendors are not aware of any material suit, claim, proceeding or action against
the Vendors with respect to Products' liability.
(b) Except as otherwise indicated in Schedule 7.01.16 III (b), there is no
recall, withdrawal or suspension by the Vendors and/or each Vendor Affiliate
with respect any manufactured and/or sold Product.
7.01.17 Sufficiency of Assets. The Assets (together with the Excluded Assets and
the facilities and services provided for in the Ancillary Agreements)
(i) comprise all assets, property and rights used or held by the
Vendors in connection with the Businesses (as presently operated by the Vendors)
and
(ii) constitute all assets, property and rights
32
<PAGE>
currently used or held to conduct the Businesses (as presently operated by the
Vendors) on a going concern basis in all material respects on the date hereof
and on Completion Date.
7.01.18 Extraordinary Contracts. Other than the Extraordinary Contracts listed
as Material Contracts in Schedule 1.01.38, there are no Contracts Related to the
Businesses which have a value in terms of annual sales or purchases in excess of
5 (five) billion Lira of Products or services and are not terminable by the
Vendors with a notice in excess of 12 months.
7.02 Survival. For purposes of this Article 7 and Section 9.04 below, it is
agreed that each representation and warranty, and covenants contained in this
Agreement or Schedules hereto will continue to survive beyond the relevant terms
indicated under Section 9.04 below, until the relevant claim of indemnity has
been resolved pursuant to Article 9 to the extent that a notice of claim is
given, in good faith, by a Party to the other pursuant to Section 9.04, prior to
the expiration of such terms.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
8.01 Authorization and Authority of the Purchaser. Each of the Purchaser or
(upon incorporation) the Purchaser's Subsidiaries is or will be a corporation
duly incorporated and validly existing and in good standing under the laws of
its jurisdiction of incorporation and has all necessary corporate powers and
authority to enter into this Agreement and the Ancillary Agreements to which it
is party, to carry out the obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
the delivery by the Purchaser of this Agreement, the performance by the
Purchaser of its obligations hereunder, and the consummation by the Purchaser of
the transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser, and upon their execution and delivery
the Ancillary Agreements to which the Purchaser or any Affiliate of the
Purchaser is party shall be duly executed and delivered by it, and this
Agreement, and, upon their execution and delivery the Ancillary Agreements to
which the Purchaser or any Affiliate of the Purchaser is party, will constitute,
a legal, valid and binding obligations of the Purchaser or such Purchaser
Affiliate.
33
<PAGE>
8.02 Non Contravention. The execution, delivery and performance of this
Agreement do not:
(i) constitute a violation of the articles of association, by-laws or
other constitutional document of the Purchaser, or of the provisions of any law,
regulation, judgement or order of any court or other competent authority;
(ii) conflict with any judgement, decree or order vis-a- vis the
Purchaser by any judiciary or administrative authority of competent
jurisdiction.
8.03 Consents and Approvals. Except for the consents, approvals and
authorizations described in Section 2.03 and in Article 15 of this Agreement,
the execution, delivery and performance of this agreement by the Purchaser do
not and will not require any consent, approval, authorization or other action by
any competent authority.
8.04 No Litigation. There is no pending litigation in front of any civil,
administrative or criminal court nor there has been issued any injunction, order
or writ which could prevent the Purchaser from carrying out the transactions
contemplated by this Agreement.
ARTICLE 9
INDEMNIFICATION OBLIGATIONS
9.01 Vendors' Obligation to Indemnify. Subject to the provisions of this Article
9:
(i) if the Vendors are in breach of any of the representations and
warranties set forth in Article 7 and to the extent that any such breach of any
representation or warranty derives from a product manufactured or from facts,
acts, omission of acts, events and/or circumstances which existed or occurred on
or before the Completion Date, the Vendors shall indemnify the Purchaser or the
relevant Target Company or Purchaser's Subsidiary (as the case may be) from and
against the entire amount in excess of the Threshold (as defined in Section
9.05(a) below) of all actual losses, costs and expenses (including reasonable
attorney's fees) arising out of such breach; and,
(ii) if the Purchaser, any of the Target Companies and/or any
Purchaser's Subsidiary is required to make any payment on account of any
liability (included among the Assumed Liabilities) for amounts in excess of
those recorded in the Effective Date Balance Sheets, the Vendors shall indemnify
the Purchaser or the relevant Target Company or Purchaser's Subsidiary (as the
case may be) from and against the entire difference between
34
<PAGE>
the amount so recorded on account of any Assumed Liability and the actual
Assumed Liability, and all actual losses, costs and expenses (including
reasonable attorney's fees) arising out of such payment in excess of the
Threshold, and
(iii) if the Purchaser, any of the Target Companies and/or any the
Purchaser's Subsidiaries is required for any reason whatsoever to make any
payment, whether jointly and severally or otherwise, on account of any Excluded
Liabilities, irrespective of
(x) the inclusion of any such Excluded Liability in Schedule
1.01.26,
(y) the disclosure or non disclosure of same,
(z) the contingent or not contingent nature of same, the Vendors
shall pay to the Purchaser and/or to the relevant Target Company or the
Purchaser's Subsidiary, as the Purchaser may elect, an amount equal to the full
amount of the payment so effected and all actual losses, costs and expenses
(including reasonable attorney's fees) arising out of such payment.
9.02 Sole Remedy. The right to be indemnified pursuant to and in accordance
with, the provisions of Section 9.01 shall constitute the sole and exclusive
remedy of the Purchaser in respect of any breach by the Vendors of the
provisions of this Agreement. Accordingly, the Purchaser hereby waives any other
action or remedy including without limitation those directed to terminate or
annul this Agreement or to reduce the Provisional Purchase Prices or the Final
Purchase Prices.
9.03 Acknowledgement. Any information supplied by or on behalf of any Target
Company to or on behalf of the Vendors in connection with the representations
and warranties or otherwise in relation to the Assets and Liabilities, to the
Businesses, and to the business and affairs of any Target Company shall not
constitute a representation or warranty or guarantee as to the accuracy thereof
by any Target Company and the Vendors undertake to the Purchaser (on behalf of
itself and as purchaser of each Target Company and their respective directors,
employees, agents and advisers) that they will not bring any claim against any
Target Company (or any of their respective directors, employees, agents or
advisers) in respect thereto.
9.04 Time Limit for Claims. The Vendors shall have no liability under Section
9.01 unless the Purchaser serves upon the Vendors as provided in Section 17.05
(b) below written notice of any claim it may wish to assert against the Vendors
(which notice shall set out reasonable details of the relevant claim or event on
which the Purchaser's claim is predicated) on or prior to December 31, 2001,
except that if the Purchaser's claim relates to tax, employment or social
security matters, the Purchaser's notice shall be served upon
35
<PAGE>
the Vendors within and not later than 5:00 p.m. on the 10th (tenth) Business Day
after the expiration of the relevant statute of limitation.
9.05 Other Limitations.
(a) Notwithstanding anything to the contrary contained in this Agreement,
the Vendors shall have no liability to the Purchaser pursuant to Section 9.01
(i) and (ii) until the total amount of all liabilities, losses, costs and
damages incurred or suffered by the Purchaser or any Target Company or
Purchaser's Subsidiary reaches Italian Lira 1,350,000,000 in the aggregate (the
"Threshold"), it being understood that, once the Threshold is exceeded, the
Vendors shall be liable only for the amount in excess of such Threshold; and
further being understood that the Threshold shall not apply to the specific
indemnification provisions contained in Sections 9.06 and 9.07.
(b) The Vendors shall be obliged to indemnify the Purchaser, the
Purchaser's Subsidiaries, and/or the Target Companies only for the after tax
amount of any liabilities, losses, costs demands or expenses in respect of which
indemnification is sought and net of any extraordinary gain; provided that any
negative tax effect or consequence for the Purchaser and/or the Target Companies
generated by any indemnification shall be taken into account for purposes of
this Paragraph (b).
(c) The amount of any indemnification owing by the Vendors shall be reduced
by the amount of any indemnification which the Purchaser and/or the Purchaser's
Subsidiaries and/or any Target Company will actually and effectively receive
from any other Person, including insurance refunds or similar payments.
(d) The Purchaser shall not be entitled to indemnification in respect of
matters taken into account in the context and for the purposes of the procedure
for the determination of the Final Purchase Prices provided for by Article 6 of
this Agreement, to the extent of the relevant amount actually taken into account
in such context and for such purposes.
(e) Each amount owing by the Vendors under Section 9.01 shall further be
offset against the relative reserve (if any) as reflected in the Effective Date
Balance Sheets.
(f) The Parties acknowledge that a sum as `Bad-will', as provided for in
the Calculation Methodology, has been mutually agreed upon by the same;
therefore, irrespective of the manner in which such `Bad-will' is reflected or
accounted for in the Effective Date Balance Sheets, the Parties agree that such
`Bad-will' sum shall not prevent, affect or reduce the Purchaser's right to be
indemnified under this Article 9.
36
<PAGE>
9.06 Provisions Concerning Receivables.
(a) In relation to the provisions of Section 7.01.09, commencing 120 (one
hundred and twenty) calendar days after the Effective Date (the "Overdue
Period") and every 120th (one hundred and twentieth) calendar days thereafter,
the Purchaser shall deliver to the Vendors a written report indicating any
Receivables that become overdue (the "Overdue Receivables") during the Overdue
Period and, if so, the known or presumed reason for non payment and the actions
taken by the relevant creditor.
