SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: July 1, 1996
(Date of earliest event reported)
MINNESOTA MINING AND MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
File No. 1-3285
(Commission File Number)
Delaware 41-0417775
(State of incorporation) (I.R.S. Employer
Identification Number)
3M Center 55144-1000
St. Paul, Minnesota (Zip Code)
(Address of principal executive offices)
Registrant's telephone, including area code:(612) 733-1110
Item 5. Other Events.
On July 1, 1996, the distribution by Minnesota Mining and Manufacturing Company
(the "Registrant") of the common stock of Imation Corp. ("Imation") to the
Registrant's shareholders (the "Distribution") pursuant to a Transfer and
Distribution Agreement, dated as of June 18, 1996, between the Registrant and
Imation became effective. The Distribution resulted in the separation of the
Registrant's global data storage and imaging systems businesses from the
Registrant's other businesses.
The Distribution was effected as a special dividend of one share of Imation
common stock for every ten shares of common stock of the Registrant held of
record as of the close of business on June 28, 1996. Certificates for Imation
common stock will be mailed to holders of the Registrant's common stock on or
about July 15, 1996. As a result of the Distribution, 100% of the outstanding
shares of Imation common stock are being distributed to the registrant's
stockholders.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) A pro forma consolidated balance sheet as of March 31, 1996 and pro forma
consolidated income statements for the three-month period ended March 31, 1996
and for the year ended December 31, 1995 will not be filed since the transaction
described in Item 5 will be fully reflected in the Registrant's consolidated
balance as of June 30, 1996. In addition, since the disposition has been
classified as a discontinued operation in the Registrant's previously filed
consolidated financial statements, the Registrant's consolidated statements of
income for the year ended December 31, 1995 and for the interim periods of 1996
already reflects the disposition. At this time, all information necessary to
furnish the Registrant's financial statements referred to is not available. The
Registrant intends to file these financial statements on or before approximately
August 8, 1996.
(c) Exhibits.
2 Transfer and Distribution Agreement, dated as of June 18, 1996,
between the Registrant and Imation Corp. previously filed with the
Securities and Exchange Commission as Exhibit 2.1 of the Form 10
Registration Statement of Imation Corp., File 1-14310.
20 Imation Corp. Information Statement, dated June 19, 1996.
99.1 Press Release dated June 18, 1996.
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 on the date indicated.
MINNESOTA MINING AND
MANUFACTURING COMPANY
By: /s/ Janet L. Yeomans
Janet L. Yeomans,
Vice President and Treasurer
Dated: July 23, 1996
- --------------------------------------------------------------------------------
TRANSFER AND DISTRIBUTION AGREEMENT
Dated as of June 18, 1996
between
MINNESOTA MINING AND MANUFACTURING COMPANY
and
IMATION CORP.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 General.............................................................................. 2
ARTICLE II
REORGANIZATION AND RELATED TRANSACTIONS
Section 2.1 The Reorganization................................................................... 13
Section 2.2 Assumption of Parent Liabilities..................................................... 15
Section 2.3 Foreign Transfers.................................................................... 15
Section 2.4 3M Approval.......................................................................... 22
ARTICLE III
ASSUMPTION AND RETENTION OF LIABILITIES
Section 3.1 Assumed Liabilities.................................................................. 22
Section 3.2 Retained Liabilities................................................................. 23
ARTICLE IV
THE DISTRIBUTION
Section 4.1 The Distribution..................................................................... 23
Section 4.2 Fractional Shares.................................................................... 23
Section 4.3 3M Board Action...................................................................... 24
ARTICLE V
INDEMNIFICATION, CLAIMS AND OTHER MATTERS
Section 5.1 Indemnification...................................................................... 24
Section 5.2 Procedure for Indemnification........................................................ 27
Section 5.3 Other Claims by Indemnified Parties Against
Indemnifying Parties................................................................. 30
Section 5.4 Indemnifiable Losses under Sections
5.1(a)(ii) and 5.1(b)(ii)............................................................ 31
Section 5.5 No Beneficiaries..................................................................... 31
Section 5.6 Special Provision Relating to Nishika Case........................................... 32
Section 5.7 Named Parties........................................................................ 32
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.1 Conveyancing and Assumption Instruments.............................................. 33
Section 6.2 No Representations or Warranties; Exceptions......................................... 33
Section 6.3 Further Assurances; Subsequent Transfers............................................. 34
Section 6.4 Imation Officers and Directors....................................................... 36
Section 6.5 Resignations......................................................................... 37
Section 6.6 Certain Intercompany Arrangements.................................................... 37
Section 6.7 Related Agreements................................................................... 37
Section 6.8 Sales and Transfer Taxes............................................................. 37
Section 6.9 Signs; Use of 3M Name................................................................ 38
Section 6.10 Supplies and Documents............................................................... 38
Section 6.11 Plant Closings and Layoffs........................................................... 38
Section 6.12 Shared Facility Arrangements......................................................... 39
Section 6.13 Leased Employees..................................................................... 40
Section 6.14 Other Leased/Shared Properties....................................................... 41
Section 6.15 Domestic Receivables and Payables.................................................... 41
Section 6.16 Diskette Anti-Dumping Duty Exemption................................................. 43
Section 6.17 Repayment of Italian Debt............................................................ 43
Section 6.18 GECC Financing Agreements............................................................ 44
Section 6.19 Letters of Credit.................................................................... 50
Section 6.20 Industrial Revenue Bonds............................................................. 50
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.1 Provision of Corporate Records....................................................... 51
Section 7.2 Access to Information................................................................ 51
Section 7.3 Production of Witnesses and Individuals.............................................. 51
Section 7.4 Retention of Records................................................................. 52
Section 7.5 Confidentiality...................................................................... 52
Section 7.6 Privileged Matters................................................................... 55
Section 7.7 Mail and Other Communications........................................................ 56
ARTICLE VIII
EMPLOYEE MATTERS AND BENEFITS.......................................................... 57
Section 8.1 Employment........................................................................... 57
Section 8.2 Qualified and NonQualified Retirement and
Benefit Plans........................................................................ 57
Section 8.3 Welfare Plans........................................................................ 62
Section 8.4 Assumption of Certain Employee Related
Obligations.......................................................................... 66
Section 8.5 Other Liabilities and Obligations.................................................... 67
Section 8.6 Preservation of Rights to Amend or Terminate
Plans................................................................................ 67
Section 8.7 Reimbursement; Indemnification....................................................... 67
Section 8.8 Stock Plans.......................................................................... 68
Section 8.9 Limitation on Enforcement............................................................ 70
Section 8.10 Employment Following the Distribution Date........................................... 70
Section 8.11 Foreign Service Employee and O.U.S. Transferred
Employee Obligations................................................................. 71
ARTICLE IX
INSURANCE
Section 9.1 General.............................................................................. 71
Section 9.2 Imation's Insurance.................................................................. 71
Section 9.3 Access to 3M's Insurance Program..................................................... 71
Section 9.4 Insurance Recoveries................................................................. 73
Section 9.5 Assignment........................................................................... 74
ARTICLE X
DISPUTE RESOLUTION
Section 10.1 Mediation and Binding Arbitration.................................................... 74
Section 10.2 Initiation........................................................................... 74
Section 10.3 Submission to Mediation.............................................................. 74
Section 10.4 Selection of Mediator................................................................ 75
Section 10.5 Mediation and Arbitration............................................................ 75
Section 10.6 Selection of Arbitrator.............................................................. 75
Section 10.7 Cost of Arbitration.................................................................. 76
Section 10.8 Arbitration Period................................................................... 76
Section 10.9 Treatment of Negotiation and Mediation............................................... 76
Section 10.10 Confidentiality...................................................................... 76
Section 10.11 Equitable Relief..................................................................... 77
Section 10.12 Notices.............................................................................. 77
Section 10.13 Consolidation........................................................................ 77
ARTICLE XI
MISCELLANEOUS
Section 11.1 Complete Agreement................................................................... 77
Section 11.2 Expenses............................................................................. 77
Section 11.3 Governing Law........................................................................ 78
Section 11.4 Notices.............................................................................. 78
Section 11.5 Amendment and Modification........................................................... 79
Section 11.6 Termination.......................................................................... 79
Section 11.7 Successors and Assigns............................................................... 79
Section 11.8 No Third Party Beneficiaries......................................................... 80
Section 11.9 Counterparts......................................................................... 80
Section 11.10 Interpretation....................................................................... 80
Section 11.11 Annexes, Etc......................................................................... 80
Section 11.12 Construction of Agreements........................................................... 81
Section 11.13 Legal Enforceability................................................................. 81
Section 11.14 Survival............................................................................. 81
Section 11.15 Guaranty............................................................................. 81
</TABLE>
Annexes:
ANNEX I - Assumed Liabilities
ANNEX II - Retained Liabilities
ANNEX III - Transferred Assets
ANNEX IV - Enterprise Liabilities
ANNEX V - Enterprise Assets
Exhibits:
Exhibit A - Corporate Services Transition Agreement
Exhibit B - Environmental Matters Agreement
Exhibit C - Intellectual Property Agreement
Exhibit D - Joint Defense Agreement
Exhibit E - Joint Representation and Defense Agreement
Exhibit F - Tax Sharing Agreement
Exhibit G - Services Agreements
Exhibit H - Supply Agreements
Exhibit I - Sales Agency Agreements
Exhibit J - Redistribution Agreement
Exhibit K - Contract Manufacturing Agreements
Exhibit L - Reorganization Agreement for Italian Operations
Exhibit M - Form of Foreign Asset Transfer Agreements
Exhibit N - Contribution Agreement for French Operations
Exhibit O - Minutes of Shareholders Meeting relating to
Argentinean Operations
Exhibit P - Minutes of Quotaholders Meeting relating to Brazil-
ian Operations
Exhibit Q - Shared Facility Agreements
Exhibit R - Leased Employee Agreement
Schedules:
Schedule 1.1A - Transferred Businesses
Schedule 1.1B - Business Units Excluded from Transferred
Businesses
Schedule 1.1C - Imation Employees
Schedule 1.1D - Pilot Plant Assets
Schedule 1.1E - 3M Center Assets
Schedule 1.1F - Human Resources Codes
Schedule 5.1(a) - 3M Information in Information Statement
Schedule 6.12(a) - Domestic Shared Facilities
Schedule 6.14(a) - Assigned Third Party Leases
Schedule 6.14(b) - 3M Leased Properties
Schedule 6.15(a) - Trade Receivables/Payables Settlement Schedule
Schedule 8.11 - Foreign Service Employee Obligations
Schedule 9.3 - Pre-Distribution Date Insurance Claims
TRANSFER AND DISTRIBUTION AGREEMENT
TRANSFER AND DISTRIBUTION AGREEMENT, dated as of June 18,
1996, by and between Minnesota Mining and Manufacturing Company, a Delaware
corporation ("3M"), and Imation Corp., a Delaware corporation and a wholly owned
subsidiary of 3M ("Imation").
WHEREAS, 3M has, among other endeavors, been engaged in the
research, manufacturing and marketing of products in its Imaging Systems Group
(the "Imaging Systems Group") and Memory Technologies Group (collectively,
including the business units and plants set forth on Schedule 1.1A hereto, but
not including the business units and plants set forth on Schedule 1.1B hereto,
the "Transferred Businesses");
WHEREAS, the Board of Directors of 3M has determined that the
interests of 3M's businesses and shareholders would be best served by separating
its businesses into two separate companies, one consisting of the Transferred
Businesses and the other consisting of 3M's core businesses (the "Core
Businesses");
WHEREAS, in furtherance of the foregoing, 3M wishes to
transfer and assign to Imation substantially all of the assets and properties of
the Transferred Businesses specified in this Agreement in exchange for (i) the
assumption by Imation of substantially all of the liabilities and obligations
relating to the Transferred Businesses specified in this Agreement and (ii) the
issuance to 3M by Imation of shares of its common stock, par value $.01 per
share (the "Imation Common Stock");
WHEREAS, Imation is willing to assume such liabilities and
obligations and to issue such shares of Imation Common Stock to 3M in exchange
for such assets and properties;
WHEREAS, 3M intends to distribute all of the outstanding
shares of Imation Common Stock, on a pro rata basis, to the holders of the
common stock of 3M, without par value (the "3M Common Stock") (such distribution
hereinafter referred to as the "Distribution");
WHEREAS, 3M and Imation have determined that it is necessary
and desirable to set forth the principal corporate transactions required to
effect the Distribution and to set forth other agreements that will govern
certain other matters in connection with the Distribution.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and intending to be legally
bound hereby, 3M and Imation hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 General. As used in this Agreement, capitalized
terms defined immediately after their use shall have the respective meanings
thereby provided and the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
Accrued Benefits: shall have the meaning set forth in Section
8.2(e)(ii) hereof.
Action: any action, claim, suit, arbitration, inquiry,
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
Affiliate: with respect to any specified person, a person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such specified person;
provided, however, that 3M and Imation shall not be deemed to be Affiliates of
each other for purposes of this Agreement.
Agent: Norwest Bank Minnesota, N.A., the distribution agent
appointed by 3M to distribute shares of Imation Common Stock pursuant to the
Distribution.
Asset and Liability Transfer: shall have the meaning set forth
in Section 2.1(b) hereof.
Assumed Liabilities: collectively, all of the Liabilities and
other obligations of 3M listed on Annex I hereto which are to be assumed by
Imation or its Affiliates as part of the transaction.
Bids, Quotations and Proposals: the bids, quotations or
proposals which have been submitted or made by the Transferred Businesses or 3M
on behalf of the Transferred Businesses which are outstanding as of the
Distribution Date.
Books and Records: the books and records of 3M (or true and
complete copies thereof), including all computerized books and records owned by
3M, which relate principally to the Transferred Businesses and are necessary for
Imation to operate the Transferred Businesses, including, without limitation,
all such books and records relating to Transferred Employees, the purchase of
materials, supplies and services, the manufacture and sale of products by the
Transferred Businesses or dealings with customers of the Transferred Businesses
and all files relating to any Action being assumed by Imation as part of the
Assumed Liabilities.
COBRA: shall have the meaning set forth in Section 8.4(a)(ii)
hereof.
Code: the Internal Revenue Code of 1986, as amended.
Contract Manufacturing Agreements: the Contract Manufacturing
Agreements, in the form of the agreements attached as Exhibit K hereto, pursuant
to which 3M will manufacture certain products for Imation and Imation will
manufacture certain products for 3M.
Conveyancing and Assumption Instruments: collectively, the
various agreements, instruments and other documents to be entered into in order
to effect the transfer to Imation of Transferred Assets, and the assumption by
Imation of the Assumed Liabilities in the manner contemplated by this Agreement.
Core Businesses: shall have the meaning set forth in the
second WHEREAS clause hereof.
Corporate Services Transition Agreement: the Corporate
Services Transition Agreement, substantially in the form set forth as Exhibit A
hereto, pursuant to which 3M will provide to Imation certain corporate services
specified therein.
Debt Available for Foreign Purchase Transactions: shall have
the meaning set forth in Section 2.3(xiii) hereof.
Defend: address or respond in any manner to any Action
brought, asserted, commenced or pursued by any person or entity that is not a
party to this Agreement.
Defense: the plan for or state of defending.
Dispute: shall have the meaning set forth in Section 10.1
hereof.
Distribution: the distribution as a dividend to holders of 3M
Common Stock of Imation Common Stock on the basis provided in Section 4.1
hereof, which shall be effective on the date specified for the dividend by the
3M Board of Directors.
Distribution Date: the date as of which the Distribution shall
be effected as determined by the 3M Board of Directors.
EBTA: shall have the meaning set forth in Section 8.3(a)(ii)
hereof.
Enterprise Assets: collectively, all of the assets of 3M
identified on Annex V hereto which are to be transferred to Imation Enterprises
in connection with the Distribution.
Enterprise Liabilities: collectively, all of the Liabilities
and other obligations of 3M identified on Annex IV hereto which are to be
assumed by Imation Enterprises in connection with the Distribution.
Enterprise Operations: collectively, the operations conducted
by 3M at the manufacturing facilities of 3M's Imaging Systems Group or at the
manufacturing facilities located at Weatherford, Oklahoma or Menomonie,
Wisconsin, all sales and field logistic operations and the operations
conducted by 3M's HESD Field Service and Customer Support department, in all
instances to the extent part of the domestic operations of the Transferred
Businesses.
Environmental Matters Agreement: the agreement,
substantially in the form of Exhibit B hereto, pursuant to which 3M and Imation
have provided for certain environmental matters.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
ESOP Transfer: shall have the meaning set forth in Section
8.2(b) hereof.
ESOP Transfer Date: shall have the meaning set forth in
Section 8.2(b) hereof.
Exchange Act: the Securities Exchange Act of 1934, as amended.
First Party: shall have the meaning set forth in Section
7.5(b) hereof.
Foreign Asset Transfer Agreements: the Foreign Asset Transfer
Agreements, substantially in the form of the agreements attached as Exhibit M
hereto, pursuant to which certain assets will be sold between respective
Affiliates of 3M and Imation.
Form 10: the registration statement on Form 10 filed by
Imation with the SEC to effect the registration of the Imation Common Stock
pursuant to the Exchange Act.
Grandfathered Employees: shall have the meaning set forth in
Section 8.2(h)(ii) hereof.
Imaging Systems Group: shall have the meaning set forth in the
first WHEREAS clause hereof.
Imation Common Stock: shall have the meaning set forth in the
third WHEREAS clause hereof.
Imation Defined Benefit Plans: shall have the meaning set
forth in Section 8.2(a)(i) hereof.
Imation Defined Contribution Plan: shall have the meaning set
forth in Section 8.2(a)(i) hereof.
Imation Employee Stock Incentive Plan: shall have the meaning
set forth in Section 8.8(c) hereof.
Imation Enterprises: Imation Enterprises Corp., a Delaware
corporation and, as of the date of this Agreement, a wholly owned subsidiary of
3M.
Imation Flexible Benefits Program: shall have the meaning set
forth in Section 8.3(c)(ii) hereof.
Imation Nonqualified Pension Plan: shall have the meaning set
forth in Section 8.2(a)(iii) hereof.
Imation Party: shall have the meaning set forth in Section 5.4
hereof.
Imation Pension Plans: shall have the meaning set forth in
Section 8.2(a)(i) hereof.
Imation Shared Facilities: shall have the meaning set forth in
Section 6.12(a) hereof.
Imation Stock Options: shall have the meaning set forth in
Section 8.8(c) hereof.
Imation VEBA: shall have the meaning set forth in Section
8.3(a)(i) hereof.
Indemnifiable Loss Deduction: shall have the meaning set forth
in Section 5.1(d)(i) hereof.
Indemnifiable Losses: with respect to any claim by an
Indemnified Party for indemnification authorized pursuant to Article V hereof,
any and all losses, liabilities, claims, damages, obligations, payments, costs
and expenses (including, without limitation, the costs and expenses of any and
all Actions, demands, assessments, judgments, settlements and compromises
relating thereto and reasonable attorneys' fees and expenses in connection
therewith) suffered by such Indemnified Party with respect to such claim.
Indemnification Claimant: shall have the meaning set forth in
Section 5.2(c) hereof.
Indemnified Party: any party who is entitled to receive
payment from an Indemnifying Party pursuant to Article V hereof.
Indemnifying Party: any party who is required to pay any other
person pursuant to Article V hereof.
Indemnity Payment: the amount an Indemnifying Party is
required to pay an Indemnified Party pursuant to Article V hereof.
Indemnity Return: shall have the meaning set forth in Section
5.1(d)(i) hereof.
Information: shall have the meaning set forth in Section 7.2
hereof.
Information Statement: the information statement to be sent
to the holders of 3M Common Stock in connection with the Distribution.
Insurance Program: collectively, the series of policies
pursuant to which various insurance carriers provide insurance coverage to 3M
and its Affiliates in respect of claims or occurrences relating to, without
limitation, property damage, manufacturer's output, business interruption,
transit, fire, extended coverage, fiduciary, fidelity, environmental impairment,
employee crime, general liability, products' liability, automobile liability and
employer's liability, excluding risks assumed by Seaside without the benefit of
reinsurance.
Intellectual Property Agreement: the Intellectual Property
Rights Agreement, substantially in the form of Exhibit C hereto, pursuant to
which 3M and Imation are providing for certain matters involving intellectual
property.
Joint Defense Agreement: any agreement, substantially in the
form of Exhibit D hereto, which may be entered into by 3M and Imation with
respect to their defense of certain matters.
Joint Representation and Defense Agreement: any agreement,
substantially in the form of Exhibit E hereto, which may be entered into by 3M
and Imation with respect to representation and defense of certain matters.
Leased Employees: As provided in the Leased Employee
Agreement, all hourly and salaried employees of 3M at 3M's Rochester, New York
facility, all hourly employees in the CD Rom section of 3M's Menomonie,
Wisconsin facility, and all other 3M employees listed on attachments to the
Leased Employee Agreement who are leased to Imation and/or its Affiliates for
various periods as provided in the Leased Employee Agreement.
Leased Employee Agreement: The Leased Employee Agreement,
substantially in the form of Exhibit R hereto, pursuant to which Imation and/or
Imation Enterprises will lease the Leased Employees from 3M.
Liabilities: any and all debts, liabilities and obligations,
whether accrued, contingent (known or unknown) or reflected on a balance sheet,
including, without limitation, those arising under any law, rule, regulation,
Action, order or consent decree of any governmental entity or any judgment of
any court of any kind or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
Minnesota Research: shall have the meaning set forth in
Section 2.3(viii) hereof.
1996 Grants: shall have the meaning set forth in Section
8.8(c) hereof.
Non-Permitted Names: shall have the meaning set forth in
Section 6.9 hereof.
Option: an option to purchase shares of 3M Common Stock under
any of the Stock Option Plans.
O.U.S. Transferred Employees: shall have the meaning set forth
in Section 8.1 hereof.
Parent Assets: shall have the meaning set forth in Section
2.1(a) hereof.
Parent Liabilities: shall have the meaning set forth in
Section 2.1(a) hereof.
Pilot Plant Assets: the assets utilized by the Transferred
Businesses relating to the pilot plants located in buildings 235 and 236 of 3M
Center which are set forth on Schedule 1.1D hereto.
Privilege(s): shall have the meaning set forth in Section
7.6(a) hereof.
Privileged Information: shall have the meaning set forth in
Section 7.6(a) hereof
Progressive Stock Options: shall have the meaning set forth in
Section 8.8(a) hereof.
PUP: shall have the meaning set forth in Section 8.4(a)(iv)
hereof.
Record Date: the date determined by the Board of Directors of
3M as the record date for the Distribution.
Recovery: the amount obtained pursuant to a claim under an
insurance policy in the Insurance Program.
Redistribution Agreement: the Redistribution Agreement, in the
form of Exhibit J hereto, pursuant to which 3M will distribute certain products
on behalf of Imation.
Related Agreements: the Conveyancing and Assumption
Instruments, Corporate Services Transition Agreement, Environmental Matters
Agreement, Intellectual Property Agreement, Tax Sharing Agreement, Services
Agreements, Supply Agreements, Sales Agency Agreements, Redistribution
Agreement, Contract Manufacturing Agreements, Shared Facility Agreements, the
Leased Employee Agreement, the foreign transfer agreements, and the various
service, supply and other agreements to be entered into between 3M and its
subsidiaries, on the one hand, and Imation and its subsidiaries on the other
hand in connection with the Distribution and the other transactions contemplated
hereby.
Retained Liabilities: collectively, all of the Liabilities and
obligations of 3M listed on Annex II hereto.
Sales Agency Agreements: the Sales Agency Agreements, in the
form of the agreements attached as Exhibit I hereto, pursuant to which 3M will
provide certain sales services to Imation and Imation will provide certain sales
services to 3M, as the case may be.
SEC: the Securities and Exchange Commission.
Services Agreements: the Services Agreements, in the form of
the agreements attached as Exhibit G hereto, pursuant to which 3M will provide
certain services to Imation or Imation will provide certain services to 3M, as
the case may be.
Shared Facility Agreements: the Shared Facilities Lease
Agreements, in the form of the agreements attached as Exhibit Q, pursuant to
which 3M or Imation will lease to the other a portion of a facility and provide
certain services in connection therewith.
Shared Facility Arrangements: shall have the meaning set forth
in Section 6.12(a)hereof.
Shared Facility Term: with respect to a specific Shared
Facility Agreement, the term set forth in such agreement, as such term may be
extended or shortened in accordance with the terms of such agreement.
Special Retirement Benefits: shall mean the 3M Special
Retirement Benefits and the Imation Special Retirement Benefits as defined in
Sections 8.2(e)(iv) and 8.2(h)(ii) hereof.
Stock Option Plans: 3M's 1987 and 1992 Management Stock
Ownership Programs.
Supply Agreements: the Supply Agreements, in the form of the
agreements attached as Exhibit H hereto, pursuant to which 3M and Imation will
provide certain materials to each other.
Tax Saving Amount: shall have the meaning set forth in Section
5.1(d)(ii) hereof.
Tax Sharing Agreement: the Tax Sharing and Indemnification
Agreement, in the form of Exhibit F hereto, pursuant to which 3M and Imation
have provided for certain tax matters.
Third Party Claim: shall have the meaning set forth in Section
5.2(a) hereof.
3M Center Assets: the assets located at 3M Center which are
principally utilized by the Transferred Businesses and are to be transferred to
Imation or Imation Enterprises pursuant to Section 2.1 hereof, as identified on
Schedule 1.1E hereof.
3M Common Stock: shall have the meaning set forth in the fifth
WHEREAS clause hereof.
3M Defined Benefit Plans: shall have the meaning set forth
in Section 8.2(e) hereof.
3M 401(K)/ESOP: shall have the meaning set forth in Section
8.2(b) hereof.
3M Nonqualified Pension Plans: shall have the meaning set
forth in Section 8.2(e) hereof.
3M Options: shall have the meaning set forth in Section 8.8(a)
hereof.
3M Party: shall have the meaning set forth in Section 5.4
hereof.
3M Pension Plans: shall have the meaning set forth in Section
8.2(e) hereof.
3M Post Retirement Medical Plans: shall have the meaning set
forth in Section 8.3(a)(iii) hereof.
3M Qualified Pension Plans: shall have the meaning set forth
in Section 8.2(e) hereof.
3M Shared Facility: shall have the meaning set forth in
Section 6.12(a) hereof.
3M Survivor Program: shall have the meaning set forth in
Section 8.2(a) hereof.
3M VEBA: shall have the meaning set forth in Section 8.3(a)(i)
hereof.
Transaction Taxes: shall have the meaning set forth in Section
6.8 hereof.
Transferred Assets: collectively, all of the assets and
properties of 3M and its Affiliates identified on Annex III hereto.
Transferred Businesses: the businesses referred to as such in
the first WHEREAS clause of this Agreement, including any businesses (such as
Dynacolor, the Data Cartridge Drive Business and Comtal) or products of 3M that
were discontinued or otherwise terminated by 3M prior to the Distribution Date,
to the extent, but only to the extent, that such businesses were conducted or
products were sold as part of the business units (irrespective of the name of
any such unit at the time) referred to as part of the Transferred Businesses in
such WHEREAS clause.
Transferred Employee: any employee of 3M who is employed by
the business units, or at the plants listed on Schedule 1.1A, any 3M employee
from the 3M staff organizations, such as engineering, controllers, human
resources or Legal Affairs, who is assigned full-time to one of such business
units or plants as of the Distribution Date or who is listed on Schedule 1.1C,
domestic employees of 3M who are on the Distribution Date assigned Inactive
Status Codes 20, 21, 22, 23, 24, 32 and 34, or Special Status Codes 30, 40 and
41 (a copy of 3M's human resources codes is attached as Schedule 1.1F) and who
last worked for the business units or at the plants listed on Schedule 1.1A, any
foreign employee identified on schedules to, or otherwise contemplated by, the
various foreign transfer agreements, and any employee of 3M who has volunteered
to be employed by Imation as of the Distribution Date, but excluding 3M
employees who, as of the Distribution Date, are: Leased Employees, 3M employees
on Pre-Retirement Leave Status, 3M employees on 3M's Unassigned List or 3M
employees in those portions of Imation's facilities leased by 3M from Imation
and, further, excluding 3M employees who have accepted on or prior to the
Distribution Date voluntary separation plans offered prior to the Distribution
Date by the business units or at the plants listed on Schedule 1.1A.
U.S. Transferred Employees: shall have the meaning set forth
in Section 8.1 hereof.
WARN Act: shall have the meaning set forth in Section 6.10
hereof.
ARTICLE II
REORGANIZATION AND RELATED TRANSACTIONS
Section 2.1 The Reorganization.
(a) Subject to the terms and conditions of this Agreement, 3M
and Imation shall cause, on the Distribution Date, (i) all of 3M's right, title
and interest in and to the Transferred Assets (other than the Enterprise Assets)
(the "Parent Assets") to be conveyed, assigned, transferred and delivered to
Imation (or the appropriate Imation Affiliate), free and clear of all liens or
encumbrances in favor of 3M, (ii) all of 3M's duties, obligations and
responsibilities under the Assumed Liabilities (other than the Enterprise
Liabilities) (the "Parent Liabilities") to be assumed by Imation (or the
appropriate Imation Affiliate), and (iii) all of 3M's right, title and interest
in and to all capital stock of Imation Enterprises to be conveyed, assigned,
transferred and delivered to Imation, free and clear of all liens or
encumbrances in favor of 3M.
(b) Subject to the terms and conditions of this Agreement, 3M
and Imation shall cause, immediately prior to the transfer and assumption
contemplated by Section 2.1(a) hereof, (i) all of 3M's right, title and interest
in and to the Enterprise Assets to be conveyed, assigned, transferred and
delivered to Imation Enterprises, free and clear of all liens or encumbrances in
favor of 3M, and (ii) all of 3M's duties, obligations and responsibilities under
the Enterprise Liabilities to be assumed by Imation Enterprises (the transfers
set forth in subsections (a) and (b) hereof, the "Asset and Liability
Transfer").
(c) Subject to Section 6.3 hereof, to the extent that any such
conveyances, assignments, transfers and deliveries shall not have been so
consummated on the Distribution Date, 3M and Imation shall cooperate to effect
such consummation as promptly thereafter as shall be practicable, it nonetheless
being understood and agreed by 3M and Imation that neither shall be liable in
any manner to any person who is not a party to this Agreement for any failure of
any of the transfers contemplated by this Article II to be consummated on or
subsequent to the Distribution Date. Whether or not all of the Parent Assets or
the Parent Liabilities shall have been legally transferred to Imation or all of
the Enterprise Assets or the Enterprise Liabilities shall have been legally
transferred to Imation Enterprises as of the Distribution Date, 3M and Imation
agree that, as of the Distribution Date, Imation and Imation Enterprises shall
have, and shall be deemed to have acquired, complete and sole beneficial
ownership over all of the Parent Assets and Enterprise Assets, respectively,
except as described herein with respect to assets which are non-assignable,
together with all of 3M's rights, powers and privileges (except as provided in
Section 7.6 hereto) incident thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Parent Liabilities and
Enterprise Liabilities, respectively, and all of 3M's duties, obligations and
responsibilities incident thereto.
(d) In furtherance of the transfers and assumptions
contemplated by the foregoing Sections 2.1(a) and (b), Imation and 3M, as
between the two of them, acknowledge and agree as follows: (a) 3M and its
Affiliates shall have no obligation or liability of any kind to Imation or its
Affiliates for any condition existing at or prior to the Distribution Date or
for any conduct, act or omission by or on behalf of 3M, its Affiliates or any
other person on, or at any time prior, to the Distribution Date; and Imation and
its Affiliates shall have no claims, or right to bring a claim or Action,
against 3M or its Affiliates with respect thereto, including (without
limitation) any claim or Action arising out of (i) the operation of the
Transferred Businesses on or before the Distribution Date, (ii) any advice,
rights, products or services made available to the Transferred Businesses, on or
before the Distribution Date, by 3M, its Affiliates or any other person, (iii)
the Assumed Liabilities or (iv) the formation of Imation; except for, and to the
extent of, any responsibilities specifically retained by 3M or any of its
Affiliates pursuant to the terms of this Agreement or any of the Related
Agreements; and (b) Imation and its Affiliates shall have no obligation or
liability of any kind to 3M or its Affiliates for any condition existing at or
prior to the Distribution Date or for any conduct, act or omission by or on
behalf of Imation, its Affiliates or any other person on, or at any time prior
to, the Distribution Date; and 3M and its Affiliates shall have no claims, or
right to bring a claim or Action, against Imation or its Affiliates with respect
thereof, including (without limitation) any claim or Action arising out of (i)
the operations of 3M other than the Transferred Businesses on or before the
Distribution Date, (ii) any advice, rights, products or services made available
to 3M or its Affiliates, on or before the Distribution Date, by the Transferred
Businesses or any other person or (iii) the Retained Liabilities; except for,
and to the extent of, any responsibilities specifically assumed by Imation or
any of its Affiliates pursuant to the terms of this Agreement or any of the
Related Agreements.
(e) Representatives of 3M and Imation have prepared schedules
to identify equipment located at various domestic manufacturing facilities which
is not to be retained by the party retaining the respective facilities. These
schedules, which have been initialled by the respective heads of manufacturing
for 3M and Imation, shall be binding on the parties so as to resolve any
questions as to the allocation of equipment at such facilities.
Section 2.2 Assumption of Parent Liabilities. In consideration
for the conveyance, assignment, transfer and delivery of the Parent Assets and
Enterprise Assets being made pursuant to Section 2.1 hereof, Imation agrees to
assume the Parent Liabilities and to issue and deliver to the Agent for delivery
to stockholders of 3M as of the Record Date certificates representing the number
of shares of Imation Common Stock provided for in Section 4.1 hereof and to
cause Imation Enterprises to assume, pay, perform and discharge in due course
any and all Enterprise Liabilities.
Section 2.3 Foreign Transfers. The foregoing notwithstanding,
3M and Imation shall cause the assets and liabilities related to the Transferred
Businesses which are located outside the United States to be transferred in
accordance with the following provisions:
(i) Italy. On or prior to the Distribution Date,
the operations of 3M in Italy shall be reorganized pursuant to the agreements
set forth as Exhibit L hereto, which reorganization shall effectively separate
the respective operations of the Transferred Businesses and the Core Businesses
in Italy. As a result of the reorganization, the operations of the Transferred
Businesses shall be conducted by Imation Finanziaria S.p.A. (including its
direct and indirect subsidiaries), the stock of which will be transferred to
Imation on or prior to the Distribution Date.
(ii) France. On or prior to the Distribution Date,
(i) the assets and liabilities of 3M in France related to the Transferred
Businesses (other than certain trade receivables and payables) will be
transferred to a newly formed subsidiary of the 3M subsidiary incorporated under
the laws of such country and (ii) the stock of such subsidiary will be
distributed to 3M and, thereafter, contributed to the capital of Imation, all as
more fully described in the contribution agreement attached as Exhibit N hereto
(the "French Contribution Agreement").
(iii) Argentina. On or prior to the Distribution
Date, (i) the assets and liabilities of 3M in Argentina related to the
Transferred Businesses will be transferred to a newly formed corporation
incorporated under the laws of such country and (ii) the stock of such
corporation will be contributed by 3M to the capital of Imation, all as more
fully described in the minutes of a special shareholders meeting attached as
Exhibit O hereto. Following the Distribution, Imation shall, or shall cause its
Affiliate in Argentina to, indemnify and hold harmless 3M and its Affiliates
against any and all liabilities arising as a result of any reduction in the
workforce or closure of any facilities effected by Imation's Affiliate in
Argentina following the Distribution Date.
(iv) Brazil. On or prior to the Distribution Date,
(i) the assets and liabilities of 3M in Brazil related to the Transferred
Businesses will be transferred to a newly formed corporation incorporated under
the laws of such country and (ii) the stock of such corporation will be
contributed by 3M to the capital of Imation, all as more fully described in the
minutes of a special quotaholders meeting attached as Exhibit P hereto.
(v) India. Birla 3M Ltd. shall retain all assets and
liabilities (including those relating to the Transferred Businesses) owned by it
as of the Distribution Date. In addition, it is the present intention of the
parties that, following the Distribution Date and subject to the receipt of any
required approvals, Birla 3M Ltd. will act as a non-exclusive sales agent of
Imation. At the time of the Distribution, Birla 3M Ltd. may transfer the
inventory related to the Transferred Businesses to distributors designated by
Imation and, in such event, Imation will, if requested, guarantee the payments
to be made by the distributors.
(vi) Netherlands. On or prior to the Distribution
Date, 3M shall cause to be assigned and transferred to Imation all of the
outstanding interests of CD-Rom Services C.V.
(vii) Belgium. On or prior to the Distribution
Date, 3M shall cause to be assigned and transferred to Imation all of the
outstanding shares of CD-Rom Sales S.A.
(viii) United Kingdom. The transfer of operations of
the Transferred Businesses in the United Kingdom shall be effected as follows:
* 3M agrees that if as at the date of this Agreement, 3M is
the beneficial owner of the building known as Building 2, 3M
House, Bracknell, England, it shall transfer the said Building
2 to Imation in accordance with Section 2.1 hereof or if 3M
is not the beneficial owner of the said Building 2 as at the
date of this Agreement, 3M shall cause its Affiliate in the
United Kingdom to agree to sell to 3M the said Building 2
and 3M shall procure the transfer of the said Building 2 to
Imation in accordance with Section 2.1. Any such transfers
shall be subject to (and with the benefit of) any leases of
parts of the said Building 2 previously granted by any
Affiliate of 3M in the United Kingdom or otherwise agreed to
be granted to an Affiliate of 3M in the United Kingdom.
* As of the Distribution Date, the outstanding stock of
Minnesota 3M Research Limited ("Minnesota Research") shall be
transferred to Imation in the following manner: (a) the 80%
interest owned by 3M UK Holdings PLC and 3M (Holdings)
Limited shall be sold, assigned and transferred to 3M, and (b)
the 100% interest then owned by 3M shall be transferred to
Imation in accordance with the provisions of Section 2.1
hereof.
* The other assets and/or liabilities of the Transferred
Businesses owned by Affiliates of 3M in the United Kingdom
shall be transferred to an Affiliate(s) of Imation in a manner
consistent with subparagraph (xii) below.
(ix) Japan. It is the intention of the parties,
subject to the receipt of any required approvals, to transfer the Transferred
Businesses in Japan to an Affiliate of Imation in Japan in a manner consistent
with subparagraph (xii) below, although the parties recognize that the HESD
businesses relating to the Core Businesses will not be transferred and that
certain fixed assets may be leased, rather than sold.
(x) Korea. It is the intention of the parties,
subject to the receipt of any required approvals, to transfer the Transferred
Businesses in Korea to an Affiliate of Imation in Korea in a manner consistent
with subparagraph (xii) below. Imation agrees that it will not establish for a
period commencing on the Distribution Date and ending on the earlier of (a)
consummation of the transfer contemplated by the preceding sentence or (b) the
six month anniversary of the Distribution Date any independent operations in
Korea.
(xi) China. It is the intention of the parties to
transfer the Transferred Businesses in China to an Affiliate of Imation in China
in a manner consistent with subparagraph (xii) below, although the parties
recognize that the HESD businesses may not be transferred unless and until the
Imation Affiliate in China obtains an appropriate license from the appropriate
authorities in China.
(xii) Other Countries. On or prior to the
Distribution Date, 3M shall use its best efforts to cause its Affiliate in each
other country located outside the United States (in addition to those countries
referred to in subparagraphs (viii)-(xi) above, as described therein) to sell to
the Affiliate of Imation designated by Imation, and Imation shall use its best
efforts to cause its respective Affiliate(s) to purchase from the appropriate 3M
Affiliate, the inventory, property, plant and equipment and other assets of the
Transferred Businesses owned by such 3M Affiliate, in consideration for a cash
payment by the respective Imation Affiliate(s) to the respective 3M Affiliate
equal to the value of the assets so transferred (net of assumed liabilities)
which is reflected on the books of 3M at the time of the transfer, all as more
fully set forth in the respective Foreign Asset Transfer Agreements (which shall
be amended, as appropriate, to include deferred receivables under financing
contracts). In the event that it is not feasible to effect the transfers
contemplated by the preceding sentence on or prior to the Distribution Date in
any particular country, 3M and Imation will continue, following the Distribution
Date, their respective efforts to have such transfers and payments effected as
promptly as practicable following the Distribution Date or, if Imation and 3M
determine that such transfers are not capable of being effected on a timely
basis (not to exceed 6 months), enter into such other arrangements as are
mutually agreed upon which are intended to enable Imation to operate in such
country on a basis similar to that being conducted by 3M with respect to the
Transferred Businesses. Pending consummation of any such transfers or the
entering into of other arrangements as contemplated by the preceding sentence,
Imation and 3M shall enter into such arrangements as may be necessary to enable
3M and its Affiliates to continue to conduct the Transferred Businesses,
including with respect to the supply of inventory. Following completion of each
such transfer (or, if earlier, six months), either 3M shall pay to Imation an
amount equal to any operating income after taxes and minority interests realized
by 3M after the Distribution Date with respect to these operations or Imation
shall pay to 3M an amount equal to any operating losses after taxes and minority
interests realized by 3M after the Distribution Date with respect to these
operations, as the case may be.
(xiii) Additional Cash Payments. (a) In connection
with the Distribution, 3M shall contribute to the capital of Imation an amount
in cash equal to the total amount to be paid by the respective Imation
Affiliates pursuant to the preceding subparagraphs (viii)-(xii) (net of any
V.A.T. or other similar taxes which are recoverable by the respective Imation
Affiliates) less an amount equal to the Debt Available for Foreign Purchase
Transactions. For purposes of the preceding sentence, the Debt Available for
Foreign Purchase Transactions shall be an amount equal to $200 million less the
sum, without duplication, of (x) any debt presently outstanding (including
accrued interest) to 3M from its Affiliates in Italy which is being assumed by
an Affiliate of Imation and repaid with funds advanced by Imation or one of its
Affiliates, (y) $23 million, and (z) an amount equal to the vacation pay of the
U. S. Transferred Employees, which is accrued on the books of 3M as of the
Distribution Date. 3M shall make an estimated payment at the time of the
Distribution (to reflect (x) payments actually made by Imation or its Affiliates
at the time of the Distribution with respect to foreign transfers consummated at
the time of the Distribution and (y) the estimated amounts utilized to determine
the Debt Available for Foreign Purchase Transactions), which payment shall be
adjusted from time to time by 3M and Imation to reflect (A) all payments
contemplated by subparagraphs (viii) through (xii) above, including payments
made with respect to delayed closings or as post-closing adjustments to the
purchase prices paid at the time of the Distribution for foreign transfers
effected as of t he Distribution Date, and (B) the final amounts utilized to
determine the Debt Available for Foreign Purchase Transactions. The amounts to
be contributed by 3M pursuant to this Section 2.3(xiii)(a) shall be reduced by
the amount of the cash balances, if any, as of the Distribution Date in the
Imation Affiliates in Italy, France, Argentina and Brazil.