(b) If any Overdue Receivables are still outstanding 120 (one hundred and
twenty) calendar days after being reported to the Vendors as Overdue Receivables
in spite of the relevant creditor exerting its commercially reasonable best
efforts consistent with past practices to collect such Overdue Receivables
(which shall include upon request of the Vendors, the initiation of legal
recovery proceedings against third party debtors consistent with the Vendors'
past practice with respect to the Businesses), then the Vendors (or any
Affiliate) shall purchase without recourse ("pro-soluto") the Overdue
Receivables or shall cause the same to be purchased for an amount equal to the
face value thereof; provided that any amount owing by the Vendors hereunder
shall be previously offset against the aggregate bad debt reserve recorded in
the Effective Date Balance Sheets. For the avoidance of doubt, it is agreed and
understood that all costs incurred to attempt to recover the Overdue
Receivables, shall be borne by the Vendors.
(c) Unless otherwise requested by the Vendors, the assignment to the
Vendors of the Overdue Receivables shall not be notified to the debtor and the
relevant creditor shall continue in its efforts to collect the Overdue
Receivables. If any Overdue Receivable is collected by the relevant creditor at
any time after assignment to the Vendors, the amount so collected shall
immediately be credited to the Vendors or the Affiliate which will have
purchased the Overdue Receivables at the same value as of the date of actual
payment by the relevant debtor.
(d) Without any prejudice to the provisions set forth in this Agreement, in
the event a Receivable is paid to any of the Vendors or their Affiliate after
the Effective Date and prior to being purchased by the Vendors pursuant to
Section 9.06(b) , the amount so paid shall be immediately credited by the
relevant Vendor or their Affiliate to the Purchaser and/or Target Companies or
such other Person that the Purchaser shall designate, value as of the date of
actual payment by the relevant debtor.
9.07 Indemnification with respect to the 1998 P&L.
(a) If on or before
37
<PAGE>
December 31, 2001, the Purchaser determines by applying the Accounting
Principles in a consistent manner that a cost related to the year ended on
December 31, 1998 was higher than 20% of such specific cost as recorded (also on
aggregate basis) in the 1998 P&L or was not recorded in the 1998 P&L (the "Above
Calculation"), the Purchaser shall deliver to the Vendors a statement to such
effect attesting the correct application of the Accounting Principles, whereupon
the Vendors shall pay to the Purchaser an amount equal to two times the full
amount of the excess cost or the amount of the unrecorded cost reported by the
Purchaser as aforesaid in accordance with provisions set forth in Paragraph (b)
below.
(b) The Vendors shall not be obligated to indemnify the Purchaser for any
specific cost or aggregate costs determined under Paragraph (a) of this Section
9.07 if
(i) the Vendors can demonstrate, by applying the Accounting Principles
in a consistent manner, that another cost related to the year ended on December
31, 1998 was lower than 20% of such specific cost as recorded (also on an
aggregate basis) in the 1998 P&L (the "Under Calculation") and
(ii) Under Calculation is a number greater than the Above Calculation.
If the Above Calculation is greater than the Under Calculation, the Vendors
shall pay to the Purchaser an amount equal to 2 (two) times such difference.
Only for the purposes of the determination of the Under Calculation, the
Vendors shall not be permitted to take into account any change to the 1998 P&L
with respect to:
(x) the allocation of corporate costs to the Businesses,
(y) a different classification of any cost from above to below
EBIT or vice versa as indicated and understood with respect to the Schedule
7.01.07 (b) (iv), and
(z) to any change in the sales of the Businesses.
(c) Upon the receipt of notice clearly specifying the content of a Party's
claim with respect to the Above Calculation or the Under Calculation, as the
case may be, to which notice shall be attached an opinion of the claiming
Party's Auditor attesting the correct application of the Accounting Principles
with respect to the Above Calculation or the Under Calculation, as the case may
be, the other Party shall submit its notice and the opinion of the claiming
Party's Auditor to its Auditor, which within 30 (thirty) Business Days shall
render its opinion thereon. If any disagreement arises with respect to this
Section 9.07, the Parties shall negotiate in good faith. In the event that the
Parties are unable to settle their differences thirty (30) Business Days after
the opinion of the claiming Party's Auditor was received by the other Auditor,
then the dispute shall be referred to the Expert (as defined in Section
1.01.27). If the dispute is submitted to the Expert for
38
<PAGE>
resolution, the determination by the Expert shall be binding and conclusive on
the Parties. The Expert shall give its determination as soon as practicable
following its appointment by means of a notice to be delivered to both Parties
and the Auditors stating how its determination was rendered. The fees and costs
of the Expert shall be borne by the Vendors and the Purchaser as allocated by
the Expert in its determination on the basis of the merit of relevant positions
of the Parties submitted to the Expert.
9.08 Amnesty. In the event that, at any time between the Completion Date and the
date on which the liability of the Vendors shall expire pursuant to Section 9.04
any law, regulation, order or decree should be enacted in Italy having as an
effect the right to settle, in whole or in part, tax or social security
obligations of the Vendors covered by the Vendors' indemnity hereunder (any such
law, regulation, order or decree is hereinafter referred to as an "Amnesty"),
the following provisions shall apply:
(i) the Vendors shall have the right to notify the Purchaser of its
request that the relevant Target Company(ies) availS itself of the Amnesty;
(ii) the Purchaser shall have the right to determine, in its sole
discretion (irrespective of any request of the Vendors under Paragraph (i)
preceding), whether or not the relevant Target Company(ies) should avail itself
of the Amnesty;
(iii) if the Purchaser elects to proceed with an Amnesty without the
prior agreement or request of the Vendors, all costs and expenses of such
Amnesty shall be borne by the Purchaser;
(iv) if the Purchaser elects to proceed with an Amnesty in agreement
with the Vendors or pursuant to the Vendors' request hereunder, all costs and
expenses of such Amnesty shall be borne by the Vendors;
(v) if the Purchaser elects not to proceed with an Amnesty
notwithstanding the Vendors' request pursuant to Paragraph (i) preceding, it
shall be free to do so, but the Vendors' liability under Section 9.01 in respect
of the matter constituting the subject of such Amnesty shall be limited to the
amount that would have been paid by the Vendors pursuant to paragraph (iv)
preceding had the Purchaser elected to proceed with the Amnesty in accordance
with the Vendors' request.
9.09 Handling of Claims. If any event occurs which could give rise to the
Vendors' liability under Section 9.01, the following provisions shall apply:
(i) the Purchaser shall give prompt written notice to the Vendors of
such event, shall co-operate with respect to all reasonable requests from
Vendors including to
39
<PAGE>
provide all reasonable particulars of the claim or event and shall specify (if
possible) all amounts the payment of which are requested in connection
therewith;
(ii) the Vendors shall have the right to control, and, to the maximum
extent permitted by law, join, at their cost, by counsel of their choosing, in
the defence of any claim, action, suit or proceeding asserted or initiated,
which constitutes the subject matter of a notice to the Vendors of the kind
referred to under Paragraph (i) preceding;
(iii) the Purchaser shall have the right to participate in the defence
of any such claim, action, suit or proceeding and, if the Vendors do not
exercise the right provided for by Paragraph (ii) preceding, shall be obliged to
diligently defend same, provided, however, that if Vendors have assumed the
defence, any subsequent participation therein by Purchaser shall be at
Purchaser's costs; it being understood that in any event the Vendors shall
co-operate with the Purchaser in any such defence and shall provide all
reasonable information and documents necessary for such defence;
(iv) the Purchaser shall not make nor accept any settlement of any
claim, action, suit or proceeding of the kind referred to under Paragraph (ii)
preceding, nor shall make or permit to be made acquiescence thereto or, as the
case may be, to any demand, assessment, judgement or order constituting the
subject matter of a notice to the Vendors of the kind referred to under
Paragraph (i) preceding or, as the case may be, having resulted from any such
claim, action, suit or proceeding, nor shall permit any Target Company to do so,
without the prior written consent of the Vendors, which consent shall be
communicated by the Vendors in writing within twenty (20) Business Days from the
date of receipt of any written proposal and shall not be withheld without
reasonable justification.
(v) If a firm offer is made to settle any matter giving rise to the
Vendors' liability under this Agreement which the Vendors, but not the
Purchaser, are willing to accept, the Purchaser and/or the relevant Target
Company (as the case may be) shall be free not to enter into such settlement and
to commence or continue litigation at their own expense, and the Vendors'
liability under Section 9.01 shall be limited to the amount of the proposed
settlement.
9.10 Mitigation. The Purchaser will take or procure the taking of such
reasonable steps as are required by law in order to mitigate any claim under the
representations and warranties, subject to the Purchaser being indemnified and
secured to its reasonable satisfaction against all reasonable costs and expenses
incurred in connection therewith.