(b) Unless specifically provided otherwise, it is the intent of the
parties that, for federal income tax purposes, all payments made pursuant to
this Agreement shall be treated as adjustments (whether increases or decreases)
to the amount of cash contributed to the capital of Imation pursuant to Section
2.3(xiii)(a) hereof, and, to the extent any such payments decrease the amount of
such cash contributed (as adjusted by this Section 2.3(xiii)(b)) to zero, any
additional payments shall be treated as otherwise relating back to the transfers
made pursuant to Section 2.1(a) hereof.
(xiv) Certain Foreign Receivables/Payables.
Notwithstanding anything contained herein to the contrary, the respective
Affiliates of 3M in the countries a portion of whose businesses are being
transferred in accordance with the provisions of subparagraphs (viii) through
(xii) above and in France shall retain all trade receivables and all trade
payables relating to the Transferred Businesses (except as otherwise provided in
a specific Foreign Asset Transfer Agreement or the French Contribution
Agreement) and, in connection therewith, 3M agrees to remit to Imation an amount
equal to (a) such trade receivables (net of doubtful accounts determined in the
ordinary course consistent with past practice) less trade payables, in each
instance as reflected on the books of 3M as of Distribution Date, less (b) the
amount by which intercompany trade receivables transferred to Affiliates of
Imation exceed intercompany payables assumed by Affiliates of Imation. The
amount payable pursuant to the preceding sentence shall be in U.S. dollars and
paid in the following installments: one-third within 30 days of the Distribution
Date, one-third within 60 days of the Distribution Date and the remainder within
90 days of the Distribution Date. Following the Distribution Date, the
responsibility for such receivables and payables shall be entirely with 3M.
(xv) Foreign Exchange Rates. Except as agreed upon by
3M and Imation or as otherwise provided in this Agreement, all payments to each
other shall be in U.S. dollars and all amounts represented on the books of 3M or
Imation as a foreign currency obligation shall be converted into U.S. dollars
based on the exchange rate quoted in The Wall Street Journal on the last
business day preceding the Distribution Date (or as of such other day as may be
agreed to by Imation and 3M) or, with respect to payments to be made with
respect to a date other than the Distribution Date, the last business day
preceding the respective applicable date (or as of such other day as may be
agreed to by Imation and 3M). 3M and Imation acknowledge that neither party is
intended to benefit from any changes in exchange rates following the
Distribution Date and that 3M and Imation will cooperate with each other to
facilitate the prompt transfer of funds so as to minimize the potential effect
of any changes in exchange rates.
(xvi) Structure. 3M and Imation recognize that the
form of the transaction to effect the transfer of assets and liabilities in a
particular country may change between the date of this Agreement and the
Distribution Date, provided that any such change shall not adversely effect the
rights or obligations being transferred to, or assumed by, Imation and its
Affiliates. In such event, the provisions of this Section 2.3 shall be deemed to
be amended appropriately to reflect the form of such transaction.
(xvii) Delayed Spinoff Transactions. 3M and Imation
agree that the provisions set forth in the last three sentences of subparagraph
(xii) shall also apply to the transactions contemplated in subparagraphs (iii)
and (iv) should either of the transactions contemplated in such subparagraphs
not be effected on the Distribution Date.
Section 2.4 3M Approval. 3M shall cooperate with Imation in
effecting, and if so requested by Imation, 3M shall, as the sole stockholder of
Imation and Imation Enterprises, ratify any actions which are reasonably
necessary or desirable to be taken by Imation and Imation Enterprises to
effectuate the transactions contemplated by this Agreement in a manner
consistent with the terms of this Agreement, including, without limitation, the
election or appointment of directors and officers of Imation to serve in such
capacities following the Distribution Date (if not so appointed by the Board of
Directors of Imation).
ARTICLE III
ASSUMPTION AND RETENTION OF LIABILITIES
Section 3.1 Assumed Liabilities. Upon the terms and subject to
the conditions set forth in this Agreement and in addition to any other
Liabilities otherwise expressly assumed by Imation pursuant to this Agreement,
the Related Agreements or any other agreement contemplated by this Agreement,
Imation hereby agrees with 3M to assume, pay, perform and discharge (or to cause
the appropriate Affiliate of Imation to pay, perform and discharge) in due
course any and all Assumed Liabilities (other than the Enterprise Liabilities)
and cause Imation Enterprises to assume, pay, perform and discharge in due
course any and all Enterprise Liabilities.
Section 3.2 Retained Liabilities. Upon the terms and subject
to the conditions set forth in this Agreement and in addition to any other
Liabilities otherwise expressly retained by 3M pursuant to this Agreement, the
Related Agreements or any other agreement contemplated by this Agreement, 3M
hereby agrees with Imation that 3M shall pay, perform and discharge in due
course any and all Retained Liabilities.
ARTICLE IV
THE DISTRIBUTION
Section 4.1 The Distribution. On or prior to the Distribution
Date, 3M shall deliver to the Agent the certificate for 100 shares of Imation
Common Stock which were owned by 3M prior to the Distribution. Upon receipt from
3M of a certificate as to the number of shares of 3M Common Stock outstanding on
the Record Date, Imation shall deliver to the Agent, for the benefit of holders
of record of 3M Common Stock on the Record Date, a stock certificate
representing, in the aggregate (and rounded down to the nearest whole share), a
number of shares representing one share of Imation Common Stock for every 10
shares of 3M Common Stock outstanding on the Record Date (less the 100 shares of
Imation Common Stock owned prior to the Distribution by 3M), and shall instruct
the Agent to distribute as promptly as practicable following the Distribution
Date to holders of record of 3M Common Stock on the Record Date one share of
Imation Common Stock for every 10 shares of 3M Common Stock and cash in lieu of
fractional shares of Imation Common Stock obtained in the manner provided in
Section 4.2 hereof. Imation agrees to provide to the Agent sufficient
certificates in such denominations as the Agent may request in order to effect
the Distribution. All of the shares of Imation Common Stock issued in the
Distribution shall be fully paid, nonassessable and free of preemptive rights.
Section 4.2 Fractional Shares. No certificate or scrip
representing fractional shares of Imation Common Stock shall be issued as part
of the Distribution and in lieu of receiving fractional shares, each holder of
3M Common Stock who would otherwise be entitled to receive a fractional share of
Imation Common Stock pursuant to the Distribution will receive cash for such
fractional share. 3M and Imation agree that 3M shall instruct the Agent to
determine the number of whole shares and fractional shares of Imation Common
Stock allocable to each holder of record of 3M Common Stock as of the Record
Date, to aggregate all such fractional shares into whole shares and sell the
whole shares obtained thereby in the open market at then prevailing prices on
behalf of holders who otherwise would be entitled to receive fractional share
interests and to distribute to each such holder such holder's ratable share of
the total proceeds of such sales (net of any commissions incurred in connection
with such sales), net of any amount required to be withheld under applicable
law.
Section 4.3 3M Board Action.
(a) This Agreement and the Related Agreement have been
approved by the Board of Directors of 3M, subject to the declaration of the
Distribution by the Board of Directors of 3M, and the consummation of the
transactions provided for herein or therein shall only be effected after the
Distribution has been declared by the Board of Directors of 3M.
(b) The Board of Directors of 3M, in its discretion, shall
establish the Record Date and the Distribution Date and all appropriate
procedures in connection with the Distribution.
ARTICLE V
INDEMNIFICATION, CLAIMS
AND OTHER MATTERS
Section 5.1 Indemnification.
(a) 3M shall indemnify, defend and hold harmless Imation and
each of its directors, officers, employees, agents and Affiliates from and
against any and all Indemnifiable Losses of Imation or any of its Affiliates
arising out of or due to, directly or indirectly, (i) any Third Party Claims (as
defined in Section 5.2) in connection with any of the Retained Liabilities, (ii)
Third Party Claims that the information included in the Information Statement or
the Form 10 under the captions set forth on Schedule 5.1(a) hereto is false or
misleading with respect to any material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (iii) Third Party Claims that 3M or its Affiliates failed to
perform, or violated, any provision of this Agreement which is to be performed
or complied with by 3M or its Affiliates, (iv) breaches of this Agreement by 3M
or its Affiliates or (v) any guarantees which may be granted, either before or
after the Distribution Date, by Imation or one of its Affiliates on behalf of 3M
or one of its Affiliates.
(b) Imation shall indemnify, defend and hold harmless 3M and
each of its directors, officers, employees, agents and Affiliates from and
against any and all Indemnifiable Losses of 3M or any of its Affiliates arising
out of or due to, directly or indirectly, (i) Third Party Claims in connection
with any of the Assumed Liabilities, (ii) Third Party Claims that the
information included in the Information Statement or the Form 10, other than
under the captions set forth on Schedule 5.1(a) hereto, or the information
provided, or statements made, in connection with the investor roadshow held in
connection with the Distribution, is false or misleading with respect to any
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, (iii) Third Party
Claims that Imation or its Affiliates failed to perform, or violated, any
provision of this Agreement which is to be performed or complied with by Imation
or its Affiliates or (iv) breaches of this Agreement by Imation or its
Affiliates or (v) any guarantees which may be granted, either before or after
the Distribution Date, by 3M or one of its Affiliates on behalf of Imation or
one of its Affiliates, including without limitation with respect to any third
party leases assumed or undertaken by Imation or any of its Affiliates in
Australia or otherwise.
(c) Amounts required to be paid pursuant to this Article V are
hereafter sometimes collectively called "Indemnity Payments" and are
individually called an "Indemnity Payment." The amount which any party (an
"Indemnifying Party") is required to pay to any other party (an "Indemnified
Party") pursuant to Section 5.1(a) or Section 5.1(b) shall be reduced
(including, without limitation, retroactively) by any insurance proceeds and
other amounts actually recovered by such Indemnified Party in reduction of the
related Indemnifiable Loss. If an Indemnified Party shall have received an
Indemnity Payment in respect of an Indemnifiable Loss and shall subsequently
actually receive insurance proceeds or other amounts (such as settlement
amounts) in respect of such Indemnifiable Loss, then such Indemnified Party
shall immediately pay to such Indemnifying Party a sum equal to the lesser of
the amount of such insurance proceeds or other amounts actually received or the
net amount of Indemnity Payments actually received previously. The foregoing
notwithstanding, nothing in this Section 5.1(c) shall grant to Imation or its
Affiliates any direct or indirect rights or benefits to insurance coverage with
respect to which Imation is not otherwise entitled under Article IX hereof nor
require 3M or its Affiliates to make any claim for insurance coverage unless and
to the extent that Imation would otherwise be entitled to have 3M make a claim
under Article IX hereof.
(d) (i) For purposes of this Section 5.1(d), an
Indemnified Party shall be deemed to have received a tax saving with respect to
an Indemnifiable Loss if, upon the filing of a Federal or foreign income tax
return for a taxable year ending on or after the Distribution Date (the
"Indemnity Return"), an amount attributable to an Indemnifiable Loss (the
"Indemnifiable Loss Deduction") is deductible by the Indemnified Party or any of
its wholly owned subsidiaries and an amount attributable to the Indemnity
Payment is not includable in gross income by the Indemnified Party or any of its
wholly owned subsidiaries. The foregoing notwithstanding, if the Indemnifying
Party may deduct the amount attributable to the Indemnity Payment, the
Indemnified Party shall be deemed to have not received a tax saving with respect
to an Indemnifiable Loss.
(ii) In the event that an Indemnified Party is deemed
to have received a tax saving by reason of an Indemnifiable Loss, such
Indemnified Party shall pay the Indemnifying Party within thirty (30) days after
the filing of an Indemnity Return by an Indemnified Party which results in a
reduction in the tax liability of the Indemnified Party that is attributable to
such Indemnifiable Loss, a sum equal to the Indemnifiable Loss Deduction
multiplied by an amount equal to A + ((l - A) x .06), where A equals the highest
marginal corporate Federal income tax rate applicable to corporations taxable
under Subchapter C of the Code on the date the Indemnity Return is filed (the
"Tax Saving Amount").
(iii) In the event that any such Indemnifiable Loss
is deductible outside the United States, the provisions of Section 5.1(d)(ii)
shall be appropriately adjusted to reflect the tax structure of the appropriate
foreign jurisdiction.
(iv) Any payment made pursuant to this Section 5.1(d)
shall be treated as a reduction of the Indemnity Payment to which it relates.
(e) 3M'S AND IMATION'S RESPECTIVE OBLIGATIONS PURSUANT TO
SECTION 5.1(A)(IV) AND (B)(IV) SHALL BE LIMITED TO DIRECT AND ACTUAL DAMAGES, TO
THE EXCLUSION OF INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES. PARAGRAPH 5.1(E)
SHALL NOT APPLY TO (I) ANY FAILURE BY IMATION OR ITS AFFILIATES TO ASSUME, PAY,
PERFORM AND DISCHARGE (OR CAUSE THE APPROPRIATE AFFILIATE OF IMATION TO ASSUME,
PAY, PERFORM AND DISCHARGE) ANY AND ALL ASSUMED LIABILITIES, OR (II) ANY FAILURE
BY 3M OR ITS AFFILIATES TO ASSUME, PAY, PERFORM AND DISCHARGE (OR CAUSE THE
APPROPRIATE AFFILIATE OF 3M TO ASSUME, PAY, PERFORM AND DISCHARGE) ANY AND ALL
RETAINED LIABILITIES, OR (III) EXCEPT AS PROVIDED IN SECTION 6.18, ANY BREACH BY
3M OR IMATION OF THEIR RESPECTIVE INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT,
INCLUDING THE INDEMNITY OBLIGATIONS SET FORTH IN ARTICLE V.
(f) Indemnification obligations contained elsewhere in this
Agreement shall be subject to the provisions of this Article V.
Section 5.2 Procedure for Indemnification.
(a) If either party shall receive notice of any claim or
Action brought, asserted, commenced or pursued by any person or entity not a
party to this Agreement (hereinafter a "Third Party Claim"), with respect to
which the other Party is or may be obligated to make an Indemnity Payment, it
shall give such other Party prompt notice thereof (including any pleadings
relating thereto) after becoming aware of such Third Party Claim, specifying in
such reasonable detail as is known to it, the nature of such Third Party Claim
and the amount or estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim); provided,
however, that the failure of a Party to give notice as provided in this Section
5.2 shall not relieve the other Party of its indemnification obligations under
this Article V, except to the extent that such other Party is actually
prejudiced by such failure to give notice.
(b) For any Third Party Claim concerning which notice is
required to be given, and, in fact, given, under subparagraph (a) of this
Section 5.2, the Indemnifying Party shall defend in a timely manner, to the
extent permitted by law, such Third Party Claim through counsel appointed by the
Indemnifying Party and reasonably acceptable to the Indemnified Party. Once an
Indemnifying Party has commenced its defense of an Indemnified Party, it cannot
withdraw from such defense until conclusion of the matter, unless the
Indemnified Party agrees to the withdrawal or the Indemnified Party is also
defending the claim. The Indemnified Party shall have the right to participate
in the defense of the Third Party Claim by employing separate counsel at its own
expense, provided that the parties enter into a Joint Defense Agreement or Joint
Representation and Defense Agreement, substantially in the form of Exhibit D or
E to this Agreement, as appropriate.
(c) If a party responds to a notice of a Third Party Claim by
denying its obligation to indemnify the person or entity claiming a right of
defense and indemnification under this Agreement ("Indemnification Claimant"),
or if the Indemnifying Party fails to defend in a timely manner, the Indemnified
Party shall be entitled to defend such Third Party Claim through counsel
appointed by it. In addition, if it is later determined, through procedures
referenced in Article X of this Agreement, or agreement of the parties, that
said party wrongfully denied such claim, or the Indemnifying Party failed to
timely defend, then the Indemnifying Party shall (1) reimburse the Indemnified
Party for all costs and expenses (other than salaries of officers and employees)
incurred reasonably by the Indemnified Party in connection with its defense of
such Third Party Claim and (2) be estopped from challenging a judgment, order,
settlement, compromise, or consent judgment resolving the Third Party Claim
entered into in good faith by the Indemnified Party (if such claim has been
resolved prior to the conclusion of the proceeding between the Indemnified Party
and Indemnifying Party). An Indemnifying Party, after initially rejecting a
claim for defense or indemnification by an Indemnification Claimant, may defend
and indemnify the Indemnification Claimant, at any time prior to the resolution
of said Third Party Claim, for such claim, provided that (x) the Indemnifying
Party reimburses the Indemnified Party for all costs and expenses (other than
salaries of officers and employees) incurred reasonably by the Indemnified Party
in connection with its defense of such Third Party Claim up to the time the
Indemnifying Party assumes control of the defense of such claim (including costs
incurred in the transition of the defense from the Indemnified Party to the
Indemnifying Party) and (y) the assumption of the defense of the Third Party
Claim will not prejudice or cause harm to the Indemnified Party.
(d) With respect to any Third Party Claim relating to any
matter subject to a claim for indemnification hereunder, no party shall enter
into any compromise or settlement or consent to the entry of any judgment which
(i) does not include as a term thereof the giving by the third party of a
release to the Indemnified Party from all further liability concerning such
Third Party Claim on terms no less favorable than those obtained by the party
entering into such compromise, settlement or consent or (ii) imposes any
obligation on the Indemnified Party without said Indemnified Party's written
consent (such consent not to be unreasonably withheld), except an obligation to
pay money which the Indemnifying Party has agreed to pay on behalf of the
Indemnified Party. In the event that an Indemnified Party enters into any such
compromise, settlement or consent without the written consent of the
Indemnifying Party (other than as contemplated by Section 5.2(c)), the entry of
such compromise, settlement or consent shall relieve the Indemnifying Party of
its indemnification obligation related to the claims underlying such compromise,
settlement or consent.
(e) Upon final judgment, determination, settlement or
compromise of any Third Party Claim, and unless otherwise agreed by the parties
in writing, the Indemnifying Party shall pay promptly on behalf of the
Indemnified Party, or to the Indemnified Party in reimbursement of any amount
theretofore required to be paid by it, the amount so determined by final
judgment, determination, settlement or compromise. Upon the payment in full by
the Indemnifying Party of such amount, the Indemnifying Party shall succeed to
the rights of such Indemnified Party to the extent not waived in settlement,
against the third party who made such Third Party Claim and any other person who
may have been liable to the Indemnified Party with respect to the indemnified
matter.
(f) In connection with defending against Third Party Claims,
the parties shall cooperate with and assist each other by making available all
employees, books, records, communications, documents, items and matters within
their knowledge, possession or control that are necessary, appropriate or
reasonably deemed relevant with respect to defense of such claims; provided,
however, that nothing in this subparagraph (f) shall be deemed to require the
waiver of any privilege, including the attorney-client privilege, or protection
afforded by the attorney work product doctrine. In addition, regardless of the
party actually defending a Third Party Claim for which there is an indemnity
obligation under Section 5.1 of this Agreement, the parties shall give each
other regular status reports relating to such action with detail sufficient to
permit the other party to assert and protect its rights and obligations under
this Agreement.
(g) The provisions of this Section 5.2 shall survive in
perpetuity and shall be the exclusive procedures for any claims subject to the
provisions of Section 5.1(a) or (b) hereof.
Section 5.3 Other Claims by Indemnified Parties Against
Indemnifying Parties. Any claim on account of an Indemnifiable Loss which does
not result from a Third Party Claim shall be asserted by written notice from the
Indemnified Party to the Indemnifying Party within sixty (60) days of first
learning of the breach under Section 5.1(a)(iv) or 5.1(b)(iv). All such claims
that are not timely asserted pursuant to this Section shall be deemed to be
forever waived. The Indemnified Party's written notice shall contain such
information as the Indemnified Party has regarding the alleged breach. Such
Indemnifying Party shall have a period of sixty (60) days (or such shorter time
period as may be required by law as indicated by the Indemnified Party in the
written notice) within which to respond thereto. If such Indemnifying Party does
not respond within such 60-day (or lesser period) such Indemnifying Party shall
be deemed to have accepted responsibility to make payment for the amount of the
Indemnifiable Loss and shall have no further right to contest the validity of
such claim. If such Indemnifying Party does respond within such 60-day (or
lesser) period and rejects such claim in whole or in part, such Indemnified
Party shall be free to pursue resolution as provided in Article X hereof.
Section 5.4 Indemnifiable Losses under Sections 5.1(a)(ii) and
5.1(b)(ii). If the indemnification provided for in this Article V is unavailable
to an Indemnified Party in respect of any Indemnifiable Loss arising out of or
related to information contained in the Information Statement the Form 10 or the
roadshow, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Indemnifiable Loss, in such proportion as is appropriate to
reflect the relative fault of Imation, each of its directors, each of its
officers who has signed any registration statement and each Affiliate of Imation
(an "Imation Party") on the one hand and 3M and each Affiliate of 3M (a "3M
Party") on the other hand in connection with the statements or omissions which
resulted in such Indemnifiable Loss. The relative fault of an Imation Party on
the one hand and of a 3M Party on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by an Imation Party on the one hand or a 3M
Party on the other hand.
Section 5.5 No Beneficiaries. Except to the extent expressly
provided otherwise in this Article V, the indemnification provided for by this
Article V shall not inure to the benefit of any third party or parties and shall
not relieve any insurer who would otherwise be obligated to pay any claim of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, provide any subrogation rights with respect thereto and each
party agrees to waive such rights against the other to the fullest extent
permitted.
Section 5.6 Special Provision Relating to Nishika Case. 3M
agrees to accept as Retained Liabilities the obligations relating to or arising
from the lawsuit entitled Minnesota Mining and Manufacturing Company v. Nishika,
Ltd., et al. (Supreme Court of Texas; Case No. 94-1124). In return, Imation
agrees that in the event the case is retried, it will use its best efforts to
make available on a priority basis, and for as long as is needed by 3M, any
Imation employee witnesses requested by 3M. In such connection, it is
anticipated that 3M will need, and Imation agrees to use its best efforts to
make available, Roger Lorenzini, for as long as he is an Imation employee or
under contract to provide any service to Imation, for extended periods prior to
any retrial in connection with this case and, if requested by 3M, for the entire
duration of any retrial. 3M shall reimburse Imation's out-of-pocket expenses,
but not salaries, in connection with any such employee witnesses.
Notwithstanding any other provisions of this Agreement, in the event Imation
fails to use its best efforts to provide such witnesses, and if such failure has
a material adverse impact on the outcome of the retrial, then all Liabilities
and obligations relating to such case will be deemed to be Assumed Liabilities
under this Agreement and Imation shall indemnify, defend and hold harmless 3M
from and against all Indemnifiable Losses arising out of or due to, directly or
indirectly, such case, whether incurred prior to the Distribution Date or
incurred on or after the Distribution Date. For purposes of this Section 5.6,
Imation shall be deemed to have satisfied its best efforts obligations to the
extent, but only to the extent, that it exercises a degree of care and effort
which is no less diligent than that which Imation would be expected to exercise
had it retained responsibility for the foregoing lawsuit.
Section 5.7 Named Parties. The parties hereto acknowledge that
it may not be feasible to substitute Imation (or one of its Affiliates) for 3M
(or one of its Affiliates) as a named party in Actions, whether domestic or
foreign, constituting Assumed Liabilities. In such event, 3M (or one of its
Affiliates) shall remain as a named party, but, following the Distribution Date,
Imation (or one of its Affiliates) shall assume the defense of any such Action
in accordance with the provisions of Section 5.2 hereof and 3M and its
Affiliates shall cooperate with Imation as contemplated by such Section 5.2 and
Article VII hereof.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.1 Conveyancing and Assumption Instruments. In
connection with the transfer, conveyance, assignment and delivery of the
Transferred Assets and the assumption of Assumed Liabilities contemplated by
this Agreement, 3M and Imation agree to execute or cause to be executed by the
appropriate parties and to deliver to each other, as appropriate, the
Conveyancing and Assumption Instruments.
Section 6.2 No Representations or Warranties; Exceptions.
Except as provided in Section 2.1 hereof, Imation understands and agrees that 3M
is not in this Agreement or in any other agreement or document contemplated by
this Agreement, representing or warranting in any way (a) as to the value or
freedom from encumbrance of, or any other matter concerning, any Transferred
Assets or (b) as to the legal sufficiency to convey title to any Transferred
Assets of the execution, delivery and filing of the Conveyancing Instruments, IT
BEING AGREED AND UNDERSTOOD THAT ALL SUCH ASSETS AND THE ASSUMED LIABILITIES ARE
BEING TRANSFERRED "AS IS, WHERE IS" and without any representation or warranty
of any kind (express or implied) and that Imation shall bear the economic and
legal risk that any conveyances of such assets shall prove to be insufficient or
that Imation's title to any such assets shall be other than good and marketable
and free from encumbrances. Similarly, Imation understands and agrees that 3M is
not in this Agreement or in any other agreement or document contemplated by this
Agreement, representing or warranting in any way that the obtaining of the
consents or approvals, the execution and delivery of any amendatory agreements
and the making of the filings and applications contemplated by this Agreement
shall satisfy the provisions of all applicable agreements or the requirements of
all applicable laws or judgments, it being understood and agreed that, subject
to Section 6.3 hereof, Imation shall bear the economic and legal risk that any
necessary consents or approvals are not obtained or that any requirements of law
or judgments are not complied with. The foregoing, however, shall not limit any
responsibilities which 3M may have to use its commercially reasonable efforts to
effect transfers under the other provisions of this Agreement.
Section 6.3 Further Assurances; Subsequent Transfers.
(a) Each of 3M and Imation will execute and deliver such
further instruments of conveyance, transfer and assignment and will take such
other actions as each of them may reasonably request of the other in order to
effectuate the purposes of this Agreement and to carry out the terms hereof.
Without limiting the generality of the foregoing, at any time and from time to
time after the Distribution Date, at the request of Imation and without further
consideration, 3M will execute and deliver to Imation such other instruments of
transfer, conveyance, assignment and confirmation and take such action as
Imation may reasonably deem necessary or desirable in order to more effectively
transfer, convey and assign to Imation and to confirm Imation's title to all of
the Transferred Assets, to put Imation in actual possession and operating
control thereof and to permit Imation to exercise all rights with respect
thereto (including, without limitation, rights under contracts and other
arrangements as to which the consent of any third party to the transfer thereof
shall not have previously been obtained) and Imation will execute and deliver to
3M all instruments, undertakings or other documents and take such other action
as 3M may reasonably deem necessary or desirable in order to have Imation fully
assume and discharge the Assumed Liabilities and relieve 3M of any Liability or
obligations with respect thereto and evidence the same to third parties.
Notwithstanding the foregoing, 3M and Imation shall not be obligated, in
connection with the foregoing, to expend monies other than reasonable
out-of-pocket expenses and attorneys' fees.
(b) 3M and Imation will use their commercially reasonable
efforts to obtain any consent, approval or amendment required to novate and/or
assign all agreements, leases, licenses and other rights of any nature
whatsoever relating to the Transferred Assets to Imation or Affiliates of
Imation; provided, however, that 3M and its Affiliates shall not be obligated to
pay any consideration therefor (except for filing fees and other administrative
charges and except as otherwise specifically provided herein) to the third party
from whom such consents, approvals and amendments are requested. In the event
and to the extent that 3M is unable to obtain any such required consent,
approval or amendment (i) 3M shall continue to be bound thereby and (ii) unless
not permitted by law or the terms thereof, Imation shall pay, perform and
discharge fully all the obligations of 3M thereunder from and after the
Distribution Date and indemnify 3M for all Indemnifiable Losses arising out of
such performance by Imation or any claims by third parties thereunder. 3M shall,
without further consideration therefor, pay and remit to Imation promptly all
monies, rights and other considerations received in respect of such performance.
3M shall exercise or exploit its rights and options under all such agreements,
leases, licenses and other rights and commitments referred to in this Section
6.3(b) only as reasonably directed by Imation and at Imation's expense. If and
when any such consent shall be obtained or such agreement, lease, license or
other right shall otherwise become assignable or able to be novated, 3M shall
promptly assign and novate all its rights and obligations thereunder to Imation
without payment of further consideration and Imation shall, without the payment
of any further consideration therefor, assume such rights and obligations. To
the extent that the assignment of any contract or agreement (or their proceeds)
pursuant to this Section 6.3 is prohibited by law, the assignment provisions of
this Section shall operate to create a subcontract with Imation to perform each
relevant unassignable 3M contract or agreement at a subcontract price equal to
the monies, rights and other considerations received by 3M with respect to the
performance by Imation under such subcontract.
(c) All Bids, Quotations and Proposals included in the
Transferred Assets shall be transferred to Imation or Imation Enterprises to the
extent permitted by law. 3M and Imation shall work together and use their best
efforts to preserve such Bids, Quotations and Proposals and facilitate the award
of contracts pursuant thereto consistent with applicable laws and regulations.
Any contracts awarded pursuant to an outstanding Bid, Quotation or Proposal
shall be considered an agreement and treated in the same manner as provided for
in the last two sentences of Section 6.3(b) hereof.
(d) 3M and Imation acknowledge that the following governmental
programs shall remain with 3M through their respective terms: the Advanced Tape
Systems Program, the Optical Storage Program, the National Media Lab Program and
the Factory Support Program. With respect to the Advanced Tape Systems Program
and the Optical Storage Program, 3M shall use its commercially reasonable
efforts to have Imation added as another consortium member. With respect to the
other programs and subject to the receipt of any required governmental
approvals, 3M and Imation shall enter into a subcontracting agreement (as
contemplated by subsection (b) above) to the extent necessary to allow Imation
to perform any services required to be performed by it and to enable Imation to
receive any benefits of the particular program relating to those services. 3M
and Imation further acknowledge that the Mapping Contract shall remain with 3M,
which shall have the sole responsibility of performing thereunder.
(e) With respect to any governmental commercial supply
contracts relating to the Transferred Businesses, 3M and Imation shall use their
respective commercially reasonable efforts to execute one or more novation
agreements with the appropriate governmental authority so as to effectively
substitute Imation for 3M under all such contracts.
(f) From and after the Distribution Date, 3M shall have no
responsibility to take any action with respect to any UCC filings made prior to
the Distribution Date relating to equipment sold by, or on behalf of, the
Transferred Businesses, including, without limitation, any action which may be
necessary to renew any such filings. The foregoing notwithstanding, at the
request of Imation, 3M shall assist Imation in effecting the transfer of any
such filings into the name of Imation.
(g) All references in this Section 6.3 to Imation shall
include Imation Enterprises as and to the extent appropriate.
Section 6.4 Imation Officers and Directors. Imation and 3M
shall take all actions which may be required to elect or otherwise appoint, as
of the Distribution Date, those individuals designated in the Information
Statement to be directors or officers of Imation.
Section 6.5 Resignations. On or prior to the Distribution
Date, 3M shall cause all directors and officers of 3M who are not designated in
the Information Statement to be directors and officers of Imation following the
Distribution Date to resign from their positions as directors or officers of
Imation.
Section 6.6 Certain Intercompany Arrangements.
(a) Following the Distribution Date, the parties shall discuss
in good faith the provision of any services and products to be provided by the
other, but which inadvertently were not the subject of a written agreement.
Nothing in this Section 6.6, however, shall require or authorize 3M or Imation
to provide and charge each other for any services other than on the terms and
conditions specified in the Corporate Services Transition Agreement or the other
Related Agreements.
(b) In connection with the Distribution, 3M and Imation shall
effect the transfer of intercompany receivables and payables relating to
products of the Transferred Businesses which are in-transit as of the
Distribution Date to achieve an appropriate matching of such receivables and
payables (i.e., both the receivables and payables relating to a product
in-transit shall be held by one party and its Affiliate following the
Distribution).
Section 6.7 Related Agreements. As of the Distribution Date,
3M and Imation shall enter, and shall cause Imation Enterprises and their
respective Affiliates to enter (if applicable), into the Related Agreements.
Section 6.8 Sales and Transfer Taxes. Imation and 3M agree to
cooperate to determine the amount of sales, transfer or other taxes or fees
(including, without limitation, all real estate, patent, copyright and trademark
transfer taxes and recording fees) payable in connection with the transactions
contemplated by this Agreement (the "Transaction Taxes"). 3M agrees to file
promptly and timely the returns for such Transaction Taxes with the appropriate
taxing authorities and remit payment of the Transaction Taxes and Imation will
join in the execution of any such tax returns or other documentation. Payment of
all such Transaction Taxes shall be the responsibility of 3M, except as
otherwise provided in Section 11.2 hereof, the foreign transfer agreements or
the Tax Sharing Agreement. The foregoing notwithstanding, Imation shall be
responsible for sales taxes payable upon the transfer of motor vehicles and for
mortgage recording taxes which by statute are the primary responsibility of
Imation.
Section 6.9 Signs; Use of 3M Name. Within 90 days after the
Distribution Date, Imation, at its own expense, shall remove (or, if necessary,
cover up) any and all exterior and interior signs and identifiers which refer or
pertain to 3M at the Transferred Businesses. After such 90-day period, Imation
shall not use or display the name "3M" or other trademarks, trade names or their
identifiers owned by or licensed to 3M except to the extent such marks, names
and identifiers have been assigned or licensed to Imation or Imation Enterprises
pursuant to the Intellectual Property Agreement ("NonPermitted Names"), without
the prior written consent of 3M.
Section 6.10 Supplies and Documents. For a period of time
following the Distribution Date (as contemplated in the Intellectual Property
Agreement), Imation shall have the right to use existing supplies and documents
(including, but not limited to forms, labels, shipping materials, packaging
materials, catalogues, sales brochures, operating manuals, instructional
documents and similar materials, and advertising material) being transferred to
it pursuant to this Agreement which have imprinted thereon the name "3M" or
trademarks, logotypes or variations comprising the name "3M" as and to the
extent contemplated by the Intellectual Property Agreement. At the end of such
time period, Imation shall destroy all such remaining supplies and documents. In
addition, Imation will cause the name of any of its subsidiaries or Affiliates
containing the phrase "3M" to be changed to delete any such reference.
Section 6.11 Plant Closings and Layoffs. Imation agrees that
it shall not, at any time during the 90-day period following the Distribution
Date, effectuate (i) a "plant closing" as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act") affecting any site of
employment or operating units within any site of employment of the Transferred
Businesses or (ii) take any action to precipitate a "mass layoff" as defined in
the WARN Act affecting any site of employment of the Transferred Businesses,
except, in either case, after complying fully with the notice and other
requirements of the WARN Act. Imation agrees to indemnify 3M and to defend and
hold 3M harmless from and against any and all claims, losses, damages, expenses,
obligations and liabilities (including attorney's fees and other costs of
defense) which 3M may incur in connection with any suit or claim of violation
brought against 3M under the WARN Act, which relate, in whole or in part, to
actions taken by Imation with regard to any site of employment of Imation or
operating units within any site of employment of the Transferred Businesses.
Section 6.12 Shared Facility Arrangements.
(a) 3M and Imation agree that, subsequent to the Distribution
Date, the facilities located in Menomonie, Wisconsin and at 3M Center (the "3M
Shared Facility") shall be owned by 3M, but shared by the parties for the
concurrent operations of certain of the Core Businesses and Transferred
Businesses in accordance with the terms set forth in this Section 6.12. 3M and
Imation further agree that subsequent to the Distribution Date, the facilities
located in Middleway, West Virginia, Vadnais Heights, Minnesota, Camarillo,
California and Pine City, Minnesota (the "Imation Shared Facilities") shall be
owned by Imation (or Imation Enterprises) or leased by Imation (or Imation
Enterprises) from third parties (as the case may be), but shared by the parties
for the concurrent operations of certain of the Core Businesses and Transferred
Businesses in accordance with the terms set forth in this Section 6.12. (All
such arrangements are collectively referred to as the "Shared Facility
Arrangements" and are more fully described on Schedule 6.12(a)).
(b) During the applicable Shared Facility Term, the parties
agree that Imation shall lease from 3M a portion of the 3M Shared Facility for
the purpose of conducting operations relating to the Transferred Businesses to
the extent and in a manner substantially consistent with the operations
conducted at such facilities in connection with the Transferred Businesses
immediately prior to the Distribution Date. In furtherance thereof, 3M and
Imation shall, on or prior to the Distribution Date, enter into a Shared
Facility Agreement, with respect to each such facility, which shall set forth
(i) the portion of the building to be made available and the services to be
provided by 3M to Imation at each of the 3M Shared Facilities, (ii) the payments
to be paid by Imation to 3M in consideration therefor and (iii) such further
arrangements as the parties deem appropriate with respect to the 3M Shared
Facilities. In addition, Affiliates of Imation shall continue following the
Distribution Date to lease from Affiliates of 3M (x) a portion of 3M's facility
at Breda, Netherlands pursuant to the lease which is in effect on the
Distribution Date and (y) a portion of 3M's facility in London, Ontario, Canada
pursuant to the terms of the Transition Agreement being entered into between 3M
Canada, Inc. and Imation Canada, Inc.
(c) During the applicable Shared Facility Term, the parties
agree that 3M shall lease (or sublease, as the case may be) from Imation a
portion of each of the Imation Shared Facilities for the purpose of conducting
operations relating to the Core Businesses to the extent and in a manner
substantially consistent with the operations conducted at such facilities in
connection with the Core Businesses immediately prior to the Distribution Date.
In furtherance thereof, 3M and Imation shall, on or prior to the Distribution
Date, enter into a Shared Facility Agreement with respect to each such facility,
which shall set forth (i) the portion of the building to be made available and
services to be provided by Imation to 3M at each of the Imation Shared
Facilities, (ii) the payments to be made by 3M to Imation in consideration
therefor and (iii) such further arrangements as the parties deem appropriate
with respect to the Imation Shared Facilities.
(d) Upon the termination by either party of any of the Shared
Facility Arrangements with respect to a particular facility in accordance with
the respective Shared Facility Agreement, Imation or 3M, as the case may be,
shall promptly remove all of its personnel, equipment, materials and other
property from such facility.
Section 6.13 Leased Employees. Following the Distribution
Date, Imation shall lease from 3M the Leased Employees in accordance with the
terms of the Leased Employee Agreement.
Section 6.14 Other Leased/Shared Properties.
(a) In connection with the Distribution, 3M shall assign to
Imation or Imation Enterprises (as the case may be), and Imation or Imation
Enterprises (as the case may be) shall accept responsibility for the third party
leases relating to real property and/or the facilities set forth on Schedule
6.14(a).
(b) In connection with the Distribution, Imation or Imation
Enterprises (as the case may be) shall assume responsibility with respect to
certain lease agreements relating to the Transferred Businesses, including those
which are set forth on Schedule 6.14(b), pursuant to which 3M presently leases a
portion of its facilities to unaffiliated third parties.
(c) 3M shall retain all distribution centers. Any distribution
center services to be provided by 3M to Imation shall be provided pursuant to
the terms of the Corporate Services Agreement.
Section 6.15 Domestic Receivables and Payables.
(a) Following the Distribution Date and through December 31,
1996 (or such earlier date as 3M and Imation shall mutually agree), 3M, on
behalf of Imation and Imation Enterprises, shall collect all domestic trade
receivables of the Transferred Businesses outstanding as of the Distribution
Date which constitute shared accounts (i.e., a portion of such receivables
relate to each of the Core Businesses and the Transferred Businesses,
respectively) and pay all domestic payables of the Transferred Businesses
outstanding as of such date (irrespective of whether such payables constitute
shared payables or are payables solely for the account of the Transferred
Businesses). 3M will diligently pursue the collection of such receivables and
the payment of payables, with the same degree of care and effort as 3M performs
such services with respect to its own receivables and payables; it being
understood, however, that subject to the provisions of this sentence, any risk
of non-collection of Imation's portion of the shared receivables shall remain
with Imation. Pending a final reconciliation, 3M will remit to Imation, per a
mutually agreed schedule which is set forth on Schedule 6.15(a), an estimate of
the amount, if any, by which collections with respect to shared and non-shared
(net of the items specified on Schedule 6.15(a)) are expected to exceed
payments, and Imation will remit to 3M the amount, if any, by which payments are
expected to exceed collections (net of the items specified on Schedule 6.15(a)).
The remittances schedule shall be reviewed on a monthly basis by 3M and Imation
and shall be adjusted in good faith by mutual agreement of the parties to the
extent necessary to reflect more accurately the actual schedule of collections
and payments. If 3M receives a payment with respect to a receivable of which a
portion relates to the Transferred Businesses and a portion relates to the Core
Businesses, 3M shall allocate the payments as directed by the customer and, in
the absence of any such direction, in a manner corresponding to the relative
amounts of the specific invoices in question outstanding with respect to the
Transferred Businesses and the Core Businesses.
(b) Promptly following December 31, 1996 (or such earlier date
as 3M and Imation shall mutually agree upon), 3M shall prepare a final
reconciliation of cash collected from domestic trade receivables (net of the
items specified on Schedule 6.15(a)) and cash paid for all domestic payables, in
either instance relating to the Transferred Businesses and outstanding on the
Distribution Date. Upon completion of the final reconciliation, 3M shall remit
to Imation, or Imation shall remit to 3M, as the case may be, any funds required
so that the total amount of funds remitted by 3M to Imation (net of any funds
remitted by Imation to 3M) pursuant to Sections 6.15(a) and (b) shall equal the
actual amount by which collections (net of the items set forth on Schedule
6.15(a)) exceed payments.
(c) The foregoing notwithstanding, commencing with the
Distribution Date, Imation shall assume responsibility for the collection of all
trade receivables of the Transferred Businesses which are not "shared" accounts,
and be entitled to any amounts so collected; although the funds relating to
pre-Distribution Date receivables may be deposited in 3M lock boxes and remitted
to Imation in accordance with Schedule 6.15(a). The risk of non-collection of
the trade receivables referred to in the preceding sentence shall remain with
Imation. In addition, after December 31, 1996 (or such earlier date as 3M and
Imation shall mutually agree upon), Imation shall assume responsibility for the
collection of all domestic trade receivables and the payment of all trade
payables, in either instance relating to the Transferred Businesses; although 3M
may continue to provide services with respect to trade payables in accordance
with the terms of the Corporate Services Transition Agreement. Accordingly,
should 3M or Imation inadvertently receive payment with respect to any trade
receivables the collection of which is the responsibility of the other party, it
will remit payment to the appropriate party of any amounts so received at the
time of the final reconciliation or at such other time as the improper payment
is identified.