40
<PAGE>
9.11 Excluded Matters.
(a) Notwithstanding anything to the contrary contained in this Agreement,
it is hereby specifically understood and agreed that the Vendors do not make any
representation or warranty and shall have no liability whatsoever in respect of:
(i) any compliance or non-compliance of the Italian Business or the
Assets included therein with any applicable Italian environmental laws and
regulations;
(ii) any compliance or non-compliance of the Businesses or the Assets
included therein (including the Ferrania facility) with applicable health and
safety or similar laws and regulations, excluding any liability arising out from
claims by Transferred Employees relating to pre-Completion health and safety
conditions of the work place, but only to the extent damages relate to
pre-Completion time period;
(iii) the adequacy of any existing insurance coverage.
(b) The Purchaser, the Purchaser's Subsidiaries, the Target Companies, and
their successors and assignees, for perpetuity, hereby expressly waive any right
or claim against the Vendors and their Affiliates, and Minnesota Mining
Manufacturing Company and its subsidiaries however related to the Excluded
Matters, including, for clarity, any environmental matters arising in or arising
out with respect to the Ferrania facility, that is presently existing or may
arise in the future. For sake of clarity, the Excluded Matters do not include
any pending environmental litigation matters as of the Completion Date,
including those listed in Schedule 11.04 as "Environmental Lawsuits".
(c) Without prejudice to the provisions of this Section 9.11, in connection
with the excluded matters listed in Section 9.11(a)(ii) above, the Parties have
agreed that the Vendors shall recognise and pay on the Completion to the
Purchaser the all inclusive amount of US$ 2.2 million, which shall be paid by
Vendors or an Affiliate to the Purchaser as a final contribution towards costs
that may be incurred by the Purchaser with respect to bringing the Ferrania
facility into compliance with applicable environmental and health and safety
laws.
9.12 Purchaser's Obligations to Indemnify.
(a) If Purchaser is in breach of any of the representations and warranties
set forth in Article 8, the Purchaser shall pay to the Vendors an amount equal
to 100% of all actual damages and expenses incurred by the Vendors which would
not have been incurred had said representations and warranties not been
breached, provided however that the Vendors shall have the right to assert
claims pursuant to this Section 9.12 until December 31, 2001.
41
<PAGE>
(b) The Purchaser furthermore shall indemnify the Vendors in respect of the
full amount of any Assumed Liability the payment of which is claimed from any of
the Vendors at any time after the Completion Date pursuant of the provisions of
article 2560, para. 1 of the Code or law applicable in other jurisdiction which
provides the same or similar effect.
(c) The Purchaser shall indemnify and hold the Vendors harmless from any
actual losses, costs and expenses (including reasonable attorney's fees) to the
extent that such losses derive from a Product manufactured or from acts,
omissions of acts, events and/or circumstances which exist or occur after the
Completion Date, including the continuation by the Purchaser, Purchaser's
Subsidiaries or Target Companies of the Vendors' past practices that Relate to
the Businesses, except where a breach of the representations and warranties set
forth in Article 7 is established to have occurred.
(d) The procedure set forth in Section 9.09 and the duty to mitigate set
forth in Section 9.10 shall apply mutatis mutandis to any claim made pursuant to
this Section 9.12.
ARTICLE 10
THE KODAK SUPPLY AGREEMENT
10.01 Acknowledgement. The Parties acknowledge the contents of the provisions
set out in clause 2.01 (related to the sale of the products on an exclusive
basis) of the Kodak Supply Agreement. In relation to the above, the Vendors
agrees and undertakes to cooperate with the Purchaser and use its commercially
reasonable best efforts to have the Kodak Supply Agreement amended in a manner
so as to eliminate the above provisions and any other related provisions.
10.02 Special Consideration. In consideration for such undertakings of the
Vendors and their Affiliates (which for the avoidance of doubt do not require
achievement of any results), the Purchaser shall pay to Imation S.p.A. the
following amounts net of VAT (if applicable):
(a) Italian Lira 1,000 (one thousand) for each 1 sqm. of Medical Imaging
Systems films; and
(b) an amount equal to 2% of the sale price of any product (as defined in
the Kodak Supply Agreement) other than product mentioned in Paragraph (a) above;
provided that
(i) the aggregate amount payable to Imation pursuant to this Section
10.02
42
<PAGE>
shall not exceed Italian Lira 17.5 billion (seventeen point five billion) and
(ii) such products shall be supplied by the Purchaser and/or its
Affiliates to any Person other than any company belonging to Kodak group.
10.03 Payment Terms. All payments due pursuant to Section 10.02 shall be made on
a quarterly basis within thirty days from the end of each relevant quarter and
shall be accompanied by report of such date. The calculation shall be made on
the net amount actually invoiced during the relevant preceding quarter. For any
amount so paid, the Vendor shall issue a relevant invoice.
10.04 Right to Inspect. In order to verify the due and punctual fulfilment by
the Purchaser of the provisions of this Article 10, Vendors shall have the right
to inspect or have inspected (at its own cost) during regular business hours
(upon reasonable notice, and to the extent such access does not unreasonably
interfere with Purchaser's, each Target Company's or any Purchaser Affiliates'
activities) all relevant records of the Purchaser or the relevant Affiliate
involved in the manufacture and sale of the products referred to in Section
10.02.
ARTICLE 11
OTHER COVENANTS OF THE PARTIES
11.01 Release. The Purchaser agrees to forever release any director, officer and
statutory auditor (or equivalent) and external auditors of each Target Company
resigning on the Completion Date of and from any liability which any of them may
have in relation to action or omissions in the carrying out of the respective
duties (including without limitation in respect of the Contribution in Kind or
the USA Business Transfer) and undertakes to adopt (or cause to be adopted)
appropriate corporate resolutions to such effect as soon as practicable after
Completion.
11.02 Group Insurance.
(a) The Purchaser acknowledges that most of the insurance policies listed
in the document attached hereto as Schedule 11.02 are group policies which would
expire at Completion.
(b) Vendors shall and shall cause their Affiliates to provide the Purchaser
with all information, documents and support as may be reasonably requested by
the Purchaser in order to put in place any new insurance policy.
(c) If during the period from the date hereof to the Completion Date, any
accident occurs to the Businesses, the relevant Target Company shall be entitled
to receive
43
<PAGE>
any indemnification payable pursuant to the insurance policies currently in
effect, it being understood and agreed that such indemnification shall not be
reflected in the Effective Date Balance Sheets and shall constitute the
Purchaser's sole remedy in respect of such accident and that the occurrence of
any such event shall not delay Completion hereunder except that in the event
that such accident materially prevents the Businesses to be continued in an
ordinary course manner, in which case, the Parties shall negotiate in good faith
to arrive to an equitable resolution of the problem.
11.03 Replacement of Guarantees.
(a) Schedule 11.03 attached hereto contains a list of the guarantees and
similar instruments relating to the Businesses issued by the Vendors or the
Vendors' Subsidiaries or other Affiliates in favour of other Persons.
(b) The Purchaser agrees to use its best efforts to have said guarantees
and other instruments released and/or replaced as soon as practicable and in any
event not later than 60 (sixty) Business Days from the Completion Date and in
any event it being further understood that if the Purchaser is unable to obtain
such release or replacement within such term, the Purchaser shall indemnify and
hold the Vendors free and harmless of and from any liability arising out of such
guarantees and for any claim asserted thereunder.
11.04 Certain Claims and Litigation. The Vendors shall continue to defend
against the claims and litigation matters listed on Schedule 11.04 and shall
bear all costs and liabilities related thereto. The Purchaser, the Purchaser's
Subsidiaries and the Target Companies agree to cooperate fully with all
reasonable requests from the Vendors for information and documents and to
provide access to and availability of witnesses to enable the Vendors to
properly defend against such claims and litigation.
11.05 Grants.
(a) The Purchaser acknowledges that pursuant to the Contracts listed in
Schedule 11.05 attached hereto the Italian Newco will collect some amounts as
grants (the "Grants").
(b) In relation to the above, the Purchaser undertakes to take or cause to
be taken all reasonable actions consistent with past practices to secure the
Grants and to pay or to cause the Italian Newco to pay to the Italian Vendors
(as the Italian Vendors may elect) any amount so collected, net of its tax
effects and any related cost. Any payment due under this Section 11.05 shall be
made with value as of the date of actual payment of such Grant, it being
understood that the provisions of Section 10.04 shall apply also in respect of
the documentation relating to such grants.
11.06 IT System.
(a) The Purchaser acknowledges that a separate IT System (the
44
<PAGE>
"IT System") based on the design of the current system used by the Businesses is
being installed by Vendors and external software houses which is scheduled to be
materially operational by August 1, 1999.
(b) Vendors will keep the Purchaser informed on the achievement of the
project milestones and will answer any query which the Purchaser may have
concerning the IT System.
(c) Purchaser acknowledges that the installation of a separate IT System is
a complicated process that must be completed in manageable, sequential phases,
and requires the active participation of the Purchaser. Five phases ("Phases")
are necessary to complete the installation of the IT System:
(i) Phase I: Solution Design (already completed);
(ii) Phase II: Unit Test (in process);
(iii) Phase III: Solution Test (will require Purchaser's approval);
and
(iv) Phase IV: System Start-up (which includes four components)
(1) Order to Cash
(2) Purchase to Pay
(3) Finance / Human Resources
(4) Manufacturing / Inventory
(v) Phase V: Final Acceptance
(d) The Vendors shall not proceed with Phase IV until receiving the
approval by the Purchaser of Phase III which approval shall not be unreasonably
withheld and shall be provided no later than July 23,1999. The Phase III
approval by the Purchaser will indicate acceptance of the state of the system,
the schedules for the system component start-up and any exceptions (e.g., parts
of the system that are not completed). The exception list will indicate the
interim workaround solution and the time required to fix the problem. The
exception list must be accepted and countersigned by Vendors which acceptance
shall not be unreasonably withheld.