Section 6.16 Diskette Anti-Dumping Duty Exemption. 3M is
presently entitled to certain exemptions from anti-dumping duties which respect
to the importation of diskettes into the European Union. 3M and Imation shall
use their respective commercially reasonable efforts to have Imation substituted
for 3M with respect to such exemption with an effective date of July 1, 1996 or
as soon as possible thereafter. 3M and Imation agree to cooperate with each
other in good faith to minimize any obligation to pay anti-dumping duties should
the parties be unable to effect such substitution and/or have such substitution
effective as of July 1, 1996, including to the extent permitted by applicable
law by having 3M import on behalf of Imation (it being understood that Imation
would reimburse 3M for all its costs and expenses so involved). In the event
that Affiliates of 3M in Europe shall receive diskettes following the foregoing
substitution of Imation, 3M and Imation shall cooperate with each other in good
faith to minimize any obligation to pay anti-dumping duties with respect to such
diskettes; it being understood, however, that Imation shall be responsible for
any duties which may be payable and any other costs which may be incurred in
handling such diskettes.
Section 6.17 Repayment of Italian Debt. In connection with the
Distribution, Imation shall, or shall cause one of its Affiliates, to repay
certain indebtedness which is presently outstanding and owing to 3M from its
Affiliates in Italy and which is being assumed by an Affiliate of Imation
pursuant to Section 2.3 hereof.
Section 6.18 GECC Financing Agreements. The respective rights
and obligations of 3M and Imation under the Portfolio Purchase Agreement and the
Operating Agreement entered into by 3M with GECC in December 1995 with respect
to financing transactions entered into with customers to enable those customers
to purchase equipment sold by the Transferred Businesses or used in connection
with products of the Transferred Businesses are as set forth below:
(a) respective rights and obligations of 3M and Imation under
the Portfolio Purchase Agreement and the Operating Agreement entered into by 3M
with respect to the Imation Contracts and other obligations described therein
shall be as follows:
(i) With respect to the Portfolio Purchase Agreement:
(1) So long as Imation is not in material default of its obligations
pursuant to this Section 6.18 and to the extent 3M is entitled to
certain rights with respect to Imation Contracts pursuant to the
Portfolio Purchase Agreement, including without limitation, the right
to receive notice in certain cases, the right to make cure payments on
behalf of customers, and the right to remarket Property, Imation shall
have all such rights from and after the Distribution Date and, subject
to GECC's consent, shall have the right to exercise such rights
directly to GECC;
(2) To the extent amounts are owed or become due to GECC resulting from
the breach of a representation or warranty relating to Lease Contracts
or the Property related thereto which are Imation Contracts pursuant to
Section 3.4, 3.7, 3.8, 3.10 or 3.11 thereof, Imation shall pay those
amounts to GECC;
(3) To the extent amounts are owed or become due to GECC pursuant to
Article V thereof, Imation shall pay those amounts to GECC which result
from Lease Contract Defaults that are related to Imation Contracts;
(4) To the extent any Recoveries or Remarketing Proceeds are owed or
become due to GECC pursuant to Section 5.5 or Section 6.7 thereof,
Imation shall pay those amounts to GECC which relate to any Property
that is subject to Imation Contracts and if Imation pays any such
amounts to GECC then 3M shall direct that GECC transfer such Imation
Contracts directly to Imation;
(5) To the extent that any Recoveries or Remarketing Proceeds have been
paid to 3M pursuant to Section 5.5 or Section 6.7 thereof, 3M shall pay
to Imation any portion of such amounts attributable to Imation
Contracts (except to the extent 3M has previously paid to GECC any
amounts with respect to such Imation Contracts);
(6) On the Distribution Date, 3M shall transfer to Imation all of its
rights and interests in and to all Administered Accounts that relate to
Imation Contracts; and, to the extent that any Recoveries or
Remarketing Proceeds are paid to 3M with respect to any Administered
Account, 3M shall promptly pay to Imation any portion of such amounts
to Imation which result from those Administered Accounts relating to
Imation Contracts and any amounts paid from GECC to 3M on each such
Imation Contract will be promptly paid to Imation;
(7) To the extent amounts are owed or become due to GECC with respect
to any Administered Account pursuant to Section 7.4 thereof, Imation
shall pay those amounts to GECC which result from those Administered
Accounts relating to Imation Contracts;
(8) To the extent amounts are owed or become due to GECC under any
Service and Maintenance Contract pursuant to Article VIII thereof,
Imation shall pay those amounts to GECC which result from those Service
and Maintenance Contracts relating to Property that is subject to
Imation Contracts and if Imation pays any such amounts to GECC then 3M
shall direct GECC to transfer such Imation Contracts directly to
Imation;
(9) To the extent amounts are owed or become due to GECC under any
Dealer Enhancement pursuant to Article VIII thereof, Imation shall
pay those amounts to GECC which result from those Dealer Enhancements
relating to Imation Contracts and if Imation pays any such amounts to
GECC then 3M shall direct GECC to transfer such Imation Contracts
directly to Imation;
(10) To the extent that remarketing obligations are required to be
performed pursuant to Section 8.3 thereof with respect to Imation
Contracts, Imation shall perform such obligations;
(11) To the extent amounts are owed or become due to GECC under any
Recourse Contract pursuant to Article VIII thereof, Imation shall pay
those amounts to GECC which result from those Recourse Contracts
relating to Imation Contracts and if Imation pays any such amounts to
GECC then 3M shall direct GECC to transfer such Imation Contracts
directly to Imation;
(12) To the extent any Damages are owed or become due to GECC pursuant
to Section 9.2(a)(other than clause (iii) therein) or 9.2(b) thereof,
Imation shall pay those amounts to GECC which are attributable to, or
arise out of, Imation's actions or failure to act, or relate to Imation
Contracts or the Property related thereto;
(13) 3M shall endeavor in good faith to enter into an amendment thereto
with GECC which provides that, with respect to Imation Contracts,
Imation shall be entitled to all rights of 3M pursuant to the Portfolio
Purchase Agreement and, subject to GECC's consent, GECC shall
thereafter fulfill its obligations relating to Imation Contracts
directly to Imation and 3M shall, upon request, be entitled to receive
copies of all such reports relating to Imation Contracts, and all
notices, letters and other forms of communication provided by GECC to
Imation pursuant to the Portfolio Purchase Agreement from time to time
during the term of such Agreement; and
(14) On the Distribution Date, 3M shall transfer to Imation a non-cash
accrual in the amount of sixty percent (60%) of the remaining balance
in 3M's General Ledger Account 9030 Project DIVESTGECC as of the
Distribution Date as a reserve against future liabilities relating to
Imation Contracts. This is a transfer of the asset reserve account only
and does not include any current or future transfer of cash from 3M to
Imation.
(ii) With respect to the Operating Agreement:
(1) 3M shall transfer to Imation the right to receive all amounts to be
received from GECC, if any, for funding Imation Contracts which have
not been funded as of the Distribution Date;
(2) 3M and Imation shall use all reasonable efforts to enter into an
assignment and assumption agreement with GECC pursuant to which 3M
shall assign its rights and obligations under the Operating Agreement
with respect to Imation Contracts to Imation. Imation shall assume such
rights and obligations, and GECC shall consent to such assignment and
assumption.
(3) In the event the parties do not enter into such an assignment and
assumption agreement, the following provisions shall apply:
(A) To the extent amounts are owed or become due to GECC
resulting from the breach of a representation, warranty or
covenant in Section 12 thereof, Imation shall pay those
amounts to GECC that relate to any such breach that is
attributable to Imation Contracts or the Equipment related
thereto and will perform the covenants shown in such Section
12 to the extent that such covenants relate to Imation
Contracts or the Equipment related thereto;
(B) To the extent amounts are owed or become due to GECC
pursuant to Section 15 thereof, Imation shall pay those
amounts to GECC which result from Lease Contract Defaults that
relate to Imation Contracts;
(C) To the extent any Recoveries or Remarketing Proceeds are
owed or become due to GECC pursuant to Section 15(d) or
Section 16(g) thereof, Imation shall pay those amounts to GECC
which relate to Property that is subject to Imation Contracts;
(D) To the extent that any Recoveries or Remarketing Proceeds
are paid to 3M pursuant to Section 15(d) or Section 16(g)
thereof, 3M shall pay to Imation the portion of such amounts
attributable to Imation Contracts;
(E) To the extent amounts are owed or become due to GECC under
any Service Transaction pursuant to Section 17 thereof,
Imation shall pay those amounts to GECC which result from
those Service Transactions relating to any Property that is
subject to Imation Contracts and if Imation pays any such
amounts to GECC then 3M shall direct GECC to transfer such
Imation Contracts directly to Imation;
(F) To the extent amounts are owed or become due to GECC under
any Recourse Transactions pursuant to Section 17 thereof,
Imation shall pay those amounts to GECC which result from
those Recourse Transactions that are related to Imation
Contracts and if Imation pays any such amounts to GECC then 3M
shall direct GECC to transfer such Imation Contracts directly
to Imation;
(G) To the extent amounts are owed or become due to GECC
resulting from municipal contract terminations for
non-appropriation pursuant to Section 18 thereof, Imation
shall pay those amounts to GECC which are related to Imation
Contracts;
(H) To the extent that obligations are required to be
performed or amounts are owed or become due to GECC pursuant
to Section 18 with respect to Imation Contracts, Imation shall
perform such obligations or pay such amounts;
(I) To the extent any Damages are owed or become due to GECC
pursuant to Section 22(a) thereof, Imation shall pay those
amounts to GECC which are attributable to Imation, or arise
out of, Imation's actions or failure to act, or relate to
Imation Contracts or the Equipment related thereto;
(J) To the extent amounts are owed or become due to GECC
pursuant to Section 26 thereof and Imation has not generated
Transaction volume in an amount at least equal to $90,000,000
during the Term of the Program, then Imation shall pay to GECC
$10,000 for each $1,000,000 of Transaction volume (or portion
thereof) less than $90,000,000 generated during such Term (but
not more than $900,000).
(b) For the purposes of this Section 6.18, all capitalized
terms used herein shall have their respective meanings in the Portfolio Purchase
Agreement or the Operating Agreement, as the context requires, except that the
following terms shall have the following definitions:
3M Contracts: shall mean those Lease Contracts that are not Imation Contracts.
GECC: General Electric Capital Corporation, a corporation organized under the
laws of the State of Connecticut.
Imation Contracts: shall mean those Lease Contracts that were originated by the
Transferred Businesses in existence as of the Distribution Date.
Operating Agreement: shall mean that certain Operating Agreement by and between
GECC and 3M dated as of December 6, 1995.
Portfolio Purchase Agreement: shall mean that certain Portfolio Purchase
Agreement by and between GECC and 3M dated as of December 6, 1995.
All capitalized terms used in this Section 6.18 but not otherwise defined in
this Section 6.18(a) shall have the meanings set forth in this Agreement.
(c) Imation shall, from and after the Distribution Date,
indemnify and hold harmless 3M and each of its directors, officers, employees
and agents from and against any and all liabilities owed to GECC arising out
of or based upon or with respect to any (i) breach under this Section 6.18 or
(ii) any failure to perform any covenant, agreement or undertaking on the part
of Imation contained in this Section 6.18.
(d) 3M shall, from and after the Distribution Date, indemnify
and hold harmless Imation and each of its directors, officers, employees and
agents from and against any and all liabilities owed to GECC arising out of or
based upon or with respect to any (i) breach under this Section 6.18; (ii) any
failure to perform any covenant, agreement or undertaking on the part of 3M
contained in this Section 6.18; or (iii) any breach or failure by 3M to perform
any covenant, agreement or undertaking on the part of 3M contained in the
Portfolio Purchase Agreement and the Operating Agreement other than as a result
of any action or inaction by Imation.
(e) 3M'S AND IMATION'S RESPECTIVE OBLIGATIONS PURSUANT TO
SECTION 6.18(C) AND (D) SHALL BE LIMITED TO DIRECT AND ACTUAL DAMAGES, TO THE
EXCLUSION OF INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES.
Section 6.19 Letters of Credit. Imation shall use its
commercially reasonable efforts to substitute Imation letters of credit for any
3M letters of credit outstanding on the Distribution Date with respect to
obligations of the Transferred Businesses. In addition, Imation shall reimburse
3M for any costs incurred or funds advanced by 3M following the Distribution
Date with respect to any such letters of credit.
Section 6.20 Industrial Revenue Bonds. 3M shall repay on or
prior to the Distribution Date certain industrial revenue bonds presently
outstanding with respect to the White City, Oregon facility. In connection
with the Distribution, Imation shall assume responsibility for all other
industrial revenue bonds presently outstanding with respect to the White City,
Oregon facility.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.1 Provision of Corporate Records. As soon as
practicable after the Distribution Date, 3M shall deliver to Imation all Books
and Records. Such Books and Records shall be the property of Imation, but shall
be retained and made available (upon reasonable notice during normal business
hours) to 3M for review and duplication until the earlier of (i) notice from 3M
that such records are no longer needed by 3M or (ii) the end of the customary
retention period under 3M's document retention policies as in effect at the
Distribution Date. The foregoing notwithstanding, technical notebooks and other
Books and Records subject to the Intellectual Property Agreement shall be
governed by the terms of such agreement.
Section 7.2 Access to Information. From and after the
Distribution Date, 3M and Imation shall afford to each other and to each other's
authorized accountants, counsel and other designated representatives reasonable
access and duplicating rights (with copying costs to be borne by the requesting
party) during normal business hours to all Books and Records and documents,
communications, items and matters (collectively, "Information") within each
other's knowledge, possession or control relating to the Transferred Assets, the
Transferred Businesses, the Assumed Liabilities, the Retained Liabilities and
the Transferred Employees, insofar as such access is reasonably required by 3M
or Imation, as the case may be (and shall use reasonable efforts to cause
persons or firms possessing relevant Information to give similar access).
Information may be requested under this Article VII for, without limitation,
audit, accounting, claims, Actions and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations, but not for competitive
purposes.
Section 7.3 Production of Witnesses and Individuals. From and
after the Distribution Date, 3M and Imation shall use reasonable efforts to make
available to each other, upon written request, its officers, directors,
employees and agents for fact finding, consultation and interviews and as
witnesses to the extent that any such person may reasonably be required in
connection with any Actions in which the requesting party may from time to time
be involved relating to the conduct of the Transferred Businesses or the Core
Businesses (as the case may be) prior to the Distribution Date. Except as
otherwise agreed between the parties or pursuant to a Joint Representation and
Defense Agreement or Joint Defense Agreement, 3M and Imation agree to reimburse
each other for reasonable out-of-pocket expenses (but not labor charges or
salary payments) incurred by the other in connection with providing individuals
and witnesses pursuant to this Section 7.3.
Section 7.4 Retention of Records. Except when a longer
retention period is otherwise required by law or agreed to in writing, 3M and
Imation shall retain, for their retention periods customary under existing 3M
policies, all material Information relating to the Transferred Businesses.
Notwithstanding the foregoing, in lieu of retaining any specific Information, 3M
or Imation may offer in writing to deliver such Information to the other and, if
such offer is not accepted within 90 days, the offered Information may be
destroyed or otherwise disposed of at any time. If a recipient of such offer
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested (at the cost of the requesting party).
Section 7.5 Confidentiality.
(a) Each of 3M and Imation shall, and shall cause its
officers, employees, agents, consultants, advisors and Affiliates to, hold, in
strict confidence and not disclose to another, except as provided herein or
compelled to disclose by judicial or administrative process or, in the opinion
of its independent legal counsel, by other requirements of law, confidential
information concerning the other party.
(b) For purposes of this Section 7.5, confidential information
about a particular party (referred to herein as the "first party") shall mean
information known by the other party on the Distribution Date and reasonably
understood by the other party to be confidential and related to the first
party's business interests, or disclosed confidentially by the first party to
the other party after the Distribution Date under the terms and for purposes of
this Agreement or any of the Related Agreements except for:
(i) information learned by the other party for the first
time after the Distribution Date, but prior to any
disclosure by the first party;
(ii) information which is or becomes publicly available
through no act of the other party, from and after the
date of public availability;
(iii) information disclosed to the other party by a third
party, provided (a) under the circumstances of
disclosure the other party does not have a duty of
non-disclosure owed to such third party, (b) the
third party's disclosure is not violative of a duty
of non-disclosure owed to another, including the
first party, and (c) the disclosure by the third
party is not otherwise unlawful;
(iv) information developed by the other party independent
of any confidential information of the first party
which is known by the other party on the Distribution
Date and/or disclosed by the first party thereafter;
(v) information which pursuant to the terms of the
Intellectual Property Agreement or any of the other
Related Agreements is specifically excluded from the
definition of confidential information; and
(vi) information which the other party can demonstrate was
disclosed by a business of the other party to a third
party prior to November 14, 1995, and for which any
obligation of confidentiality by that third party
has expired, from and after the date such third party
obligation of confidentiality expires, and provided
that disclosure of an item of information to one
third party and a different item of information to
another third party shall not be viewed as disclosure
of information which can only be drawn from those
items of information collectively.
(c) The foregoing restrictions shall expire with respect to
business information which is confidential information five (5) years after the
date of disclosure of such information, unless and to the extent 3M and Imation
agree to a longer period for the foregoing restrictions with respect to specific
categories of business information which is confidential information of Imation
and/or 3M, in which case the foregoing restrictions shall expire with respect to
such information on the expiration of such longer period. The date of disclosure
in the case of business information which is either confidential information of
3M known by Imation or confidential information of Imation known by 3M on the
Distribution Date shall be considered to be the Distribution Date. 3M and
Imation each shall not disclose to another or use except for purposes of
fulfilling its obligations under this Agreement or the relevant Related
Agreements any business information which is confidential information of Imation
or confidential information of 3M, respectively. In addition, 3M and Imation
each shall not disclose to another or use except for purposes of fulfilling its
obligations under this Agreement or the relevant Related Agreement any technical
information which is confidential information of Imation or confidential
information of 3M, respectively. The foregoing restrictions shall not expire
until such time and to the extent that such information ceases to be
confidential information.
(d) Each party shall protect confidential information of the
other party by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized disclosure of the other party's
confidential information as the party uses to protect its own confidential
information of a like nature.
(e) Each party shall insure that its Affiliates, sublicensees
and other transferees (such as advisors, attorneys and other consultants) agree
to be bound by the same restrictions on use and disclosure of confidential
information as bind the party in advance of the disclosure of confidential
information to them.
(f) The parties recognize that confidential information
disclosed hereunder or under the Related Agreements may relate to an
Extraordinary Sensitive Technology as defined in, and contemplated by, the
Intellectual Property Agreement. Any such confidential information shall be
subject to the special treatment provided for in Paragraph 15.3 of the
Intellectual Property Agreement.
Section 7.6 Privileged Matters.
(a) Imation and 3M agree to maintain, preserve and assert all
privileges that either party may have, including without limitation, any
privilege or protection arising under or relating to any attorney-client
relationship that existed prior to the Distribution Date ("Privilege" or
"Privileges"). 3M and Imation shall be entitled in perpetuity to require the
assertion or decide whether to consent to the waiver of any and all Privileges
which, in the case of Imation, relate to the Transferred Assets and/or
Transferred Liabilities and, in the case of 3M, relate to the assets and/or
liabilities not transferred to Imation. Imation and 3M shall each use the same
degree of care as it would with respect to itself so as not to waive any
Privilege which could be asserted under applicable law without the prior written
consent of the other party. The rights and obligations created by this Section
7.6 shall apply to all Information as to which, but for the Distribution, 3M or
Imation would have been entitled to assert or did assert the protection of a
Privilege ("Privileged Information"), including but not limited to (i) all
Information generated prior to the Distribution Date but which, after the
Distribution, is in the possession of the other party or its Affiliates; (ii)
all communications subject to a Privilege occurring prior to the Distribution
Date between counsel for 3M and any person who, at the time of the
communication, was an employee of 3M, regardless of whether such employee is or
becomes an Imation employee or an employee of an Imation Affiliate; and (iii)
all Information generated, received or arising after the Distribution Date that
refers or relates to Privileged Information generated, received or arising prior
to the Distribution Date but which, after the Distribution Date, is in the
possession of the other party or its Affiliates.
(b) Upon receipt by any party or its Affiliates of any
subpoena, discovery or other request which arguably calls for the production or
disclosure of Privileged Information of the other party and whenever any party
obtains knowledge that any current or former employee of such party or its
Affiliates has received any subpoena, discovery or other request which arguably
calls for the production or disclosure of Privileged Information, such party
shall promptly notify the other party of the existence of the request and shall
provide the other party a reasonable opportunity to review the Information and
to assert any rights it may have under this Section 7.6 or otherwise to prevent
the production or disclosure of Privileged Information. Each party and its
Affiliates will not produce or disclose any Information covered by a Privilege
of the other party under this Section 7.6 unless (a) the other party has
provided its express written consent to such production or disclosure, or (b) a
court of competent jurisdiction has entered a final, non-appealable order
finding that the Information is not entitled to protection under any applicable
Privilege.
(c) 3M's transfer of Books and Records and any other
Information to Imation, and 3M's agreement to permit Imation to possess
Privileged Information occurring or generated prior to the Distribution Date,
are made in reliance on Imation's agreement, as set forth in this Section 7.6,
to maintain the confidentiality of Privileged Information and to maintain,
preserve and assert all applicable Privileges. The access to information granted
or permitted by this Agreement, the agreement to provide witnesses and
individuals pursuant to Section 7.3 hereof and transfer of Privileged
Information to Imation pursuant to this Agreement shall not be deemed a waiver
of any Privilege that has been or may be asserted under this Section 7.6 or
otherwise. Nothing in this Agreement shall operate to reduce, minimize or
condition the rights granted to either party in, or the obligations imposed upon
either party by, this Section 7.6.
Section 7.7 Mail and Other Communications. Each of 3M and
Imation agrees to forward or direct (as appropriate) to the other party any mail
or other communications of such other party which is received by it.
ARTICLE VIII
EMPLOYEE MATTERS AND BENEFITS
Section 8.1 Employment. At the Distribution Date, Imation
shall employ each Transferred Employee at an annual compensation rate no less
than such Transferred Employee's current annual compensation rate with 3M.
Transferred Employees employed in the United States or employed outside the
United States on temporary foreign assignments (including foreign service
employees, as described in Schedule 8.11 attached hereto) are referred to herein
as the "U.S. Transferred Employees;" all other Transferred Employees are
referred to herein as the "O.U.S. Transferred Employees." Imation shall continue
the status of a Transferred Employee on leave of absence or shortor long-term
disability absence, other than the leave of absence status of a Transferred
Employee on preretirement leave, and shall recall, reinstate, and/or terminate
the employment of such Transferred Employees in accordance with the leave of
absence policy applicable to the Transferred Employee that was in effect when
the Transferred Employee's leave of absence began. Notwithstanding anything to
the contrary in this Section 8.1, Imation shall not be obligated to employ any
person who declines employment with Imation and such person shall not be
considered a Transferred Employee.
Section 8.2 Qualified and NonQualified Retirement and Benefit
Plans.
(a) On or before the Distribution Date, Imation shall (i)
establish, effective as of the Distribution Date, a defined benefit plan (the
"Imation Defined Benefit Plan") and a defined contribution plan (the "Imation
Defined Contribution Plan"), in each case, intended to qualify under Section
401(a) of the Code (the Imation Defined Benefit Plan and the Imation Defined
Contribution Plan being collectively referred to as the "Imation Pension
Plans"), (ii) establish, on or before the Distribution Date, trusts under the
Imation Pension Plans intended to qualify under Section 501(a) of the Code,
(iii) establish, effective as of the Distribution Date, a nonqualified pension
benefit plan (the "Imation Nonqualified Pension Plan" and together with the
Imation Defined Benefit Plan, the "Imation Defined Benefit Plans"), and (iv)
establish, effective as of the Distribution Date, a plan similar to the 3M
Senior Executive Split Dollar Plan (the "3M Survivor Program"). The Imation
Defined Contribution Plan shall relate and apply to compensation paid on or
after the Distribution Date, and shall be (or shall have a component thereof
that consists of) an employee stock ownership plan within the meaning of
Sections 409 and 4975(e)(7) of the Code (the "Imation ESOP").
(b) On or before the Distribution Date, 3M shall direct the
Trustee of the 3M Voluntary Investment Plan and Employee Stock Ownership Plan
(the "3M 401(k)/ESOP") to transfer (the "ESOP Transfer") from the trusts
established thereunder to the trust under the Imation Defined Contribution Plan,
an amount (in the form determined by 3M unless otherwise provided herein) equal
to the sum of the account balances (including liabilities associated with
outstanding participant loans) of each Transferred Employee as of the date of
transfer (the "ESOP Transfer Date"); provided, however, that all shares of 3M
Common Stock and Imation Common Stock represented by units allocated to the
accounts of Transferred Employees shall be transferred, in kind, to the Imation
Defined Contribution Plan. Notwithstanding anything contained herein to the
contrary, no such transfer shall take place until the 31st day following the
filing of all required Forms 5310-A in connection therewith.
(c) Effective as of the ESOP Transfer Date, Imation and the
Imation Defined Contribution Plan shall assume and become solely responsible for
the satisfaction of all liabilities under the 3M 401(k)/ESOP in respect of the
Transferred Employees, and 3M and the 3M 401(k)/ESOP shall be relieved of and
shall cease to have any responsibility for the satisfaction of such liabilities,
other than for any reconciliations required after the ESOP Transfer Date.
(d) Effective as of the Distribution Date, 3M shall assign to
Imation all insurance policies assigned to 3M with respect to Transferred
Employees under the 3M Survivor Program, and all company owned life insurance
policies related thereto with respect to Transferred Employees.
(e) Effective as of the Distribution Date, 3M shall amend the
3M 401(k)/ESOP, the Employee Retirement Income Plan of Minnesota Mining and
Manufacturing Company (the "3M Defined Benefit Plan," and together with the 3M
401(k)/ESOP, the "3M Qualified Pension Plans"), the Nonqualified Pension Plan I
for Minnesota Mining and Manufacturing Company and the Nonqualified Pension Plan
II for Minnesota Mining and Manufacturing Company (collectively the "3M
Nonqualified Pension Plans," and together with the 3M Qualified Pension Plans,
the "3M Pension Plans") as follows: (i) each of the 3M Pension Plans shall be
amended to provide that no benefits shall accrue (except as provided otherwise
in this Agreement) and no contributions shall be allocated with respect to a
Transferred Employee under the 3M Pension Plans with respect to any period
commencing on or after the Distribution Date, and no forfeitures shall be
allocated after the Distribution Date with respect to a Transferred Employee
under the 3M 401(k)/ESOP; (ii) the 3M Defined Benefit Plan and the 3M
Nonqualified Pension Plans (collectively, the "3M Defined Benefit Plans") shall
be amended to provide that the accrued benefits of Transferred Employees under
the 3M Defined Benefit Plans as of the Distribution Date (the "Accrued
Benefits") shall be fully vested, and the 3M 401(k)/ESOP shall be amended to
provide that the account balances of each Transferred Employee thereunder as of
the Distribution Date shall be fully vested; (iii) the 3M Defined Benefit Plans
shall be amended to provide that, for purposes of eligibility for early
retirement subsidies attributable to each Transferred Employee's Accrued
Benefit, each such Transferred Employee's years of service with Imation shall be
recognized; and (iv) the 3M Defined Benefit Plans shall be amended to provide
the following Special Retirement Benefits (the "3M Special Retirement Benefits")
for each Grandfathered Employee (as defined in Section 8.2 (h)(ii)): For each
year of service with Imation, each Grandfathered Employee will be credited with
a benefit equal to one-half of (A) plus (B), where (A) is 4% of such
Grandfathered Employee's Accrued Benefit and (B) is 4% of any benefits
previously accrued on behalf of such Grandfathered Employee pursuant to Sections
8.2(e)(iv) and 8.2(h)(ii) hereof. 3M and the 3M Defined Benefit Plans shall
remain solely responsible for all liabilities with respect to the Accrued
Benefits and the 3M Special Retirement Benefits and Imation and the Imation
Pension Plans shall have no liability or responsibility therefor. 3M and Imation
agree that the transfer of the Transferred Employees to Imation shall not
constitute an event entitling any such Transferred Employee to a distribution
from the 3M Pension Plans.
(f) Effective as of the Distribution Date, 3M shall amend 3M's
Deferred Compensation Plan to provide that all U.S. Transferred Employees shall
no longer be eligible to make deferrals thereto. 3M shall retain sole
responsibility for, and all liabilities relating to, 3M's Deferred Compensation
Plan, and Imation shall have no liability or responsibility therefor.
(g) Imation agrees to indemnify and hold harmless 3M, its
officers, directors, employees, employee benefit plans and trusts, employee
benefit plan trustees, agents and affiliates from and against any and all costs,
damages, losses, expenses (including reasonable attorneys' fees and costs), or
other liabilities arising out of or related to the Imation Pension Plans, other
than any such costs, damages, losses, expenses or other liabilities relating to
the ESOP Transfer that are directly attributable to the acts or omissions of any
such parties prior to or on the Distribution Date, and 3M agrees to indemnify
and hold harmless Imation, its officers, directors, employees, employee benefit
plans and trusts, employee benefit plan trustees, agents and affiliates from and
against any and all costs, damages, losses, expenses (including reasonable
attorneys' fees and costs), or other liabilities relating to the ESOP Transfer
which are directly attributable to such acts or omissions.
(h) (i) The Imation Pension Plans shall provide, effective as
of the Distribution Date, that U.S. Transferred Employees shall (A) immediately
upon their becoming employees of Imation, become eligible to participate in the
Imation Pension Plans, (B) with respect to the Imation Defined Contribution
Plan, for all purposes (including vesting, eligibility for benefits and benefit
determination) receive credit for all service credited for such purposes under
the 3M 401(k)/ESOP as of the Distribution Date as if the service had been
rendered to Imation, and (C) with respect to the Imation Defined Benefit Plans,
for all purposes other than for purposes of benefit accrual, including
participation, eligibility and vesting, receive credit for all service credited
for such purposes under the 3M Defined Benefit Plans as of the Distribution Date
as if the service had been rendered to Imation.
(ii) In addition to other retirement benefits accrued
thereunder, the Imation Defined Benefit Plans shall provide the following
special retirement benefits (the "Imation Special Retirement Benefits") for each
U.S. Transferred Employee who has at least 10 years of 3M service as of the
Distribution Date, and whose combined age and years of 3M service equal 50 or
more as of the Distribution Date (the "Grandfathered Employees"). For each year
of service with Imation, each Grandfathered Employee will be credited with a
benefit equal to one-half of (A) plus (B), where (A) is 4% of such Grandfathered
Employee's Accrued Benefit and (B) is 4% of any benefits previously accrued on
behalf of such Grandfathered Employee pursuant to Sections 8.2(e)(iv) and
8.2(h)(ii). The Imation Special Retirement Benefits shall be payable in the same
form that each Grandfathered Employee's Accrued Benefits are paid under the 3M
Defined Benefit Plans, and Imation's Defined Benefit Plans shall provide that
Grandfathered Employees shall be eligible for the same subsidies for early
retirement as are applied to each Grandfathered Employee's Accrued Benefits
under the 3M Defined Benefit Plans.
(i) 3M and Imation shall provide each other such records and
information as may be necessary or appropriate to carry out their obligations
under this Section 8.2 or for the purposes of administration of the 3M Pension
Plans and the Imation Pension Plans, and they shall cooperate in the filing of
documents required by the transfer of assets and liabilities described herein.
(j) 3M shall retain sole responsibility for, and all
liabilities relating to, the 3M Nonqualified Pension Plans, and Imation shall
have no liability or responsibility therefor.
(k) Imation acknowledges that 3M, following discussions with
the management of Imation, has represented to the Internal Revenue Service in
connection with 3M's request for a private letter ruling as to the federal
income tax consequences of the Distribution, and, to effect such
representations, Imation agrees that (i) Imation will establish an employee
stock ownership plan (the "Imation ESOP") that satisfies the requirements of
Sections 401(a) and 4975(e)(7) of the Code, in which non-union domestic
employees of Imation and Imation Enterprises shall be eligible to participate,
and (ii) within five years after the Distribution a minimum of 4% of the Imation
Common Stock then outstanding will be held by the Imation ESOP for the benefit
of Imation Employees.
Section 8.3 Welfare Plans.
(a) 3M agrees that it shall take or cause to be taken all
action necessary and appropriate to:
(i) direct the trustees of each trust created under
Section 501(c)(9) of the Code for the purpose of funding the payment of benefits
under certain of the employee welfare benefit plans of 3M (individually, a "3M
VEBA"), other than the EBTA, as defined in clause (ii) below, to transfer, as
soon as practicable following the date that the required data is available, to
the trust or trusts established by Imation, which are intended to constitute
"voluntary employees' beneficiary associations" within the meaning of Section
501(c)(9) of the Code (individually an "Imation VEBA"), the actuarially
determined portion of the assets of such 3M VEBAs (as determined by the
certified actuary engaged by 3M for this purpose under generally accepted
actuarial principles) attributable to the Transferred Employees for such
benefits as are being offered by Imation under the corresponding Imation VEBA,
including assets attributable to Transferred Employees relating to employee
medical and dental benefits, and long-term disability benefits, but excluding,
for this purpose, post-retirement medical, dental and life insurance benefits;
(ii) in the case of the trust created under Section
501(c)(9) of the Code by the 3M Employees' Benefits Trust Association (the
"EBTA"), request the Board of Directors of the EBTA to direct, after the
Distribution Date, and as soon as practicable following the date that the
required data is available, the trustee of such EBTA and its insurers to
transfer to the corresponding Imation VEBA the actuarially determined portion
(as determined by such EBTA's actuary under generally accepted actuarial
principles) of the assets and premium stabilization reserve of such EBTA
attributable to the Transferred Employees;
(iii) amend its post-retirement medical benefit plans
(the "3M Post-Retirement Medical Plans") to cover each U.S. Transferred Employee
whose combined age and years of 3M service as of the Distribution Date equals 60
or more (with a minimum of 5 years of 3M service and a minimum age of 50 as of
the Distribution Date) and who retires from employment with Imation, the
benefits (if any) payable to such U.S. Transferred Employee to be based on the
provisions of the 3M Post-Retirement Medical Plans as in effect at the time such
U.S. Transferred Employee retires from employment with Imation, and as such
plans may be amended thereafter;
(iv) provide or arrange for the provision
of benefits administration services for a period of up to 24 months following
the Distribution Date, as described in the Corporate Services Transition
Agreement, with respect to the employee welfare benefit plans to be adopted by
Imation in accordance with Section 8.3(c) hereof; and
(v) pay (A) the severance costs of employees who
have accepted, on or prior to the Distribution Date, the terms of a voluntary
separation plan offered prior to the Distribution Date by any of the business
units or at the plants listed on Schedule 1.1A, (B) the severance costs, if any,
relating to Leased Employees, (C) the severance costs relating to employees at
the Beauchamp, France facility of 3M who will be performing contract
manufacturing services for Imation (except that Imation shall be responsible for
severance costs associated with up to 20% of such employees up to an aggregate
cost to Imation not to exceed $1 million) and (D) the severance and indemnity
costs incurred as a result of the transfer of O.U.S. Transferred Employees, but
only if, and to the extent that, such severance and indemnity costs are imposed
pursuant to applicable foreign law (it being understood, however, that 3M shall
not be responsible for any severance costs payable after the Distribution
Date with respect to employees at the Imation facilities in Harlow,
England; Ferrania, Italy; Sulmona, Italy; London, Ontario; and Florida,
Argentina).
(b) Imation agrees that:
(i) it shall assume and be solely responsible for
all liabilities and obligations whatsoever of 3M in connection with claims for
benefits incurred on or after the Distribution Date by or in respect of
Transferred Employees under the welfare benefit plans maintained by 3M for
employees and the workers' compensation, unemployment compensation and other
legally required employee benefits programs maintained by 3M, and 3M shall cease
to have any such liability or obligation. For purposes of this Section 8.3,
"incurred" shall mean (A) with respect to medical and dental benefits, the date
that services are performed; and (B) with respect to survivor benefits, the date
of death. With respect to disability benefits, Imation shall assume and be
solely responsible for all disability payments with respect to Transferred
Employees (including Transferred Employees who are on shortor long-term
disability absences on or prior to the Distribution Date) payable on or after
the Distribution Date;
(ii) it shall assume and be solely responsible for
all liabilities and obligations whatsoever of 3M in connection with 3M's
vacation plan for the unused vacation benefits of all Transferred Employees as
of the Distribution Date, and shall adopt a vacation plan which, among other
things, pays Transferred Employees the value of such Transferred Employees'
unused vacation benefits earned under 3M's vacation plan as of the Distribution
Date; and
(iii) it shall reimburse 3M on at least a quarterly
basis for 3M's and its Affiliates' net costs (excluding internal administration
costs) arising from their payments of workers' compensation benefits and
liabilities on or after the Distribution Date payable to or with respect to
Transferred Employees for whom 3M or its Affiliates have an obligation to make
such payments after the Distribution Date and for which 3M or its Affiliates
have not received any reimbursement either from Imation or from insurance.
(c) Imation further agrees that it shall take, or cause to be
taken all action necessary and appropriate:
(i) to establish, effective as of the Distribution
Date for a period of not less than 18 months, for the benefit of U.S.
Transferred Employees while such employees are employed by Imation, employee
welfare benefit plans (other than vacation plans) substantially similar to
those employee welfare benefit plans covering employees of the U.S. Transferred
Businesses immediately prior to the Distribution Date. Imation shall recognize
all employment service and earnings of a U.S. Transferred Employee recognized by
3M as employment service and earnings of Imation for purposes of applying the
provisions of any Imation welfare benefit plan or similar program, including any
vacation plan or program, where the U.S. Transferred Employee's benefits
thereunder are a function of the employee's employment service or earnings or a
combination thereof;
(ii) on or before the Distribution Date, to adopt as
a successor employer, on a retroactive basis from January 1, 1996, the 3M
Flexible Benefits Program, including the health care reimbursement account and
dependent daycare reimbursement account covering the Transferred Employees, as
if such Transferred Employees' employment with Imation was a continuation of
their employment with 3M (the "Imation Flexible Benefits Program"). At the same
time that Imation adopts its Flexible Benefits Program, it shall amend such
Program to provide that any unused flexible benefit credits shall be paid in
cash to the respective employees, and not invested in employer common stock, as
currently provided under the 3M Flexible Benefits Program. Imation shall effect
payment of all wage and salary deductions of participating Transferred Employees
required under such plans to 3M as Imation's agent, pursuant to the Corporate
Services Transition Agreement through December 31, 1997, for application by 3M
toward the disbursement of reimbursement benefits and medical, dental and life
insurance premium amounts to, or with respect to, such Transferred Employees on
Imation's behalf, with a final accounting of all such receipts and disbursements
by 3M on or before July 31, 1998. All liabilities relating to the Transferred
Employees' rights and benefits described in this clause (ii) shall be assumed by
Imation as of the Distribution Date, and 3M shall cease to have any such
liability or obligation therefor. As soon as practicable following the date that
the required data is available, 3M shall reduce the amount that Imation is
required to reimburse it for Imation's Flexible Benefits Program benefit
payments in accordance with the Corporate Services Transition Agreement by the
aggregate net amounts credited to the health care reimbursement accounts and the
dependent daycare reimbursement accounts of the Transferred Employees under such
Program as of June 30, 1996. Thereafter, through June 30, 1998, Imation shall
periodically, but in no event less frequently than monthly, reimburse 3M for
claims paid by 3M thereunder;
(iii) to provide the benefit coverage otherwise
necessary to assume the liabilities and obligations that are or shall become the
responsibility of Imation under this Section 8.3; and
(iv) to make legally required contributions or
payments pursuant to any law providing for workers' compensation, unemployment
compensation, disability benefits or other legally required employee benefit
programs with respect to Transferred Employees, and to retain any accounts or
reserves relative to such benefits held solely by Imation for such Transferred
Employees.
In connection with the foregoing, 3M agrees to provide Imation
or its designated insurance representative with such information as may be
reasonably requested by Imation and necessary for Imation to assume, establish
or maintain such plans, funding arrangements, and benefit coverage.
Section 8.4 Assumption of Certain Employee Related
Obligations.
(a) Effective as of the Distribution Date, Imation shall
assume and 3M shall have no further obligation or liability for:
(i) all incentives, bonus and deferred compensation
(including profit sharing and commissions, but excluding all obligations and
liabilities with respect to 3M's Deferred Compensation Plan) earned by
Transferred Employees but not paid on or before the Distribution Date, except as
otherwise provided in paragraph (b) below;
(ii) any requirements under the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") to provide continuation of
health care coverage to any Transferred Employee or "qualified beneficiary", as
defined in COBRA, of a Transferred Employee who loses coverage as a result of a
"qualifying event", as defined in COBRA, that occurs after the Distribution
Date;
(iii) any and all obligations to make premium
payments due on or after the Distribution Date with respect to Transferred
Employees who participate in the Imation successor program to the 3M Survivor
Program; and
(iv) all liability under the Performance Unit Plan of
3M (the "PUP") with respect to Transferred Employees that are attributable to
the 1996 award, other than that portion of the 1996 award that was earned during
1996.
(b) 3M shall retain all liability with respect to Transferred
Employees under the PUP for all awards made prior to 1996 and that portion of
the 1996 award that was earned during 1996.
Section 8.5 Other Liabilities and Obligations. As of the
Distribution Date, Imation shall assume and be solely responsible for all
liabilities and obligations whatsoever of the Transferred Businesses with
respect to claims made by or with respect to Transferred Employees, relating to
their employment with or termination from the Transferred Businesses or 3M not
otherwise provided for in this Agreement, including, without limitation, earned
salary, wages or other compensation and accrued holidays and other termination
benefits.
Section 8.6 Preservation of Rights to Amend or Terminate
Plans. No provisions of this Agreement, including, without limitation, the
agreement of 3M or Imation that it will make a contribution or payment to or
under any plan referred to herein for any period, shall be construed as a
limitation on the right of 3M or Imation to amend such plan or terminate its
participation therein which 3M or Imation would otherwise have under the terms
of such plan or otherwise; provided, however, that no amendment shall reduce or
eliminate (i) the Transferred Employees' unused account balances under the
Flexible Benefits Program required to be adopted pursuant to Section 8.3(c)(ii)
hereof; or (ii) the Transferred Employees' unused vacation benefits as of the
Distribution Date.
Section 8.7 Reimbursement; Indemnification. Imation and 3M
acknowledge that each may incur costs and expenses (including, without
limitation, contributions to plans and the payment of insurance premiums)
pursuant to any of the employee benefit or compensation plans, program or
arrangements, which are, as set forth in this Agreement, the responsibility of
the other party. Accordingly, 3M and Imation agree to reimburse each other, as
soon as practicable but in any event within 30 days of receipt from the other
party of appropriate verification, for all such costs and expenses, as the case
may be, as an indemnitee in respect of the corresponding payment made by it, as
determined pursuant to Section 5.2(d) hereof, except to the extent that any such
payment or reimbursement would be duplicative.
Section 8.8 Stock Plans.