(e) The completion of Phase V (Final Acceptance) shall take place at the
end of the 6 (six) week period following the Phase IV (System Start-up), and be
determined by the Purchaser's signing of the Acceptance Certificate in the
agreed form attached hereto as Schedule 11.06 (e) which sets forth the technical
specifications to be met for the purposes of such acceptance (the "Acceptance
Certificate"). In the event that acceptance is not obtained prior to the
Completion, such event shall not delay the Completion and Vendors
45
<PAGE>
undertake to supply services or to cause any service (that should have been
supplied by way of the IT System) to be supplied to the Purchaser, each Target
Company and any Purchaser's Subsidiaries (as the case may be) from the
Completion Date until the issuance of the Acceptance Certificate (subject to the
provisions of Paragraphs (d) and (g)).
(f) If a dispute arises with respect to the installation of the IT System
or with the signing of the Acceptance Certificate, the claiming Party shall
clearly articulate the dispute in a written notice (the "Notice") and serve such
Notice upon the other Party. The other Party shall have 5 (five) Business Days
to respond to the Notice. If the Parties cannot resolve the dispute among
themselves within 10 (ten) Business Days from the day that the responding Party
received the Notice, either Party can refer the dispute to the Person designated
by Phil Cuneo who shall decide upon the dispute as soon as practicable acting as
the final adjudicator upon this matter and whose decision shall be conclusive
and binding. All costs related hereto will be apportioned by such designed
Person to the appropriate party based on merit of the Party's claim.
(g) The Purchaser shall pay a total fixed amount of US $2,500,000 (the
"Installation Fee") in consideration for the installation of the IT System; it
being understood, with respect to any additional costs related to workarounds'
solutions referred to in Paragraph (d) that these additional costs shall be
borne by the Vendors, provided, however, that any additional cost related to
such workarounds was not caused by any negligence or circumstances depending on
the performance of the Purchaser or the Purchaser's designee. The Parties agree
to share equally the additional costs of workaround that are necessary because
of the failure of a third party to perform and which have not been caused by a
negligence or circumstance depending on the performance of the Vendors or the
Purchaser; it being understood and agreed that the Vendors, upon an agreement
with the Purchaser, shall sue such third party for its negligence, sharing all
costs and recoveries from such suits. Vendors shall bear no liability whatsoever
for the operability or functionality of the IT System or any damages resulting
therefrom except as stated on the Acceptance Certificate.
(h) Payment of the Installation Fee shall be allocated into the following
two progress payments:
(i) 50% on the Completion and
(ii) 50% upon completion of Phase V (Final Acceptance).
(i) In the performance of the activities provided for in this Section
11.06, the Purchaser shall be entitled to avail itself of the co-operation of
the Transferred Employees.
46
<PAGE>
11.07 Oracle.
(a) Not later than December 31, 1999, Purchaser shall inform the Vendors of
its non-binding intention to continue with the Oracle manufacturing modules. Not
later than March 31, 2000 the Purchaser shall inform the Vendors of its decision
to continue with the Oracle manufacturing modules. If the Purchaser decides to
continue using the manufacturing modules of Oracle after the expiration or
termination of the portion of the Transition Services Agreement relating to the
IT System (the "Transitional Termination"), the Purchaser shall be obligated to
pay and shall pay or cause to be paid to the Vendor or Vendor Affiliate
designated by Vendors upon presentation of an invoice, an amount of Italian Lira
2.6 billion after the Transitional Termination as a compensation for all
expenditures made by the Vendors for the customisation of Oracle to be utilised
in the new IT System.
11.08 Results for the period June 1, 1999 through the Effective Date.
(a) The Vendors or an Affiliate so designated by the Vendors agree to pay
to the Purchaser, any Purchaser Subsidiary, or any Target Company (as the
Purchaser may elect) in total, an amount equal to 13% of the aggregate net sales
of the P&C Business for the period June 1, 1999 until the Effective Date. Any
payment to be made pursuant to this Paragraph shall be made within the end of
the month following the month in which such sales took place.
(b) During the same period, the Vendors will have made capital expenditures
and accounted for the same in respect of the Businesses for an aggregate amount
equal to at least US$ 0.5 million, it being understood that any shortage with
respect to such amount of US$ 0.5 million shall be set off against the amounts
owing to the Vendors for services rendered pursuant to the Transition Services
Agreement.
11.09 Incentive Production Plan.
(a) The Purchaser acknowledges that an incentive production plan is
presently in force in favor of the employees of the Italian Business (the
"Incentive Production Plan").
(b) To the extent no specific reserve is recorded in the Effective Date
Balance Sheets, the Vendors undertake to reimburse to the Italian Newco 7/12 of
any amount paid to its employees under the Incentive Production Plan within 20
(twenty) Business Days from the receipt of the request sent by the Italian Newco
specifying that the amounts due under such plan for the financial year ending on
December 31, 1999 have been actually paid.
11.10 Cooperation by the Parties. Following the Completion:
(a) the Vendors undertake to reasonably cooperate with the Purchaser and
its advisors (as the Purchaser
47
<PAGE>
may elect) and to provide (upon reasonable notice) the Purchaser, each Purchaser
Subsidiary, each Target Company and their advisors with any document, book,
record and any other information which are reasonable necessary or useful to the
Purchaser, each Target Company and their advisors for any tax purposes related
to the Businesses, including without limitation, in order to allow the Italian
Newco to apply any tax law and rule related to the Contribution in Kind in
accordance with Article 4, Paragraph 1, of D. Lgs. n. 358, dated October 8,
1997. Without limiting the generality of the foregoing, the Italian Vendors
shall reasonably cooperate with the Italian Newco in order to obtain an update,
as of the Effective Date, of the Tax Certificate (as defined in Section 2.07);
and
(b) the Parties agree to reasonably co-operate in good faith and to provide
documents and information which shall be reasonable necessary or useful for the
other Party in connection with and/or related to the representations and
warranties set forth in Articles 7 and 8 and for indemnification provided for by
Article 9.
11.11 Collection of Receivables. The Purchaser, Purchaser Subsidiaries, and the
Target Companies shall use commercially reasonable efforts consistent with past
practices to collect the Receivables and Overdue Receivables
11.12 Transition Services Agreement. The Purchaser, Purchaser Subsidiaries, and
the Target Companies shall use their commercially reasonable best efforts to
provide the Vendors with a list of the services requested to be supplied by the
Vendors under the Transition Services Agreement by July 10, 1999. The Parties
shall negotiate in good faith to expediently agree on the scope, levels and
costs (which shall be determined on the Fully Burdened Costs basis, as defined
in the Transition Services Agreement) of the transition services required. The
Vendors shall use their commercially reasonable best efforts to obtain the
consents of any third party Service Provider (as defined in the Transition
Services Agreement), if required, on or prior to the Completion Date; it being
understood that if any of such consents can not be obtained within such term,
the Vendors shall timely inform the Purchaser of such circumstances.
11.13 Continuation of Benefits for US Transferred Employees.
(a) Except as set forth in this Section 11.13 and in Sections 11.14 and
11.15, as of the Effective Date, the employee benefits of each Transferred
Employee employed by the USA Business ("US Transferred Employees") shall be
terminated. Following Completion, in accordance with the requirements of Part 6
of Title I of the Employee Retirement Income Security Act of 1974, US Vendor
shall provide all US Transferred Employees who are covered by the
48
<PAGE>
group medical plan maintained by US Vendor the right to continue, on an
after-tax basis, to participate in such plan. In addition, until the earlier of
1) the last day of the eighteenth (18th) month following Completion or
2) the date on which USA Company has established an employee benefit
plan(s) which provide substantially similar benefits to the US Transferred
Employees, US Vendor shall provide, on an after tax basis, all US Transferred
Employees with the right to continue to participate in the following employee
benefit plans maintained by US Vendor:
Dental
Vision
Basic Life
Child Life
Basic Accidental Death and Dismemberment
Supplemental Accidental Death and Dismemberment
Health Care Reimbursement Account (only until December 31, 1999)
Group Legal Services
To the extent that any insurance company or other vendor providing the benefits
described above shall refuse, for any reason, to pay a US Transferred Employee
the benefit or benefits otherwise due under the terms of such plan(s), Purchaser
shall have no obligation to pay such US Transferred Employee such benefit or
benefits.
11.14 Treatment of Pension Benefits for Grandfathered US Transferred Employees.
(a) Effective as of the day preceding the Effective Date, Imation Corp.,
parent of US Vendor, shall automatically change the status of all US Transferred
Employees who are at least age fifty-five (55) and who have completed at least
five (5) full years of Vesting Service (as defined in Section 1.1.48 of the
Imation Cash Balance Plan, hereinafter referred to as "Cash Balance Plan") as of
the day preceding the Effective Date from active to retired. Such US Transferred
Employees shall be immediately eligible to receive such pension and retiree
medical benefits from Imation Corp. and/or Minnesota Mining and Manufacturing
Company ("3M") to which they are eligible pursuant to the terms of the employee
benefit plans they had been participating in as of the day preceding such date.