(a) 3M Stock Option Plans. 3M shall be solely responsible for
satisfying all option exercises by Transferred Employees under the Stock Option
Plans with respect to options to acquire shares of 3M Common Stock which are
outstanding as of the Distribution Date. 3M shall cause such Stock Option Plans
to be interpreted so that employment of the Transferred Employees with Imation
shall be treated as employment with 3M for purposes of the Stock Option Plans'
provisions causing outstanding stock options to expire upon the termination of
employment of the option holder. Notwithstanding the foregoing, no options
(including Progressive Stock Options, as defined in the Stock Option Plans)
shall be granted to Transferred Employees under the Stock Option Plans after the
Distribution Date. As soon as reasonably possible following the Distribution
Date, Options that are outstanding and unexercised under the Stock Option Plans
immediately prior to the Distribution Date (the "3M Options"), shall be adjusted
as follows:
(i) if there is an ex-dividend market for 3M Common
Stock prior to the Distribution Date, then (A) the shares subject to the 3M
Options shall be multiplied by a fraction, the numerator of which is the closing
per share price of 3M Common Stock on the last trading day immediately preceding
the ex-dividend date, and the denominator of which is the closing price per
share of 3M Common Stock on the ex-dividend date, with the resulting number of
shares rounded downward to the nearest share, and (B) the exercise price of each
such share shall be divided by the fraction set forth in clause (A) above, with
the resulting price rounded upward to the nearest cent; and
(ii) if there is no ex-dividend market for 3M Common
Stock prior to the Distribution Date, then (A) the shares subject to the 3M
Options shall be multiplied by a fraction, the numerator of which is the closing
price per share of 3M Common Stock on the last trading day immediately preceding
the date on which 3M Common Stock begins trading without the Imation dividend
(i.e., without due bills) and the denominator of which is the closing price per
share of 3M Common Stock on the first trading day that 3M Common Stock begins
trading without the Imation dividend (i.e., without due bills), with the
resulting number of shares rounded downward to the nearest share, and (B) the
exercise price of each such share shall be divided by the fraction set forth in
clause (A) above, with the resulting price rounded upward to the nearest cent.
Imation agrees to promptly notify 3M of the death or
termination of employment for any reason of each Transferred Employee for 3M's
use in administering its Stock Option Plans with respect to outstanding stock
options held by such Transferred Employees.
This Section 8.8(a) shall be interpreted and applied in the
discretion of the 3M Compensation Committee, whose interpretation and
application shall be binding upon all optionees under the Stock Option Plans.
(b) 3M Stock Purchase Plan. As soon as possible following the
Distribution Date, each option to purchase 3M Common Stock that is outstanding
and unexercised under the 3M 1992 General Employees Stock Purchase Plan shall be
adjusted in a manner similar to the manner that the 3M Options are adjusted
pursuant to paragraph (a) above.
(c) Imation Stock Options. On or prior to the Distribution
Date, Imation shall adopt a stock option plan (the "Imation Employee Stock
Incentive Plan") enabling Imation to grant options to Transferred Employees, and
3M, as the sole stockholder of Imation, shall approve the Imation Employee Stock
Incentive Plan. Imation agrees to take all actions necessary or appropriate to
grant, effective as of a date not later than 60 days following the Distribution
Date, stock options to purchase Imation Common Stock (the "Imation Stock
Options") under the Imation Employee Stock Incentive Plan. The Imation Stock
Options shall have an exercise price equal to the fair market value of Imation
Common Stock as of the date of grant and shall be granted to those Transferred
Employees designated by 3M, who would otherwise have been granted options in May
1996, to purchase shares of 3M Common Stock under the 3M Stock Option Plans (the
"1996 Grants"). The aggregate number of shares for which Imation Stock Options
shall be granted pursuant to this Section 8.8(c) shall be equal to the product
of (A) multiplied by (B), where (A) is the aggregate number of shares of 3M
Common Stock for which options would have been granted to such Transferred
Employees in May, 1996, but for the Distribution (as disclosed to Imation by 3M)
and (B) is 1.5. The Imation Stock Options shall be granted to the Transferred
Employees in the same proportion as the 1996 Grants would have been granted to
such Transferred Employees. The vesting schedule and other material terms and
conditions of such Imation Stock Options shall be no less favorable to the
applicable Transferred Employees than the vesting schedule and other terms and
conditions that would have been provided under the 1996 Grants.
Section 8.9 Limitation on Enforcement. This Article VIII is an
agreement solely between 3M and Imation. Nothing in this Agreement or any
Related Agreement, whether express or implied, confers upon any employee of
3M or Imation, any Transferred Employee, any former employee of 3M, any
beneficiary of a Transferred Employee or former employee of 3M or any other
person, any rights or remedies, including, but not limited to (i) any right to
employment or recall, (ii) any right to continued employment for any specified
period or (iii) any right to claim any particular compensation, benefit or
aggregation of benefits, of any kind or nature whatsoever, as a result of this
Article VIII.
Section 8.10 Employment Following the Distribution Date. For a
period of 24 months following the Distribution Date, 3M shall not employ any
Transferred Employee without the consent of Imation's Chief Executive Officer
and 3M's Vice President, Human Resources. For a period of 60 months following
the Distribution Date, Imation shall not hire any employee of 3M who is on
preretirement leave from 3M. For a period of 36 months following their last day
of employment with 3M, Imation shall not hire any former employee of 3M who has
signed a release which includes an agreement not to apply for employment with 3M
or Imation.
Section 8.11 Foreign Service Employee and O.U.S. Transferred
Employee Obligations.
(a) Imation shall assume all obligations of 3M with respect to
any U.S. Transferred Employee who immediately prior to the Distribution Date
served as a foreign service employee, including the obligations described in
Schedule 8.11 attached hereto.
(b) All rights, obligations, terms and conditions relating to
O.U.S. Transferred Employees shall be subject to, and governed by, the terms of
the Foreign Asset Transfer Agreements.
ARTICLE IX
INSURANCE
Section 9.1 General. Except as provided in this Article, 3M
shall keep in effect all policies under its Insurance Program in effect as of
the date hereof insuring the Transferred Assets and operations of the
Transferred Businesses until 12:00 midnight on the Distribution Date, unless
Imation shall have earlier obtained appropriate coverage and notified 3M in
writing to that effect. Beginning at 12:01 a.m. on the day following the
Distribution Date, Imation will cease to be a named insured on a world-wide
basis under all policies in 3M's Insurance Program. Imation understands that the
effect of these actions will be to eliminate insurance coverage not only for
future occurrences but also for prior occurrences which might have given or may
give rise to liabilities for which Imation and its Affiliates would be
responsible.
Section 9.2 Imation's Insurance.
(a) Imation will purchase and pay for the types and amounts of
insurance coverage that it deems appropriate for the period beginning on and
continuing after May 1, 1986, including Broad Form Contractual Liability
insurance coverage as to Imation's indemnity obligations set forth in the
Distribution Agreement and in the Related Agreements.
(b) 3M, for and on behalf of Imation, will purchase and pay
for on a one-time basis certain Products and Completed Operations Insurance
Coverage covering certain periods prior to the Distribution Date and with such
limits as shall be determined by 3M.
(c) Imation agrees that 3M has made no warranty, expressed or
implied, and no representation that the insurance described in Section 9.1,
9.2(a) or (b) above is or will be adequate or sufficient to meet Imation's
current or future insurance needs.
Section 9.3 Access to 3M's Insurance Program.
(a) Except as provided in Section 9.3(b) hereof, Imation and
its Affiliates shall have access through 3M after the Distribution Date to such
coverages and limits as may be available under 3M's pre-Distribution Date
Insurance Program for covered claims occurring prior to the Distribution Date
and listed on Schedule 9.3. Imation understands that no coverage will be
available under 3M's Insurance Program unless the claim is listed on Schedule
9.3. Such access shall be subject to available coverage and to all of the terms,
conditions, exclusions, retentions and limits of such policies.
(b) Imation's and its Affiliates' access to 3M's Insurance
Program as provided in Section 9.3(a) hereof shall be limited as described in
this Section 9.3(b):
(i) Product Liability Insurance. Imation, for itself
and its Affiliates, understands and agrees that it will have no access to any
insurance provided by 3M's "Products and Completed Operations Insurance
Coverage" policies for all years prior to May 1, 1986. Imation and its
Affiliates will have access to 3M's claims made products liability coverage for
the period May 1, 1986 to the Distribution Date, but such access shall be
limited to covered claims 3M has reported to its carriers or underwriters as of
the Distribution Date, as listed on Schedule 9.3.
(ii) Environmental Pollution Insurance. Imation
understands and agrees that 3M has made no warranty or representation of any
insurance recovery or insurance coverage from 3M's Insurance Program with
respect to Imation's Assumed Environmental Liabilities. If, in the future, 3M
should receive an insurance recovery relating to an Imation Assumed
Environmental Liability, 3M shall follow the procedures set forth in Section 9.4
hereof.
(iii) All Other Insurance. Imation, for itself and
its Affiliates, understands and agrees that they will have no access to other
insurance coverage in 3M's Insurance Program other than as provided in Section
9.3(b)(i) and (ii) above, unless the claim arose prior to the Distribution Date
and, in the case of product liability claims, unless the claims are listed on
Schedule 9.3.
Section 9.4 Insurance Recoveries. Subject to Sections 9.1 and
9.3 hereof, 3M shall use its reasonable efforts to obtain recoveries for Imation
and its Affiliates from 3M's insurance carriers for coverage available under
Section 9.3 hereof and will keep Imation reasonably informed of 3M's efforts
under this Section 9.4. 3M will reimburse Imation for any recovery obtained by
it pursuant to such claims; provided, however, that notwithstanding the
foregoing, if 3M has made a claim or claims under an insurance policy which is
not to be paid to Imation pursuant to Section 9.3 and a claim or claims which
are to be paid to Imation pursuant to this Article and the amount of the
Recovery for such claims is limited by the amount of coverage provided by such
policy, 3M may use its reasonable discretion in resolving and allocating the
Recovery between it and Imation for such claims. Imation shall pay all costs
incurred by 3M after the Distribution Date in making any claim pursuant to this
Section 9.4, including the salaries of 3M's officers and employees based on the
portion of time spent on such claims and such costs incurred in pursuing a claim
may be deducted from any Recovery for such claim. Imation agrees to make
available to 3M such of its employees as 3M may reasonably request as witnesses
or deponents in connection with 3M's management of claims, at Imation's sole
cost and expense. Imation agrees that, if 3M has paid a Recovery to it for such
a claim and Imation receives proceeds from any other person with respect to such
claim, it will pay over to 3M the amount of proceeds it has received.
Section 9.5 Assignment. Nothing in this Agreement shall be
deemed to constitute (or to reflect) an assignment of any insurance policy or
insurance benefit.
Section 9.6 Conflicts Between Article IX and 3M's Insurance
Program. Any provision of this Agreement that conflicts with any term or
provision of applicable 3M insurance policies shall be void.
ARTICLE X
DISPUTE RESOLUTION
Section 10.1 Mediation and Binding Arbitration. Except with
respect to matters involving Section 7.6 hereof (Privileged Matters) and except
as may be expressly provided in any other agreement between the parties entered
into pursuant hereto, if a dispute, controversy or claim (collectively, a
"Dispute") between 3M and Imation or any of their respective Affiliates arises
out of or relates to this Agreement, the Related Agreements or any other
agreement entered into pursuant hereto or thereto, including, without
limitation, the breach, interpretation or validity of any such agreement or any
matter involving an Indemnifiable Loss, 3M and Imation agree to use the
following procedures, in lieu of either party pursuing other available remedies
and as the sole remedy (except as provided in Section 10.5(b) below), to resolve
the Dispute.
Section 10.2 Initiation. A party seeking to initiate the
procedures shall give written notice to the other party, describing briefly the
nature of the Dispute. A meeting shall be held between the parties within 10
days of the receipt of such notice, attended by individuals with decision-making
authority regarding the Dispute, to attempt in good faith to negotiate a
resolution of the Dispute.
Section 10.3 Submission to Mediation. If, within 30 days after
such meeting, the parties have not succeeded in negotiating a resolution of the
Dispute, they agree to submit the Dispute at the earliest possible date to
mediation in accordance with the Center for Public Resources Model ADR Procedure
- - Mediation of Business Disputes, as modified herein, and to bear equally the
costs of the mediation.
Section 10.4 Selection of Mediator. The parties will jointly
appoint a mutually acceptable mediator. If they are unable to agree upon such
appointment within 20 days from the conclusion of the negotiation period, either
party may request the Center for Public Resources or another mutually
agreed-upon organization to appoint the mediator.
Section 10.5 Mediation and Arbitration.
(a) The parties agree to participate in good faith in the
mediation and negotiations related thereto for a period of 30 days or such
longer period as they may mutually agree following the initial mediation
session, provided, however, that in the event that one party fails to
participate in mediation, the Dispute may be referred immediately to arbitration
and the time of such failure shall constitute the end of the mediation period.
If the parties are not successful in resolving the Dispute through mediation by
the end of such period, then the parties agree to submit the matter to binding
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, as modified herein, by a sole
arbitrator selected in accordance with the provisions of Section 10.6 hereof.
The arbitration shall be in Minnesota and governed by the Minnesota equivalent
of the Federal Arbitration Act, 9 U.S.C. ss. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof.
(b) Except as may be expressly provided in any other agreement
between the parties, the parties obligation under this Article X to submit
disputes to binding arbitration in lieu of seeking judicial resolution of their
disputes shall expire on July 1, 2001 with respect to disputes of which the
party seeking to be indemnified first becomes aware of after such date.
Section 10.6 Selection of Arbitrator. The parties shall have
10 days from the end of the mediation period to agree upon a mutually acceptable
person to act as arbitrator. The arbitrator shall be a neutral person (i.e., a
person not affiliated with either of the parties). If no arbitrator has been
selected within such time, the parties agree jointly to request the Center for
Public Resources or another mutually agreed-upon organization to supply within
10 days of such request a list of potential arbitrators with qualifications as
specified by the parties in the joint request. Within five days of receipt of
the list, the parties shall independently rank the proposed candidates, shall
simultaneously exchange rankings, and shall be deemed to have selected as the
arbitrator the individual receiving the highest combined ranking who is
available to serve. If there is a tie, then the tie shall be broken by putting
the names on slips of paper, mixing them up and having one party draw one slip
of paper. If one party shall not cooperate in the selection of the arbitrator,
the other party may solely select the arbitrator utilizing the procedures set
forth in this Section 10.6.
Section 10.7 Cost of Arbitration. The costs of arbitration
shall be apportioned between 3M and Imation as determined by the arbitrator in
such manner as the arbitrator deems reasonable taking into account the
circumstances of the case, the conduct of the parties during the proceeding, and
the result of the arbitration.
Section 10.8 Arbitration Period. Any arbitration proceeding
shall be concluded in a maximum of one (1) year from written notice from one
party to the other party initiating the procedures under this Article X and
requesting arbitration after having participated, to the extent contemplated
herein, in negotiation and mediation under this Article X.
Section 10.9 Treatment of Negotiation and Mediation. All
negotiations and mediations pursuant to this Article X shall be treated as
compromise and settlement negotiations for purposes of Rule 408 of the Federal
Rules of Evidence and comparable Minnesota Rules of Evidence.
Section 10.10 Confidentiality. All negotiation, mediation and
arbitration proceedings under this Article X shall be treated as confidential
information in accordance with the provisions of Section 7.5 hereof. Any
mediator or arbitrator shall be bound by an agreement containing confidentiality
provisions at least as restrictive as those contained in Section 7.5 hereof.
Section 10.11 Equitable Relief. Nothing herein shall preclude
either party from seeking equitable relief to prevent any immediate, irreparable
harm to its interests, including multiple breaches of this Agreement or the
relevant Related Agreement by the other party. Otherwise, these procedures are
exclusive and shall be fully exhausted prior to the initiation of any
litigation. Either party may seek specific enforcement of any arbitrator's
decision under this Article X. The other party's only defense to such a request
for specific enforcement shall be fraud by or on the arbitrator.
Section 10.12 Notices. All notices by one party to the other
party in connection with the dispute resolution provisions set forth in this
Article X shall be in accordance with the provisions of Section 11.4 hereof
[except that no notice may be transmitted by facsimile].
Section 10.13 Consolidation. The arbitrator may consolidate an
arbitration under this Agreement with any arbitration arising under or relating
to the Related Agreements or any other agreement between the parties entered
into pursuant hereto, as the case may be, if the subject of the Disputes
thereunder arise out of or relate essentially to the same set of facts or
transactions. Such consolidated arbitration shall be determined by the
arbitrator appointed for the arbitration proceeding that was commenced first in
time.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Complete Agreement. This Agreement, including the
Schedules, Annexes and Exhibits and the agreements and other documents referred
to herein, shall constitute the entire agreement between 3M and Imation with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Section 11.2 Expenses. Except as otherwise provided in this
Agreement, any Related Agreement or any other agreement being entered into by 3M
and Imation pursuant to this Agreement, 3M or Imation shall each pay its own
costs and expenses incurred in connection with the Distribution (whether or not
payable as of the Distribution Date) and with the consummation of the
transactions contemplated by this Agreement. In furtherance of the foregoing, it
is agreed and acknowledged that 3M will be responsible for all fees of Skadden,
Arps, Slate, Meagher & Flom and Morgan Stanley & Co., Incorporated and the costs
of printing and mailing the Information Statement and the Imation stock
certificates, and Imation shall be responsible for all costs and fees relating
to the credit facility being established by Imation at the time of the
Distribution and the registration and transfer of intellectual property and
regulatory permits.
Section 11.3 Governing Law. This Agreement, the Related
Agreements and any other agreement entered into in connection with this
transaction and any questions, claims, disputes, remedies or procedural matters
shall be governed exclusively by the laws of the State of Minnesota, without
regard to the principles of conflicts of law, as to all matters, including,
without limitation, matters of validity, construction, effect, performance and
remedies. The parties agree that Minnesota has a substantial relationship to
this transaction, and each Party consents to personal jurisdiction in the courts
of Minnesota and further agrees that all such matters shall be heard in the
federal and state courts in Minnesota.
Section 11.4 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is given, (ii) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(iii) on the business day after delivery to an overnight courier service or the
Express mail service maintained by the United States Postal Service, provided
receipt of delivery has been confirmed, or (iv) on the fifth day after mailing,
provided receipt of delivery is confirmed, if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
properly addressed and return-receipt requested, to the party as follows:
If to 3M: Minnesota Mining and
Manufacturing Company
3M Center
St. Paul, Minnesota 55144
Attn: General Counsel
Telecopy: (612) 736-7859
If to Imation: Imation Corp.
1 Imation Place
Oakdale, Minnesota 55128
Attn: General Counsel
Telecopy: (612) 736-2185
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
Section 11.5 Amendment and Modification. This Agreement may be
amended, modified or supplemented only by written agreement of the parties.
Section 11.6 Termination. This Agreement may be terminated and
the Distribution abandoned at any time prior to the Distribution Date by and in
the sole discretion of 3M without the approval of Imation. In the event of such
termination, no party shall have any liability of any kind to any other party.
Section 11.7 Successors and Assigns. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party.
The obligations under Articles V, VI and VII of this Agreement
of Imation and 3M shall survive the sale or other transfer by either of them of
any assets or businesses or the assignment by either of them of any Liabilities.
To the extent that 3M transfers to a party other than a subsidiary of 3M any of
its Retained Liabilities (except for such amounts of Retained Liabilities which
are not material individually or in the aggregate), 3M will cause the transferee
of such Retained Liabilities to assume specifically its obligations with respect
thereto under this Agreement and will cause such transferee to fulfill its
obligations related to such Retained Liabilities. To the extent Imation or
Imation Enterprises transfers to another party other than a subsidiary of
Imation any of the Assumed Liabilities (except for such amounts of Assumed
Liabilities which are not material individually or in the aggregate), Imation
will cause the transferee of such Assumed Liabilities to assume specifically its
obligations with respect thereto under this Agreement and will cause such
transferee to fulfill its obligations related to such Assumed Liabilities. In
the event the transferee of the Retained Liabilities or Assumed Liabilities does
not fulfill its obligations with respect thereto, 3M and Imation, respectively,
shall fulfill their obligations with respect thereto.
Section 11.8 No Third Party Beneficiaries. Except as provided
in Section 5.1(a) and 5.1((b), this Agreement is solely for the benefit of the
parties hereto and is not intended to confer upon any other person except the
parties hereto any rights or remedies hereunder.
Section 11.9 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.10 Interpretation. The Article, Section and
subparagraph headings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties and shall not in any way
affect the meaning or interpretation of this Agreement. As used in this
Agreement, the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof. Whenever any
words are used herein in the masculine gender, they shall be construed as though
they were also used in the feminine gender in all cases where they would so
apply.
Section 11.11 Annexes, Etc. The Annexes, Schedules and
Exhibits shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
Section 11.12 Construction of Agreements. Notwithstanding any
other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
(or any Conveyancing and Assumption Instrument or other instrument of
assumption) and the provisions of any other agreement entered into by 3M or
Imation pursuant to this Agreement (including, without limitation, the Related
Agreements), the provisions of such other agreement shall control (unless such
other agreement provides otherwise).
Section 11.13 Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 11.14 Survival. All covenants and agreements of the
parties contained in this Agreement shall survive the Distribution Date.
Section 11.15 Guaranty. Each Party guarantees the performance
of all obligations of its Affiliates under this Agreement, all Related
Agreements and all other agreements to be entered into in connection with this
transaction.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year first above
written.
MINNESOTA MINING AND
MANUFACTURING COMPANY
By:
Name:
Title:
IMATION CORP.
By:
Name:
Title:
ANNEX I
ASSUMED LIABILITIES
Assumed Liabilities: all Liabilities and obligations
relating to or arising from the operation of the Transferred Businesses (other
than Retained Liabilities), whether before or after the Distribution Date,
including but not limited to:
(a) all Liabilities and obligations which should be
set forth, reflected, disclosed or reserved for on a balance sheet for Imation
as of the Distribution Date prepared in the same manner as the March 31, 1996
balance sheet of Imation included in the Information Statement (after giving
effect to any pro forma adjustments reflected in the Information Statement);
(b) all Liabilities and obligations of 3M pursuant
to, under or relating to all agreements, contracts and leases, whether written
or oral, of 3M relating to, but only to the extent that they relate to, the
Transferred Businesses, including, without limitation, the leases set forth on
Schedule 6.14(a) to the Agreement and acquisition or divestiture agreements
entered into on behalf of the Transferred Businesses on or prior to the
Distribution Date;
(c) outstanding Bids, Quotations and Proposals
pertaining to the Transferred Businesses to the extent that such Bids,
Quotations and Proposals can be transferred or assigned without extinguishment;
and all contracts awarded to 3M before or after the Distribution Date pertaining
to the Transferred Businesses, as (i) assignee if those contracts are assignable
and assigned or transferred by operation of law, or (ii) subcontractor if
assignment of those contracts and/or the proceeds therefrom is prohibited by
law;
(d) all warranty, performance and similar obligations
entered into or made in the course of business of the Transferred Businesses
with respect to its products;
(e) all Liabilities and obligations to or with
respect to Transferred Employees not specifically retained by 3M pursuant to the
Agreement or the Related Agreements, including but not limited to withholding,
payroll and employment taxes pursuant to Article VIII of the Agreement;
(f) the Liabilities and obligations being assumed by
or agreed to be performed by Imation pursuant to any other agreement being
entered into in connection with the Agreement, including, without limitation,
the Related Agreements;
(g) all Liabilities and obligations relating to all
Actions related to or arising out of the operations of the Transferred
Businesses, other than those specified as Retained Liabilities;
(h) all Liabilities and obligations arising with
respect to the Transferred Businesses under laws, rules or regulations relating
to the registration or regulation of the sale or use of products in commerce,
including, but not limited to, the Federal Food, Drug and Cosmetic Act, 21
U.S.C. ss. 301 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act,
7 U.S.C. ss. 136 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601
et seq. (except that provisions of the Toxic Substances Control Act and the
regulations promulgated thereunder related to the regulation of polychlorinated
biphenyls shall be deemed to be Environmental Laws for purposes of the
Environmental Matters Agreement, and Liabilities related to the management,
transportation, disposal and remediation of polychlorinated biphenyls shall be
governed by the terms of the Environmental Matters Agreement); and similar state
and local laws; and
(i) all Liabilities and obligations under corporate
credit cards which had been issued by 3M to Transferred Employees.
ANNEX II
RETAINED LIABILITIES
Retained Liabilities: the following Liabilities and
obligations as of the Distribution Date:
(a) all Liabilities and obligations with respect to
Transferred Employees provided in Article VIII of the Agreement as being
Liabilities and obligations of 3M;
(b) all Liabilities and obligations under the Related
Agreements which are Liabilities or obligations of 3M;
(c) all Liabilities related to non-United States
operations which pursuant to Section 2.3 of this Agreement or the agreements
contemplated thereby are not to be assumed by Imation or its Affiliates;
(d) subject to the provisions of Section 5.6 of this
Agreement, all Liabilities and obligations arising out of the litigation
entitled Minnesota Mining & Manufacturing Company v. Nishika, Ltd., et al.
(Supreme Court of Texas; Case No. 94-1124);
(e) all Liabilities and obligations arising out of
checks which have been mailed, but not presented for payment, prior to the
Distribution Date; and
(f) all Liabilities with respect to trade payables
relating to the operations of the Transferred Businesses outside the United
States which are being retained by 3M or its Affiliates pursuant to the terms of
this Agreement.
ANNEX III
TRANSFERRED ASSETS
Transferred Assets: All assets and properties of 3M used
principally in the Transferred Businesses as of the Distribution Date (other
than Excluded Assets), including but not limited to:
(a) All assets and properties which should be set
forth or reflected on a balance sheet for Imation as of the Distribution Date
prepared in the same manner as the March 31, 1996 balance sheet of Imation
included in the Information Statement (after giving effect to any pro forma
adjustments reflected in the Information Statement)
(b) the real properties owned by 3M and used in the
Transferred Businesses which are set forth on Exhibit A hereto, including
buildings, structures and improvements (including construction in progress)
located thereon, fixtures contained therein and appurtenances thereto;
(c) all of 3M's right and interest in, to and under
all leases for real property relating to the Transferred Businesses, which are
set forth on Exhibit B hereto;
(d) all of 3M's right and interest in, to and under
all outstanding Bids, Quotations and Proposals pertaining to the Transferred
Businesses to the extent that such Bids, Quotations and Proposals can be
transferred or assigned without extinguishment; all of 3M's right and interest
in, to and under all contracts and agreements awarded to 3M before or after the
Distribution Date pertaining to the Transferred Businesses, as assignee if those
contracts are assignable and assigned or transferred by operation of law;
payment of a subcontract price equal to the monies, rights and other
considerations received by 3M under contracts and agreements awarded to 3M
before or after the Distribution Date pertaining to the Transferred Businesses
if assignment of those contracts and/or agreement and/or the proceeds therefrom
is prohibited by law;
(e) all machinery, equipment and other items of
tangible personal property (including construction in progress) owned by 3M
which are utilized principally in the Transferred Businesses (including any such
assets located at the 3M facilities in Menomonie, Wisconsin, or Breda,
Netherlands);
(f) all of 3M's rights with respect to trade
receivables relating to the Transferred Businesses, except as otherwise provided
in Section 2.3 of this Agreement or the foreign transfer agreements entered into
by Affiliates of 3M and Imation pursuant to such Section 2.3;
(g) all rights and interests of 3M in, to and with
respect to the intellectual property rights concerning the Transferred
Businesses to the extent, but only to the extent, such rights are being licensed
and assigned to Imation pursuant to, and in accordance with, the Intellectual
Property Agreement;
(h) all of the Books and Records (except as otherwise
provided in the Intellectual Property Agreement);
(i) inventories of raw materials, work-in-process,
finished products, supplies and spare parts which at the Distribution Date are
owned by 3M and relate principally to the Transferred Businesses and any
property under bailment relating to the Transferred Businesses;
(j) all permits and licenses held by 3M which are
transferable and which relate principally to the Transferred Businesses;
(k) all intangible assets, other than intellectual
property rights, of 3M used solely in the Transferred Businesses;
(l) employee receivables, temporary and permanent
travel advances and funds advanced for travel not yet taken relating to
Transferred Employees and all petty cash funds in the possession of Transferred
Businesses and all prepayments and deposits;
(m) all supplies, forms, labels, shipping material,
catalogues, sales brochures, operating manuals, instructional documents and
advertising material held for use by the Transferred Businesses;
(n) all shares of capital stock of Imation
Enterprises, CD-Rom B.V./C.V., CD-Rom Services (A), Inc., CD-Rom Services (B),
Inc., Imation Finanziaria S.p.A., Minnesota 3M Research, Limited, Imation France
S.A., Imation Argentina S.A. and Imation do Brasil Ltda. owned by 3M immediately
prior to the Distribution;
(o) all of 3M's rights with respect to the following
investments: CEMEX/ICON, Inc., Printware, Inc., Software Architects, Inc.,
Hummer Winblad Equity Partners, L.P., and Hummer Winblad Equity Partners II
L.P.;
(p) all trucks, automobiles and other vehicles which
are owned by 3M and used principally in the Transferred Businesses;
(q) all of 3M's right relating to all Actions related
to or arising out of the Transferred Business (other than with respect to
Actions specifically retained by 3M pursuant to this Agreement), including,
without limitation, the Action entitled Minnesota Mining & Manufacturing Company
v. Appleton Papers, Inc. (U.S.D.C., District of Minnesota; Civil File No. 4-95-
786);
(r) the Pilot Plant Assets; and
(s) duty drawbacks relating to the Transferred
Businesses which were filed by 3M on or prior to the Distribution Date.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS ANNEX II OR THE
AGREEMENT, TRANSFERRED ASSETS SHALL NOT INCLUDE THE FOLLOWING ASSETS AND
PROPERTIES (THE "EXCLUDED ASSETS"), WHICH SHALL BE RETAINED BY 3M:
(a) cash and cash equivalents, including cash on hand
or in bank accounts, certificates of deposit, commercial paper and other similar
securities in the possession of the Transferred Businesses, except (i) petty
cash funds in the possession of the Transferred Businesses, (ii) any cash to be
contributed to the capital of Imation pursuant to the terms of this Agreement,
and (iii) any cash advanced by 3M prior to the Distribution Date to capitalize
foreign corporations being formed by Imation to facilitate the Distribution;
(b) any Books and Records which 3M is required by
law to retain in its possession;
(c) except as may otherwise be provided in the Tax
Sharing Agreement, any right, title or interest of 3M in any Federal, state or
local tax refund (including any income with respect thereto) relating to the
operations of the Transferred Businesses prior to the Distribution Date;
(d) all machinery and equipment at the 3M facility in
New Ulm, Minnesota, other than laboratory test equipment utilized by the
Transferred Businesses prior to the Distribution Date;
(e) all machinery, equipment and other items of
personal property, including construction in process, which are located at the
Pine City, Minnesota facility relating to 3M's Traffic Control Materials and
Commercial Office Supply Divisions, the White City, Oregon facility relating to
3M's Electrical Specialties Division, the Middleway, West Virginia facility
relating to 3M's Metalmatrix Program, the Vadnais Heights, Minnesota facility
relating to 3M's Corporate Metrology Laboratory, the Wahpeton, North Dakota
facility relating to 3M's Medical Device Division, OH&ES Division and
Professional Video and Audio Products Division, and the Camarillo, California
facility relating to 3M's Telecom Systems Division;
(f) all assets located outside the United States
which pursuant to Section 2.3 of this Agreement or the agreements contemplated
thereby are not to be transferred to Imation or one of its Affiliates; and
(g) all rights with respect to trade receivables
relating to the operations of the Transferred Businesses outside the United
States which are being retained by 3M or its Affiliates pursuant to the terms of
this Agreement.
ANNEX IV
ENTERPRISE LIABILITIES
Enterprise Liabilities: all Assumed Liabilities and
obligations relating to or arising from the Enterprise Operations, whether
before or after the Distribution Date, including but not limited to:
(a) all Liabilities and obligations of 3M pursuant
to, under or relating to, but only to the extent that they relate to, all
agreements, contracts and leases of 3M relating to the Enterprise Operations;
(b) outstanding Bids, Quotations and Proposals
pertaining to the Enterprise Operations to the extent that such Bids, Quotations
and Proposals can be transferred or assigned without extinguishment; and all
contracts awarded to 3M before or after the Distribution Date pertaining to the
Enterprise Operations, as (i) assignee if those contracts are assignable and
assigned or transferred by operation of law, or (ii) subcontractor if assignment
of those contracts and/or the proceeds therefrom is prohibited by law;
(c) all warranty, performance and similar obligations
entered into or made in the course of business of the Enterprise Operations with
respect to their products and services;
(d) the Liabilities and obligations to or with
respect to Transferred Employees of the Enterprise Operations being assumed by
Imation, including but not limited to withholding, payroll and employment taxes
pursuant to Article VIII of the Agreement;
(e) the Liabilities and obligations relating to the
Enterprise Operations being assumed by or agreed to be performed by Imation
Enterprises pursuant to any other agreement being entered into in connection
with the Agreement, including, without limitation, the Related Agreements;
(f) the Liabilities and obligations relating to all
Actions related to or arising out of the Enterprise Operations, other than those
specified as Retained Liabilities;
(g) all Liabilities and obligations under any
industrial development bond relating to the facility located in White City,
Oregon which is outstanding as of the Distribution Date; and
(h) all Liabilities and obligations under corporate
credit cards which had been issued by 3M to Transferred Employees employed by
the Enterprise Operations.
ANNEX V
ENTERPRISE ASSETS
Enterprise Assets: All Transferred Assets used principally in
the Enterprise Operations as of the Distribution Date, including but not
limited to:
(a) the real properties owned by 3M and identified on
Exhibit A hereto as being transferred to Imation Enterprises, including
buildings, structures and improvements (including construction in progress)
located thereon, fixtures contained therein and appurtenances thereto;
(b) all of 3M's right and interest in, to and under
all leases for real property relating to the Enterprise Operations, which are
identified on Exhibit B hereto as being assigned to Imation Enterprises;
(c) all of 3M's right and interest in, to and under
all outstanding Bids, Quotations and Proposals pertaining to the Enterprise
Operations, to the extent that such Bids, Quotations and Proposals can be
transferred or assigned without extinguishment; all of 3M's right and interest
in, to and under all contracts and agreements awarded to 3M before or after the
Distribution Date pertaining to the Enterprise Operations, as assignee if those
contracts are assignable and assigned or transferred by operation of law;
payment of a subcontract price equal to the monies, rights and other
considerations received by 3M under contracts and agreements awarded to 3M
before or after the Distribution Date pertaining to the Enterprise Operations,
if assignment of those contracts and/or agreement and/or the proceeds therefrom
is prohibited by law;
(d) all machinery, equipment and other items of
tangible personal property (including construction in progress) owned by 3M
which are utilized principally in the Enterprise Operations;
(e) all of 3M's rights with respect to domestic trade
receivables relating to the Transferred Businesses;
(f) all of the Books and Records relating to the
Enterprise Operations (except as otherwise provided in the Intellectual
Property Agreement);
(g) inventories of raw materials, work-in-process,
finished products, supplies and spare parts which at the Distribution Date are
owned by 3M and relate principally to the Enterprise Operations and any property
under bailment relating to the Enterprise Operations;
(h) all permits and licenses held by 3M which are
transferable and which relate principally to the Enterprise Operations;
(i) all intangible assets, other than intellectual
property rights, of 3M used solely in the Enterprise Operations;
(j) employee receivables, temporary and permanent
travel advances and funds advanced for travel not yet taken relating to
Transferred Employees of the Enterprise Operations and all petty cash funds in
the possession of the Enterprise Operations and all prepayments and deposits;
(k) all supplies, forms, labels, shipping material,
catalogues, sales brochures, operating manuals, instructional documents and
advertising material held for use by the Enterprise Operations;
(l) all trucks, automobiles and other vehicles which
are owned by 3M and used principally in the Enterprise Operations; and
(m) the Pilot Plants Assets.
Exhibit A
to ANNEX III and ANNEX V
Owned Properties to be Transferred
United States
Properties of Imation
Camarillo, California
Wahpeton, North Dakota
Tucson, Arizona
Oakdale, Minnesota*
Properties of Imation Enterprises
Weatherford, Oklahoma
Pine City, Minnesota
Rochester, New York
White City, Oregon
Middleway, W. Virginia
Nekoosa, Wisconsin
Outside the United States
Ferrania, Italy
Harlow, England**
Sulmona, Italy
Florida, Argentina
Bracknell, England***
London, Ontario, Canada****
- --------
* Includes Lot 1 and 2, Block 1; and Outlot A, all a part of "Oakdale
Farm" Plat, Washington County, Minnesota.
** Includes an indirect transfer of facility owned by
Minnesota 3M Research Limited.
*** Includes Building #2 only.
**** Includes Service Support Centre only.
Exhibit B
to ANNEX III and ANNEX V
Leased Properties to be Transferred
I Manufacturing Facilities in United States
Leased Properties of Imation
Fremont, California (two locations)
Vadnais Heights, Minnesota
Leased Properties of Imation Enterprises
None
II Other Leases
The leases set forth on Schedule 6.14(a) of the Agreement or identified
in connection with the various foreign transfer agreements are incorporated
herein by reference.
Schedule 1.1A
Transferred Businesses
Imation Business Units:
Data Storage Diskette Technology Division
Data Storage Markets Division
Data Storage Optical Technology Division
Data Storage Tape Technology Division
Medical Imaging Systems Division
Photo Color Systems Division
Printing and Publishing Systems Division
Hardgoods and Electronic Support Department
HESD Field Service and Customer Support
Dry Silver Technology Center
Graphic Research Lab(1)
Aurora Project of HESD
Harlow Laboratory
Storage Laboratory Lab of Advanced Technology Lab
Electronic Imaging Center(1)
European Business Centers corresponding to the
businesses above
Imation Plants:
Camarillo, California
Wahpeton, North Dakota
Weatherford, Oklahoma
Tucson, Arizona
Fremont, California
Pine City, Minnesota
Vadnais Heights, Minnesota
Rochester, New York
White City, Oregon
Middleway, W. Virginia
Nekoosa, Wisconsin
Ferrania, Italy
Sulmona, Italy
Florida, Argentina
- --------
(1) Other than as related to certain projects the employees responsible
for which are not Transferred Employees.
Schedule 1.1B
Business Units Excluded from Transferred Businesses
Audio and Video Products Division
HESD Laboratory
HESD Manufacturing-New Ulm
HESD Product Information Center
HESD Incompany Service
National Media Lab
Photogard
Any Part of the Advanced Technology Lab not relating
to Imaging or Memory Technology
Schedule 1.1C
Imation Employees(2)
- --------
(2) To be updated by mutual agreement of 3M and Imation.
Schedule 1.1D
Pilot Plant Assets(3)
- --------
(3) To be updated by mutual agreement of 3M and Imation.
Schedule 1.1E
3M Center Assets(4)
- --------
(4) To be updated by mutual agreement of 3M and Imation.
Schedule 1.1F
Human Resources Codes
Schedule 5.1(a)
3M Information in Information Statement
"Summary - Distributing Corporation,"
"Summary - Principal Businesses to be Retained by
3M,"
"Summary - Primary Purpose of the Distribution,"
"Introduction,"
"The Distribution - Reasons for the Distribution,"
"The Distribution - Opinion of Financial Advisor,"
"The Distribution - Manner of Effecting the
Distribution,"
"The Distribution - Certain Federal Income Tax
Consequences," and
"Security Ownership of Certain Beneficial Owners".
Schedule 6.12(a)
Domestic Shared Facilities
3M WILL LEASE SPACE IN IMATION CORP. FACILITIES AT:
Camarillo, CA
Vadnais Heights, MN (Sublease)
3M WILL LEASE SPACE IN IMATION ENTERPRISES FACILITIES AT:
Middleway, WV
Pine City, MN
IMATION CORP. WILL LEASE SPACE IN 3M FACILITIES AT:
3M Center, Buildings 201, 209, 223, 235, 236 and 302 (Currell Blvd.)
IMATION ENTERPRISES WILL LEASE (OR SUBLEASE) SPACE IN 3M FACILITIES AT:
3M Center, Building 42 (Bush Avenue)
Menomonie, WI
1927 Case Avenue
St. Paul, MN
Schedule 6.14(a)
Assigned Third Party Leases
To Imation
Tucson, AZ - 7900 E. Tanque Verde
Tucson, AZ - Rita Rd. (Not a lease, but an agreement
for payment of zoning fee)
Fremont, CA - 2933 Bayview Dr.
Fremont, CA - Bayside Business Park (Pending new lease)
To Imation Enterprises
Pine City, MN - 230 E. Third Ave.
Vadnais Heights, MN - 1185 Wolters Blvd.
Woodbury, MN - 6043 Hudson Road - Suites 105D, 201,
230, 245, 295, 300, 360
Woodbury, MN - 6053 Hudson Road - Suites 199, 210,
255, 265, 275, 295
Woodbury, MN - 6063 Hudson Road
Woodbury, MN - 1687 Century Circle
Rochester, NY - 1545 Mount Read Blvd.
Weatherford, OK - 217 S. Eighth St. (mini-storage)
White City, OR - 675 Antelope Road
To Imation Affiliates -- O.U.S.
As provided in various foreign transfer agreements.
Schedule 6.14(b)
Assigned Properties Leased To Third Parties
Imation
Camarillo, CA - Lease to Michael Brucker
Wahpeton, ND - Lease to Barry Pausch
Imation Enterprises
Woodbury, MN - Sublease to Century Design, 6063
Hudson Road
Weatherford, OK - Oil and Gas lease to Arkansas Lousiana Gas Co.
Weatherford, OK - Lease to James L. Tanner
Weatherford, OK - License to Deer Creek Conservation Dist.
White City, OR - Sublease to Sterling Business Forms
Middleway, WV - Lease to Jesse E. Frye
Middleway, WV - Lease to William S. Friend
Schedule 6.15(a)
Trade Receivables/Payables Settlement Schedule
Schedule 8.11
Foreign Service Employee Obligations
Schedule 9.3
Pre-Distribution Date Insurance Claims(5)
- --------
(5) To be updated to reflect additional claims reported prior to the
Distribution Date.
INFORMATION STATEMENT
IMATION CORP.
COMMON STOCK
PAR VALUE $.01 PER SHARE
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Minnesota Mining and Manufacturing Company
("3M") to holders of record of 3M common stock at the close of business on June
28, 1996 (the "Record Date"), of one share of Common Stock, par value $.01 per
share (the "Common Stock"), of Imation Corp. (the "Company") for every ten
shares of 3M common stock owned on the Record Date. The Distribution will result
in 100% of the outstanding shares of Common Stock of the Company being
distributed to holders of 3M common stock on a pro rata basis. The Distribution
will be effective on July 1, 1996 (the "Distribution Date"). It is expected that
certificates representing shares of Common Stock will be mailed to 3M
stockholders on or about July 15, 1996.
The Company is a newly formed company which, as a result of transactions entered
into in connection with the Distribution, will own substantially all of the
businesses and assets of, and will be responsible for substantially all of the
liabilities associated with, 3M's global data storage and imaging systems
businesses, as more fully described herein (the "Transferred Businesses").
No consideration will be paid by 3M's stockholders for the shares of Common
Stock. There is no current public trading market for the shares of Common Stock,
although it is expected that a "when-issued" trading market will develop on or
about the Record Date. The shares of Common Stock have been approved for listing
on the New York Stock Exchange and the Chicago Stock Exchange, subject to
official notice of issuance, under the symbol "IMN".
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "SPECIAL FACTORS."
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Information Statement is June 21, 1996.
TABLE OF CONTENTS
PAGE
SUMMARY 1
THE COMPANY 3
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA 5
INTRODUCTION 7
THE DISTRIBUTION 8
Reasons for the Distribution 8
Opinion of Financial Advisor 8
Manner of Effecting the Distribution 11
Certain Federal Income Tax Consequences 11
Listing and Trading of the Common Stock 12
SPECIAL FACTORS 13
Absence of History as an Independent Company 13
Changing Industry Environment 13
Transition to Independent Public Company 13
Absence of 3M Financial Support 13
Competition 14
International Operations 14
Absence of Prior Trading Market for the Common Stock 14
Common Stock Dividend Policy 14
Certain Anti-Takeover Effects 14
RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION 16
Distribution Agreement 16
Tax Sharing and Indemnification Agreement 17
Corporate Services Transition Agreement 17
Environmental Matters Agreement 17
Intellectual Property Agreement 18
Supply, Service, Contract Manufacturing and Sales Agency Agreements 19
Shared Facility and Lease Agreements 19
FINANCING 20
PRO FORMA CAPITALIZATION 21
PRO FORMA FINANCIAL STATEMENTS 22
NOTES TO PRO FORMA STATEMENT OF OPERATIONS 24
SELECTED HISTORICAL FINANCIAL DATA 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 28
General Overview 28
Strategic Reorganization 28
Operating Results 29
Performance by Geographic Area 32
Financial Position 33
Liquidity 33
Future Outlook 35
Forward Looking Statements 35
BUSINESS AND PROPERTIES OF THE COMPANY 36
Overview 36
Industry Background 37
Business Strategy 38
Customer Applications 40
Competition 42
Distributor Channels 42
Raw Materials 42
Research and Patents 42
Manufacturing 43
Properties 43
Employees 43
Legal Proceedings 44
Environmental Matters 44
MANAGEMENT OF THE COMPANY 45
Directors 45
Committees of the Board of Directors 45
Compensation of Directors 46
Directors Stock Compensation Program 46
Executive Officers 48
Compensation of Executive Officers 50
Stock Options Table 51
Option Exercises and Year-End Value Table 52
Long-Term Incentive Plan Awards 52
Transactions With Management 53
Employment Agreement 53
Compensation Under Retirement Plans 54
Company Pension Plan 54
Plans Encouraging Employee Stock Ownership 55
Retirement Investment Plan 55
1996 Employee Stock Incentive Program 55
Federal Tax Consequences 57
New Plan Benefits 58
TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN
THE DISTRIBUTION 59
CERTAIN RELATIONSHIPS AND TRANSACTIONS 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 59
BENEFICIAL OWNERSHIP OF MANAGEMENT 60
DESCRIPTION OF COMPANY CAPITAL STOCK 61
Authorized Capital Stock 61
Common Stock 61
Preferred Stock 61
No Preemptive Rights 61
Transfer Agent and Registrar 61
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE
OF INCORPORATION AND BY-LAWS 61
General 61
Classified Board of Directors 61
Special Meetings of Stockholders; Action by Written Consent;
Advance Notice Provisions 62
Stockholder Nominations 62
Stockholder Proposals 62
Preferred Stock 63
Supermajority Provision 63
Rights Agreement 64
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS 65
General 65
Elimination of Liability in Certain Circumstances 65
Indemnification and Insurance 65
INDEPENDENT PUBLIC ACCOUNTANTS 66
ADDITIONAL INFORMATION 66
INDEX TO HISTORICAL FINANCIAL STATEMENTS F-1
ANNEX A A-1
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
INFORMATION STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED BY,
THE MORE DETAILED INFORMATION SET FORTH IN THIS INFORMATION STATEMENT, WHICH
SHOULD BE READ IN ITS ENTIRETY. UNLESS THE CONTEXT OTHERWISE REQUIRES, (I)
REFERENCES IN THIS INFORMATION STATEMENT TO 3M AND THE COMPANY SHALL INCLUDE
3M'S AND THE COMPANY'S RESPECTIVE SUBSIDIARIES AND (II) REFERENCES IN THIS
INFORMATION STATEMENT TO THE COMPANY PRIOR TO THE DISTRIBUTION DATE SHALL REFER
TO THE TRANSFERRED BUSINESSES AS OPERATED BY 3M.
DISTRIBUTING CORPORATION Minnesota Mining and Manufacturing Company, a
Delaware corporation ("3M").
DISTRIBUTED CORPORATION Imation Corp., a newly formed Delaware
corporation (the "Company") which, as of the
Distribution Date, will have transferred to it
substantially all of the businesses and assets
of, and will be responsible for substantially
all of the liabilities associated with, 3M's
global data storage and imaging systems
businesses, as more fully described herein (the
"Transferred Businesses").
PRINCIPAL BUSINESSES TO BE
RETAINED BY 3M 3M will retain its core businesses,
consisting of all of its current businesses
other than the Transferred Businesses (the
"Core Businesses"). 3M has announced that its
consumer audio and video tape business, which
is not part of the Transferred Businesses, will
be discontinued.
PRIMARY PURPOSE OF THE
DISTRIBUTION To separate the Transferred Businesses from the
Core Businesses so that each can (i) adopt
strategies and pursue objectives appropriate to
its specific businesses and industries and
thereby achieve, among other things, potential
cost savings, (ii) implement more focused
incentive compensation arrangements that are
tied more directly to results of its operations
and (iii) be recognized by the financial
community as separate and distinct businesses.
SHARES TO BE DISTRIBUTED Approximately 41,863,000 shares of Common
Stock, based on the shares of 3M common stock
outstanding on May 1, 1996. The shares to be
distributed will constitute 100% of the
outstanding shares of Common Stock of the
Company on the Distribution Date.
DISTRIBUTION RATIO Each 3M stockholder will receive one
share of Common Stock of the Company for every
ten shares of 3M common stock held on the
Record Date.
FRACTIONAL SHARE INTERESTS Fractional share interests will be sold by the
Distribution Agent and the cash proceeds
distributed to those stockholders entitled to a
fractional interest. See "THE DISTRIBUTION --
Manner of Effecting the Distribution."
LISTING AND TRADING
MARKET The shares of Common Stock have been approved
for listing on the New York Stock Exchange and
the Chicago Stock Exchange, subject to official
notice of issuance, under the symbol "IMN."
RECORD DATE Close of business on June 28, 1996.
DISTRIBUTION DATE July 1, 1996. As of the Distribution Date,
the transfer of substantially all of the assets
and liabilities of the Transferred Businesses
from 3M to the Company will become effective
and the shares of Common Stock to be
distributed will be delivered to the
Distribution Agent for distribution to holders
of 3M common stock.
MAILING DATE Certificates representing the shares of
Common Stock will be mailed to 3M stockholders
on or about July 15, 1996.
DISTRIBUTION AGENT Norwest Bank Minnesota, N.A. (the "Distribution
Agent").
TAX CONSEQUENCES The Distribution is expected to qualify as a
tax-free distribution under Section 355 of the
Internal Revenue Code of 1986, as amended (the
"Code"). See "THE DISTRIBUTION -- Certain
Federal Income Tax Consequences."
DIVIDEND POLICY The payment and amount of cash dividends on the
Common Stock after the Distribution will be at
the discretion of the Company's Board of
Directors. The Company's dividend policy will
be reviewed by the Company's Board of Directors
at such future times as may be appropriate, and
payment of dividends will depend upon the
Company's financial position, capital
requirements and such other factors as the
Company's Board of Directors deems relevant.
RELATIONSHIP WITH 3M AFTER THE
DISTRIBUTION Following the Distribution, 3M and the Company
will be operated as independent public
companies. 3M and the Company will, however,
continue to have a relationship as a result of
the agreements being entered into between 3M
and the Company in connection with the
Distribution, including the Transfer and
Distribution Agreement, the Tax Sharing and
Indemnification Agreement, the Corporate
Services Transition Agreement, the
Environmental Matters Agreement, the
Intellectual Property Rights Agreement, the
Supply Agreements and other miscellaneous
agreements. Except as referred to above or as
otherwise described herein, 3M and the Company
will cease to have any material contractual or
other material relationships with each other.
See "RELATIONSHIP BETWEEN 3M AND THE COMPANY
AFTER THE DISTRIBUTION," "FINANCING," "PRO
FORMA CAPITALIZATION" and "MANAGEMENT OF THE
COMPANY -- Directors."
SPECIAL FACTORS Stockholders should carefully consider
the matters discussed under the section
entitled "SPECIAL FACTORS" in this Information
Statement.
THE COMPANY
The Company is a leader in developing, manufacturing and marketing a wide
variety of products and services worldwide for data storage and imaging
applications within the information processing industry. The Company's products,
which number in excess of 10,000, are used to capture, process, store, reproduce
and distribute information and images in a wide range of information-intensive
markets, including enterprise computing, network servers, personal computing,
graphic arts, photographic imaging, medical imaging, and commercial and consumer
markets. See "BUSINESS AND PROPERTIES OF THE COMPANY."
The breadth of the Company's product lines, the Company's worldwide leadership
position in a number of product classes and its global distribution network
serve to differentiate the Company from its competitors. In 1995, the Company
had revenues of $2.2 billion, with approximately half of its revenues derived
internationally. The Company's major products, classified by customer
application, are shown below and are described in more detail under "BUSINESS
AND PROPERTIES OF THE COMPANY -- Customer Applications."
<TABLE>
<CAPTION>
INFORMATION PROCESSING,
MANAGEMENT AND INFORMATION PRINTING MEDICAL AND PHOTO IMAGING
STORAGE APPLICATIONS APPLICATIONS APPLICATIONS
- -------------------- ------------ ------------
<S> <C> <C>
* Computer diskettes * Conventional color proofing * Laser imaging products
* Data cartridges and Travan(tm) * Digital color proofing * Laser imagers
cartridges
* Computer tapes * Printing plates * X-ray film
* Rewritable optical media * Image setting and graphic arts * "Dry" imaging products
products
* CD ROM replication services * Carbonless paper products * Film processors
* Photographic film products
</TABLE>
INFORMATION PROCESSOR SERVICE APPLICATIONS
- ------------------------------------------
* Technical field service support for equipment
* Customer service, documentation and training for equipment
* Engineering and office document systems
As part of 3M, the Transferred Businesses have developed leadership positions in
a number of markets serving the information processing industry, which the
Company believes can serve as platforms for future growth. For example, the
Company:
* is the world's largest supplier of branded removable magnetic and optical
media (see "BUSINESS AND PROPERTIES OF THE COMPANY -- Customer Applications
-- Information Processing, Management and Storage
Applications");
* is one of the world's largest suppliers of color proofing systems to the
graphic arts industry, with a number of its Matchprint(tm) and Rainbow
products serving as industry standards (see "BUSINESS AND PROPERTIES OF THE
COMPANY -- Customer Applications -- Information and Printing
Applications");
* was the first to develop the new, widely-used laser imager for medical
imaging applications, with an installed base of over 7,000 imagers (see
"BUSINESS AND PROPERTIES OF THE COMPANY -- Customer Applications--Medical and
Photo Imaging Applications");
* is one of the world's largest suppliers of private label film for the amateur
photography market (see "BUSINESS AND PROPERTIES OF THE COMPANY--Customer
Applications"); and
* introduced in 1995 and expects to introduce in 1996 several innovative
products with significant market potential, including the Travan(tm) high
capacity data storage tape cartridges, the new family of Rainbow proofing
systems, a new line of DryView(tm) imagers, medical imaging delivery
systems developed under an alliance with Cemax/Icon and Hewlett-Packard,
and a 120 MB 3.5 inch diskette, the LS-120 diskette, which has been
developed with Compaq Computer Corporation and Matsushita-Kotobuki
Electronics Industries, Ltd. ("MKE") (See "BUSINESS AND PROPERTIES OF THE
COMPANY -- Customer Applications").
STRATEGY
Following the Distribution, the Company intends to utilize its research and
development capabilities, its solid technology platforms, its well established
product lines, and its strong customer relationships to enhance its position as
a leader in the information processing industry, providing innovative,
cost-effective system solutions to its customers' information processing needs.
To achieve its objectives, the Company intends to focus on the following
elements:
* REFINING PRODUCT PORTFOLIO -- The Company will make adjustments to its
product portfolio when appropriate to ensure that all of its resources are
focused on the Company's objective of consistent, profitable growth.
* STREAMLINING OPERATIONS AND REDUCING COSTS -- The Company is in the process
of reducing employment levels and consolidating manufacturing operations. In
addition, the Company intends to continue its efforts to streamline its
management structure, consolidate administrative functions and facilitate
communications among various parts of the organization so as to enable the
Company to respond quickly to the rapidly changing needs of its customers.
* EXPANDING CUSTOMER FOCUS -- The Company will strive to provide more timely
solutions tailored to each of its potential and existing customers' needs.
* IMPROVING CASH FLOWS -- The Company continues to take steps to improve cash
flows, including instilling in its employees a strong focus on cash
management and re-engineering business processes.
* EXPANDING INTERNATIONAL OPERATIONS -- The Company intends over the next
several years to take advantage of opportunities for growth by expanding its
international penetration in higher growth regions of the world.
* CAPITALIZING ON PROPRIETARY TECHNOLOGIES TO PROVIDE CUSTOMER SOLUTIONS -The
Company will continue to focus significant efforts on the development of new
products utilizing its core technologies so as to improve profit margins and
enhance the Company's position as a leading supplier of products, services
and systems to the information processing industry.
* ENCOURAGING EMPLOYEE STOCK OWNERSHIP -- The Company intends to encourage and
increase employee stock ownership as an additional incentive toward
consistent, profitable growth.
In late 1995, in connection with its plan to distribute the Company to its
stockholders, 3M recognized a loss on disposal which included pre-tax charges of
$340 million related to the adoption of a reorganization plan to rationalize the
Company's manufacturing operations, streamline its organizational structure and
write off impaired assets.
The Company believes its continued leadership in developing new data storage
technologies, strong position in high quality color proofing for the printing
industry and strong history of leadership in medical imaging for the health care
industry, together with the benefits of its reorganization plan and business
strategy, should help position the Company to realize future growth and
profitability. See "BUSINESS AND PROPERTIES OF THE COMPANY -- Business
Strategy."
The Company's headquarters are located at 1 Imation Place, Oakdale, Minnesota
55128. Its telephone number is (612) 704-4000.
SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL DATA
The following summary historical and pro forma financial data of the Company
should be read in conjunction with the Company's historical and pro forma
financial statements and the notes thereto included elsewhere in this
Information Statement. The following summary historical financial information
relates to the Transferred Businesses as they were operated as part of 3M and is
derived from the historical financial statements of the Company. They also
include an allocation of certain general corporate expenses of 3M which were not
directly related to these businesses.
The summary pro forma financial data make adjustments to the historical balance
sheet at March 31, 1996 and the historical statements of operations for the
three months ended March 31, 1996 and the year ended December 31, 1995 as if the
Distribution had occurred on March 31, 1996 for purposes of the pro forma
balance sheet and January 1, 1995 for purposes of the pro forma statements of
operations. The summary historical financial data that relate to the three years
in the period ended December 31, 1995 have been derived from the historical
financial statements audited by Coopers & Lybrand L.L.P., independent
accountants. The historical and pro forma financial statements of the Company
may not reflect the results of operations or financial position that would have
been obtained had the Company been a separate, independent company during such
periods.
IMATION CORP.
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------- ----------------------------------
1996* 1995 1995** 1994 1993
-------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues $ 576.1 $576.7 $2,245.6 $2,280.5 $2,307.8
Gross profit 202.3 212.5 724.7 838.5 886.2
Selling, general and administrative
expense 130.7 137.9 539.4 531.5 529.0
Research and development 47.9 56.4 222.4 211.2 216.7
Operating income (loss) 13.3 18.2 (148.9) 95.8 140.5
Income (loss) before taxes and minority
interest 10.1 13.0 (166.8) 81.3 127.4
Net income (loss) 6.1 7.5 (85.0) 54.3 75.3
BALANCE SHEET DATA (AS OF END OF PERIOD)
Total working capital 633.4 658.4 714.0
Property, plant and equipment -- net 503.9 513.2 654.9
Total assets 1,520.0 1,541.5 1,671.7
Total liabilities 398.3 392.8 371.7
Total equity 1,121.7 1,148.7 1,300.0
STATEMENT OF CASH FLOWS DATA
Net cash provided by operating activities 69.7 29.5 256.8 170.1 229.2
Net cash used in investing activities (40.1) (46.9) (187.5) (179.7) (210.2)
Net cash (paid to) received from 3M (27.0) 13.4 (72.9) 18.5 (13.1)
Depreciation 48.5 49.1 189.5 185.9 184.4
</TABLE>
SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, 1996* 1995**
--------------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues $ 576.1 $2,245.6
Gross profit 202.3 724.7
Selling, general and administrative expense 130.7 539.4
Research and development 47.9 222.4
Operating income (loss) 13.3 (148.9)
Income (loss) before taxes and minority
interest 9.7 (168.3)
Net income (loss) 5.6 (97.4)
Net income (loss) per share 0.13 (2.32)
BALANCE SHEET DATA (AS OF END OF PERIOD)
Total working capital 721.0
Property, plant and equipment -- net 503.9
Total assets 1,570.3
Total debt 280.0
Total liabilities 648.7
Total equity 921.6
</TABLE>
* Restructuring charges reduced results for the three months ended March
31, 1996 by $10.4 million before taxes and minority interest and $6.1
million after taxes and minority interest. Net income for the three
months ended March 31, 1996 excluding these charges would have been
$12.2 million on a historical basis and $11.7 million on a pro forma
basis. These charges related to costs for certain employee separation
programs.
** Restructuring charges and asset write-offs reduced 1995 results by
$166.3 million before taxes and minority interest and $88.3 million
($97.8 million on a pro forma basis) after taxes and minority interest.
1995 net income excluding these charges would have been $3.3 million on
a historical basis and $0.4 million on a pro forma basis. The majority
of these charges related to the write down of property, plant and
equipment.
INTRODUCTION
On June 18, 1996, the Board of Directors of 3M declared a dividend payable to
holders of record of 3M's common stock at the close of business on the Record
Date of one share of Common Stock of the Company for every ten shares of 3M
common stock held on the Record Date. The Distribution will be effective on July
1, 1996. Certificates representing shares of Common Stock of the Company will be
mailed to 3M stockholders on or about July 15, 1996. As a result of the
Distribution, 100% of the outstanding shares of Common Stock of the Company will
be distributed to 3M stockholders.
The Company was formed for the purpose of effecting the Distribution. On or
before the Distribution Date, 3M will transfer to the Company substantially all
of the assets and liabilities of the Transferred Businesses. Prior to the
Distribution, 3M operated the Transferred Businesses as part of its Information,
Imaging and Electronics Sector.
If you have questions relating to the Distribution and delivery of
certificates representing shares of Common Stock of the Company, please
contact the Distribution Agent at:
In Minneapolis-St. Paul (612) 948-5464
Elsewhere in the U.S. (800) 859-2881
For other information relating to 3M, please contact 3M Investor Relations, 3M
Center, St. Paul, Minnesota 55144, telephone number (612) 733-8704. For
Company-specific questions, please contact Investor Relations at the Company, 1
Imation Place, Oakdale, Minnesota 55128, telephone number (612) 704-5818.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
3M's Board of Directors has determined that it is in the best interests of 3M
and the Company to undertake the Distribution, thereby separating the
Transferred Businesses from 3M, for the reasons described herein.
The Distribution is designed to establish the Transferred Businesses as a stand
alone independent company which can adopt strategies and pursue objectives
appropriate to its specific businesses. The industry in which the Transferred
Businesses operate is extremely competitive and is generally characterized by
rapid technological change and declining prices.
In this highly competitive industry, the Company must operate with a reduced
cost structure, broad distribution channels, a streamlined supply chain and fast
paced decision-making. As an independent company, the Company's management
should be better able to organize the Company in a manner more appropriate to
the markets in which it competes. As a result, the Distribution should enhance
the Company's position as an effective competitor, and the Company should be
better able to capitalize quickly on changes in the rapidly expanding
information processing industry.
The Distribution is also designed to allow the Company to establish its own
employee stock ownership plan and other equity-based compensation plans so that
there will be a more direct alignment between the performance of the Transferred
Businesses and the compensation of employees of the Transferred Businesses,
which, among other things, is intended to strengthen and support the Company's
ability to achieve cost savings, greater efficiencies and sales growth. Prior to
1996, management of the Transferred Businesses received 3M stock options and
until the Distribution Date, employees may participate in a company-wide
employee stock ownership plan holding 3M common stock. Following the
Distribution, employees of the Company will participate in an employee stock
ownership plan holding Common Stock of the Company and receive equity-based
incentives which will be more closely aligned with the financial results of the
Company, thereby linking each employee's financial success more directly to the
financial success of the Company. See "MANAGEMENT OF THE COMPANY -- Retirement
Investment Plan," and "-- 1996 Employee Stock Incentive Program."
3M believes that the separation of the information and imaging businesses from
its life sciences, industrial and consumer businesses will cause the two
entities to be recognized by the financial community as distinct businesses with
different investment risk and return profiles. As a result of the Distribution,
3M should develop its following in the financial community primarily as a global
manufacturer and marketer of products for the life sciences and industrial and
consumer markets while the Company should develop its following primarily as a
company serving the global information processing industry. In this regard,
investors will be better able to evaluate the merits and future prospects of the
businesses of 3M and the Company, enhancing the likelihood that each will
achieve appropriate market recognition for its performance and potential. In
addition, current stockholders and potential investors will be able to direct
their investments to their specific areas of interest. Also, the Distribution
will enable the Company, as and when appropriate, to engage in strategic
acquisitions using its own capital stock.
For the reasons stated above, the 3M Board of Directors believes that the
Distribution is in the best interests of 3M and the Company. In reaching its
conclusions, the 3M Board of Directors also considered the opinion of 3M's
financial advisor, Morgan Stanley & Co. Incorporated ("Morgan Stanley"), which
is described below, to the effect that the Distribution is fair, from a
financial point of view, to the holders of shares of 3M common stock.
OPINION OF FINANCIAL ADVISOR
3M retained Morgan Stanley to act as 3M's financial advisor in connection with
the Distribution and related matters based upon Morgan Stanley's experience and
expertise. Morgan Stanley rendered a written opinion to the Board of Directors
of 3M that, as of the date of this Information Statement and subject to the
considerations set forth in such opinion, the proposed Distribution is fair from
a financial point of view to the holders of shares of 3M common stock.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED JUNE 18, 1996, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX A TO THIS INFORMATION STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY
OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF 3M AND CONCERNS THE FAIRNESS OF
THE PROPOSED DISTRIBUTION FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF
SHARES OF 3M COMMON STOCK, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE
DISTRIBUTION. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS
INFORMATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information relating to 3M and the
Company, including this Information Statement; (ii) analyzed certain internal
historical financial statements and other historical financial operating data
concerning 3M and the Company prepared by their respective managements; (iii)
analyzed certain financial projections prepared by the respective managements of
3M and the Company; (iv) compared the financial performance of the Company with
that of certain other companies with publicly traded securities which were
deemed to be comparable to the Company and its respective business units; (v)
compared the financial performance of 3M (both with and without the Transferred
Businesses) with that of certain other companies with publicly traded securities
which were deemed to be comparable to 3M (both with and without the Transferred
Businesses), respectively; (vi) discussed past and current operations and
financial condition and the prospects of 3M with senior executives of 3M and of
the Company with senior executives of the Company; (vii) participated in
discussions among representatives of 3M and the Company and their legal
advisors; and (viii) performed such other analyses as were deemed appropriate.
In connection with the delivery of its opinion, Morgan Stanley discussed with
the Board, among other things, Morgan Stanley's analysis of the possible
post-Distribution market values of 3M common stock and the Common Stock, in each
case assuming, among other things, that such securities are fully and widely
distributed among investors and subject only to normal trading activity (which
distribution Morgan Stanley noted could take a period of time). The analysis was
based on a range of price/earnings multiples and 1996 and 1997 earnings
estimates for the Company and 3M. The price/earnings multiples used in the
analysis were compared to the price/earnings multiples of certain
publicly-traded companies which Morgan Stanley deemed comparable to the Company
and 3M, respectively. The earnings estimates used in the analysis for 3M were
compared to certain published analysts' estimates. The analysis generally
indicated that, on a post-Distribution basis, based on the earnings estimates
and price/earnings multiples that were considered most appropriate, the combined
implied market value of one share of 3M common stock and the fractional share of
Common Stock reflecting the Distribution ratio would exceed the closing market
price per share of 3M common stock on the day prior to the Board's determination
to pursue the Distribution.
Morgan Stanley also discussed with the Board Morgan Stanley's analysis of
selected "spin-off" transactions completed since 1988, none of which were deemed
directly comparable to the Distribution. This analysis generally indicated,
among other things, that during the six month periods following the selected
spin-offs, the stock prices of the "spun-off" companies slightly outperformed
the S&P 500 average.
In addition, Morgan Stanley discussed with the Board Morgan Stanley's view of
certain potential benefits of the Distribution, including (i) the ability to
reposition 3M with a greater emphasis on its core technologies, (ii) the
enhanced focus of 3M's and the Company's management teams, (iii) the ability to
enhance the value of the Company's businesses as an independent company with a
lower cost structure, simplified management structure and focused management
incentives, (iv) the tax-free nature of this transaction, (v) the ability to
reflect the Transferred Businesses pending completion of the spinoff as a
discontinued operation and (vi) the certainty of completion since the spinoff is
not dependent on any third party. Morgan Stanley also discussed with the Board
Morgan Stanley's view of certain potential detriments of the Distribution,
including potential redistribution of the Common Stock for a period of time
following the Distribution.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial budgets and forecasts, Morgan Stanley assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of 3M and the Company. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities, contingent or otherwise, of 3M or the Company, nor has Morgan
Stanley been furnished with any such appraisals.
Morgan Stanley noted that 3M has received a ruling from the Internal Revenue
Service to the effect that the Distribution will not be a taxable transaction to
the shareholders of 3M under federal income tax laws (except to the extent of
any cash distributed in lieu of fractional shares of the Company). In that
regard, Morgan Stanley assumed the correctness of the conclusions set forth in
such ruling. Morgan Stanley also assumed that the Distribution will comply with
all federal, state, local and foreign laws and applicable regulations, except
for any noncompliance with such applicable laws and regulations that would not
have a material adverse effect on 3M or the Company. In rendering its opinion,
Morgan Stanley, with 3M's consent, did not consider the effect of any terms or
arrangements relating to the Distribution, including the terms of any
distribution, tax or other agreement or arrangement, or any amendment or
modification to any existing such agreement or arrangement.
Morgan Stanley's opinion was rendered on the basis of securities markets,
economic and general business and financial conditions prevailing as of the date
of its opinion and the conditions and prospects, financial and otherwise, of 3M
and the Company as they were represented to Morgan Stanley as of the date of its
opinion or as they were reflected in the information and documents reviewed by
Morgan Stanley. Morgan Stanley's opinion assumes that the Distribution will be
completed substantially on the basis set out in the Information Statement and
that the shares of 3M and the Company will be fully and widely distributed among
investors and are subject only to normal trading activity. The estimation of
market trading prices of newly distributed securities is subject to
uncertainties and contingencies, all of which are difficult to predict and
beyond the control of the firm making such estimates.
In addition, Morgan Stanley noted that the market price of such securities will
fluctuate with changes in market conditions, the conditions and prospects,
financial and otherwise, of 3M and the Company, and other factors which
generally influence the prices of securities. In rendering its opinion, Morgan
Stanley did not opine as to the price at which the common stock of 3M or the
Company will trade after the Distribution is effected.
As financial advisor to 3M in connection with the Distribution, Morgan Stanley
has been paid an advisory fee of approximately $300,000 which compensated Morgan
Stanley for the time and efforts expended in rendering advice in connection with
the Distribution and, upon consummation of the Distribution, Morgan Stanley will
be paid a transaction fee, against which all or a portion of any advisory fee
will be credited. The transaction fee, which shall not exceed $5,500,000, will
be determined based on a percentage of the market value of the equity of the
Company on the Distribution Date plus any debt assumed or incurred by the
Company (the "Aggregate Value"). For example, for an Aggregate Value of $500
million, Morgan Stanley's fee would be 0.7% or $3.5 million; for an Aggregate
Value of $1 billion, Morgan Stanley's fee would be 0.45% or $4.5 million; and
for an Aggregate Value in excess of approximately $1.25 billion, Morgan
Stanley's fee would be capped at $5.5 million. 3M has agreed to reimburse Morgan
Stanley for its out-of-pocket expenses incurred in connection with its services
as financial advisor. 3M has also agreed, in a separate letter agreement, to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities, including
liabilities under the federal securities laws, and expenses related to Morgan
Stanley's engagement.
Morgan Stanley was selected by the 3M Board to act as 3M's financial advisor
based upon Morgan Stanley's qualifications, expertise and reputation. Morgan
Stanley is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings and private placements.
Morgan Stanley and its affiliates may in the future act as underwriters for, or
participate as members of underwriting syndicates with respect to, offerings of
3M securities, and Morgan Stanley may effect securities transactions for 3M or
perform financial advisory services in connection with certain acquisitions and
dispositions by 3M. In the past, Morgan Stanley and its affiliates have provided
investment banking and financing services for 3M and have received fees for the
rendering of such services. In addition, in the ordinary course of its business,
Morgan Stanley actively trades the equity securities of 3M and may actively
trade the securities of the Company following the consummation of the
Distribution, for its own account and for the accounts of others. Accordingly,
Morgan Stanley may at any time hold a long or short position in the securities
of 3M or the Company.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth in a
Transfer and Distribution Agreement, dated as of June 18, 1996 (the
"Distribution Agreement"), between 3M and the Company.
3M will effect the Distribution on the Distribution Date by delivering all of
the outstanding shares of Common Stock of the Company to the Distribution Agent
for distribution to the holders of record of 3M common stock on the Record Date
(other than the holders of a limited number of shares of restricted common stock
of 3M, who, pursuant to the terms of the 3M Management Stock Ownership Program
as implemented by 3M's Compensation Committee, will receive additional shares of
restricted 3M Common Stock with a value equal to the value of the Common Stock
which would have been received by such holders in the Distribution). The
Distribution will be made on the basis of one share of Common Stock for every
ten shares of 3M common stock held on the Record Date. The actual total number
of shares of Common Stock to be distributed will depend on the number of shares
of 3M common stock outstanding on the Record Date (other than shares of
restricted stock). Based upon the shares of 3M common stock outstanding on May
1, 1996, approximately 41,863,000 shares of Common Stock would be distributed to
3M stockholders. The shares of Common Stock will be fully paid and nonassessable
and the holders thereof will not be entitled to preemptive rights. See
"DESCRIPTION OF COMPANY CAPITAL STOCK." Certificates representing shares of
Common Stock will be mailed to 3M stockholders on or about July 15, 1996.
No holder of 3M common stock will be required to pay any cash or other
consideration for the shares of Common Stock received in the Distribution or to
surrender or exchange shares of 3M common stock in order to receive shares of
Common Stock.
No certificates or scrip representing fractional shares of Common Stock will be
issued to 3M stockholders as part of the Distribution. The Distribution Agent
will aggregate fractional shares into whole shares and sell them in the open
market at then prevailing prices on behalf of holders who otherwise would be
entitled to receive fractional share interests, and such persons will receive
instead a cash payment in the amount of their pro rata shares of the total sale
proceeds (net of any commissions incurred in connection with such sales). Such
sales are expected to be made on, or as soon as practicable after, the
Distribution Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
3M has received a private letter ruling (the "Private Letter Ruling") from the
Internal Revenue Service (the "Service") substantially to the effect that, among
other things, the Distribution will qualify as a tax-free spin-off to 3M and its
stockholders under Section 355 of the Code. The following is a summary of the
material federal income tax consequences to 3M stockholders expected to result
from the Distribution:
1. A 3M stockholder will not recognize any income, gain or loss as a
result of the Distribution, except, as described below, in connection with
cash received in lieu of fractional shares of Common Stock.
2. A 3M stockholder will apportion his tax basis for his 3M common stock
on which Common Stock is distributed between his 3M common stock and the
Common Stock received in the Distribution (including any fractional shares
of Common Stock deemed received) in proportion to the relative fair market
values of such 3M common stock and Common Stock on the Distribution Date.
3. A 3M stockholder's holding period for the Common Stock received in the
Distribution will include the period during which such stockholder held the
3M common stock on which the Common Stock is distributed, provided that such
3M common stock is held as a capital asset by such stockholder as of the
Distribution Date.
4. A 3M stockholder who receives cash in lieu of a fractional share of
Common Stock as a result of the sale of such shares by the Distribution
Agent will be treated as if such fractional share had been received by the
stockholder as part of the Distribution and then sold by such stockholder.
Accordingly, such stockholder will recognize gain or loss equal to the
difference between the cash so received and the portion of the tax basis in
the Common Stock that is allocable to such fractional share. Such gain or
loss will be capital gain or loss, provided that such fractional share was
held by such stockholder as a capital asset at the time of the Distribution.
Current Treasury regulations require each 3M stockholder who receives Common
Stock pursuant to the Distribution to attach to his federal income tax return
for the year in which the Distribution occurs a detailed statement setting forth
such data as may be appropriate in order to show the applicability of Section
355 of the Code to the Distribution. 3M will convey the appropriate information
to each stockholder of record as of the Record Date.
The summary of federal income tax consequences set forth above is for general
information only and may not be applicable to stockholders who received their
shares of 3M common stock through the exercise of an employee stock option or
otherwise as compensation or who are not citizens or residents of the United
States or who are otherwise subject to special treatment under the Code. All
stockholders should consult their own tax advisors as to the particular tax
consequences of the Distribution to them, including the applicability and effect
of state, local and foreign tax laws.
LISTING AND TRADING OF THE COMMON STOCK
The shares of Common Stock have been approved for listing on the New York Stock
Exchange, Inc. ("NYSE") and the Chicago Stock Exchange, subject to official
notice of issuance, and will trade under the symbol "IMN." Initially the Company
is expected to have approximately 106,000 holders of record, based on the number
of stockholders of record of 3M on May 1, 1996.
A "when-issued" trading market is expected to develop on or about the Record
Date. The term "when-issued" means that shares can be traded prior to the time
certificates are actually available or issued. Prices at which the shares of
Common Stock may trade, on a "when-issued" basis or after the Distribution,
cannot be predicted. See "SPECIAL FACTORS -- Absence of Prior Trading Market for
the Common Stock."
The shares of Common Stock distributed to 3M stockholders will be freely
transferable, except for shares of Common Stock received by persons who may be
deemed to be "affiliates" of the Company under the Securities Act of 1933, as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
the Company after the Distribution generally include individuals or entities
that control, are controlled by, or are under common control with the Company
and may include the directors and principal executive officers of the Company as
well as any principal stockholder of the Company. Persons who are affiliates of
the Company will be permitted to sell their shares of Common Stock only pursuant
to an effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such as the exemptions
afforded by Section 4(2) of the Securities Act and Rule 144 thereunder.
SPECIAL FACTORS
ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY
The Company was formed for the purpose of effecting the Distribution and does
not have an operating history as an independent company. Accordingly, the
financial statements included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Transferred Businesses had
the Company been operated independently during the periods presented. In
addition, the financial information does not reflect many changes that will
occur in the operations of the Company as a result of the Company's strategic
reorganization (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Strategic Reorganization") and future business
strategies (See "BUSINESS AND PROPERTIES OF THE COMPANY -- Business Strategy").
The Company believes that these changes, when implemented, will have a
meaningful positive impact on the results of operations of the Company. However,
there can be no assurance as to the timing or amount of any positive impact
which may be realized.
CHANGING INDUSTRY ENVIRONMENT
The information processing industry involves the creation, capture,
manipulation, storage, production and distribution of information. As there is a
greatly expanding need to manage and store more complex information in less
time, with less resources and with greater accuracy, there is an increasing
emphasis in the marketplace on products using digital technology (See "BUSINESS
AND PROPERTIES OF THE COMPANY -- Industry Background").
While the Company has a number of successful digital products, the long-term
profitability of the Company will depend, in part, on the Company's ability to
anticipate the growing uses of digital technologies. The Company believes that
its leadership positions in a number of markets, its proprietary technologies
and its commitment to the development of innovative solution-based products are
factors which will contribute to the Company's ability to be successful. The
Company recognizes, however, that there are many factors beyond its control and
that no assurances can be given as to the Company's ability to anticipate and
satisfy the needs of this evolving marketplace.
TRANSITION TO INDEPENDENT PUBLIC COMPANY
Prior to the Distribution, the Transferred Businesses had the benefit of certain
3M trademarks and 3M's reputation in marketing their products. Pursuant to
agreements being entered into with 3M, the Company will continue to have the use
of certain 3M trademarks for an agreed upon period of time following the
Distribution. One of the challenges facing the Company will be to develop a name
and identity for itself independent of 3M. There can be no assurance that the
Company will be successful in this regard or that the loss of use of 3M
trademarks might not have an adverse effect on the business of the Company.
Prior to the Distribution, a number of services have been provided to the
Company by 3M. For a transition period following the Distribution, 3M will
continue to provide such services to the Company. See "RELATIONSHIP BETWEEN 3M
AND THE COMPANY AFTER THE DISTRIBUTION." However, during and after this
transitional period the Company will need to develop its own services and
support systems independent of 3M.
ABSENCE OF 3M FINANCIAL SUPPORT
Prior to the Distribution, the Transferred Businesses participated in 3M's
centralized funding and cash and foreign currency management. The capital
requirements of the Transferred Businesses in excess of their internally
generated funds were provided by 3M. 3M, and not the Transferred Businesses, was
responsible for obtaining any external financing required by the Transferred
Businesses. Although in the years 1993 and 1995, the Company provided cash to 3M
in excess of amounts required for capital expenditures and operating
requirements in the amounts of $13.1 million and $72.9 million respectively, in
1994, 3M provided financial support in the amount of $18.5 million to the
Company. See "HISTORICAL FINANCIAL STATEMENTS -- Historical Statements of Cash
Flows." This financial support will not be available to the Company following
the Distribution and the Company will be responsible for obtaining its own
financing and may experience a higher cost of capital. See "RELATIONSHIP BETWEEN
3M AND THE COMPANY AFTER THE DISTRIBUTION," "FINANCING" and "SPECIAL FACTORS --
Transition to Independent Public Company."
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors are both larger and smaller than the Company in terms of resources
and market shares. The marketplaces in which the Company operates are generally
characterized by strong unit growth, rapid technological change, evolution to
digital business solutions, and declining prices. In these highly competitive
markets, the Company must compete on the basis of understanding customer needs,
lower costs, introduction of new products and strong digital technology.
Although the Company believes that it can take the necessary steps to meet the
competitive challenges of these marketplaces, no assurance can be given with
regard to the Company's ability to take these steps, the actions of competitors,
some of which will have greater resources than the Company, or the pace of
technological changes. See "BUSINESS AND PROPERTIES OF THE COMPANY --
Competition."
INTERNATIONAL OPERATIONS
The Company does business in approximately 60 countries outside of the United
States, most significantly Italy, the United Kingdom, France and Germany.
International operations, which comprised approximately 50% of the Company's
revenues in 1995, may be subject to various risks which are not present in
domestic operations, including political instability, the possibility of
expropriation, restrictions on royalties, dividends and currency remittances,
volatility of exchange rates of foreign currencies, local government involvement
required for operational changes within the Company, requirements for
governmental approvals for new ventures and local participation in operations
such as local equity ownership and workers' councils.
ABSENCE OF PRIOR TRADING MARKET FOR THE COMMON STOCK
There has not been any established public market for the trading of the
Company's Common Stock, although it is expected that a "when-issued" trading
market will develop on or about the Record Date. The shares of Common Stock have
been approved for listing on the NYSE and the Chicago Stock Exchange, subject to
official notice of issuance. However, there can be no assurance as to the prices
at which the Common Stock will trade before or after the Distribution Date.
Until the Common Stock is fully distributed and an orderly market develops, the
prices at which shares trade may fluctuate significantly. Prices for shares of
Common Stock will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for the shares,
investor perception of the Company and the industry in which the Company
participates and general economic and market conditions.
COMMON STOCK DIVIDEND POLICY
The payment and amount of cash dividends on the Common Stock after the
Distribution will be subject to the discretion of the Company's Board of
Directors. The Company's dividend policy will be reviewed by the Company's Board
of Directors at such future times as may be appropriate, and payment of
dividends on the Company's Common Stock will depend upon the Company's financial
position, capital requirements, profitability and such other factors as the
Company's Board of Directors deems relevant.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws (the "By-Laws"), including
provisions classifying the board of directors, prohibiting stockholder action by
written consent, governing business transactions with certain stockholders and
requiring advance notice for nomination of directors and stockholder proposals,
may inhibit changes in control of the Company not approved by the Company's
Board of Directors. In addition, preferred stock purchase rights which will
attach to the Common Stock would have similar effects. See "PURPOSES AND EFFECTS
OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS -- Rights
Agreement." Such Certificate of Incorporation and By-law provisions and
preferred stock purchase rights could diminish the opportunities for a
stockholder to participate in certain tender offers, including tender offers at
prices above the then-current market value of the Common Stock, and may also
inhibit fluctuations in the market price of the Common Stock that could result
from takeover attempts. See "PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS." In addition, the Company's Board of
Directors, without further stockholder approval, may issue preferred stock that
could have the effect of delaying, deterring or preventing a change in control
of the Company. The issuance of preferred stock could also adversely affect the
voting power of the holders of the Common Stock, including the loss of voting
control to others. The Company has no present plans to issue any preferred
stock. See "DESCRIPTION OF COMPANY CAPITAL STOCK -- Preferred Stock." Certain
agreements pursuant to which 3M is transferring to the Company rights with
respect to certain patents, trademarks, know-how and other intellectual property
provide that 3M may terminate some or all of such rights in the event that
control of the Company is acquired by an entity which may result in
substantially enhanced competition to a significant business of 3M. As a result,
these provisions may inhibit a change in control of the Company. In addition,
there can be no assurance that the loss of such intellectual property rights
following a change of control would not have a material adverse effect on the
Company's business. Such agreements, the provisions of the Certificate of
Incorporation and By-laws and the preferred stock rights may have the effect of
discouraging or preventing an acquisition of the Company or a disposition of
certain of the Company's businesses.