Any US Transferred Employee who, as of the day of the Completion, is under age
fifty (50) shall not be entitled to any of the benefits described in this
Section 11.14 or in Section 11.15.
49
<PAGE>
(b) US Vendor shall cause the Cash Balance Plan to be amended to provide
that, effective as of the Effective Date, each US Transferred Employee who, as
of the day preceding the Completion Date, is at least age fifty (50) but has not
yet reached age fifty-five (55), has completed at least five (5) years of
Vesting Service, and who is a "Grandfathered Employee" (as defined in Section
8.2(h)(ii) of the Transfer and Distribution Agreement between Minnesota Mining
and Manufacturing Company and Imation Corp. dated as of June 18, 1996
("3M/Imation Distribution Agreement")), shall have their service with USA
Company recognized for purposes of
1) eligibility for early retirement subsidies attributable to each US
Transferred Employee's Total Grandfathered Benefit (as defined in Appendix F,
Section 1.4 of the Cash Balance Plan),
2) the four percent (4%) "3M Special Retirement Incentive" (as defined
in section 8.2(e)(iv) of the 3M/Imation Distribution Agreement), and
3) the six percent (6%) Pay Credit (as defined in Section 1.1.29 of
the Cash Balance Plan) contribution. For each individual US Transferred
Employee, such recognition of USA Company service shall terminate as of the end
of the month in which such person reaches age fifty-five (55), whereupon Imation
Corp. shall automatically change their status from active to retired. Such
retired US Transferred Employees shall be immediately eligible to receive a
distribution from the Imation Corp. and/or 3M pension plan as they are otherwise
eligible for pursuant to the terms of such pension plans.
(c) Purchaser and US Vendor recognize that amendments to the Cash Balance
Plan will be required in order to implement the provisions of this Section
11.14, and Purchaser shall in no way be obligated to the US Transferred
Employees with respect to the benefits to be obtained or paid as a result of
such amendments, except that Purchaser agrees that it will pay one-half of the
cost of providing such benefits to the Grandfathered Employees described in
subsection (b) above, with US Vendor to pay the other one-half of such cost. To
the extent that, for any reason other than a participant's failure to meet the
applicable requirements of the Cash Balance Plan, the benefits described in
subsection (b) above are not provided through the Cash Balance Plan to the
Grandfathered Employees entitled to such benefits, US Vendor and Purchaser shall
each pay to each affected Grandfathered Employee one-half of the value of
his/her lost benefits.
11.15 Treatment of Retiree Medical Benefits for Grandfathered US Transferred
Employees.
(a) Effective as of the Effective Date, each US Transferred Employee who,
as of the day preceding the Completion Date, is at least age fifty (50) but has
not yet reached
50
<PAGE>
age fifty-five (55), has completed at least five (5) years of Vesting Service
and who is a "Grandfathered Employee" for purposes of the 3M Post-Retirement
Medical Plans (as defined in Section 8.3(a)(iii) of the 3M/Imation Distribution
Agreement), shall have their service with USA Company recognized for purposes of
eligibility for 3M Post-Retirement Medical Plans. For each US Transferred
Employee, such recognition of USA Company service shall terminate as of the end
of the month in which such person reaches age fifty-five (55), whereupon Imation
Corp. shall automatically change their status from active to retired. Such
retired US Transferred Employees shall then be immediately eligible to receive
such 3M Post-Retirement Medical benefits as they are otherwise eligible to
receive pursuant to the terms of such plan.
(b) Purchaser and US Vendor recognize that amendments to the 3M
Post-Retirement Medical Plan may be required in order to implement the
provisions of this Section 11.15, and Purchaser shall in no way be obligated to
the Grandfathered Employees described in subsection (a) above with respect to
the benefits to be obtained or paid as a result of such amendments, except that
Purchaser agrees that it will pay one-half of the cost of providing such
benefits to such Grandfathered Employees, with US Vendor to pay the other
one-half of such cost. To the extent that, for any reason other than a
participant's failure to meet the applicable requirements of the 3M
Post-Retirement Medical Plan, the benefits described in subsection (a) are not
provided through the 3M Post-Retirement Medical Plan to the Grandfathered
Employees entitled to such benefits, US Vendor and Purchaser shall each pay to
each affected Grandfathered Employee one half of the value of his/her lost
benefits.
11.16 Purchaser 401(k) Plan for US Transferred Employees. Purchaser shall,
effective as of Completion, establish
(i) a defined contribution plan ("USA Company 401(k) Plan") intended
to qualify under Section 401(a) of the Internal Revenue Code (the "IRS Code")
and
(ii) a trust under the USA Company 401(k) Plan intended to qualify
under Section 501(a) of the IRS Code. The USA Company 401(k) Plan shall allow
for the receipt of "eligible rollover distributions" as defined in Section
402(c)(4) of the IRS Code.
ARTICLE 12
NON-COMPETITION
12.01 Undertaking of the Vendors.
(a) The Vendors and their Affiliates hereby undertake to the Purchaser, the
Purchaser Subsidiaries, Target Companies, and their
51
<PAGE>
Affiliates that except as otherwise agreed in writing by the Parties, they will
not, either solely or jointly with any other Person (either on their own account
or as the agent of any other Person) and for a period of 5 (five) years from the
Completion Date, compete with the Purchaser, the Purchaser Subsidiaries, Target
Companies, and any of their Affiliates in:
(i) the P&C Business,
(ii) the Medical Imaging Systems Business,
(iii) the Imagesetting Business excluding the manufacture (subject to
the terms and conditions of the Supply Agreement), distribution and sale of
imagesetting products and substitutable products for the same (as the term
"imagesetting" has the meaning attributed to it in Section 1.01.10(iii)),
(iv) the Inkjet Business, and
(v) the FPE Business,
and in the following territories: Europe, North and South America, Australia,
the Asian Continents (excluding North Korea), and Africa (excluding Mali).
(b) Notwithstanding anything to the contrary in this Paragraph 12.01, it
shall not constitute competition prohibited under this Paragraph 12.01 for
Vendors and their Affiliates to:
(i) continue to carry on or make reasonable extensions to Vendors'
businesses that are not the Businesses, including but not limited to Vendors'
data storage and information management business, printing and proofing
business, and digital solutions and services business, even if the products and
services within such Vendors' businesses are sold or provided to the fields
noted in the previous sentence of this Paragraph 12.01; and
(ii) assign or license intellectual property rights to third parties
in fields in which the Vendors has the right to assign or license.
12.02 Undertakings of the Purchaser. The Purchaser, the Purchaser Subsidiaries,
the Target Companies, and a their Affiliates hereby undertake to the Vendors and
their Affiliates, that except as otherwise agreed in writing, they will not,
either solely or jointly with any other Person (either on their own account or
as the agent of any other Person) and for a period of 5 (five) years from the
Completion Date, compete with the Vendors and their Affiliates in:
(a) the information business (including but not limited to data storage,
data security, data management, digital asset management and information
mastering),
52
<PAGE>
(b) the imaging business (including but not limited to, imaging
applications intended for use in proofing, document imaging, electrophotography,
toners and electrophotographic inks, carbonless paper, and color image
management, but not:
(i) imaging applications explicitly provided in the Business,
(ii) the creation of graphics using wet processed silver halide based
film or paper media, including but not limited to matrix film used in the motion
picture industry, flexible polyester printing plates, photoresists, and
photomasks , except to the extent such wet processed silver halide based film or
paper media is intended for use in proofing, electrophotography, carbonless
paper or color image management,
(iii) coated or uncoated film for imaging including but not limited to
film known in the motion picture industry as blank film for use in the motion
picture industry but excluding imaging applications intended for use in
proofing, document imaging, electrophotography, toners, electrophotographic
inks, carbonless paper, and color image management;
(iv) imaging applications based on materials, equipment, systems and
subsystems and the software for running them, intended for the creation of
graphics for consumer and professional photography industry (as "consumer" and
"professional" are defined in Section 1.01.10(i) and excluding imaging
applications intended for use in proofing, document imaging, electrophotography,
toners, electrophotographic inks, carbonless paper, and color image management,
and
(v) the distribution and sale of printing plates; and
(c) the software business (computer programs and portions thereof, not
limited to software code, but not software intended for and within the
Businesses);
and in the following territories: Europe, North and South America, Australia,
the Asian Continents (excluding North Korea), and Africa (excluding Mali).
12.03 Non Solicitation by Vendors. The Vendors hereby undertake to the
Purchaser, the Purchaser Subsidiaries, and Target Companies that except as
otherwise agreed in writing, they will not, either solely or jointly with any
other person (either on their own account or as the agent of any other person)
and for a period of 2 (two) years from Completion, induce, solicit or endeavour
to entice to leave the service or employment any of the Key Employees, occupying
a senior or managerial or other key position.
12.04 Non-solicitation by the Purchaser. The Purchaser, Purchaser Subsidiaries,
and Target Companies undertake to the Vendors that except as otherwise agreed in
53
<PAGE>
writing, they will not, either solely or jointly with any other person (either
on their own account or as the agent of any other person) and for a period of 2
(two) years from Completion, induce, solicit or endeavour to entice any employee
to leave the service or employment of the Vendors.
12.05 Other Terms.
(a) The Parties agree that the undertakings contained in this Article 12
are reasonable and are entered into for the purpose of protecting the Businesses
and the businesses of the Vendors and their Affiliates and that accordingly the
benefit of the undertakings may be assigned by the either Party (and its
successors) to any subsequent purchaser of the Businesses or if the businesses
of the Vendors and their Affiliates (as the case may be) with reasonable notice
to other Party but without the consent of such other Party.
(b) In the event of a sale, takeover, merger, or demerger of a Party, by,
with, or to a third party which is a competitor:
(x) in one or more of the Businesses, if the involved Party is one or
more of the Vendors; or
(y) in one or more of the Vendors' businesses, if the involved Party
is the Purchaser, and/or one or more Purchaser's Subsidiaries and/or one or more
Target Companies; the undertakings in this Article 12 shall not be applicable to
such third party or the combination of the relevant Party with such third party
(the "Combination") provided, however, that the undertakings in this Article 12
shall continue to apply to the involved Party and any attempt by the Combination
to use the know-how retained by the involved Party's employees to enhance the
Combination's competitive activities in one or more of the Businesses or the
Vendors' businesses, as the case may be.
(c) Each undertaking contained in this Article 12 is and shall be construed
as separate and several and if one or more of the undertakings is held to be
against the public interest or unlawful or in any way an unreasonable restraint
of trade or unenforceable in whole or in part for any reason the remaining
undertakings or parts thereof, as appropriate, shall continue to bind the
Purchaser or the Vendors and any of their Affiliates, as the case may be.
(d) If any undertaking contained in this Article 12 shall be held to be
void but would be valid if deleted in part or reduced in application, such
undertaking shall apply with such deletion or modification as may be necessary
to make it valid and enforceable and the Parties shall in good faith negotiate a
valid and substitutable undertaking for the deleted or reduced undertaking that
will effectuate the original intention of the Parties.
54
<PAGE>
(e) The Parties acknowledge that the consideration of such undertakings by
the Purchaser and the Vendors and Vendors' Subsidiaries has been already
computed in the determination of the purchase prices.
ARTICLE 13
TAXES AND OTHER EXPENSES
Except as otherwise expressly provided in other clauses of this Agreement,
any cost, tax, duty or charge arising in connection with the transactions
contemplated by this Agreement, shall be borne and paid for as follows :
(a) any costs, expenses, taxes, duties or charges of any kind (including,
without limitation, notarial fees, registration tax, other tax or similar)
related to the Contribution in Kind, including the fees owing to the independent
appraiser appointed by the Tribunal of Savona for the preparation of the
Appraisal, shall be borne by the Italian Vendors;
(b) any costs, expenses, taxes, duties or charges of any kind (including
notarial fees, registration tax, the costs of the "FISSATO BOLLATO" or similar)
levied in connection with the Deeds of Transfer, the USA Business Transfer
Agreement, the sale of the Shares or the USA Shares and in general associated
with the transfer of the Businesses shall be paid by the Vendors and the
Purchaser in equal portions; and
(c) the Purchaser and Imation and the Vendors shall each pay the fees,
expenses, and disbursements incurred by their respective auditors, advisors,
legal counsel and broker, if any.
ARTICLE 14
CONFIDENTIALITY
14.01 Confidential Information.
(a) The Purchaser shall keep secret and confidential any confidential
information concerning the business and affairs of the Vendors or their
Affiliates (other than those information related to the Businesses and each
Target Company) received by virtue of this Agreement and/or any Ancillary
Agreement or of any investigations made in connection therewith and shall also
cause its officers, employees, and consultants to whom such information has been
disclosed for the purposes of this Agreement and/or any Ancillary Agreement to
comply with such commitment.
(b) The Vendors shall keep confidential any information related to the
Businesses and/or concerning the business and affairs of the Purchaser received
by virtue
55
<PAGE>
of this Agreement or of any investigations made in connection therewith and
shall also cause its officers, employees, and consultants to whom such
information has been disclosed for the purposes of this Agreement and/or any
Ancillary Agreement to comply with such commitment.
(c) Each Party shall exercise all necessary precautions to safeguard the
confidentiality and secrecy of such information and to prevent the disclosure
thereof; provided that each party shall not be deemed in breach of this Section
14.01 in the event of any disclosure made pursuant to mandatory provisions or
requirements of any law or rule having jurisdiction on each Party and its
Affiliates. All secrecy obligations hereunder shall expire on the (3rd)
anniversary of the date of this Agreement.
14.02 Announcements. Except for any publicity, release or announcement of a
content in line with the one attached as Schedule 14.02 hereto (which has been
mutually agreed by the Parties) or as otherwise mandatorily required under any
law or rule issued by any government or other regulatory or stock exchange
authority having jurisdiction on the Purchaser or the Vendors, until the
Completion Date no other publicity, release or announcement concerning the
execution or delivery of this Agreement, any of the provisions contained herein
or the transactions contemplated hereby will be issued without the previous
written consent and approval, as to both form and contents, of the Purchaser and
the Vendors, which consent and approval shall not be unreasonably withheld.
ARTICLE 15
CONDITION PRECEDENT
15.01 Antitrust Clearance.
(a) The obligation of the Parties to carry out the transactions
contemplated by this Agreement is subject to the condition that, on or prior to
the expiration of the term provided in Section 15.03 (as extended), the
transactions contemplated by this Agreement shall have been approved, cleared or
granted an exemption by any competent authority having jurisdiction including
the AUTORITA GARANTE DELLA CONCORRENZA E DEL MERCATO pursuant to and in
accordance with the applicable provisions of Italian Law no. 287 of October 10,
1990 or any pre-merger notification (including the one by way of the so called
early termination) to be made pursuant to the Hart-Scott-Rodino Antitrust -
Improvements Act of 1976.
(b) The approval, clearance and exemption contemplated by Paragraph (a)
preceding are collectively referred to in this Agreement to as the "Clearance".
56
<PAGE>
15.02 Co-operation between the Parties.
(a) As soon as possible, the Purchaser shall prepare and file all documents
required to secure the granting of the Clearance; it being understood that the
Vendors shall proactively co-operate, in the preparation of such documents to
the extent that such documents are to be based on information and/or data in the
possession of the Vendors.
(b) The Parties shall co-operate proactively in order to achieve the
Clearance, including any notification required to be made under any mandatory
applicable law; it being understood and agreed that each Party shall be liable
for all damages arising out of its negligence in the event the Clearance is not
obtained on or prior to the Completion Date.
15.03 Satisfaction of Condition. In the event that, in spite of the Parties'
efforts, the Clearance is not obtained on or prior to the Completion Date, at
the request of either Party to be notified to the other within the following
five (5) Business Days, the aforesaid term of July 15, 1999, shall be
automatically extended to July 30, 1999, and the Parties shall forthwith consult
with each other and shall use their best efforts in order to overcome any
obstacle to the granting of the Clearance or arising in connection therewith. To
this end, the Parties shall negotiate in good faith any required changes (if
any) to the terms and conditions of this Agreement and/or of the agreements to
be entered into pursuant to this Agreement to the extent that such changes do
not materially affect the substance of the transactions contemplated hereby or
thereby.
15.04 Effects.
(a) If the Clearance is not obtained on or prior to the term provided in
Section 15.03 (as extended), provided that any applicable competition laws do
not mandatorily prevent the fulfillment by the Parties of the transaction
contemplated by this Agreement, then the Purchaser shall be entitled to waive
the condition precedent provided in this Article 15, in which case Completion
shall take place in accordance with the provisions herein contained and the
Purchaser shall bear the entire risk of any subsequent denial of the Clearance
or of the imposition of any modification to the transactions contemplated hereby
and shall hold the Vendors harmless in respect thereto.
(b) If the Purchaser does not waive in writing such condition precedent
within the term provided in Section 15.03 (as extended), then this Agreement
shall be automatically terminated and the Parties shall be released of all
obligations hereunder except for any rights or obligations arising under
Articles 13, 14, 15, 16, 17 and 18 hereof.
57
<PAGE>
ARTICLE 16
EXHAUSTION OF REMEDIES
(a) All remedies must, in the first instance, be sought against the primary
counterpart party to the dispute. If prior starting or adjudicating any dispute
through the dispute resolution process set forth in Article 18, one Party
becomes insolvent or is liquidated, the claiming Party shall be entitled to
claim against another Party pursuant to Article 18 of this Agreement. If, after
adjudicating any dispute through the dispute resolution process set forth in
Article 18 an award is granted to one of the Parties (the "Awarded Party") and
such Awarded Party is unable, after providing notice, to collect its award, then
the Awarded Party may seek redress from any of the other Vendors, Purchaser,
Purchaser's Subsidiaries and/or Target Companies, as the case may be. In all
cases, the Awarded Party shall only be required to participate in one dispute
resolution proceeding with respect to a single disputed matter and the
subsequent Party against whom payment is demanded shall have no defence to the
award and shall expeditiously make payment to the Awarded Party no later than
thirty (30) days following receipt of the demand.