RELATIONSHIP BETWEEN 3M AND THE COMPANY
AFTER THE DISTRIBUTION
For purposes of an orderly transfer on the Distribution Date of the Transferred
Businesses to the Company and an orderly transition to the status of two
separate independent companies, 3M and the Company have entered or will enter
into various agreements and relationships, including those described in this
section. These agreements are generally intended to be on an arms-length basis.
The forms of agreements summarized in this section are included as exhibits to
the Registration Statement of which this Information Statement forms a part, and
the following summaries are qualified in their entirety by reference to the
agreements as filed.
xxx
DISTRIBUTION AGREEMENT
3M and the Company have entered into the Distribution Agreement, which provides
for, among other things, the principal corporate transactions required to effect
the Distribution, the transfer to the Company of the Transferred Businesses, the
division between 3M and the Company of certain liabilities and certain other
agreements governing the relationship between 3M and the Company following the
Distribution.
The Distribution Agreement generally provides for the transfer by 3M to the
Company or Imation Enterprises Corp. ("Enterprises"), which will be a wholly
owned subsidiary of the Company immediately following the Distribution, of the
assets used in the Transferred Businesses on an "as is and where is" basis, and
for the assumption by the Company or Enterprises of substantially all of the
liabilities relating to the Transferred Businesses. In particular, approximately
one-half of the domestic manufacturing operations of the Transferred Businesses,
as well as research and development, administrative and corporate staff
functions and the capital stock of Enterprises and certain foreign subsidiaries
of 3M, will be transferred to the Company together with substantially all assets
and liabilities associated therewith. The remaining manufacturing operations and
all marketing, field logistical and service operations will be transferred to
Enterprises, together with primarily all assets and liabilities related to such
operations. Substantially all the assets of the Transferred Businesses will be
transferred to the Company as a contribution to capital, except for certain
assets related to non-U.S. operations which will be purchased by the Company.
The assets relating to non-U.S. operations will generally be transferred to
subsidiaries of the Company around the world, either as a contribution to
capital or through a sale of assets at book value. Generally, such subsidiaries
will carry on the sales, service and marketing functions of the Transferred
Businesses outside the United States, except that manufacturing operations will
be conducted by the Company's subsidiaries in Italy and Argentina. In addition,
in most countries outside the U.S., trade accounts receivable and accounts
payable will be retained by 3M and 3M will pay to the Company following the
Distribution an amount corresponding to the amount by which such receivables
exceed such payables. See "PRO FORMA FINANCIAL STATEMENTS."
The Distribution Agreement provides that in the event that it is not feasible to
effect the transfers of non-U.S. operations on or prior to the Distribution Date
in any particular country, 3M and the Company will continue, following the
Distribution Date, their respective efforts to have such transfers and payments
effected as promptly as practicable following the Distribution Date or, if the
Company and 3M determine that such transfers are not capable of being effected
on a timely basis, enter into such other arrangements as are mutually agreed
upon which are intended to enable the Company to operate in such country on a
basis similar to that being conducted by 3M with respect to the Transferred
Businesses. Pending consummation of any such transfers, the Company and 3M shall
enter into such arrangements as may be necessary to enable 3M to continue to
conduct the Transferred Businesses. Following completion of each such transfer,
either 3M shall pay to the Company an amount equal to the net profits realized
after the Distribution Date with respect to these operations or the Company
shall pay to 3M an amount equal to any net losses incurred by 3M after the
Distribution Date with respect to these operations, as the case may be.
The Distribution Agreement also contains certain provisions relating to employee
compensation, benefits and labor matters and the treatment of options to
purchase and awards with respect to 3M common stock held by employees of 3M who
are becoming employees of the Company. Among other things, these provisions
apply to the discharge by the Company of liabilities and obligations relating to
employees of the Transferred Businesses.
The Distribution Agreement further provides that 3M and the Company shall each
be granted access to certain records and information in the possession of the
other, and requires the retention by each of 3M and the Company following the
Distribution Date of all such information in its possession in accordance with
existing document retention policies.
The Distribution Agreement provides that, except as otherwise set forth therein
or in any related agreement, 3M and the Company will pay their own costs and
expenses in connection with the Distribution.
TAX SHARING AND INDEMNIFICATION AGREEMENT
3M and the Company have entered into a Tax Sharing and Indemnification Agreement
(the "Tax Sharing Agreement"), providing for their respective obligations
concerning various tax liabilities. The Tax Sharing Agreement provides that 3M
shall pay, and indemnify the Company if necessary, with respect to all federal,
state, local and foreign income taxes relating to the Transferred Businesses for
any taxable period ending on or before the Distribution Date except that the
Company shall indemnify 3M for any income taxes arising out of the failure of
the Distribution or any of the transactions related to it to qualify as tax free
as a result of certain actions taken by the Company or any of its subsidiaries.
3M has also generally agreed to pay all other taxes (other than those which are
imposed solely on the Company) that are payable in connection with the
Distribution and the transactions related to it the liability for which arises
on or before the Distribution Date. The Tax Sharing Agreement further provides
for cooperation with respect to certain tax matters, the exchange of information
and the retention of records which may affect the income tax liability of either
party.
CORPORATE SERVICES TRANSITION AGREEMENT
3M and the Company have entered into a Corporate Services Transition Agreement
(the "Corporate Services Agreement") pursuant to which 3M has agreed to provide
to the Company certain services, including engineering and environmental
services, logistics and information technology services, financial services,
human resources administration services and tax, insurance, treasury, and
employee benefits administration, which 3M historically has provided to the
Transferred Businesses. The length of time that 3M will provide such services
and the amount that the Company will pay for such services varies based on the
type of service. Generally, no services are expected to be provided beyond two
years following the Distribution Date, and after such time the Company expects
to provide such services on its own behalf. The Corporate Services Agreement is
terminable by each party upon 90 days notice, provided that 3M is not permitted
to terminate certain specified services, which the parties have determined will
require a longer period to replace. The cost associated with the services to be
provided by 3M will be either a fixed dollar amount based on the estimated cost
of the services to be provided, or an amount to be determined pursuant to a
formula based on the services actually provided. Any services required by the
Company beyond the first year will be based on costs incurred plus an 8%
mark-up.
Certain foreign subsidiaries of the Company and 3M have entered or will enter
into corporate services agreements pursuant to which 3M will provide to such
subsidiaries services similar to those to be provided to the Company pursuant to
the Corporate Services Agreement.
ENVIRONMENTAL MATTERS AGREEMENT
3M and the Company have entered into an Environmental Matters Agreement (the
"Environmental Matters Agreement") providing for their respective obligations
concerning environmental liabilities arising out of the operation of the
premises of the Transferred Businesses and other environmental matters.
Under the Environmental Matters Agreement, the Company will assume and indemnify
3M for all liabilities relating to, arising out of or resulting from (i)
operations at the Company's facilities as conducted before the Closing Date;
(ii) the disposal of hazardous materials, from the Company's facilities, before
the Distribution Date, at disposal sites operated by third parties ("Superfund
Sites"), where such liabilities are discovered after the Distribution Date; or
(iii) operations of the Transferred Businesses on and after the Distribution
Date. 3M has agreed to retain responsibility for environmental liabilities
relating to former premises which may have been associated with the Transferred
Businesses, and known Superfund sites associated with the current properties of
the Transferred Businesses. See "BUSINESS AND PROPERTIES OF THE COMPANY --
Environmental Matters."
As of March 31, 1996 the Company had reserved approximately $6.5 million with
respect to environmental liabilities.
INTELLECTUAL PROPERTY AGREEMENT
3M and the Company have entered into an Intellectual Property Rights Agreement
(the "Intellectual Property Agreement") pursuant to which 3M will grant to the
Company, effective as of the Distribution Date, rights to use certain
intellectual property (such as patent rights, copyrights, mask work rights and
proprietary information) exclusively in the fields of use in which the
Transferred Businesses presently operate and non-exclusively in certain other
fields. In addition, 3M is transferring to the Company title to certain
intellectual property rights used by the Transferred Businesses, subject to
certain rights which 3M will have to continue to use such intellectual property
rights. The Intellectual Property Agreement further provides for cross licensing
of certain future intellectual property developed during a transition period. In
addition, for various transition periods specified in the Intellectual Property
Agreement, the Company will be granted the right to use certain 3M trademarks
under a royalty-bearing license. Trademarks used only by the Transferred
Businesses will be assigned to the Company.
The Intellectual Property Agreement provides that the costs associated with the
procurement and maintenance of patents and trademarks licensed to either party
by the other under the Intellectual Property Agreement will be the
responsibility of the party owning the particular patent or trademark. However,
with respect to patents, either party may designate a patent or patent
application under which it is licensed by the other party to be of "common
interest." The licensed party is granted certain rights to participate in
decisions involving such common interest patents and patent applications, and
the costs thereof are shared by the parties. The costs of enforcing licensed
patents against an infringer will be borne by the party instituting the lawsuit
unless the parties agree otherwise. For jointly-owned patents, enforcement costs
are shared if both parties desire to participate. The licensed party's
enforcement of patents requires prior approval by the party owning the patent.
With the exception of licensed trademark rights, no royalties or fees are
payable by the Company to 3M for the assignment and license of intellectual
property to the Company under the Intellectual Property Agreement. With respect
to licensed trademarks, the Company will pay a reasonable royalty through cash
payments, commitments to purchase product from 3M and/or engaging in certain
other activities benefiting 3M.
The parties will cross-license each other under certain patents and proprietary
information developed by each party during the two year period following the
Distribution Date. The cross-licenses are royalty-free and generally of the same
scope (i.e., exclusive or non-exclusive in defined fields) as the licenses
granted to and retained by the Company and 3M, respectively, under the patents
and proprietary information existing at the time of the Distribution.
The Company and 3M will enter into joint development agreements pursuant to
which the parties will assist each other in the development of new products
after the Distribution Date. The relationship between the parties under the
agreements will vary from simple purchased research to shared product
development.
3M and the Company have agreed not to compete with each other in their
respective businesses for a period of five years following the Distribution
Date. 3M agrees that, except for ancillary activity involving an insubstantial
business, it will not compete directly or indirectly in the Company's Exclusive
Fields (which, as defined in the Intellectual Property Agreement are generally
the fields of business in which the Company is presently engaged). The Company
agrees that, except for ancillary activity involving an insubstantial business,
it will not compete, directly or indirectly in the 3M Business Fields (which, as
defined in the Intellectual Property Agreement, are generally the fields of
business in which 3M is presently engaged). However, this provision does not
preclude the Company from indirect activity, outside of the 3M Reserved Fields
(which, as defined in the Intellectual Property Agreement, are generally fields
closely related to the Company's Exclusive Fields where 3M has retained
exclusive rights), involving working with a third party on that party's imaging
and electronic information processing needs, internal or external, as long as
the activity does not benefit, in more than an ancillary way, a product or
service of the third party which competes with a product or service in the 3M
Business Fields.
SUPPLY, SERVICE, CONTRACT MANUFACTURING AND SALES AGENCY AGREEMENTS
3M and the Company have entered into various product and service supply
agreements (the "Supply Agreements") providing for the supply by 3M to the
Company and by the Company to 3M, of certain products and services. Under the
Supply Agreements, 3M will supply to the Company certain raw material and
intermediate products including film, specialty chemicals and abrasives and will
provide to the Company certain contract manufacturing services, primarily
equipment assembly services. The cost of all such products and services supplied
by 3M to the Company during 1995 totaled approximately $103 million. Under the
Supply Agreements, the Company will supply to 3M certain semi-finished products
and components and will provide to 3M certain contract manufacturing and other
services, including converting, slitting and coating services and technical
field service. The cost of all such products and services supplied by the
Company to 3M during 1995 totaled approximately $41 million. The prices for
products supplied by either party under the Supply Agreements will be based on
the cost of supplying such product plus a 5% mark-up in 1996, a 10% mark-up in
1997 and a 15% mark-up in 1998 and thereafter. The prices paid for contract
manufacturing services provided by either party vary depending on the services
provided but generally will be based on costs incurred plus an 8% mark-up. 3M
and the Company have also entered into a sales agency agreement providing for
the appointment of 3M as a sales agent for certain finished products supplied by
the Company in return for the payment of a commission for orders taken for the
Company's products. The Company expects to pay commissions to 3M for sales
agency services of approximately $1.3 million during the last six months of
1996.
SHARED FACILITY AND LEASE AGREEMENTS
3M and the Company have entered into various lease agreements with respect to
certain facilities (the "Shared Facility Agreements") at which 3M and the
Company will continue to share space. With respect to each of these facilities,
the party that will be the owner (or primary tenant) of the facility will lease
to the other party a portion of the facility so as to enable the other party to
conduct operations at such facility.
The form of lease to be entered into by 3M and the Company provides for the
payment of rent in an amount approximating the standard recharge rate used by
the lessor with respect to internal uses of such facilities. The leases
generally provide for a two year term, in some cases with an option to extend
for an additional two years. It is expected that 3M will pay to the Company
approximately $455,000 and that the Company will pay approximately $11.4 million
to 3M in the first year following the Distribution with respect to Shared
Facility Agreements.
Each of 3M and the Company believes that the properties it will own or have a
leasehold interest in following the Distribution will be adequate for its
business following the Distribution. Over the next two years, the Company
anticipates building new facilities at the site of its corporate headquarters so
as to consolidate its headquarters operations.
FINANCING
The Company has obtained a commitment letter dated June 10, 1996, from Citibank,
N.A., to provide, or arrange for a group of lenders to provide, a $350 million
five-year, revolving credit facility (the "Revolving Credit Facility") to the
Company which will be used primarily to refinance certain existing debt, to
finance the Company's purchase of certain assets from 3M related to the
Company's non-U.S. operations, to fund certain accrued employee benefits and
certain loans to the Company's employee stock ownership plan and to fund working
capital and other general corporate needs of the Company and its subsidiaries
following the Distribution. A definitive credit agreement containing the terms
described below will be executed prior to the Distribution Date.
Loans obtained under the Revolving Credit Facility are expected to bear
interest, at the election of the Company, at (i) a fluctuating rate equal to the
the highest of (a) Citibank N.A.'s publicly announced "base" rate, (b) the
latest three-week moving average of secondary market morning offering rates for
three-month certificates of deposit plus -1/2 of 1% and (c) the Federal funds
rate plus -1/2 of 1%, in each case plus an applicable margin or (ii) a periodic
fixed rate equal to the London Interbank Offered Rate plus an applicable margin,
in either case with the applicable margin varying based on a pricing grid tied
to the Company's financial performance or, if and when obtained, the ratings on
the Company's long-term senior unsecured indebtedness. The Company will also pay
a facility fee on the entire amount of the Revolving Credit Facility in effect
from time to time at a per annum rate that will vary depending on the same
criteria used to determine the applicable margin. The Revolving Credit Facility
is also expected to contain, among other terms, conditions precedent, covenants,
mandatory prepayment provisions and events of default customary for facilities
of this type. Such covenants may relate to limitations on the incurrence of
indebtedness, mergers and consolidations involving the Company, certain sales of
assets, the creation of liens and maintenance of financial ratios (including an
adjusted interest coverage ratio, a total capitalization ratio, and a minimum
consolidated tangible net worth). In addition to the facility fee described
above, the Company expects to pay certain other customary fees in connection
with the Revolving Credit Facility.
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of the
Company at March 31, 1996. This data should be read in conjunction with the pro
forma balance sheet and the introduction to the pro forma financial statements
appearing elsewhere in this Information Statement. The pro forma information may
not reflect the capitalization of the Company in the future or as it would have
been had the Company been a separate, independent company on March 31, 1996.
Assumptions regarding the number of shares of the Company's Common Stock may not
reflect the actual numbers at the Effective Date. See "PRO FORMA FINANCIAL
STATEMENTS."
IMATION CORP.
PRO FORMA CAPITALIZATION TABLE
AS OF MARCH 31, 1996
(DOLLARS IN MILLIONS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
Long-term debt $ 250.0 (a) $ 280.0
30.0 (b)
Equity
Net investment by 3M $1,121.7 (150.1)(c) --
(20.3)(d)
0.3 (e)
(951.6)(f)
Common stock 0.4 (f) 0.4
Additional paid in
capital 951.2 (f) 951.2
Unearned ESOP shares (30.0)(b) (30.0)
-------- ------- --------
Total equity 1,121.7 (200.1) 921.6
-------- ------- --------
Total capitalization $1,121.7 $ 79.9 $1,201.6
======== ======= ========
NOTES TO PRO FORMA CAPITALIZATION TABLE
(a) Reflects an estimated $250 million of debt the Company expects to incur for
general corporate purposes on or shortly after the Distribution Date.
Approximately $150.1 million of the $250 million to be borrowed will be used at
the time of the Distribution to purchase from 3M certain assets located outside
the United States where spin-off transactions will not be consummated and to
repay intercompany indebtedness being assumed by the Company in connection with
the Distribution, and approximately $26.9 million will be used to pay certain
accrued employee benefits.
(b) Reflects funds borrowed by the Company and on-lent to the ESOP and the
adjustment to the Company's equity resulting from the purchase of outstanding
shares of Common Stock by the ESOP which have not been earned by ESOP
participants and allocated to their respective accounts.
(c) Reflects the net payment to 3M of an estimated $150.1 million to purchase
certain assets located outside the United States where spinoff transactions will
not be consummated and to repay intercompany indebtedness being assumed by the
Company in connection with the Distribution.
(d) Represents a valuation allowance necessary to reflect deferred tax assets at
their estimated realizable value on a purely separate return basis.
(e) Reflects the net deferred tax assets to be realized by 3M upon the
Company's purchase of certain assets outside the United States (see Note
(c)).
(f) Reflects the issuance of an estimated 42 million shares of common stock, par
value $.01 per share, as of July 1, 1996. This is based on 3M's common stock
outstanding at March 31, 1996 of 418.6 million shares and an assumed
distribution of one share of the Company's common stock for every ten shares of
3M common stock outstanding. Additional paid in capital represents the excess of
the historical carrying values of the Company's net assets at the Distribution
Date over the amount reflected as Common Stock.
PRO FORMA FINANCIAL STATEMENTS
The Company was formed by 3M for the purpose of effecting the Distribution and
has no operating history as a separate, independent company. The historical
financial statements of the Company reflect periods during which the Company did
not operate as a separate, independent company, and certain assumptions were
made in preparing such financial statements. Therefore, such historical
financial statements may not reflect the results of operations or financial
position that would have existed had the Company been a separate, independent
company.
The following pro forma financial statements of the Company make adjustments to
the historical (unaudited) balance sheet at March 31, 1996 and the historical
statements of operations for the year ended December 31, 1995, and the three
months ended March 31, 1996 (unaudited) as if the Distribution had occurred on
March 31, 1996 for purposes of the pro forma balance sheet and January 1, 1995
for purposes of the pro forma statements of operations.
THE PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY SHOULD BE READ IN CONJUNCTION
WITH THE HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
CONTAINED ELSEWHERE IN THIS INFORMATION STATEMENT. THE PRO FORMA FINANCIAL
INFORMATION IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND MAY NOT REFLECT THE
FUTURE RESULTS OF OPERATIONS OR FINANCIAL POSITION OF THE COMPANY OR WHAT THE
RESULTS OF OPERATIONS OR FINANCIAL POSITION WOULD HAVE BEEN HAD THE COMPANY'S
BUSINESSES BEEN OPERATED AS A SEPARATE, INDEPENDENT COMPANY.
The pro forma financial statements assume the completion of the transactions
contemplated by the Distribution Agreement and the agreements to be entered into
pursuant to the Distribution Agreement, including the completion of all the
asset transfers and contract assignments contemplated thereby. Although it is
possible that certain asset transfers relating to the Company's operations
outside the United States may not be completed prior to the Distribution Date,
the Distribution Agreement provides that the economic benefits or costs relating
to such assets following the Distribution will be for the Company's account. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Distribution
Agreement." Assumptions regarding the number of shares of the Company's Common
Stock may not reflect the actual numbers at the Distribution Date.
IMATION CORP.
PRO FORMA STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 YEAR ENDED DECEMBER 31, 1995
------------------------------------------ -----------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $576.1 $576.1 $2,245.6 $2,245.6
Cost of goods sold 373.8 373.8 1,520.9 1,520.9
------ ----- ------ -------- ------ --------
Gross profit 202.3 -- 202.3 724.7 -- 724.7
Operating expenses:
Selling, general and
administrative 130.7 130.7 539.4 539.4
Research and development 47.9 47.9 222.4 222.4
Restructuring charges 10.4 10.4 111.8 111.8
------ ----- ------ -------- ------ --------
Total 189.0 -- 189.0 873.6 -- 873.6
------ ----- ------ -------- ------ --------
Operating income (loss) 13.3 -- 13.3 (148.9) -- (148.9)
Interest expense and other 3.2 0.4 (a) 3.6 17.9 1.5 (a) 19.4
------ ----- ------ -------- ------ --------
Income (loss) before taxes and
minority interest 10.1 (0.4) 9.7 (d) (166.8) (1.5) (168.3) (d)
Income tax provision (benefit) 4.1 (0.2)(b) 4.5 (70.5) (0.6)(b) (48.1)
0.6 (c) 23.0 (c)
Minority interest (0.1) (0.3)(c)(f) (0.4) (11.3) (11.5)(c)(f) (22.8)
------ ----- ------ -------- ------ --------
Net income (loss) $ 6.1 $(0.5) $ 5.6 (d) $ (85.0) $(12.4) $ (97.4) (d)
====== ===== ====== ======== ====== ========
Net income (loss) per share $ 0.13 (e) $ (2.32) (e)
======= =========
</TABLE>
The accompanying notes are an integral part of this statement.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(a) Represents an adjustment of the allocation of 3M's interest expense to
reflect an estimate of the weighted average interest rate the Company would have
experienced during the periods presented. The interest rates used were 8.1% in
1995 and 7.3% in first quarter, 1996. These rates represent 3M's historical
weighted average rates during these periods as adjusted to reflect the higher
cost of borrowing the Company expects to incur on a stand-alone basis. The
interest calculation is based on the Company's estimated non-ESOP debt level
expected on or shortly after the Distribution of $250 million.
(b) Reflects the adjustment to income tax provision (benefit) associated with
the change in interest expense described in Note (a).
(c) Represents an adjustment to the income tax provision (benefit) to reflect
a valuation allowance for deferred tax assets on a purely separate return
basis and the resulting impact on minority interest.
(d) Restructuring charges reduced pro forma results for the three months ended
March 31, 1996 by $10.4 million before taxes and minority interest and $6.1
million after taxes and minority interest. Pro forma net income for the three
months ended March 31, 1996 would have been $11.7 million, or $.28 per share
excluding these charges. Restructuring charges and asset write-offs reduced 1995
pro forma results by $166.3 million before taxes and minority interest and $97.8
million after taxes and minority interest. 1995 pro forma net income excluding
these charges would have been $0.4 million, or $.01 per share.
(e) Represents the net income (loss) per share on an assumed approximately 42
million shares of the Company's common stock outstanding. This is based on 3M's
weighted average number of shares outstanding during first quarter, 1996 of
418.5 million shares and full year 1995 of 419.8 million shares and an assumed
distribution of one share of the Company's stock for every ten shares of 3M
common stock outstanding.
(f) The historical and pro forma statements of operations reflect minority
interests in Japan and Korea since the Company's operations in such countries
are presently conducted by 3M through joint ventures in which third parties have
minority interests. The Company has an agreement in principle with 3M's joint
venture partners in Japan providing for an aggregate minority interest following
the Distribution equal to 40%. Accordingly, the Company expects its future
statements of operations to continue to reflect minority interests in Japan. In
Korea, the Company presently does not expect to have a minority interest
partner, however the transfer of the Korean operations to the Company is subject
to the approval of 3M's joint venture partner. If this approval is not obtained,
3M and the Company will be required to enter into arrangements which enable the
Company to operate in Korea on a basis similar to that being conducted by 3M.
See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION --
Distribution Agreement." The Company does not believe that the expected future
minority interest in Japan or a failure to effect the transfer in Korea would
have a material adverse effect on the financial position or results of the
Company.
IMATION CORP.
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
(IN MILLIONS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
ASSETS
Current Assets
Cash and equivalents $ 250.0 (a) $ 73.0
(26.9)(b)
(150.1)(c)
Accounts receivable -- net $ 472.2 -- (d) 472.2
Inventories 420.1 420.1
Other current assets 48.1 (1.5)(e) 44.2
(2.4)(f)
-------- ------- --------
Total current assets 940.4 69.1 1,009.5
Property, Plant and Equipment -- net 503.9 503.9
Other Assets 75.7 (18.8)(e) 56.9
-------- ------- --------
Total assets $1,520.0 $ 50.3 $1,570.3
======== ======= ========
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 117.0 -- (d) $ 117.0
Accrued payroll 52.8 52.8
Other current liabilities 137.2 (17.2)(b) 118.7
(1.3)(f)
-------- ------- --------
Total current liabilities 307.0 (18.5) 288.5
Other Liabilities 91.3 (9.7)(b) 80.2
(1.4)(f)
Long-Term Debt 250.0 (a) 280.0
30.0 (g)
Equity
Net investment by 3M 1,121.7 (150.1)(c) --
(20.3)(e)
0.3 (f)
(951.6)(h)
Common stock 0.4 (h) 0.4
Additional paid in capital 951.2 (h) 951.2
Unearned ESOP shares (30.0)(g) (30.0)
-------- ------- --------
Total equity 1,121.7 (200.1)(i) 921.6
-------- ------- --------
Total liabilities and equity $1,520.0 $ 50.3 $1,570.3
======== ======= ========
The accompanying notes are an integral part of this statement.
NOTES TO PRO FORMA BALANCE SHEET
(a) Reflects an estimated $250 million of debt the Company expects to incur for
general corporate purposes on or shortly after the Distribution Date.
Approximately $150.1 million of the $250 million to be borrowed will be used at
the time of the Distribution to purchase from 3M certain assets located outside
the United States where spin-off transactions will not be consummated and to
repay intercompany indebtedness being assumed by the Company in connection with
the Distribution, and approximately $26.9 million will be used to pay certain
accrued employee benefits.
(b) Reflects the payment shortly after the Distribution Date of an estimated
$26.9 million to pay certain accrued employee benefits, including approximately
$17.2 million of current liabilities and approximately $9.7 million of other
liabilities.
(c) Reflects the net payment to 3M of an estimated $150.1 million to purchase
certain assets located outside the United States where spin-off transactions
will not be consummated and to repay intercompany indebtedness being assumed by
the Company in connection with the Distribution.
(d) To provide a more accurate reflection of future financial statements, the
pro forma financial statements do not give effect to the retention by 3M of
certain trade receivables and payables outside the United States and the
agreement by 3M to pay to the Company following the Distribution an amount
corresponding to the amount by which such receivables exceed such payables.
(See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION --
Distribution Agreement.")
(e) Represents a valuation allowance necessary to reflect deferred tax assets at
their estimated realizable value on a purely separate return basis.
(f) Reflects the net deferred tax assets to be realized by 3M upon the Company's
purchase of certain assets outside the United States (see Note (c)).
(g) Reflects funds borrowed by the Company and on-lent to the ESOP and the
adjustment to the Company's equity resulting from the purchase of outstanding
shares of Common Stock by the ESOP which have not been earned by ESOP
participants and allocated to their respective accounts.
(h) Reflects the issuance of an estimated 42 million shares of common stock, par
value $.01 per share, as of July 1, 1996. This is based on 3M's common stock
outstanding at March 31, 1996 of 418.6 million shares and an assumed
distribution of one share of the Company's common stock for every ten shares of
3M common stock outstanding. Additional paid in capital represents the excess of
the historical carrying values of the Company's net assets at the Distribution
Date over the amount reflected as Common Stock.
(i) No minority interest has been reflected in the historical or pro forma
balance sheets. While the Company's operations in Japan and Korea are presently
conducted by 3M through joint ventures in which the third parties own minority
interests, the Company does not expect to have any minority interest partners as
of the Distribution Date. The Company does, however, have an agreement in
principle with 3M's joint venture partners in Japan providing for an aggregate
minority interest following the Distribution equal to 40%. Accordingly, the
Company expects its future balance sheets to reflect minority interests in
Japan. In Korea, the transfer of the operations to the Company is subject to the
approval of 3M's joint venture partner. If this approval is not obtained, 3M and
the Company will be required to enter into arrangements which enable the Company
to operate in Korea on a basis similar to that being conducted by 3M. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Distribution
Agreement." The Company does not believe that the expected future minority
interest in Japan or a failure to effect the transfer in Korea would have a
material adverse effect on the financial position or results of the Company.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of the Company should be read
in conjunction with the historical financial statements and notes thereto
included elsewhere in this Information Statement. This selected historical
financial data relates to the Transferred Businesses as they were operated as
part of 3M. They also include an allocation of certain general corporate
expenses of 3M which were not directly related to these businesses. The
following selected historical financial data are derived from the historical
financial statements of the Company. The selected historical financial data that
relate to the three year period ended December 31, 1995 have been derived from
the historical financial statements audited by Coopers & Lybrand L.L.P.,
independent public accountants. The selected historical financial data for the
three month periods ended March 31, 1996 and 1995 and for the two year period
ended December 31, 1992 have been derived from unaudited historical financial
statements. In the opinion of management, the unaudited historical financial
statements reflect all adjustments, consisting of normal adjustments, necessary
to present fairly the financial position of the Company at March 31, 1996 and
the results of operations and cash flows for the three month periods ended March
31, 1996 and 1995 and its financial position at December 31, 1992 and 1991 and
the results of operations and cash flows for the years then ended. The
historical financial data of the Company may not reflect the results of
operations or financial position that would have been obtained had the Company
been a separate, independent company. The results of operations for the three
month period ended March 31, 1996 should not necessarily be taken as indicative
of the results of operations that may be expected for the entire year 1996.
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------------------
1996* 1995 1995** 1994 1993 1992 1991
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $ 576.1 $576.7 $2,245.6 $2,280.5 $2,307.8 $2,350.0 $2,319.0
Gross profit 202.3 212.5 724.7 838.5 886.2 885.0 911.0
Selling, general and
administrative expense 130.7 137.9 539.4 531.5 529.0 542.0 525.0
Research and development 47.9 56.4 222.4 211.2 216.7 181.0 174.0
Operating income (loss) 13.3 18.2 (148.9) 95.8 140.5 162.0 212.0
Income (loss) before tax and
minority interest 10.1 13.0 (166.8) 81.3 127.4 142.0 187.0
Net income (loss) 6.1 7.5 (85.0) 54.3 75.3 94.0 119.0
Balance Sheet Data (as of end of period):
Total working capital 633.4 658.4 714.0 618.4 608.1 606.7
Property, plant and equipment --
net 503.9 513.2 654.9 642.2 618.5 607.6
Total assets 1,520.0 1,541.5 1,671.7 1,545.6 1,533.9 1,514.7
Total liabilities 398.3 392.8 371.7 345.8 361.7 341.4
Total equity 1,121.7 1,148.7 1,300.0 1,199.8 1,172.2 1,173.3
</TABLE>
* Restructuring charges reduced results for the three months ended March
31, 1996 by $10.4 million before taxes and minority interest and $6.1
million after taxes and minority interest. Net income for the three
months ended March 31, 1996 excluding these charges would have been
$12.2 million. These charges relate to costs for certain employee
separation programs.
** Restructuring charges and asset write-offs reduced 1995 results by
$166.3 million before taxes and minority interest and $88.3 million
after taxes and minority interest. 1995 net income excluding these
charges would have been $3.3 million. The majority of these charges
related to the write-down of property, plant and equipment.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is based upon the separate historical financial statements
of the Company, which present the Company's results of operations, financial
position and cash flows. These historical financial statements include the
assets, liabilities, income and expenses that were directly related to the
Transferred Businesses as they were operated within 3M. In the case of assets
and liabilities not specifically identifiable to any particular business of 3M,
only those assets and liabilities expected to be owned by the Company after the
Distribution were included in the Company's separate balance sheets. Regardless
of the allocation of these assets and liabilities, however, the Company's
statement of operations includes all of the related costs of doing business,
including charges for the use of facilities and for employee benefits, and
include an allocation of certain general corporate expenses of 3M which were not
directly related to these businesses including costs for corporate logistics,
corporate research and development, information technologies, finance, legal and
corporate executives. These allocations were based on a number of factors
including, for example, personnel, space, time and effort, and sales volume.
Management believes these allocations as well as the assumptions underlying the
development of the Company's separate financial statements to be reasonable.
The financial information included herein, however, may not necessarily reflect
the results of operations, financial position and cash flows of the Company as
it will operate in the future or what the results of operations, financial
position and cash flows would have been had the Company been a separate,
stand-alone entity during the periods presented. This is due, in part, to the
historical operation of the Company as an integral part of the larger 3M. The
historical financial information included herein also does not reflect the
changes that will occur in the operations of the Company following the
Distribution.
STRATEGIC REORGANIZATION
The Company historically has operated as part of 3M. Following the Distribution,
the Company will be a stand-alone entity with objectives and strategies separate
from those of 3M. The Company will focus on providing solution-based products
and systems to customers in the information processing industry. In late 1995,
the Company initiated a review of all of its operations, including its
organizational structure, manufacturing operations, products and markets, with
the goal of maximizing its cash flows and improving net income. In connection
with this review, the Company has adopted a reorganization plan to rationalize
its manufacturing operations, streamline its organizational structure and write
off impaired assets.
To reflect the direct and indirect costs associated with this reorganization
plan, 3M recognized a loss on disposal which included pre-tax charges of
approximately $340 million in the fourth quarter of 1995 as a part of its
discontinued operations charges. The Company will reflect the direct portion of
these charges, approximately $250 million, in its separate financial statements
partially in 1995 and partially in 1996 based upon the timing of recognition
criteria required for restructuring charges. The Company recorded $166 million
of these charges in its 1995 statement of operations primarily for the
write-down of assets associated with its manufacturing rationalization programs.
The Company expects to record the remainder in its 1996 financial statements.
These costs relate primarily to employee separations for direct employees of the
Company.
As a part of the reorganization, 3M announced an expected reduction of
approximately 5,000 positions. The Company's direct employee reductions are
expected to total more than 1,600 positions and will occur through already
announced voluntary and involuntary separation programs and through the
completion of the Company's manufacturing consolidation activities. As of May 1,
1996, approximately 850 United States employees have accepted voluntary
separation offers. The Company has also announced the closure of one
manufacturing facility in the United States, which will result in the reduction
of approximately 325 additional employees over the next 12 months. Outside the
United States, the Company expects employment reductions of approximately 290
positions through already announced voluntary and involuntary separation
programs. Additional future employment reductions will result primarily from the
completion of the Company's manufacturing rationalization programs.
The separation costs related to these programs are recognizable in the Company's
financial statements when employees accept voluntary separation offers and upon
announcement for involuntary separation programs. The first quarter 1996
statement of operations includes $10.4 million of these restructuring charges.
The Company expects to record approximately $74 million of additional employee
separation costs, the majority of which will be recorded in the second quarter
of 1996. 3M will fund most of the cash requirements of announced separation
programs. See further discussion of these charges in "-- Operating Results."
As of March 31, 1996 the Company had approximately 12,000 direct and indirect
employees. This number included positions in factory locations to be transferred
to the Company, and in laboratory, engineering, selling, marketing and
administrative positions held by direct Company employees. It also included
indirect equivalent positions in staff services functions at 3M which have
historically provided services to the businesses of the Company. After the
Distribution, approximately 1,100 staff services equivalent positions will
remain with 3M. In the near term, the costs related to the staff services
support provided by these employees will continue to be incurred by the Company
through the Corporate Services Agreement. After the Distribution, it is expected
that the Company will have less than 10,000 direct employees as a result of the
above actions. The Company believes that this is an appropriate staffing level
for the near term.
The Company's overall financial goal is to improve the Company's economic profit
(which is measured as operating income after taxes in excess of the Company's
cost of capital) by $150 million by the end of 1998. This goal is based on
anticipated cost reductions, improved revenue growth and increased asset
utilization resulting from the implementation of the Company's business
strategy, including the steps outlined under "--Operating Results -Comparison of
Years Ended December 31, 1995, 1994 and 1993." The Company anticipates total
cost savings (net of start-up expenses) during the three year period 1996-1998
of $90 million after taxes; or, on a pre-tax basis, $30 million in cost savings
in 1996, an additional $70 million in 1997 and an additional $50 million in
1998. The Company, however, does not expect the reorganization plan to have any
meaningful effect on cash flows until 1997, as start-up expenses are likely to
offset any cash generated from reduced costs in 1996. Although management
believes that this goal is appropriate for the Company, there can be no
assurance as to the Company's ability to achieve this goal. See "Forward Looking
Statements."
OPERATING RESULTS
COMPONENTS OF NET REVENUE CHANGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED ----------------------------------------------------------
MARCH 31, 1996 1995 1994
-------------------------- -------------------------- ---------------------------
U.S. INTL. WORLDWIDE U.S. INTL. WORLDWIDE U.S. INTL. WORLDWIDE
---- ----- --------- ---- ----- --------- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volume 3% 9% 6% (1)% 6% 2% 5% 9% 7%
Price (4) (7) (5) (5) (7) (6) (9) (8) (9)
Translation -- (2) (1) -- 4 2 -- 1 1
--- --- --- --- --- --- --- --- ---
Total (1)% --% --% (6)% 3% (2)% (4)% 2% (1)%
=== === === === === === === === ===
</TABLE>
The following table displays the components of the Company's historical
statements of operations as a percentage of total net revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ---------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 64.9 63.2 67.7 63.2 61.6
----- ----- ----- ----- -----
Gross profit 35.1 36.8 32.3 36.8 38.4
Operating expenses:
Selling, general and administrative 22.7 23.8 24.0 23.3 22.9
Research and development 8.3 9.8 9.9 9.3 9.4
Restructuring charges 1.8 -- 5.0 -- --
----- ----- ----- ----- -----
Total operating expenses 32.8 33.6 38.9 32.6 32.3
----- ----- ----- ----- -----
Operating income (loss) 2.3 3.2 (6.6) 4.2 6.1
Interest expense and other 0.5 0.9 0.8 0.6 0.6
----- ----- ----- ----- -----
Income (loss) before tax and minority
interest 1.8 2.3 (7.4) 3.6 5.5
Effective income tax rate (% of pre-tax) 41.0 42.3 (42.3) 36.0 40.7
Net income (loss) 1.1% 1.3% (3.8)% 2.4% 3.3%
----- ----- ----- ----- -----
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net revenues in the first three months of 1996 were essentially equal to the
level during the same period in 1995. Volume increases of 6 percent were
substantially offset by price declines of 5 percent. Net revenues in the United
States declined 1 percent with a volume increase of 3 percent being more than
offset by pricing declines. Outside the United States, volume increased 9
percent. Price declines of 7 percent and a 2 percent negative effect of changes
in currency exchange rates offset these volume increases.
Gross profit in the first quarter of 1996 was 35.1 percent of revenues, down 1.7
percentage points from first quarter 1995. This decline was primarily due to the
effect of lower selling prices, only partially offset by volume increases,
productivity benefits and other factors.
Selling, general and administrative expenses were 22.7 percent of revenues in
the first three months of 1996, down 1.1 percentage points from the same period
in 1995. The majority of this decline was in sales related costs which were down
approximately $5.0 million.
Research and development costs totaled $47.9 million or 8.3 percent of revenues
in the first three months of 1996, down $8.5 million and 1.5 percentage points
from the same period in 1995. The higher level of spending in 1995 reflects
investments made in a number of the Company's new products which came to market
during 1995 and early 1996.
The Company recorded restructuring charges of $10.4 million in the first quarter
of 1996 reflecting costs for certain voluntary separation programs which were
recognized based on the number of employee acceptances of separation offers
during the quarter ended March 31, 1996 in accordance with the applicable
accounting rules.
Operating income for the first three months of 1996 was $13.3 million but would
have totaled $23.7 million or 4.1 percent of revenues excluding restructuring
charges. This represents a $5.5 million increase from operating income in the
same period in 1995 which totaled $18.2 million or 3.2 percent of revenues.
Excluding restructuring charges, income before taxes and minority interest was
$20.5 million in 1996, improved by $7.5 million from the three month period
ended March 31, 1995. This resulted from a lower effective interest rate in
1996.
The Company's effective tax rate was 41.0 percent, down from 42.3 percent in the
first quarter of 1995. This decrease was due primarily to a shift in profits to
lower tax jurisdictions.
Net income in the first quarter of 1996 was $6.1 million, and would have totaled
$12.2 million or 2.1 percent of revenues excluding restructuring charges. This
represents an increase of $4.7 million and 0.8 percentage points from the same
period in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Net revenues in 1995 and 1994 declined 1.5 percent and 1.2 percent,
respectively. These declines resulted primarily from the effects of downward
pricing pressures which exceeded the Company's volume growth in both 1995 and
1994, especially in the United States. See Note 8 to NOTES TO HISTORICAL
FINANCIAL STATEMENTS for the Company's revenues by classes of similar products
or services.
Approximately 50 percent of the Company's net revenues in 1995 were from sales
outside the United States, which is up from just over 47 percent in 1994 and 46
percent in 1993. This trend is expected to continue in future years. In the
Company's international operations, volume rose 6 percent in 1995 and 9 percent
in 1994. In both 1995 and 1994, these volume gains were substantially offset by
price declines. Changes in currency exchange rates positively impacted
international net revenues by 4 percent in 1995 and 1 percent in 1994.
United States net revenues declined 6 percent in 1995 and 4 percent in 1994,
driven by price declines in both years. Volume declined slightly in 1995, after
having grown 5 percent in 1994.
Gross profit in 1995 was 32.3 percent of revenues, representing a 4.5 percentage
point decrease from 1994. This decrease was primarily due to the effect of lower
selling prices and the portion of special charges included in cost of goods sold
noted below. In 1994, gross profit was 36.8 percent of revenues, representing a
1.6 percentage point decrease from 1993. In this period, the negative effects of
price declines were only partially offset by volume increases and other factors.
Selling, general and administrative expenses were 24.0 percent of revenues in
1995, as compared to 23.3 percent in 1994, and 22.9 percent in 1993. These
increases were primarily due to the decline in the revenue base. Spending in
dollars has been relatively flat during the past three years, reflecting cost
control and productivity improvements, and is expected to decline as a
percentage of revenues in the future.