(b) To the extent Parties agree in writing that an amount sought by one of
the Parties is not disputed but such debtor Party fails to make the
corresponding payment within twenty (20) Business Days, then the claiming Party
shall be entitled to seek payment from another Party; it being understood that
such Party shall not object to such payment.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.01 Survival. Except as otherwise provided in other clauses of this Agreement,
the representations and warranties of the Parties contained in Articles 7 and 8,
the provisions of Article 9, Article 12, and, in general, all other clauses of
this Agreement providing for any obligation of the Parties to be performed after
the Completion Date shall remain in full force and effect after the Completion,
without necessity for any of the Parties to reiterate or otherwise confirm its
commitment with respect thereto.
17.02 Merger, Invalidity, Changes in Writing and Waiver.
(a) This Agreement between the Parties with respect to the subject matter
hereof supersedes all prior agreements (if any) relating to the same matters.
(b) If any provision of this Agreement is or becomes void, violable,
invalid,
58
<PAGE>
illegal or unenforceable in any respect under the laws of any jurisdiction:
(i) the validity, legality and enforceability under the law of that
jurisdiction of other provision; and
(ii) the validity, legality and enforceability under the law of other
jurisdiction of that or any other provision, shall not be affected or impair in
any way.
(c) This Agreement may not be waived, changed, modified or discharged
orally, but only by an agreement in writing signed by the Party against whom
enforcement of any such waiver, change, modification or discharge is sought.
(d) No failure or delay on the part of any Party in exercising any right,
power or privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
17.03 Post-Completion Assignment. Subject to the undertaking contained in
Article 12:
(a) Purchaser, and/or any Purchaser's Subsidiaries may assign its rights
and interest hereunder to any Person who acquires, in whole or in part, the
Businesses, the Shares and/or the USA Shares.
(b) Vendors may assign any of their rights and interests hereunder to any
Person who acquires, in whole or in part, directly or indirectly,
(i) a controlling interest in a Vendor or
(ii) all or substantially all of the Vendors' assets and liabilities.
(c) Except as otherwise specifically provided herein, neither Party may
assign any of its rights, interests or obligations hereunder without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld.
17.04 Schedules.
(a) All Schedules attached to this Agreement are incorporated herein and
made a substantial part hereof as fully as if written in this Agreement.
(b) It is acknowledged that, in order to expedite the execution and
exchange of this Agreement, the Schedules attached hereto have been initialled
prior to such execution and exchange by Francesca de Fraja, as attorney in-fact
of the Purchaser and by Mr. James J. Wales, as attorney-in-fact of the Vendors,
on behalf of the Vendors. 17.05 Notices. Any communication or notice required or
permitted to be given under this Agreement shall be made in writing and in the
English language and shall be deemed to have been duly and validly given (i) in
the case of notice sent by registered, certified or express mail or
international courier , upon receipt of same, and (ii) in the case
59
<PAGE>
of notice sent by telefax upon acknowledgement of successful and complete
transmission by the fax machine of the sending Party, addressed, in each case,
as follows:
(a) if to the Purchaser, to it at:
Ferrania Lux S.a.r.l.
8, Boulevard Joseph II
L-1840 Luxembourg
Telefax : +41.91.9721455
Attention: Riccardo Genta
with copy to:
Schroder Associati S.p.A.
Corso Europa, 20
20121 Milan (Italy)
Telefax : +39 02 76004706
Attention : Nicola Volpi
(b) if to the Vendors or any of them to it or them at:
Imation Corp.
1 Imation Place
Oakdale, Minnesota 55128
USA
Telefax : +1 651 704-4412
Attention : General Counsel
with copy to:
Umberto Nicodano
Bonelli Erede Pappalardo
Via Serbelloni, 12
20122 Milan (Italy)
Telefax : +39.02.77113261
and copy to
Imation Europe BV
60
<PAGE>
Boeing Avenue 333
1119 PH Schiphol Rijk
Telefax: +31 (0)20 6542225
Attention: Joe Gote
or at such other address and/or telefax number as either Party may hereafter
furnish to the other by written notice, as herein provided.
17.06 Applicable Law. This Agreement and the rights and obligations of the
Parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the Republic of Italy (excluding its rules of
conflict).
17.07 Further Assurances. The Parties hereby agree to execute and deliver all
such instruments and documents and to perform all such acts and do all such
other things as may be necessary to further the purposes of this Agreement.
17.08 Table of Contents and Headings. The table of contents and the descriptive
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
17.09 Currency.
(a) The payment of any amount contemplated by this Agreement or to be made
in furtherance hereto shall be made in the currency in which it is expressed. If
any amount to paid pursuant to this Agreement is to be converted in another
currency, the conversion to such currency shall be made on the basis of the
exchange rates between the Italian Lira and the relevant currencies announced by
the Italian economic newspaper "Il Sole 24 Ore" on the 3rd (third) Business Day
preceding the date on which any such payment is to be made.
ARTICLE 18
DISPUTES
Without prejudice to the provisions of Section 6.04, any and all disputes
arising out of or in connection to this agreement, but excluding the disputes
relating to the Ancillary Agreements which shall be governed by their own
clauses on jurisdiction and applicable law, shall be finally settled under the
Rules of Arbitration of the International Chamber of Commerce (the "Rules") by
three arbitrators appointed in accordance with such Rules. The arbitration will
take place in Brussels, Belgium, will be conducted in English, and will be
governed by Italian law (excluding its rules on conflicts).
61
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or representatives thereunto duly
authorized, all in the place and as of the date first above written.
Ferrania Lux S.a.r.l.
- -------------------
(Francesca de Fraja)
Imation Enterprises Corp.
- ---------------
(James J. Wales)
Imation S.p.A. Imation Ricerche S.p.A.
- ----------------- -----------------
(Giorgio Gambetti) (Giorgio Gambetti)
62
Exhibit 10.1
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT is made as of the ___ day of ________,
199_, between Imation Corp., a Delaware corporation, with its principal
offices at One Imation Place, Oakdale, Minnesota 55125 (the "Company") and
_________ ("Executive"), residing at
______________________________________.___________________________________
WHEREAS, this Agreement is intended to specify the financial
arrangements that the Company will provide to Executive upon Executive's
separation from employment with the Company under any of the circumstances
described herein; and
WHEREAS, this Agreement is entered into by the Company in the belief
that it is in the best interests of the Company and its shareholders to
help assure that the Company will have the continued dedication of the
Executive during his or her employment with the Company, by providing for
certain severance benefits under certain circumstances in connection with
the Executive's employment with the Company, thereby enhancing the
Company's ability to attract and retain highly qualified people.
NOW THEREFORE, to assure the Company that it will have the continued
dedication of Executive, and to induce Executive to remain in the employ
of the Company, and for other good and valuable consideration, the Company
and Executive agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on
the date of this Agreement (the "Effective Date") and shall continue in
effect until the first anniversary of the Effective Date, and shall
thereafter be automatically renewed for successive one-year terms provided
that you are employed by the Company on each anniversary of the Effective
Date (the "Covered Period"), unless, the Board of Directors of the Company
shall have authorized, by majority vote, management of the Company to give
notice to Executive, and the Company shall have given such notice, that
the Company does not wish to extend this Agreement, and provided further,
that, notwithstanding any such notice by the Company not to extend, this
Agreement shall continue in effect for a period of 12 months beyond the
term provided herein.
2. Definitions. When the following terms are used in this Agreement
with initial capital letters, they shall have the following meanings.
(i) "Cause" shall mean termination by the Company of your employment
based upon:
(a) the willful and continued failure by you to substantially
perform your duties and obligations (other than any such failure
resulting from incapacity due to physical or mental illness or any
such actual or anticipated failure resulting from your termination
for Good Reason);
(b) the willful engaging by you in misconduct which is
materially injurious to the Company, monetarily or otherwise; or
(c) your conviction of, or entering a plea of nolo contendere
to, a crime that constitutes a felony.
For purposes of this Section 2(i), no action or failure to act on
your part shall be considered "willful" unless done, or omitted to be
done, by you in bad faith and without reasonable belief that your action
or omission was in the best interests of the Company.
<PAGE>
(ii) "Good Reason" shall mean the occurrence of any of the following
events, except for occurrence of such an event in connection with the
termination of your employment or reassignment by the Company for Cause,
for disability or for death:
(a) the assignment to you of employment duties, functions or
responsibilities that are significantly different from, and result
in a substantial diminution of, your duties, functions or
responsibilities as of the date of this Agreement; or
(b) a significant reduction by the Company in your base
salary, bonus opportunity or benefits as in effect as of the date of
this Agreement;
(iii) "Date of Termination" shall mean the date specified in the
Notice of Termination (except in the case of your death, in which case
Date of Termination shall be the date of death).
(iv) "Notice of Termination" shall mean a written notice which sets
forth the Date of Termination and, in reasonable detail, the facts and
circumstances claimed to provide a basis, if any, for termination of your
employment.
3. Termination Procedures. Any purported termination of your
employment by the Company or you (other than by reason of your death)
during the Covered Period shall be communicated by a Notice of Termination
in accordance with Section 9 hereof. No purported termination by the
Company of your employment in the Covered Period shall be effective if it
is not pursuant to a Notice of Termination. Failure by you to provide
Notice of Termination shall not limit any of your rights under this
Agreement except (a) that the Company shall be permitted to cure any
purported event specified in Section 2 (ii) and (b) to the extent the
Company can demonstrate that it suffered actual damages by reason of such
failure.
4. Qualification for Severance Benefits. You shall be eligible for
severance benefits pursuant to the terms of this Agreement if your
employment is terminated and the Date of Termination occurs during the
Covered Period in either of the following circumstances: (a) termination
of employment by the Company for any reason other than Cause or (b)
termination of employment by you for Good Reason; provided, however, that
you shall not begin receiving any payments or benefits under this
Agreement unless and until you execute an effective general release of all
claims against the Company and its affiliates in the form and manner
prescribed by the Company; and provided further, that failure to execute
such a general release within one month of your Date of Termination shall
result in the loss of any rights to receive payments or benefits under
this Agreement. No severance benefits become payable pursuant to this
Agreement in the event of termination of employment upon your death or
disability.
5. Compensation Upon Termination.
(i) Amounts. Upon qualification for severance benefits pursuant to
this Agreement, you shall be entitled to the benefits, to be funded from
the general assets of the Company, provided below:
(a) The Company shall pay to you (i) the full base salary
earned by you and unpaid through the Date of Termination, at the
rate in effect on the date of the Notice of Termination, (ii) any
amount earned by you as a bonus with respect to the fiscal year of
the Company preceding the Date of Termination if such bonus has not
theretofore been paid to you, and (iii) an amount representing
credit for any vacation earned or accrued by you but not taken
during the current "vacation year.";
(b) In lieu of any further base salary payments to you for
periods subsequent to the Date of Termination, the Company shall pay
to you a cash amount equal to the sum of:
(I) an amount equal to the target bonus under the
applicable bonus plan for the fiscal year in which the Date of
Termination occurs; plus
(II) an amount equal to one year's salary for the fiscal
year in which the Date of Termination occurs.
2
<PAGE>
(c) The Company shall provide the Company's standard employee
medical and dental insurance coverages, as elected by you and in
effect immediately prior to the Date of Termination, for twelve (12)
months following the Date of Termination.
(d) Notwithstanding any other agreement in existence between
the Company and you at the Date of Termination, all shares of
restricted stock owned or held by you or promised to you by the
Company shall be immediately vested in you without further
restriction and you shall be treated at that time as the
unrestricted owner of such Company stock, subject to applicable
constraints under federal and state securities laws.
(ii) No Disability Benefits. The Company shall not be required to
continue to provide disability benefits (group or individual) following
your Date of Termination other than with respect to benefits to which you
became entitled prior to the Date of Termination and which are required to
be paid following such Date of Termination in accordance with the terms of
applicable disability plans or policies in effect prior to such Date of
Termination.
(iii) Time and Form of Cash Payments. The cash payments provided for
in Sections 5(i)(a) and 5(i)(b) above shall be paid at regular payroll
intervals beginning after your Date of Termination (subject to the
provisions of Section 4 of this Agreement relating to execution of a
general release of claims) or, at the election of the Company, in a single
lump sum payment as soon as administratively feasible after the Date of
Termination. If severance is paid at regular payroll periods, you shall
receive the same amount each pay-day that you were receiving before
termination (plus an amount equal to the pro rata portion of your target
bonus, if not otherwise included in such pre-termination amount) until the
total amount of severance pay that is due under this agreement has been
paid. All severance payments are subject to any required withholding. In
no event, however, shall severance payments be made beyond twelve (12)
months after the Date of Termination; provided, however, that appropriate
adjustments to payment amounts will be made so that you are paid all cash
payments to which you become entitled under this Agreement.
(iv) Effect of Reemployment. If you are re-employed by the Company
after severance payments have been scheduled to be made but before the
final severance payment is made, all remaining severance payments shall be
suspended and shall automatically terminate as of the date of
re-employment. If you have received severance payments in a single lump
sum and are re-employed before the date the final severance payment would
have been made if payments had been made at regular payroll intervals, you
will be required to refund to the Company: (a) that portion of the lump
sum payment representing severance payments you would have received after
the date of re-employment minus (b) an amount equal to any taxes paid or
payable on such portion of the lump sum payment.
(v) No Mitigation. You shall not be required to mitigate the amount
of any payment provided for in this Section 5 by seeking other employment
or otherwise, nor shall the amount of any payment provided for in this
Section 5 be reduced by any compensation earned by you as the result of
employment by another employer after the Date of Termination, or
otherwise, except as set forth in Section 5.(iv) hereof.
6. 280G Limitation. In the event that any payment or benefit
received or to be received by you (whether payable pursuant to the terms
of this Agreement or otherwise (collectively, the "Total Payments")) would
be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or any interest, penalties
or additions to tax with respect to such excise tax (such excise tax,
together with any such interest, penalties or additions to tax, are
collectively referred to as the "Excise Tax"), then you shall be entitled
to receive from the Company an additional cash payment (a "Gross-Up
Payment") within thirty business days of such determination in an amount
such that after payment by you of all taxes (including such interest,
penalties or additions to tax imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Total Payments. All determinations required to be made under this Section
6, including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by an independent accounting firm retained
by the Company (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and you within a reasonable
period of time as requested by the Company. If the Accounting Firm
determines that no Excise Tax is payable by you, it shall furnish you with
an opinion that you have substantial authority not to report any Excise
Tax on your federal income tax return.
Any uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder
shall be resolved in favor of you. As a result of the uncertainty in the
application of
3
<PAGE>
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will
be a determination that the Gross-Up Payments made by the Company were
less than the Gross-Up Payments that should have been made by the Company
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that you are required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment, if any, that has occurred and any such Underpayment shall be
promptly paid by the Company to you or for your benefit. As a result of
the uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that at a later time there will be a determination that the
Gross-Up Payments made by the Company were more than the Gross-Up Payments
that should have been made by the Company ("Overpayment"), consistent with
the calculations required to be made hereunder. You agree to refund to the
Company the amount of any Overpayment that the Accounting Firm shall
determine has occurred hereunder. Any determination by the Accounting Firm
as to the amount of any Gross-Up Payment, including the amount of any
Underpayment or Overpayment, shall be binding upon the Company and you.
7. Successors.
(i) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If you should die
while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement, to your
devisee, legatee or other designee or, if there is no such designee, to
your estate or, if no estate, in accordance with applicable law.
(iii) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company), by
agreement in form and substance satisfactory to you, to expressly assume
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company and any successor
to its business and/or assets which executes and delivers the agreement
provided for in this Section 10(c) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
8. Notice. All notices, requests, demands and all other
communications required or permitted by either party to the other party by
this Agreement (including, without limitation, any Notice of Termination)
shall be in writing and shall be deemed to have been duly given when
delivered personally or received by certified or registered mail, return
receipt requested, postage prepaid, at the address of the other party as
follows:
If to the Company: Imation Corp.
Attention:
One Imation Place
Oakdale, Minnesota
If to you: _____________________
_____________________
_____________________
_____________________
Either party to this Agreement may change its address for purposes of this
Section 9 by giving fifteen (15) days' prior written notice to the other
party hereto.
4
<PAGE>
9. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and the Company. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Minnesota without regard to its
conflicts of law principles.
10. Effect of Agreement; Entire Agreement. This agreement supersedes
any and all other oral or written agreements or policies made relating to
the subject matter hereof and constitutes the entire agreement of the
parties relating to the subject matter hereof.
11. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
13. Employment. This Agreement does not constitute a contract of
employment or impose on the Company any obligation to retain you as an
employee, to continue your current employment status or to change any
employment policies of the Company, including but not limited to the
Company's Employee Agreement.
If this letter sets forth our agreement on the subject matter hereof, please
sign and return to the Company the enclosed copy of this letter which will then
constitute our agreement on this subject.
IMATION CORP.:
By:_________________________________
William T. Monahan
Its: Chairman, President and
Chief Executive Officer
EXECUTIVE:
____________________________________
(EXECUTIVE NAME)
5
EXHIBIT 15.1
(PricewaterhouseCoopers LLP Letterhead)
(Minneapolis, MN)
August 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated July 29, 1999 on our reviews of the interim
consolidated financial statements of Imation Corp. (the Company) for the three
and six months ended June 30, 1999 and 1998, and included in the Company's Form
10-Q for the three and six months ended June 30, 1999, is incorporated by
reference in the Company's Registration Statements on Form S-8 (Registration
Nos. 333-15273, 333-15275, 333-15277 and 333-35591).
Yours very truly,
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 45,378
<SECURITIES> 107,573
<RECEIVABLES> 269,792
<ALLOWANCES> (16,741)
<INVENTORY> 197,127
<CURRENT-ASSETS> 786,249
<PP&E> 970,479
<DEPRECIATION> (765,429)
<TOTAL-ASSETS> 1,129,713
<CURRENT-LIABILITIES> 368,088
<BONDS> 1,152
0
0
<COMMON> 419
<OTHER-SE> 706,373
<TOTAL-LIABILITY-AND-EQUITY> 1,129,713
<SALES> 354,188
<TOTAL-REVENUES> 354,188
<CGS> 246,506
<TOTAL-COSTS> 246,506
<OTHER-EXPENSES> 90,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 999
<INCOME-PRETAX> 17,700
<INCOME-TAX> 7,015
<INCOME-CONTINUING> 10,685
<DISCONTINUED> 2,004
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,689
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
</TABLE>