Research and development expenses in 1995 were 9.9 percent of revenues, up from
9.3 percent and 9.4 percent in 1994 and 1993, respectively. In 1995, this
represented an $11.2 million increase over 1994 spending and reflects
investments in a number of the Company's promising new products including
Travan(tm) high-capacity data cartridges, LS-120 diskettes, the new family of
Rainbow proofing systems and DryView(tm) imagers. Management intends to continue
its strong focus on research and development, while controlling the related
costs through prioritized spending. Management expects expenditures for research
and development to decline as a percentage of revenues in the future.
The Company recorded special charges of $166.3 million ($88.3 million after
taxes and minority interest) in its 1995 financial statements. Of these charges,
$111.8 million relate to world-wide manufacturing rationalization programs to
exit less profitable manufacturing locations and to centralize manufacturing in
the United States and in Italy. The $111.8 million charge is included as a
separate restructuring charge in the statement of operations. The remaining
special charge of $54.5 million primarily relates to asset write-offs included
in cost of goods sold.
The operating loss for 1995 totaled $148.9 million. This loss was driven by the
special charges discussed above. Excluding these charges, operating income would
have been $17.4 million, representing a decline of $78.4 million from 1994
operating income which totaled $95.8 million. This decline primarily reflects
the factors affecting the lower gross profit as discussed above, and to a lesser
extent the increase in research and development spending. In 1994, operating
income declined $44.7 million as a result of the factors affecting gross profit
as discussed earlier and to a lesser extent by the lower overall revenue level.
Non-operating expense (primarily interest expense allocation from 3M) totaled
$17.9 million, $14.5 million and $13.1 million in 1995, 1994 and 1993,
respectively. The increases are due to 3M's rising effective interest rates over
the three year period. The allocation methodology for interest expense is more
fully discussed in Note 6 of the NOTES TO HISTORICAL FINANCIAL STATEMENTS.
The Company's effective tax rate was 42.3, 36.0 and 40.7 percent of pre-tax
income for 1995, 1994 and 1993, respectively. The lower effective rate in 1994
was primarily the result of tax benefits recognized in the Company's Italian
operations. See Notes 2 and 5 of the NOTES TO HISTORICAL FINANCIAL STATEMENTS.
In 1995, minority interest (primarily in Japan) increased to $11.3 million
compared to $2.3 million in 1994. This change is primarily the result of the
portion of restructuring charges which related to the Company's operations in
Japan.
The 1995 net loss totaled $85.0 million or 3.8 percent of revenues. 1995 net
income excluding special charges would have totaled $3.3 million or 0.1 percent
of revenues, down from $54.3 million or 2.4 percent of revenues in 1994.
In order to reverse the historical decline in revenues and gross profits
described above, the Company intends to implement its business strategies (See
"BUSINESS AND PROPERTIES OF THE COMPANY"). Key factors in reversing this trend
are expected to be (i) anticipated increased sales for key new products
(including Travan(tm), DryView(tm) imagers, LS-120 diskettes and new models of
Rainbow color proofing systems) which were introduced commercially in late 1995
or early 1996, (ii) the Company's ability to sell a broader range of the
Company's products to existing customers, (iii) the Company's success in market
penetration in areas of the world where the Company has a limited market
position, (iv) the Company's ability to consolidate factories to increase
efficiencies and (v) the Company's success in refining product portfolios to
focus on more profitable business opportunities.
Generally, outside the United States, the Company will be relocating employees,
systems and inventory out of 3M facilities. By country, this will occur at
various times over the next year. Sales, marketing and administrative personnel
will be moving to leased facilities in all countries except the United Kingdom,
Italy and Canada, where most personnel will be located in Company-owned
facilities transferred from 3M. Initially 3M will provide systems support
services in all countries. It is anticipated that independent Imation supported
systems will gradually replace these 3M systems support services over the next
18 months. Inventory will generally be moved to third-party warehouse providers
by July 1, 1997.
It is the Company's intention to continue expanding market penetration globally.
Recently, sales of DryView(tm) and Travan(tm) products have commenced in Europe
and many other countries. These new products as well as existing products will
be supported by the Company personnel residing in these local markets. In some
countries, 3M will continue to provide selling assistance for Company products
through local sales agency agreements.
PERFORMANCE BY GEOGRAPHIC AREA
UNITED STATES
In 1995, United States net revenues totaled $1,128.8 million down 6 percent from
$1,199.9 million in 1994. Volume declined approximately 1 percent and selling
prices decreased approximately 5 percent, for a total revenue decline of
approximately 6 percent. Operating income in 1995 decreased by $170.5 million
from 1994. Adjusted for the special charges discussed above, operating income
decreased $70.7 million in 1995. United States results were adversely affected
by price declines, higher raw material costs, lack of volume growth and
adjustments in production to reduce inventory levels. Employment levels were
reduced by approximately 500 people at December 31, 1995 as compared with the
levels at December 31, 1994. Inventories were reduced by approximately $34
million in 1995 as compared to December 31, 1994.
EUROPE, MIDDLE EAST AND AFRICA
Net revenues totaled $803.8 million in 1995, up 5 percent from $764.1 million in
1994. Volume increased almost 5 percent, selling prices declined approximately 7
percent, and changes in currency exchange rates positively impacted revenues by
approximately 7 percent. Excluding special charges in Europe, which reduced 1995
operating results by $20.4 million, profits would have increased 4.5 percent to
$76.2 million. The Company's manufacturing structure in Europe is expected to be
further reduced in 1996.
LATIN AMERICA, ASIA AND CANADA
Net revenues declined by approximately 1 percent in 1995 to $313 million,
entirely driven by changes in currency exchange rates. The devaluing rates of
exchange in Latin America more than offset the gains recognized in Asia Pacific.
Changes in volume and selling prices offset each other with local currency
revenues flat. Operating income declined by approximately $11 million, after
excluding $46.1 million in special charges. The majority of this income decline
occurred in Asia Pacific, where the results were adversely impacted by the
underutilization of a magnetic tape coater in Japan and the high costs of
producing products in that country. Sales and marketing programs were scaled
back to reduce volume growth given the high production costs. The Company
discontinued the use of this equipment in the first quarter of 1996 and changed
the source of supply to a facility in the United States with lower costs.
FINANCIAL POSITION
The Company had 3.4 months of inventory on hand at March 31, 1996 and at
December 31, 1995, a decline from 4.0 months at the end of 1994. The accounts
receivable days sales outstanding was 75 days at March 31, 1996, down from 78
days at December 31, 1995, which was up from 76 days at December 31, 1994.
The book value of property, plant and equipment at March 31, 1996 was $503.9
million, a slight decrease from $513.2 million at December 31, 1995. The balance
at December 31, 1995 reflected a decline of $141.7 million from year-end 1994.
The majority of this decline, $128 million, is attributable to the special
charges discussed above. The increase in other assets of $54.5 million was
driven by the increase in deferred income taxes of $57.4 million. This increase
in deferred tax assets resulted from the special charges, which for the most
part, were not yet deductible at December 31, 1995 for income tax purposes.
Management believes the Company, or in certain cases 3M prior to the
Distribution, will generate sufficient taxable income in future periods to fully
recover these deferred tax assets based on the Company's implementation of the
actions discussed under " -- Strategic Reorganization" and "BUSINESS AND
PROPERTIES OF THE COMPANY -- Business Strategy." Also see NOTES TO PRO FORMA
BALANCE SHEET, item (e) regarding establishing deferred tax valuation allowance
on a purely separate return basis.
LIQUIDITY
3M uses a centralized approach to cash management and the financing of its
operations. As a result, cash and equivalents and debt were not allocated to the
Company in the historical financial statements. The Company's historical
financing requirements are represented by cash transactions with 3M and are
reflected in "Net Amount (Paid to) Received From 3M," as described in Note 7 of
the NOTES TO HISTORICAL FINANCIAL STATEMENTS. This financial support will be
discontinued following the Distribution. See "SPECIAL FACTORS -- Absence of 3M
Financial Support."
Cash provided from operating activities was $256.8 million in 1995, $170.1
million in 1994, and $229.2 million in 1993. The major non-cash item is
depreciation, which ranged between $184.4 million and $189.5 million per year
during this period. Working capital and related cash requirements increased
$85.6 million in 1994 and $25.6 million in 1993, while in 1995 working capital
and related cash requirements decreased by $52.0 million.
The Company is developing, and expects to have in place by July 1, relationships
and systems and staffing for a corporate currency management program to monitor
and centrally manage currency exposures. In connection with this currency
management program a variety of financial instruments will be employed,
including but not limited to foreign exchange forward contacts, currency options
and futures.
Investing activities, mainly capital expenditures, utilized cash provided by
operations in the amounts of $187.5 million in 1995, $179.7 million in 1994 and
$210.2 million in 1993. These investments were made to help meet growing global
demand for the Company's products, to improve manufacturing efficiencies and to
establish manufacturing operations for key new products. Over the past two
years, $74.6 million of these expenditures related to new products which were
commercialized in late 1995 and early 1996, including DryView(tm) medical
imagers, Travan(tm) high-capacity data cartridges and LS-120 diskettes.
Excluding one-time start up costs, management intends to maintain annual capital
expenditures in the range of $140 to $170 million per year for the next several
years.
The Company generated cash flows before financing activities with 3M of $72.9
million in 1995, and $13.1 million in 1993, while using $18.5 million in 1994, a
year in which the growth in inventory and accounts receivable more than offset
reductions in capital expenditures. In 1995, improvements in working capital
(primarily accounts receivable, inventories and accounts payable) generated
approximately $52.0 million in increased cash.
During the three months ended March 31, 1996 the Company generated cash flows
before financing activities with 3M of $27.0 million while using $13.4 million
for the same period in 1995. The improvement in the first quarter of 1996
reflects reduced levels of inventory coupled with somewhat lower capital
spending in 1996.
Following the Distribution, the Company expects its operations, exclusive of
contemplated borrowings, to generate sufficient funds to meet the Company's
operating needs for the 12 month period following the Distribution, including
capital expenditures. It is expected that additional progress in reducing
working capital needs will be achieved by re-engineering the Company's worldwide
supply chain and information technology systems. The components of the supply
chain include all operations of the Company from procurement of raw materials
through manufacturing and delivery of products to the Company's customers, and
the collection of accounts receivable.
Prior to the Distribution, the Company did not have any cash flows from
financing activities outside of 3M. Following the Distribution, the Company will
rely on internally generated funds and, to the extent necessary, the borrowing
of funds from third party sources. The Company anticipates that on or prior to
the Distribution Date, it will borrow approximately $280 million under the
Credit Facility to be negotiated with a syndicate of banks, which also will
allow the Company to borrow additional amounts for working capital purposes.
Approximately $150.1 million of the $280 million to be borrowed will be used at
the time of the Distribution to purchase from 3M certain assets located outside
the United States and to repay intercompany indebtedness being assumed by the
Company in connection with the Distribution, approximately $26.9 million will be
used to pay certain accrued employee benefits, approximately $30 million will be
on-lent to the ESOP as described in the next paragraph, and the remainder will
be retained for working capital purposes. The Company believes that the cash
available under the Credit Facility, together with cash generated from
operations, are sufficient to meet the Company's anticipated funding
requirements.
The Company will establish an employee stock ownership plan (the "ESOP") which
will be leveraged by a loan from the Company and is expected to lead over time
to employee stock ownership (directly or beneficially) of approximately 4
percent of the Company's outstanding shares. At the time of the Distribution or
shortly thereafter, the Company will lend approximately $30 million to the ESOP
with which the ESOP will purchase shares of Common Stock. The Company intends
annually to contribute funds to the ESOP in order to repay the loans, and to
satisfy the Company's obligation to make matching contributions in respect of
employee salary deferrals and other performance based contributions.
On the Distribution Date, the Company is expected to begin independent
operations with a ratio of total debt to total capital of approximately 20
percent excluding the effects of the ESOP. The Company also expects to begin
operations with approximately $73 million in cash, $50 million of which will be
borrowed under the Company's Credit Facility, to satisfy the Company's initial
working capital requirements.
In connection with the Distribution, the Company and 3M will enter into a
transition agreement relating to the collection of accounts receivable and
payment of accounts payable. See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER
THE DISTRIBUTION -- Corporate Services Transition Agreement." The objective of
this approach is to minimize the impact of the transition on customers and
suppliers and it is not expected to have any material impact on the financial
position or cash flows of the Company.
FUTURE OUTLOOK
1996 will be a year of transition for the Company, both in business operations
and financial returns. The Company believes its continued worldwide leadership
in developing data storage technologies, strong position in high quality color
proofing for the printing industry and strong history of leadership in medical
imaging for the health care industry along with strong worldwide distribution
coverage will offer significant opportunities to help achieve its goals. The
Company will be implementing a comprehensive re-engineering of its operations.
Some components of this re-engineering will be completed in 1996 and others in
1997 and beyond.
Examples of the actions contemplated include (i) the consolidation and
rationalization of manufacturing organization by reducing the number of
facilities operated by the Company, by consolidating similar operations in one
facility, by consolidating purchasing to take advantage of volume purchasing, by
utilizing just-in-time purchasing and by managing the manufacturing process to
reduce inventories of finished goods by attempting to anticipate demand for
various products, (ii) encouraging cooperation between research and development
teams and the manufacturing units, thereby encouraging the development of
technologies and products which provide solutions to customers' problems, (iii)
aggressively cross-marketing the Company's existing products to customers of one
of the Company's products and (iv) motivating employees through the linkage of
compensation to the financial results of the Company (See "BUSINESS AND
PROPERTIES OF THE COMPANY -- Business Strategy"). The Company expects that these
actions will improve productivity and market share, reduce costs and facilitate
sustainable revenue growth, thereby improving the Company's financial
performance and results of operations.
At the same time, the Company will be faced with the challenges of establishing
operations as an independent public company. These activities are expected to
result in one-time cost increases which will occur during 1996 and 1997.
Management is currently developing its plans for the start-up, but at this time
expects that the most significant changes will occur in the areas of systems and
logistics. For a transitional period, it is expected that 3M will provide many
of these services and that stand-alone operations should be in place by the end
of 1997.
The Company intends to achieve its goals through the training and dedication of
its work force, extensive efforts to enhance its relationships with customers
and suppliers and the continued use of certain 3M trademarks during a transition
period. In addition, the Company's management team is experienced and familiar
with this industry and its opportunities and will be developing a strong new
identity tied to the Company's specific industry. This background combined with
their new roles should allow them to provide the Company with the necessary
leadership to meet these challenges.
The Company has established as a goal achieving an annual earnings per share
growth rate of at least 15% per year. While the management of the Company
believes that this rate is an appropriate goal for the Company, there can be
no assurance as to the Company's ability to achieve this goal or as to the
timing thereof. See "Forward Looking Statements."
FORWARD LOOKING STATEMENTS
Certain information, other than the historical information, discussed in this
Information Statement (including in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"), may constitute forward looking
statements and as such may involve risks and uncertainties. Important factors
which may cause actual results to differ from the forward looking statements
contained herein or in other public statements by the Company are described in
the section entitled "SPECIAL FACTORS," including, in particular, the Company's
ability to implement successfully its reorganization plan and future business
strategy. See "SPECIAL FACTORS -Absence of History as an Independent Company."
BUSINESS AND PROPERTIES OF THE COMPANY
OVERVIEW
The Company develops, manufactures and markets a wide variety of products and
services worldwide for information processing, specializing in data storage and
imaging applications. The Company's products, which number in excess of 10,000,
are used to capture, process, store, reproduce and distribute information and
images in a wide range of information-intensive markets, including enterprise
computing, network servers, personal computing, graphic arts, photographic
imaging, medical imaging, and commercial and consumer markets. The Company
offers solutions for both conventional/analog and proprietary digital work
processes for the information processing industry.
The breadth of the Company's product lines, the Company's worldwide leadership
position in a number of product classes and its global distribution network
serve to differentiate the Company from its competitors. The Company's focus is
global in nature, with nearly half of its revenues derived internationally and
expectations for this percentage to grow over time. The Company's major
products, classified by customer application are shown below.
<TABLE>
<CAPTION>
INFORMATION PROCESSING,
MANAGEMENT AND INFORMATION PRINTING MEDICAL AND PHOTO IMAGING
STORAGE APPLICATIONS APPLICATIONS APPLICATIONS
- -------------------- ------------ ------------
<S> <C> <C>
* Computer diskettes * Conventional color proofing * Laser imaging products
* Data cartridges and Travan(tm) * Digital color proofing * Laser imagers
cartridges
* Computer tapes * Printing plates * X-ray film
* Rewritable optical media * Image setting and graphic arts * "Dry" imaging products
products
* CD-ROM replication services * Carbonless paper products * Film processors
* Photographic film products
</TABLE>
INFORMATION PROCESSOR SERVICE APPLICATIONS
- ------------------------------------------
* Technical field service support for equipment
* Customer service, documentation and training for equipment
* Engineering and office document systems
As part of 3M, the Transferred Businesses have developed leadership positions in
a number of markets serving the information processing industry, which the
Company believes can serve as platforms for future growth. For example, the
Company:
* is the world's largest supplier of branded removable magnetic and optical
media;
* is one of the world's largest suppliers of color proofing systems to the
graphic arts industry, with a number of its Matchprint(tm) and Rainbow
products serving as industry standards;
* was the first to develop the new, widely-used laser imager for medical
imaging applications, with an installed base of over 7,000 imagers;
* is one of the world's largest suppliers of private label film for the
amateur photography market; and
* introduced in 1995 and expects to introduce in 1996 several innovative
products with significant market potential, including the Travan(tm) high
capacity data storage tape cartridges, the new family of Rainbow proofing
systems, a new line of DryView(tm) imagers, medical imaging delivery systems
developed under an alliance with Cemax/Icon and Hewlett-Packard, and a 120 MB
3.5 inch diskette, the LS-120 diskette, which has been developed with Compaq
Computer Corporation and MKE.
INDUSTRY BACKGROUND
The information processing industry is concerned with the creation, capture,
manipulation, storage, production and distribution of information. Information
may exist in the form of numbers, text, sound, graphics, photos, videos or other
images. Users may view and store this information in an analog format, such as
hard copies. Increasingly, however, information is converted to a digital format
for more efficient handling, processing, storage and distribution. Digital
technologies provide much needed information processing solutions as users are
required to use, manage and store more complex information in less time, with
less resources and with greater accuracy. Methods of transporting and accessing
data are dramatically increasing due to software developments, networking and
the development of the World Wide Web.
Data storage technologies provide users with solutions specific to the
particular users' needs in storing, managing and accessing digital information.
Removable data storage technologies, such as those offered by the Company,
provide a wide range of solutions that provide users with the benefits of
expandable storage capacity, data transportability, data management, data
security and the flexibility to enhance data utilization and which are not
confined to component status as is fixed rigid disk storage.
Removable data storage solutions, based on digital technologies, are used in
applications across all computing platforms -- enterprise systems, network
servers, desktop systems and mobile computing. International Data Corporation
("IDC") has estimated that there are over 150 million computer systems in use
worldwide that use removable data storage technologies. Removable data storage
technologies are used in a variety of applications including graphic imaging,
video imaging, medical diagnostics, communications systems and consumer
entertainment electronics. Overall, the data storage solution market is growing
at double digits annually, with Asia, Latin America and Eastern Europe leading
this growth, although there is significant price competition. Customer demand
for these solutions is multiplying at an ever increasing pace due to the
enhanced enabling software that increases the applications and usage rates and
the developing need by customers to manipulate, store and protect even larger
data bases. The need for convenient digital storage solutions is also
accelerating as people gain access to information of all types from many
sources, including the Internet and the World Wide Web. Increasingly, end users
want to download files and information for later use. As the number of Internet
users grow and the variety of information increases, the demand for portable,
cost-effective data storage and output media also will grow. This is true in
both commercial and consumer markets.
Imaging technologies also have been profoundly impacted by advancements in
digital technologies as many users begin to convert their conventional/analog
processes to proprietary digital processes to capture, create, manipulate,
process, transmit and store still and moving images. Conventional/analog
technologies rely upon chemical or electrical processes which capture
information onto paper, film or other media by reacting to external stimuli.
Digital technologies have significantly increased the amount of information that
can be used, managed and stored and have reduced the need for film and chemicals
in the imaging process. Many work processes in use today are hybrid systems in
which organizations continue to use conventional materials for certain processes
in their work flows utilizing the speed of digital processing.
Medical diagnostic imaging is an example in which proven X-ray films exist side
by side with high tech magnetic resonance imaging ("MRI") and computed
tomography ("CT") scanning systems. Today, an active mid-size hospital or
diagnostic imaging center may generate ten to twelve gigabytes of electronic
information daily from its scanning devices. More than 90% of this information
will be converted to film for viewing and storage in the diagnostic process.
Printing and publishing applications similarly have experienced a blending of
analog and digital work processes. Virtually all text and images used in graphic
arts processes today are converted to electronic or digital form early in the
work process and are later reconverted to film or lithographic plates for high
quality reproduction on traditional printing presses. Images and pages may be
captured photographically or electronically in a variety of formats including
removable data storage. Those that are captured in digital format allow for more
efficient processing and management. The information also may be used in the
production of high quality CD-ROMs for multi-media applications, distributed to
digital printers and copiers for reproduction, or used in the production of
images and pages for distribution over the Internet.
As discussed above, because digital processes are more efficient than
alternative technologies in the imaging and information processing industries,
the Company believes the use of digital technology is increasing. In 1994,
digital technologies accounted for approximately 54% of the Company's revenues.
The Company expects digital technologies to increase to approximately two-thirds
of revenues over the next two years. As the amount of information generated each
day increases, the need for efficient methods of data storage and manipulation
is increasing.
For example, in medical and photo imaging applications, the Company estimates
that a typical 400 bed hospital utilizing Computed Tomography, MRI, ultrasound
and nuclear medical technology will require between four and nine gigabytes of
new digital storage per day, along with associated recording, distribution and
imaging equipment. In information and printing applications, the Company expects
that the current mixture of digital and analog processes will continue to become
more reliant on digital technologies as such technologies become more efficient.
The Company believes that, starting from its base of products which are
currently used in these applications, it will be able to introduce new digital
products which will replace analog processes now used in these customer
applications. The Company believes that it has the technology, products and
strong customer relationships to take advantage of this opportunity.
Because the Company has existing technologies, products and customers in these
applications, the introduction of new digital technologies in these areas is not
expected to require major additional investments. The Company does anticipate,
however, entering into strategic alliances with other companies to complement
its existing technologies, as and when appropriate. The Company believes that
new digital applications and products for its existing customer base, along with
opportunities to enter into new markets not currently served by the Company,
will give the Company the benefit of additional revenues in both the short term
and the long term.
BUSINESS STRATEGY
The Company believes that the advancements in digital technology transforming
the information processing industry are creating opportunities for the Company.
The Company intends to utilize its research and development capabilities, its
solid technology platforms, its well established product lines and its strong
customer relationships to enhance its position as a leader in the information
processing industry, providing innovative, cost-effective system solutions to
its customers' information processing needs. To achieve its objectives, the
Company intends to focus on the following elements.
* REFINING PRODUCT PORTFOLIO -- Included in the Company's 1995 special
charges were costs associated with existing lines of business which the
Company believes will not satisfy its goal of profitable growth and
generating cash flows. Following the Distribution, the Company will
continue to examine intensively its product portfolio and make adjustments
when necessary to insure that all of its resources are focused on the
Company's objective of consistent, profitable growth. Resources freed from
less profitable product lines will then be available for new business
growth opportunities.
* STREAMLINING OPERATIONS AND REDUCING COSTS -- The Company recently has
taken a number of steps to streamline its operating structure and reduce
operating costs, including reducing its employment levels by offering
various voluntary separation plans to its employees. In addition, the
Company has decided to consolidate various manufacturing facilities and
has commenced preparations to close or downsize certain facilities and
utilize efficient outsourcing. Following the Distribution, the Company
will continue its efforts to streamline its management structure,
consolidate administrative functions and facilitate communications among
various parts of the organization so as to enable the Company to respond
quickly to the rapidly changing needs of its customers. In this regard,
the Company intends to intensively review the alternatives for further
improving its manufacturing, sales and distribution activities, both from
a customer responsiveness and a cost effectiveness point of view, with a
goal of reducing costs, improving profit margins and facilitating fast
paced decision making, so as to better enable the Company to respond
quickly to the rapidly changing needs of its customers.
* EXPANDING CUSTOMER FOCUS -- The Company will focus on understanding the
information processing challenges of both its existing and potential
customers. By utilizing its core competencies in product development, as
well as database marketing and electronic interactive communications, the
Company will strive to provide more timely solutions tailored to each
customer's needs, thereby enhancing its opportunities for growth and its
ability to satisfy its current large customer base. The goal of the
Company is to be perceived by its customers as responsive and committed to
their needs.
* IMPROVING CASH FLOWS -- An improved focus on cash flows is a critical
component of the Company's strategy for future growth and diversification.
To achieve this objective, the Company will instill in its employees a
strong focus on cash flow management and educate them regarding how their
actions and decisions impact the Company's cash flows. In this regard, the
Company has begun to take a number of actions, including: (i) revising
financial measurements to focus on cash flows management, including
adoption of the concept of "Economic Profit" (the measurement of income
from operations after tax and after deducting interest and a return to
shareholders), and using such measurements as a factor in determining
employee compensation, (ii) adjusting the evaluation process for capital
expenditures to focus on the near term cash return, reflecting the short
life cycle of the Company's high technology products, and (iii)
recognizing the cash impact of reducing working capital by re-engineering
the entire supply chain process (the period of time from the procurement
of raw materials, through manufacturing and delivery of the Company's
products to its customers, and finally to the receipt of payment from the
customer), and establishing one organization within the Company to focus
on reducing this "cycle time." The Company is confident that these and
other steps to be taken in the future will result in improved cash flow.
* EXPANDING INTERNATIONAL OPERATIONS -- The Company believes that there are
significant growth opportunities outside the United States. Accordingly,
the Company intends over the next several years to seek to take advantage
of these opportunities for growth by expanding its international
operations. A key strength of the Company lies in its global distribution
and sales network, and its long-standing relationships with multi-national
customers which will facilitate this expansion. The Company has
streamlined management of its international operations and has organized
those operations into two key areas, Europe/Middle East/Africa and Latin
America/Asia/Canada. Global growth strategies will be driven through these
two focused organizations.
* CAPITALIZING ON PROPRIETARY TECHNOLOGIES TO PROVIDE CUSTOMER SOLUTIONS --
The Company has significant proprietary technologies in information
processing. While part of 3M, the Company acquired hundreds of patents,
which are assigned or exclusively licensed to the Company by 3M in certain
fields of use. See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE
DISTRIBUTION -- Intellectual Property Agreement." Following the
Distribution, the Company will continue to focus significant efforts on
the development of new products utilizing these core technologies and
systems. As described in the section entitled "BUSINESS AND PROPERTIES OF
THE COMPANY -- Customer Applications," the Company has been successful in
this regard in recent years with the introduction of its DryView(tm) and
Travan(tm) branded products. In addition, the Company intends over time to
increase the development of new products designed to help position itself as
a provider of comprehensive, integrated solutions to the information
processing industry. As part of its strategy, the Company also intends to
explore the acquisition of new technologies through strategic alliances,
acquisitions or licensing.
* ENCOURAGING EMPLOYEE STOCK OWNERSHIP -- A key strategy and objective of
the Company is encouraging and increasing employee stock ownership as an
incentive toward consistent, profitable growth. The Company believes that
this will help drive cost reductions, quality improvement and growth
leading to achievement of Company objectives. As described under
"MANAGEMENT OF THE COMPANY -- Retirement Investment Plan," an employee
stock ownership plan will be implemented which is expected to lead over
time to employee stock ownership (directly or beneficially) of
approximately 4 percent of the Company's outstanding shares.
CUSTOMER APPLICATIONS
The Company's products are market leaders in the conventional/analog processes
for recording, manipulation and storage of data and images. While these
established products generate a substantial portion of the Company's revenues,
the Company seeks to leverage its existing market positions and to continually
develop and market new products and solutions to serve the changing needs of its
customers. With the industry's evolution to information processing systems based
on digital technologies, the Company is focusing its efforts on developing
solution-based products utilizing proprietary digital technologies and providing
more complete solutions to its customers' information processing needs. Set
forth below is a description of the products and services presently offered by
the Company. See Note 8 to NOTES TO HISTORICAL FINANCIAL STATEMENTS for the
revenues derived from each class of products.
INFORMATION PROCESSING, MANAGEMENT AND STORAGE APPLICATIONS
The Company is the world's largest supplier and developer of branded removable
data storage media, in both magnetic and optical formats. It is recognized as
the worldwide preferred supplier, based on its reputation for reliability and
convenience. The Company also is a supplier of CD-ROM replication and software
services provided to software developers. The Company's products include:
* Diskettes (3.5 inch, 5.25 inch and 8 inch) used for personal file storage,
for backup and for exchange of data. Diskettes are used primarily in
desktop and mobile personal computer systems, and also in workstations,
word processors and computer control equipment. In April, the Company
began shipment of a 120 MB 3.5 inch diskette, the LS-120 diskette, which
provides 80 times the storage capacity of a standard diskette. The LS-120
diskette has been developed as part of the Laser Servo 120 MB program in
which the Company, Compaq Computer Corporation and MKE are co-development
partners. Under the present arrangement between the parties, Compaq
markets computer systems which incorporate LS-120 drives manufactured by
MKE and which may include a Company brand LS-120 pack-in diskette and a
coupon towards the purchase of additional LS-120 diskettes.
* Data cartridge and Travan(tm) cartridge products used for backup of data
from hard disk storage systems and for applications in which large volumes
of information that do not need to be retrieved on a frequent basis.
Travan(tm) cartridges more than double the storage capacity of the prior
mini-cartridge, which is the most popular tape cartridge storage media
today. Used primarily on desktop personal computer systems, local area
networks and workstation computer systems, the Travan(tm) cartridges make
up a family of innovative products that were introduced in 1995 through
the joint efforts of 3M, Sony and a group of drive manufacturers. 3M has
maintained, and following the Distribution the Company will continue to
maintain, relationships with these and other companies regarding the
production and joint marketing of compatible drives and cartridge storage
media and the development of future versions of the technology.
* Computer cartridge tapes used for near-line data storage and retrieval, mass
storage and archival storage of data. Large cartridge tapes are used
primarily on enterprise computer systems and in data library systems that
store very large volumes of data. The smaller 4 mm and 8 mm cartridges are
used primarily in workstations and mid-size computer systems and networks for
backup and other data storage applications.
* Rewritable optical disks including magneto-optical (90mm and 130mm), phase
change disks and CD recordable disks used for the storage of data and images
on personal computers, workstations and local area networks. These disks are
also used in library systems for mid-range computer installations.
* CD-ROM products are produced on a made to order basis and are used for the
distribution of data and software to the personal computer and mid-range
markets.
INFORMATION AND PRINTING APPLICATIONS
The Company manufactures and markets products and provides service and technical
support for the printing, publishing and graphic arts markets. Its diverse
product line includes conventional color proofing systems, digital color
proofing systems and software, digital storage systems, laser films and image
setting materials, metal and polyester printing plates, graphic arts films,
photographic chemicals and miscellaneous supplies. The Company also markets
carbonless paper products, such as multi-part business forms. The Company has
strong leadership positions in certain product areas, including the
Matchprint(tm) color proofing system, an industry standard for more than 20
years. More recently, the Rainbow color proofing system, which provides color
proofs from digital data before a job is put on a printing press, also has
established a leadership role, winning both industry awards and acceptance as
the digital proofer of choice among many graphic arts professionals.
The Company's printing and publishing systems products are marketed globally,
with approximately 40 percent of its business derived from outside the United
States. This percentage is expected to grow in future years.
Products designed for printing and publishing applications are changing rapidly
in association with the digital/electronic communication revolution in the
information processing industry. This "digitization" of the image reproduction
process has greatly affected the work methods and work flow of many of the
Company's customers. Although short-run color print jobs are on the rise and
conventional lithographic printing will continue, in the Company's judgment, to
exist well into the next century, rapid changes are occurring in the pre-press
area of the graphic arts work processes. Desktop workstations, the acceptance of
digital proofing and the emergence and growth of "filmless" and chemical-free
(thus, environmentally attractive) printing processes all serve to streamline
the graphic arts process. The Company believes it is well-positioned to take
advantage of the industry transformation to digital systems. In addition to the
products mentioned above that carry leadership roles, the Company has the
technologies, color science expertise and industry relationships to aggressively
pursue emerging opportunities.
MEDICAL AND PHOTO IMAGING APPLICATIONS
The Company develops, manufactures and markets diagnostic imaging film, film
processors and imaging systems for both X-ray and electronic imaging systems.
The Company participates in the conventional X-ray film market and is the
world's leading supplier of high-quality laser imagers for producing medical
diagnostic images directly from MRI, CT, ultrasound, nuclear and other
electronic systems, with more than 7,000 laser imagers installed worldwide. In
December 1995, the Company announced a new line of DryView(tm) laser imagers
that produce high-quality film images without using standard wet chemistry
through a specially designed photothermographic process. Since no wet chemistry
is involved, the DryView(tm) laser imagers represent a significant technological
breakthrough and offer significant cost savings, productivity gains and
environmental benefits to the health care industry. Through a strategic alliance
among the Company, Hewlett-Packard and Cemax-Icon, hardware and software
solutions are provided to clients that help them manage, distribute and archive
their medical images. Under the alliance, the Company sells its DryView(tm)
product and other medical imaging equipment and Hewlett-Packard supplies its
computer hardware stations to Cemax-Icon which redistributes such products on an
integrated basis with its own software products. This is an example of linking
newly developed imaging solutions based on the Company's technology platforms
with the expanding requirements for digitization and information access.
The Company's customers include major hospital network buying groups as well as
individual hospitals and medical imaging centers. Hospital administrators and
materials managers, radiology administrators and radiologists represent the key
customer decision makers. Geographically, approximately 40% of the Company's
medical imaging business is in the United States. The major industrial countries
in Europe, Latin America and Japan account for the remainder of the business.
The Company is one of the world's leading suppliers of private label film for
the amateur photography retail market. The Company's primary geographic markets
for color photographic film are the United States and Europe, representing 70%
of the global demand for film. The Company manufactures a complete line of print
and slide films which fit in standard 35mm, 110, and 126 cameras used by
consumers globally. The Company has recently added single use cameras to its
product line which are sold preloaded with the Company's ISO 400 speed film.
Single use cameras represent a high growth segment of the consumer film market.
The Company's color print film can be found in more than 125 private label
brands, as well as 3M's Scotch brand. The Company will continue to use certain
3M trademarks and tradenames including the Scotch brand for a period of time
following the Distribution. See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER
THE DISTRIBUTION -- Intellectual Property Agreement." These products and brands
are positioned as a high value, comparable quality alternative to global brands
such as Kodak and Fuji.
INFORMATION PROCESSOR SERVICE APPLICATIONS
The Company's team of field service technicians provides technical servicing and
other post-sale technical support for equipment sold by the Company in the
information processing industry. The Company offers superior customer service
for its products by providing a 24 hour information and customer support
hotline. Customers also benefit from user-friendly product documentation and
training programs in a variety of languages. The Company also supplies systems
and user support services to meet engineering document management needs and
produces and distributes continuous and high-contrast black-and-white dry
photographic papers and films. These services and support will be extended
aggressively to customers of all the Company's product line and into new markets
to generate additional profits and customer satisfaction.
COMPETITION
The Company operates in a highly competitive environment. The Company's
principal competitors include large, well capitalized technology companies based
in the United States, Europe and Japan. These competitors include Eastman Kodak,
Fuji Photo Film, Sony, Agfa, Polaroid Corp., Konica, KAO and Du Pont. The
Company also competes in certain product markets with smaller, more specialized
firms such as Polychrome Corp. and Scitex America Corp. Businesses in the
information processing industry compete on a variety of factors such as price,
value, product quality, customer service, breadth of product line and
availability of system solutions. In these highly competitive and rapidly
changing markets, the Company intends to compete by emphasizing its global
distribution network, streamlining its supply operations, reducing its costs and
building on its industry leadership positions by developing new products and
services to address the digital environment and the information processing needs
of its customers.
DISTRIBUTOR CHANNELS
The Company's products are sold directly to users and through numerous
wholesalers, retailers, jobbers, distributors and dealers in approximately 65
countries. The Company believes it has one of the strongest global distribution
networks serving the information processing industry. The Company also plans to
utilize 3M as a sales agent to cover selected channels of distribution on an
interim basis following the Distribution. See "RELATIONSHIP BETWEEN 3M AND THE
COMPANY AFTER THE DISTRIBUTION -- Supply, Service, Contract Manufacturing and
Sales Agency Agreements." However, it is the Company's intention to explore all
avenues of distribution and to put in place, following the Distribution, the
most cost-effective channels of distribution.
RAW MATERIALS
The Company experienced no significant or unusual problems in the purchase of
raw materials during 1995. 3M will continue to be a major supplier of certain
raw materials and services to the Company after the Distribution. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Supply,
Service, Contract Manufacturing and Sales Agency Agreements."
RESEARCH AND PATENTS
Research and product development have historically played an important role in
the Company's activities. The Company has research laboratories for the
improvement of its existing products and development of new products. The
Company's expenditures for research and development activities were $222
million, $211 million and $217 million for 1995, 1994 and 1993, respectively.
The Company has been granted rights, on both exclusive and non-exclusive bases,
from 3M and others which will enable it to continue to use the intellectual
property presently utilized by the Transferred Businesses. The Company does not
consider that its business as a whole is materially dependent upon any one
patent, license or trade secret or any group of related patents, licenses or
trade secrets, except with respect to those rights granted from 3M. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Intellectual
Property Agreement."
MANUFACTURING
The Company operates 17 manufacturing, research and distribution facilities
throughout the world. The Company's plants are generally operated around the
clock at or near full capacity to minimize unit production costs and to fulfill
customer demands.
The Company is in the process of consolidating manufacturing by centralizing
such operations into the United States and Italy. This consolidation is intended
to reduce costs and improve quality by allowing the Company to adjust its
capacity to current needs and take advantage of the facilities with the most
advanced quality management system.
The core manufacturing competencies of the Company include coating, fine
chemical production for photographic film, state-of-the-art molding
capabilities, hardware prototyping and unit cost reduction. These competencies,
combined with the Company's research and development competencies of materials
science, color management, hardcopy imaging, magnetic and optical recording give
the Company a strong technological base to take advantage of the opportunities
in the evolving information processing industry.
PROPERTIES
The Company's headquarters are located in Oakdale, Minnesota. The Company's
major facilities (all of which are owned by the Company, except where noted),
and the products manufactured at such facilities are as follows:
FACILITY PRODUCTS
DOMESTIC
- --------
Camarillo, California Data tape
Fremont, California (leased) CD-ROM
Middleway, W. Virginia Printing plates
Nekoosa, Wisconsin Carbonless paper
Oakdale, Minnesota Headquarters
Pine City, Minnesota Micrographic cards
Rochester, New York Printing plates and graphic film
St. Paul, Minnesota (leased) Laboratory facilities
Tucson, Arizona Data tape
Vadnais Heights, Minnesota (leased) Optical
Wahpeton, North Dakota Diskettes/molding
Weatherford, Oklahoma Diskettes/photographic film
White City, Oregon Imagers/X-ray films
INTERNATIONAL
- -------------
Bracknell, United Kingdom Administrative
Ferrania, Italy X-ray films/photographic film
Florida, Argentina X-ray films
Harlow, United Kingdom Research facility
London, Ontario Administrative
Sulmona, Italy Printing plates
EMPLOYEES
As of March 31, 1996, the Company had approximately 12,000 employees,
approximately 7,500 in the United States and 4,500 internationally. The Company
has begun the process of streamlining operations which will result in a
significant reduction in the number of employees required for operations. As a
first step, several voluntary separation plans recently have been offered to the
Company's employees. After the Distribution, it is expected that the Company
will have less than 10,000 direct employees as a result of the above actions.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
LEGAL PROCEEDINGS
The Company has assumed substantially all liabilities for legal proceedings
relating to the Transferred Businesses. As a result, although 3M is the named
defendant, the Company is the party in interest and is herein described as a
defendant.
The Company is a party to various legal proceedings and administrative actions,
all of which are of an ordinary or routine nature incidental to the operations
of the Company. In the opinion of the Company's management, such proceedings and
actions should not, individually or in the aggregate, have a material adverse
effect on the financial position of the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a wide range of environmental protection
laws. The Company has remedial and investigatory activities underway at some of
its current facilities. Under the Environmental Matters Agreement, the Company
will assume and indemnify 3M for all liabilities relating to, arising out of or
resulting from (i) operations at the Company's facilities as conducted before
the Closing Date; (ii) the disposal of hazardous materials, from the Company's
facilities, before the Distribution Date, at Superfund Sites, where such
liabilities are discovered after the Distribution Date; or (iii) operations of
the Transferred Businesses on and after the Distribution Date. 3M has agreed to
retain responsibility for environmental liabilities relating to former premises
which may have been associated with the Transferred Businesses and known
Superfund sites associated with the current properties of the Transferred
Businesses.
It is the Company's policy to accrue environmental remediation costs if it is
probable that a liability has been incurred and the amount of such liability is
reasonably estimable. As assessments and remediations proceed, these accruals
are reviewed periodically and adjusted, if necessary, as additional information
becomes available. The accruals for these liabilities can change due to such
factors as additional information on the nature or extent of contamination,
methods of remediation required, the allocated share of responsibility among
other parties, if applicable, and other actions by governmental agencies or
private parties. However, it is often difficult to estimate the future impact of
environmental matters, including potential liabilities.
As of March 31, 1996, the Company had reserved approximately $6.5 million with
respect to environmental liabilities. Although the Company believes that its
reserves are adequate, there can be no assurance that the amount of expenses
relating to remedial actions and compliance with applicable environmental laws
will not exceed the amounts reflected in the Company's reserves. The Company
believes that such additional charges, if any, will not have a material adverse
effect on the financial position of the Company. See "RELATIONSHIP BETWEEN 3M
AND THE COMPANY AFTER THE DISTRIBUTION -Environmental Matters Agreement."
MANAGEMENT OF THE COMPANY
DIRECTORS
As of the Distribution Date, the Board of Directors of the Company consists of
five persons, each of whom has been elected for a term expiring at the annual
meeting of stockholders indicated below and until his successor shall have been
elected and qualified. The following table sets forth information concerning the
individuals who will serve as directors of the Company following the
Distribution.
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
- ---- --- -----------------
William T. Monahan 49 1999
Linda W. Hart 56 1999
Daryl J. White 48 1998
William W. George 53 1998
Lawrence E. Eaton 57 1997
The Board of Directors is presently being selected. The Board will consist of a
majority of outside directors who are familiar with the industry in which the
Company operates and with financial operations similar to the Company. The Board
is expected to be diverse, with a maximum of 16 directors.
WILLIAM T. MONAHAN will serve as Chairman of the Board, President and Chief
Executive Officer of the Company. Since June 1993 he has served as Group Vice
President responsible for the Electro and Communication Group of 3M and from May
1992 to May 1993, he was Senior Managing Director of 3M Italy. From September
1989 to May 1992, Mr. Monahan was Vice President of Data Storage Products.
LINDA W. HART is Vice-Chairman of Hart Group, Inc., a diversified group of
companies primarily involved in insulation manufacturing and residential and
commercial services. Prior to joining Hart Group in 1990, Ms. Hart was a
partner of the law firm of Vinson & Elkins from July 1986 to January 1990.
Ms. Hart is a former director of both Conner Peripherals, Inc. and
WordPerfect Corporation and a current director of each of the Hart Group
companies, Hart Group, Inc. (management services and investments), Rmax, Inc.
(insulation manufacturing) and Axon, Inc. (residential and commercial
services).
DARYL J. WHITE served as the Senior Vice President of Finance and Chief
Financial Officer of Compaq Computer Corporation, a computer equipment
manufacturer, from 1988 to May 1996. Prior to such time, he held the positions
of Corporate Controller and Director of Information Management at Compaq.
Mr.White is also currently the Chairman of the Board of Pinnacle Micro, Inc.
WILLIAM W. GEORGE has been the President and Chief Executive Officer of
Medtronic, Inc., a therapeutic medical technology company, since May 1991.
From March 1989 to April 1991, Mr. George served as President and Chief
Operating Officer of that company. Prior to such time, Mr. George was the
President of Honeywell Space and Aviation Systems (products for commercial
and military aviation markets and space and satellite applications) and of
Honeywell Industrial Automation and Control. Mr. George is currently a
director of Medtronic, Inc., Dayton Hudson Corporation, Valspar Corporation and
Allina Health System.
LAWRENCE E. EATON recently announced his retirement, effective in August
1996, from the position of Executive Vice President of 3M's Information,
Imaging and Electronic Sector and Corporate Services which he has held since
1991. Mr. Eaton is currently a director of Cray Research, Inc. and will
remain as such until mid-June 1996. Prior to 1991, Mr. Eaton served in
various other capacities at 3M, including, from 1986 to 1991, as Group Vice
President, Memory Technologies Group.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company is expected to establish an Audit
Committee, a Compensation Committee and a Nominating and Governance Committee.
The Audit Committee will, among other things, recommend the appointment of
independent public accountants; review the scope of the annual audit, including
fees and staffing; review the independence of the independent accountants;
review nonaudit services provided by the independent accountants; review
findings and recommendations of independent accountants and management's
response; review the internal audit and control function; and review compliance
with the Company's ethical business practices policy.
The Compensation Committee will review management compensation programs, approve
compensation changes for senior executive officers, review compensation changes
for senior management, and administer stock option plans and other performance
based compensation plans.
The Nominating and Governance Committee will act to select and recommend
candidates to the Board of Directors to be submitted for election at the annual
meeting. The Committee will also review and make recommendations to the Board of
Directors concerning the composition and size of the Board and its Committees,
frequency of meetings, directors' fees, and similar subjects; review and make
recommendations concerning retirement and tenure policy for Board members;
recommend proxies for meetings at which directors are elected; approve programs
for senior management succession; evaluate performance of the Board as a whole;
and consider and approve corporate governance principles.
COMPENSATION OF DIRECTORS
The Company intends to pay to directors who are not employees of the Company
("Non-Employee Directors") an annual fee of $40,000, subject to the terms of the
1996 Directors Stock Compensation Program (the "Directors Program") described
below. The Company intends to pay Non-Employee Directors an additional $2,500
for each meeting they attend in excess of four meetings per year, and to
Non-Employee Directors who are Committee chairmen, an additional $5,000 per
year. In addition, the Company intends to match up to $15,000 of charitable
contributions made to a Code section 501(c)(3) organization by each Non-Employee
Director per year. Directors are reimbursed for all reasonable travel and other
expenses of attending meetings of the Board or a Committee thereof.
DIRECTORS STOCK COMPENSATION PROGRAM
The Company has adopted the Directors Program, which was approved by 3M, the
Company's sole stockholder, as of the Distribution Date, and will become
effective as of the consummation of the Distribution (the "Effective Date"). The
Directors Program will provide nonemployee directors of the Company (each an
"Eligible Director") with automatic grants of stock options ("Options") and
units equivalent to shares of Common Stock ("Restricted Share Units").
The purpose of the Directors Program is to attract and retain well-qualified
persons for service as nonemployee directors of the Company and to promote
identity of interest between directors and stockholders of the Company. The
Directors Program is designed and intended to comply with Rule 16b-3,
promulgated under the Exchange Act ("Rule 16b-3"). The Directors Program will be
administered by the Compensation Committee of the Board of Directors.
Under the Program, a maximum of 800,000 shares of Common Stock, consisting of
authorized and unissued shares or of treasury shares, will be available for
issuance during the term of the Directors Program. These shares are subject to
adjustments in the event of any recapitalization, stock split, reverse stock
split, stock dividend, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event affecting the Common Stock.
Pursuant to the Program, Eligible Directors will generally be entitled to
options to purchase 10,000 shares of Common Stock for each year of service.
Specifically, on the Effective Date, each Eligible Director and, thereafter,
each new Eligible Director who has not previously been granted Options under the
Directors Program, will automatically be issued an Option pursuant to the
Program to purchase a number of shares of Common Stock equal to 30,000
multiplied by a fraction the numerator of which is the number of years of such
Eligible Director's term of office and the denominator of which is three. Each
reelected Eligible Director will automatically be issued an Option to purchase
30,000 shares of Common Stock as of the date such Eligible Director is
reelected. Options will be granted at an option price equal to the fair market
value of the Common Stock on the date of grant.
Each Option will vest and become exercisable as to 10,000 of the shares of
Common Stock underlying such Option on each anniversary of the date of grant,
provided that all outstanding and previously unvested Options of an Eligible
Director will immediately vest and become fully exercisable upon the Eligible
Director's death or disability, or upon a Change of Control (as defined in the
Program). If an Eligible Director otherwise terminates service as an Eligible
Director, any Options that have not become exercisable will be forfeited as of
the date of such termination of service.
On the Effective Date and each anniversary thereof during the term of the
Program, each Eligible Director will automatically be granted, in lieu of 25% of
his or her annual retainer fee for services as a director of the Company, a
number of Restricted Share Units calculated by dividing 25% of such director's
annual retainer fee by the fair market value of a share of Common Stock as of
the date of grant. The value of any fractional Restricted Share Units will be
paid in cash.
Dividend equivalents will be credited to each Eligible Director's Restricted
Share Units during his or her term of office, and will be converted into
additional Restricted Share Units. Upon ceasing to be a member of the Board, the
Restricted Share Units credited to each Eligible Director will be paid to him or
her in the form of a number of shares of Common Stock equal to the number of
Restricted Share Units so credited.
In the event of any recapitalization, stock split, reverse stock split, stock
dividend, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event
affecting the Common Stock, the maximum number or class of shares available
under the Directors Program, the number of shares of Common Stock subject to
outstanding Options and the number of Restricted Share Units to be credited
pursuant to the terms of the Directors Program will be adjusted by the Committee
to reflect any such change in the number or class of shares of Common Stock.
The Directors Program may be amended or terminated by the Board, provided that
(a) no amendment that requires stockholder approval in order for the exemptions
available under Rule 16b-3 to be applicable to the Directors Program will be
effective without the approval of the stockholders of the Company, and (b) the
Directors Program will not be amended more than once every six months, other
than to conform with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
FEDERAL TAX CONSEQUENCES. The grant of Options will create no tax consequences
to the Eligible Directors or to the Company. Upon exercise of an Option, the
difference between the option price and the fair market value at the time of
exercise is treated as ordinary income to the Eligible Director and the Company
is entitled to a deduction for the same amount. Gain or loss upon a subsequent
sale of any shares of Common Stock received upon the exercise of an Option is
taxed as capital gain or loss to the participant (long-term or short-term,
depending upon the holding period of the stock sold).
An Eligible Director will not realize taxable income and the Company will not be
entitled to a deduction upon the crediting of Restricted Share Units. When the
Restricted Share Units are paid to the Eligible Director in the form of shares
of Common Stock, the Eligible Director will realize ordinary taxable income in
an amount equal to the fair market value of the shares of Common Stock at the
time of payment, and the Company will be entitled to a deduction in the same
amount.
NEW PLAN BENEFITS
1996 DIRECTORS STOCK COMPENSATION PROGRAM
NUMBER OF
NAME AND POSITION OPTIONS
- ----------------- -------
Non-Executive Director Group (4 persons) 80,000
No Options have been issued yet under the Director Plan. The number of options
listed above is the number of options that the Non-Employee Directors will
receive as of the Distribution Date.
The Directors Program has been included as an exhibit to the Registration
Statement of which this Information Statement forms a part. The preceding
description is subject in all respects to the provisions of the Directors
Program.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons who
will serve as executive officers of the Company following the Distribution. Each
such person has been elected to the indicated office with the Company on or
prior to the Distribution Date and serves at the pleasure of the Board of
Directors of the Company.
NAME AGE POSITIONS
- ---- --- ---------
William T. Monahan 49 Chairman of the Board, President and Chief
Executive Officer
Carolyn A. Bates 49 General Counsel and Secretary
Jill D. Burchill 41 Chief Financial Officer
Dr. Krzysztof K. Burhardt 54 Vice President -- Technology Development
Wilmer G. DeBoer 51 General Manager, Customer Support Technology
and Document Imaging
Dennis A. Farmer 52 Vice President -- Marketing and Public
Affairs
Barry R. Melchior 52 Director, Corporate Engineering and
Manufacturing Services
David G. Mell 49 Vice President -- Corporate Business
Processes
Richard W. Northrop 58 Vice President -- Europe
Charles D. Oesterlein 53 Vice President -- Operations
Clifford T. Pinder 49 Vice President -- Operations
Michael E. Sheridan 51 Vice President -- Operations
James R. Stewart 39 Corporate Controller
Deborah D. Weiss 40 Treasurer
David H. Wenck 52 Vice President -- International
Set forth below is a description of the position presently held with the Company
by each executive officer, as well as positions held with 3M prior to the
Distribution Date.
WILLIAM T. MONAHAN will serve as Chairman of the Board, President and Chief
Executive Officer. From June 1993 to the Distribution Date, he was Group Vice
President responsible for the Electro and Communications Group and from May 1992
to May 1993, he was Senior Managing Director of 3M Italy. From September 1989 to
May 1992, he was Vice President of Data Storage Products.
CAROLYN A. BATES will serve as General Counsel and Secretary. From 1991 to
the Distribution Date, she was Assistant Chief Intellectual Property Counsel.
JILL D. BURCHILL will serve as the Chief Financial Officer. From April 1995 to
the Distribution Date, she was Sector Controller for 3M's Information, Imaging
and Electronic Sector. From May 1993 to April 1995, she was Group Controller for
the Memory Technology Group and from July 1990 to May 1993, she was Financial
Manager for the Audio/Video Products Division.
DR. KRZYSZTOF K. BURHARDT will serve as Vice President, Technology
Development. From July 1991 to the Distribution Date, he was Research and
Development Vice President for 3M's Information, Imaging and Electronic
Sector.
WILMER G. DEBOER will serve as General Manager, Customer Support Technology
and Document Imaging. From July 1993 to the Distribution Date, he was Global
Field Service Director and Business Director of 3M's Document Systems
Department. From April 1990 to June 1993, he was Manufacturing Director for
3M's Engineering Document Systems Division.
DENNIS A. FARMER will serve as Vice President, Marketing and Public Affairs.
From March 1994 to the Distribution Date, he was Vice President of Data Storage
Markets and from May 1992 to February 1994, he was General Manager of Data
Storage Markets Division. From February 1991 to January 1992, he was Sales
Department Manager of Data Storage Products. From July 1988 to January 1991, he
was Group Director, Europe, for the Memory Technology Group.
BARRY R. MELCHIOR will serve as Director, Corporate Engineering and
Manufacturing Services. From April 1995 to the Distribution Date, he was
Engineering Director of 3M's Information, Imaging and Electronic Sector. From
August 1993 to April 1995, he was Engineering Manager for the Tape Group and
from January 1991 to August 1993 he was Plant Manager for the Traffic Control
Materials Division plant in Brownwood, Texas.
DAVID G. MELL will serve as Vice President, Corporate Business Processes. He was
Vice President of Data Storage Tape Technology from May 1995 to the Distribution
Date, Vice President of Data Storage Diskette and Optical Technology from March
1994 to April 1995, and General Manager of Data Storage Diskette and Optical
Technology Division from May 1992 to February 1994. He was Department Manager of
3M's Computer Tape Technology Department Data Storage Products from September
1989 to April 1992.
RICHARD W. NORTHROP will serve as Vice President in charge of the Company's
European operations. He was a Managing Director of European operations for 3M's
Printing Systems, Hardgoods and Electronic Businesses from January 1994 through
the Distribution Date, a Managing Director of European operations for 3M's
Hardgood and Electronic Businesses from January 1992 through December 1993 and a
Director of 3M's Information and Imaging Divisions from January 1991 through
December 1992.
CHARLES D. OESTERLEIN will serve as Vice President, Operations. From 1994 to the
Distribution Date, he was Vice President of Printing and Publishing Systems and
from 1992 to 1994, he was General Manager of Audio and Video Technology. From
1989 to 1992, he was Department Manager of 3M's Data Storage Products Division.
CLIFFORD T. PINDER will serve as Vice President, Operations. From March 1994 to
the Distribution Date, he was Vice President of Medical Imaging Systems and from
July 1993 to March 1994, he was Vice President of Photo Color Systems. From
November 1991 to June 1993, he was General Manager of 3M's Photo Color Systems
and from 1986 to 1990, he was Managing Director of 3M Puerto Rico.
MICHAEL E. SHERIDAN will serve as Vice President, Operations. He was General
Manager of Data Storage Diskette Technology from May 1995 to the Distribution
Date, Director of Sumitomo/3M's MTG Technology and Special Projects from July
1993 to April 1995 and Group Director of 3M Europe's Memory Technologies Group
from May 1990 to July 1993.
JAMES R. STEWART will serve as Corporate Controller. From July 1995 to the
Distribution Date, he was Group Controller for 3M's Memory Technologies Group
and from March 1992 to July 1995, he was Medical Group Controller -- Europe.
From September 1989 to March 1992, he was the Financial Manager for the
Commercial Office Supply Division.
DEBORAH D. WEISS will serve as Treasurer. From 1988 to the Distribution Date,
she was Manager of 3M's Benefit Funds Investment.
DAVID H. WENCK will serve as Vice President in charge of the Company's
international operations. From May 1995 to the Distribution Date, he was General
Manager of 3M's Data Storage Optical Technology Division. From December 1994 to
April 1995, he was Department Manager of 3M's Software Media and CD-ROM Services
Department and from July 1986 to September 1994, he was Project Manager of 3M's
Optical Recording Project. From October 1981 to January 1986, he was Managing
Director of 3M's Singapore operations.
COMPENSATION OF EXECUTIVE OFFICERS
All of the information set forth in the following tables reflects compensation
earned based on services rendered to 3M by the Company's Chief Executive Officer
and the four other most highly paid executive officers. The services rendered to
3M were, in many cases, in capacities not equivalent to those to be provided to
the Company. Therefore, these tables may not reflect the compensation to be paid
executive officers of the Company.
The following table summarizes compensation paid to the Company's Chief
Executive Officer and the four other most highly paid executive officers based
on services rendered to 3M in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION (1)
-----------------------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
---------------------------------- --------------------------- -----------
PROFIT
SHARING
STOCK OPTIONS PERFORMANCE
PROFIT OTHER (RESTRICTED GRANTED UNIT PLAN
SHARING ANNUAL STOCK (NUMBER (LTIP) ALL OTHER
NAME AND PRINCIPAL POSITION SALARY (BONUS) (2) COMPENSATION AWARDS) OF SHARES) (3) PAYOUTS (4) COMPENSATION (5)
- --------------------------- ------ ----------- ------------ ------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
W.T. Monahan, $236,025 $124,964 -- 0 11,948 $45,980 $14,455
Chief Executive Officer
K.K. Burhardt, $196,500 $ 90,607 -- 0 13,615 $45,980 $16,039
Vice President --
Research and Development
C.D. Oesterlein, $174,400 $ 35,014 -- 0 4,800 $37,620 $17,065
Vice President -- Operations
D.G. Mell, $164,870 $ 46,317 -- 0 4,800 $37,620 $13,479
Vice President --
Corporate Business Processes
D.A. Farmer, $161,315 $ 45,885 -- 0 4,800 $37,620 $17,936
Vice President --
Corporate Marketing
</TABLE>
(1) The amounts shown in the Summary Compensation Table do not include amounts
expensed for financial reporting purposes under 3M's pension plan. This plan
is a defined benefit plan. The amounts shown in the table do, however,
include those amounts voluntarily deferred by the named individuals under
3M's Deferred Compensation Plan. The Deferred Compensation Plan allows
management personnel to defer portions of current base salary, profit
sharing and performance unit compensation earned during the year.
(2) The amounts shown under the headings "Profit Sharing (Bonus)" are cash
payments received under 3M's Profit Sharing Plan. The term "(Bonus)" is
included to satisfy the requirements of the Securities and Exchange
Commission ("SEC"). These payments are based upon 3M's performance and are
variable in accordance with a predetermined formula. 3M's Profit Sharing
Plan provides for quarterly payments (in cash, or, as determined by 3M, in
3M common stock) based upon net income after deducting an allowance for a
predetermined 10 percent annual rate of return on stockholder equity and is
determined by multiplying the number of profit sharing units awarded to an
individual by this quarterly net income, after deduction, divided by the
number of the outstanding shares of 3M's Common Stock. Because of the
required minimum return on stockholder equity, profit sharing tends to rise
and fall relatively more sharply than changes in net income. The number of
profit sharing units awarded to the individuals named is determined by 3M
and is intended to reflect the level of responsibility of the respective
individual. Profit sharing payments are subject to limitations when
individual amounts exceed specified relationships to base salary.
(3) The number of stock options shown in this column includes both annual grants
of incentive and nonqualified stock options and Progressive Stock Options
("PSOs"), which are described more fully in footnote 1 of the table entitled
"Option Grants In Last Fiscal Year (1995)." Although these stock options are
forfeitable by these participants upon termination of employment with 3M,
the Compensation Committee of the 3M Board of Directors has decided to
continue these options for the benefit of the participants during the
continued employment of the participants by the Company, adjusted as set
forth in "TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE
DISTRIBUTION," pursuant to the terms of the original grants under 3M's
option plans.
(4) "LTIP Payouts" reflects the value of the total grant for each individual
under 3M's Performance Unit Plan after the three year performance period
(e.g., for 1995, the performance period is 1993-1995), but no amount will be
paid to these individuals under the grant for an additional three years
pursuant to the terms of the grant. The numbers shown represent estimates
based upon information available as of February 29, 1996. During this
additional three year period, interest will be paid at a rate determined by
3M's "return on capital employed" performance. More specific information
about 3M's Performance Unit Plan is set forth in footnote (1) to the table
entitled "Long-Term Incentive Plans Awards In Last Fiscal Year (1995)."
Although these rights are forfeitable by these participants upon termination
of employment with 3M, the Compensation Committee of the 3M Board of
Directors has decided to continue these rights for the benefit of the
participants during the continued employment of the participants by the
Company, pursuant to the terms of the original grants under the operative 3M
plan.
(5) "All Other Compensation" includes: (a) that amount of Performance Unit Plan
earnings allocated during the year to the base amounts determined after the
three year performance periods of each respective grant, to the extent that
such earnings are in excess of market interest rates (as determined by the
Securities and Exchange Commission); and (b) that amount deemed to be
compensation to the individuals under 3M's Senior Executive Split Dollar
Plan in accordance with rules developed by the SEC. The Senior Executive
Split Dollar Plan provides insurance to all of 3M's executive officers under
split dollar life insurance, which is partly term insurance and partly whole
life insurance with a cash value. Under this plan, 3M is reimbursed for the
premium costs of the non-term portion of coverage and a possible return when
the arrangement terminates either by insurance proceeds incident to the
death of the individual or by cash value after 15 years of participation in
the plan. During 1995, amounts deemed compensation under the plan to the
named executive officers in the Summary Compensation Table were $8,976 for
Mr. Monahan; $10,560 for Dr. Burhardt; $17,065 for Mr. Oesterlein; $13,479
for Mr. Mell; and $17,936 for Mr. Farmer. These amounts were determined by
treating the non-term portion of the coverage as an interest-free loan.
STOCK OPTIONS TABLE
The following table shows for each person named in the Summary Compensation
Table the specified information with respect to 3M stock option grants during
1995. Since this compensation was received by the named individuals for services
rendered to 3M which are not equivalent, in many cases, to those to be provided
the Company, this table may not reflect the compensation to be paid executive
officers of the Company.
OPTION GRANTS IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS % OF
TOTAL
OPTIONS GRANTED DATE VALUE
GRANTED TO EXERCISE OR GRANTED DATE
OPTIONS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) (1) IN FISCAL YEAR ($/SH.) (2) DATE VALUE (3)
- ---- -------------- -------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
W.T. Monahan 9,600 0.223% $59.60 5-09-2005 $131,424
1,436 0.033% $57.10 5-05-2000 $ 13,556
912 0.021% $57.10 5-11-2001 $ 8,609
K.K. Burhardt 4,800 0.112% $59.60 5-09-2005 $ 65,712
141 0.003% $61.40 5-12-1997 $ 1,771
882 0.021% $61.40 5-10-1998 $ 11,078
1,302 0.030% $61.40 5-05-2000 $ 16,353
2,086 0.049% $61.40 5-11-2001 $ 26,200
1,914 0.045% $61.40 5-10-2002 $ 24,040
2,490 0.058% $61.40 5-07-2004 $ 31,274
C.D. Oesterlein 4,800 0.112% $59.60 5-09-2005 $ 65,712
D.G. Mell 4,800 0.112% $59.60 5-09-2005 $ 65,712
D.A. Farmer 4,800 0.112% $59.60 5-09-2005 $ 65,712
</TABLE>
(1) In connection with the Distribution, all outstanding and unexercised 3M
options will be appropriately adjusted to reflect the Distribution. See
"TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE DISTRIBUTION."
3M does not grant any stock appreciation rights ("SARs"). The options shown
for each individual include both annual grants of Incentive Stock Options
and nonqualified stock options and grants of PSO's. Nonqualified options are
subject to a reload feature when exercised with the payment of the option
price in the form of previously owned shares of 3M's common stock. Such an
exercise results in further grants of PSO's. The first grant shown for each
individual is the annual grant. The remaining lines are PSO's. The PSO
grants for each individual were made on a single date, but are, pursuant to
SEC rules, shown in multiple lines because of different expiration dates.
PSO grants were made to participants who exercised nonqualified stock
options and who paid the purchase price using shares of previously owned 3M
common stock. The PSO grant is for the number of shares equal to the shares
utilized in payment of the purchase price and tax withholding, if any. The
option price for the PSO is equal to 100 percent of the market value of 3M's
common stock on the date of the exercise of the primary option or,
alternatively, on the date of the PSO grant to the five named individuals in
the Summary Compensation Table, all of whom are subject to the requirements
of Section 162(m) of the Code. The option period is equal to the remaining
period of the options exercised.
Although these tables reflect the grants of PSO's for those participants
eligible for such while employed by 3M during 1995, the 3M Compensation
Committee has decided that the named participants will no longer be eligible
for subsequent PSO grants after the Distribution Date. All nonqualified
options at the Distribution Date may be exercised once thereafter, but 3M
will not grant any new or additional options, by way of PSO's or otherwise.
All other operative terms of the options listed above will continue past the
Distribution Date, so that the options granted under 3M's plans will be
exercisable during the continued employment of the participants by the
Company, notwithstanding termination of employment with 3M at the
Distribution Date, per the original terms of the grants by 3M.
(2) All options granted during the period were granted at the market value on
the date of grant of initial grants, or at the fair market values discussed
in footnote 1 above in the case of PSO's, as calculated from the average of
the high and low prices reported on the New York Stock Exchange Composite
Index.
(3) Pursuant to the rules of the SEC, 3M has elected to provide a grant date
present value for these option grants determined by a modified Black-Scholes
pricing model. Among key assumptions utilized in this pricing model were:
(i) that the time of exercise of Incentive Stock Options would be four
years, and of PSOs would be two years, into the term of the option, which
could be for terms as long as ten years, in recognition of the historical
exercise patterns at 3M for these types of options; (ii) expected volatility
of 21.7 percent; (iii) risk-free rate of return of 6.26 percent for two
years, and 6.86 percent for four years; and (iv) dividend growth rate of
6.34 percent. No adjustments for non-transferability or risk of forfeiture
have been made. 3M voices no opinion that the present value will, in fact,
be realized and expressly disclaims any representation to that effect.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows for each person named in the Summary Compensation
Table the specified information with respect to 3M option exercises during 1995
and the value of unexercised 3M options at the end of 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1995)
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END (#)(2) FISCAL YEAR-END (1)
ACQUIRED VALUE ---------------------------- ------------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
W.T. Monahan 3,121 $ 51,455 36,348 11,948 $769,168 $86,818
K.K. Burhardt 10,895 116,251 27,056 13,615 608,935 76,375
C.D. Oesterlein 2,400 38,220 14,400 4,800 222,000 32,520
D.G. Mell 1,600 31,720 16,800 4,800 284,820 32,520
D.A. Farmer 100 3,256 21,548 4,800 443,467 32,520
</TABLE>
(1) The "Value Realized" or the unrealized "Value of Unexercised In-the-Money
Options at FY-End" represents the aggregate difference between the market
value on the date of exercise or at December 31, 1995, in the case of the
unrealized values, and the applicable exercise prices. These differences
accumulate over what may be, in many cases, several years. These stock
options all have option periods of ten years when first granted, and PSOs
have option periods equal to the remaining option period of the initial
nonqualified options resulting in PSOs.
(2) See "TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE
DISTRIBUTION."
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows for each person in the Summary Compensation Table the
specified information with respect to awards during 1995 under 3M's Performance
Unit Plan. Since this compensation was received by the named individuals for
services rendered to 3M which are not equivalent, in many cases, to those to be
provided to the Company, this table may not reflect the compensation to be paid
executive officers of the Company.
LONG-TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUT
NUMBER OF OTHER PERIOD UNDER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS UNTIL (3)
OR OTHER MATURATION ---------------------------------
NAME RIGHTS (1) OR PAYOUT (2) THRESHOLD TARGET MAXIMUM
- ---- ---------- ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
W.T. Monahan 950 6 years $0 $95,000 $190,000
K.K. Burhardt 550 6 years $0 $55,000 $110,000
C.D. Oesterlein 550 6 years $0 $55,000 $110,000
D.G. Mell 550 6 years $0 $55,000 $110,000
D.A. Farmer 550 6 years $0 $55,000 $110,000
</TABLE>
(1) To date, the 3M Compensation Committee has established the performance
goals based on criteria of return on capital employed and sales growth.
Performance units awarded to date have been assigned a face value of $100
each. However, the actual amount of the payments is based upon 3M's
attainment of the performance goals. If the targets established by the
Committee are attained during the performance periods, the performance unit
will have a value of $100 at the end of the performance period. If the
targets are not attained, the value will be less than $100 and, if exceeded,
will be more than $100. The ultimate value of the performance unit can vary
from no value to $200, depending upon actual performance.
Payment is contingent upon continued employment to the payment date or
earlier retirement under 3M's pension plan. The Compensation Committee of
the 3M Board of Directors has decided to extend the rights of these
participants going to the Company beyond the Distribution Date during the
continued employment of the participants by the Company, pursuant to the
terms of the original grants under 3M's Performance Unit Plan.
(2) The value of awards granted for 1995 will be determined by 3M's attainment
of return on capital employed and sales growth criteria during a three-year
performance period of 1995, 1996 and 1997. However, there will be an
additional three-year involuntary holding period thereafter during which the
base amounts determined during the performance period will earn interest and
remain subject to forfeiture if the participant discontinues employment for
any reason other than death, disability or retirement.
(3) The estimated future payouts do not include any interest factor that would
be earned annually during the three-year involuntary holding period
following the performance period. Interest during the involuntary holding
period would accrue annually at a rate equal to 50 percent of the return on
capital employed by 3M during the three years and would be payable, together
with the base award, in 2001.
TRANSACTIONS WITH MANAGEMENT
During 1995, three executive officers and directors had loans outstanding with
the Eastern Heights State Bank of St. Paul, a subsidiary of 3M. These loans were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of comparable circumstances and did
not involve more than normal risk of collectibility or present other unfavorable
features.
EMPLOYMENT AGREEMENT
The Company expects to enter into an employment agreement with Mr. Monahan,
which commences as of the Distribution Date for an initial four year term, with
automatic one-year renewals commencing as of the second anniversary of the
Distribution Date, unless notice not to renew is given by either party. Pursuant
to the agreement, Mr. Monahan will serve as the Chief Executive Officer of the
Company, and the Company will use its best efforts to have Mr. Monahan elected
to the Board. Mr. Monahan will receive an annual base salary at a rate no less
than his current rate and an annual incentive bonus to be set by the Company's
Compensation Committee. The agreement will also provide for Mr. Monahan's
participation in the Company's employee benefit, welfare, retirement and
incentive compensation plans and programs in which other senior executive
officers of the Company participate.
The agreement is expected to provide that if Mr. Monahan's employment is
terminated by the Company without cause or by Mr. Monahan for good reason, he
will be entitled to receive, for the remainder of the term of the agreement (a)
base salary, (b) annual incentive compensation (with a pro rata portion for a
partial year) equal to the average annual incentive awards for the three
completed years immediately preceding the date of employment termination
(including, if applicable annual incentive awards received from 3M for any year
within the applicable three-year period), plus a pro rata annual incentive award
for the year in which termination of employment occurs, (c) the additional
benefits that Mr. Monahan would have been entitled to receive under the
Company's defined benefit pension plans had he remained an employee during the
remainder of the term of the agreement, based on the base salary and incentive
compensation levels described in clauses (a) and (b) above and (d) continued
participation in all welfare benefit plans, subject to an offset to the extent
similar benefits are made available to Mr. Monahan without cost under welfare
benefit plans of a subsequent employer. In addition, Mr. Monahan's equity-based
awards will become fully vested and, with respect to his stock options, fully
exercisable, as of his date of termination.
Also, if Mr. Monahan's employment is terminated by reason of death, his estate
or designated beneficiary will be entitled to receive his base salary for a
period of one year and a prorated annual incentive compensation award. If his
employment is terminated by reason of disability, he will be entitled to receive
a prorated annual incentive compensation award.
If Mr. Monahan receives payments under his agreement that would subject him to
any federal excise tax due under section 280G of the Code, then he will also
receive a cash "gross-up" payment so that he will be in the same net after-tax
position that he would have been in had such excise tax not been applied.
During (a) the term of the agreement, (b) any period during which Mr. Monahan
continues to receive salary pursuant to the terms of the agreement, and (c) the
one-year period following termination of Mr. Monahan's employment by the Company
for cause or by Mr. Monahan other than for good reason, Mr. Monahan is required
to comply with appropriate provisions regarding noncompetition, nonsolicitation
of employees, nondisparagement of the Company, return of work papers and
compliance with policies regarding confidentiality of information.
COMPENSATION UNDER RETIREMENT PLANS
Substantially all domestic employees of the Company will be eligible to
participate in the qualified pension and defined contribution plans that the
Company intends to establish. In addition, the executive officers of the Company
will be eligible to participate in certain nonqualified pension or deferred
compensation plans to be established by the Company's Board of Directors.
COMPANY PENSION PLAN
The Company expects to adopt a cash balance pension plan, and it intends that
this plan will be qualified under the applicable provisions of the Code. The
plan will become effective July 1, 1996, and will cover substantially all
domestic employees of the Company. Under this plan, benefits will be determined
by the amount of annual pay credits to each employee's account (equal to 6% of
each employee's annual earnings) and annual interest credits (equal to the
return on the 30-year U.S. Treasury bond) to such accounts. All former 3M
employees will retain their right to receive their benefits accrued as of the
Distribution Date under 3M's pension plan. Those former 3M employees whose age
and years of 3M service as of the Distribution Date equal or exceed 50 (with a
minimum of 10 years of 3M service) will continue to be credited with service for
purposes of early retirement subsidies under 3M's pension plan based on their
combined service with the Company and 3M, and will have their 3M accrued
benefits as of the Distribution Date increased following the Distribution by 4%
per year of employment with the Company.
The following table shows the estimated aggregate annual benefits payable from
the Company's qualified and nonqualified retirement plans to its executive
officers and other participating employees at normal retirement, assuming that
the Company adopts nonqualified pension plans similar to 3M's:
PENSION PLAN TABLE -- COMPANY PLAN
<TABLE>
<CAPTION>
YEARS WITH COMPANY (EXCLUDING SERVICE WITH 3M)
EMPLOYEES ANNUAL EARNINGS -----------------------------------------------------------
USED FOR COMPUTATION OF BENEFITS 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS
- -------------------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000 $ 5,845 $13,668 $24,136 $ 38,145 $ 56,892
200,000 7,794 18,224 32,182 50,860 75,856
250,000 9,742 22,780 40,227 63,575 94,820
300,000 11,691 27,336 48,272 76,290 113,784
350,000 13,639 31,892 56,318 89,005 132,748
400,000 15,588 36,448 64,363 101,720 151,712
450,000 17,536 41,004 72,409 114,435 170,676
500,000 19,485 45,560 80,454 127,150 189,640
</TABLE>
Under this table the normal form of benefit payment under the plan to married
employees would require a reduction in the amounts shown in the table pursuant
to an actuarially based formula to provide a benefit to a surviving spouse upon
the employee's death following retirement equal to 50% of the reduced benefit.
These amounts do not include the 4% per year additional benefit described above,
a portion of which will be provided by the Company's plan.
In addition to their benefits under the Company's plan, it is estimated that the
named executive officers in the Summary Compensation Table will be entitled to
the following aggregate annual benefits payable under 3M's qualified and
nonqualified pension plans at normal retirement, based on their service with 3M
as of the Distribution Date and assuming that they remain employed by the
Company until their normal retirement date: $156,826 for Mr. Monahan; $124,756
for Dr. Burhardt; $124,848 for Mr. Oesterlein; $113,146 for Mr. Mell; and
$117,878 for Mr. Farmer.
PLANS ENCOURAGING EMPLOYEE STOCK OWNERSHIP
The following two plans are intended to help the Company accomplish its
objective of encouraging and increasing employee stock ownership. As a result of
these plans, the Company expects employees to eventually own (directly or
beneficially) in excess of 5% of its outstanding shares.
RETIREMENT INVESTMENT PLAN
The Company expects to adopt a defined contribution plan including a cash or
deferred arrangement, and it intends that this plan will be qualified under the
applicable provisions of the Code. The plan will become effective July 1, 1996,
and will cover substantially all domestic employees of the Company. Under this
plan, employees may generally elect to defer up to 15% of their pay on a
before-tax basis and have it contributed to their individual accounts, subject
to Code and Internal Revenue Service limits. The Company will make matching
contributions to the employees' accounts equal to 100 percent of the first 3% of
pay deferred during each pay period and 25% of the next 3% of pay deferred
during each pay period. All of the Company's matching contributions will be
invested in Common Stock of the Company through an employee stock ownership
plan. Individuals currently employed by 3M who join the Company on the
Distribution Date will have their account balances under the 3M Voluntary
Investment Plan and Employee Stock Ownership Plan transferred to the Company's
plan on or prior to the Distribution Date. In addition to matching
contributions, the Company may also make annual contributions to the accounts of
all eligible employees based on its financial performance. These additional
contributions will also be invested in Common Stock of the Company through the
employee stock ownership plan.
1996 EMPLOYEE STOCK INCENTIVE PROGRAM
The Company has adopted the 1996 Employee Stock Incentive Program (the "Stock
Option Plan"), which was approved by 3M as the sole stockholder of the Company
prior to the Distribution, and will become effective upon, and only in the event
of the consummation of, the Distribution.
The Stock Option Plan is designed to provide incentives to employees to become
stockholders of the Company through the granting of incentive and nonqualified
stock options, restricted stock grants and stock appreciation rights. Further,
the Stock Option Plan is designed to ensure that compensation payable with
respect to the exercise of certain options thereunder will qualify as
performance based compensation within the meaning of section 162(m) of the Code
and thereby be fully tax-deductible by the Company.
The total number of shares of Common Stock (which includes treasury or
authorized but unissued shares) that may be issued or awarded under the Stock
Option Plan may not exceed 6,000,000, subject to equitable adjustment in the
event of a stock split, stock dividend, reduction or combination of shares,
merger, consolidation, recapitalization or other similar transactions). All
shares subject to awards under the Stock Option Plan that are forfeited or
terminated, will be available again for issuance pursuant to awards under the
Stock Option Plan. The maximum number of shares of Common Stock that may be
granted to any one participant under the Stock Option Plan by way of options and
stock appreciation rights, during the term of the plan shall not exceed
1,000,000 (including Progressive Stock Options (as defined below) granted to
such participant.)
The Stock Option Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors, consisting of two or more persons who
are "disinterested persons" within the meaning of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended and "outside directors"
within the meaning of section 162(m) of the Code. Eligibility criteria, the
number of participants, and the number of shares subject to option, restricted
stock or other awards will be determined by the Committee.
The option price of (a) incentive stock options within the meaning of section
422 of the Code ("Incentive Stock Options") will equal 100 percent of the fair
market value of the Common Stock on the date the options are granted, and (b)
options other than Incentive Stock Options ("Nonqualified Stock Options") may be
equal to, less than or more than 100 percent of the fair market value of the
Common Stock on the date the options are granted. Full payment for the shares
(which may be made in whole or in part, in shares of Common Stock valued at the
fair market value on the date the option is exercised) must be made at the time
the option is exercised.
Generally, options will be for a ten-year period (or shorter in the case of
Progressive Stock Options), and become exercisable commencing one year from the
date of grant (no sooner than six months from date of grant with respect to
Progressive Stock Options), unless otherwise determined by the Committee. Option
rights are forfeited by a participant in the event of termination of employment
for any cause other than retirement, death, or disability, and abbreviated
exercise periods are provided in the event of death or disability. Progressive
Stock Options are Nonqualified Stock Options equal to the number of shares of
previously owned stock delivered in payment of the option price of outstanding
Nonqualified Stock Options granted under the Stock Option Plan or in payment of
any applicable federal, state, local and employment withholding taxes.
Progressive Stock Options have as their term the remaining term of the primary
option being exercised and are granted at the fair market value of the stock on
the date of the primary option exercise.
Incentive Stock Options are not transferable other than by will or the laws of
descent and distribution. All options are nontransferable to the extent
necessary to comply with the applicable provisions of Rule 16b-3.
The Committee may also grant restricted stock subject to conditions and
restrictions as may be specified by the Committee. The participant shall
generally have the rights and privileges of a stockholder as to the shares of
restricted stock, including the right to vote, except that the restricted stock
shall remain in the custody of the Company until all restrictions have lapsed.
None of the shares representing the restricted stock may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the period of
restrictions determined by the Committee. At the discretion of the Committee,
cash and stock dividends with respect to restricted stock awards may be either
currently paid or withheld by the Company for the participant's account, and
interest may be paid on the amount of cash dividends withheld at a rate and
subject to such terms as determined by the Committee. Cash or stock dividends so
withheld by the Committee shall not be subject to forfeiture.
Upon the satisfaction of the conditions and the lapsing of restrictions
applicable to restricted stock awards, the Company shall deliver to the
participant or the participant's beneficiary or estate, a stock certificate for
the number of shares of restricted stock granted, free of all such restrictions,
except any that may be imposed by applicable law. The Committee may also award
shares of Common Stock under the Stock Option Plan other than restricted stock.
Under the Stock Option Plan, the Committee may grant stock appreciation rights
that entitle the recipient to receive an amount of cash or a number of shares of
Common Stock measured by the appreciation of the fair market value of the Common
Stock at the date of exercise above the fair market value of the Common Stock at
the date of the initial grant. Stock appreciation rights will be exercisable
during a period determined by the Committee, but which will commence no sooner
than six months from the date of grant and will expire no later than ten years
from the date of grant. Stock appreciation rights are forfeited by a participant
in the event of termination of employment for any cause other than retirement,
death, or disability, and abbreviated exercise periods are provided in the event
of death or disability.
The Stock Option Plan provides that all outstanding options under the Stock
Option Plan would become immediately exercisable in full for the remainder of
the respective option period and remain exercisable in full for a minimum period
of six months following a change in control of the Company (as defined in the
Stock Option Plan), and all restrictions imposed by the Committee on outstanding
grants of restricted stock or other stock awards would automatically be
terminated.
Further, in the event that the exercise of options granted under the Stock
Option Plan or the receipt of Common Stock as a result of a restricted stock
grant or other stock award, after an event of acceleration (i.e., a change of
control), shall be determined to be subject to the excise tax of section 4999 of
the Code, the Company will pay affected participants such additional amounts of
cash so that the net amount, after allowance for the excise tax, any additional
federal, state and local income tax and any additional employment tax paid on
the additional amount, shall be equal to the net amount that would be retained
by the participant if there were no excise tax imposed by section 4999.
Similarly, in the event that a participant should be required to take legal
action to obtain or enforce rights under the Stock Option Plan after an event of
acceleration, the Company shall pay all reasonable legal and accounting fees and
expenses incurred, unless a lawsuit is subsequently determined to have been
spurious or frivolous.
The Stock Option Plan may be amended or terminated by the Board, except that no
amendment will be made without prior approval of the Company's stockholders if
such approval is required for purposes of Rule 16b-3, or, to the extent
applicable, Section 162(m) of the Code.
The Stock Option Plan will terminate five years after its effective date.
FEDERAL TAX CONSEQUENCES
The grant of stock options will create no tax consequences to the participant or
to the Company. The participant will not recognize any taxable income with
respect to the exercise of an Incentive Stock Option (except that the
alternative minimum tax may apply), and the Company will not be entitled to a
deduction when such stock option is exercised, to the extent the individual
$100,000 limit on Incentive Stock Options that first become exercisable in any
calendar year is not exceeded, and to the extent that the shares acquired upon
exercise are disposed of no earlier than two years after the date of grant of
the option and one year after the date of exercise of the option. The tax
payable by the participant upon disposition of the shares acquired upon exercise
of Incentive Stock Options will be at the long-term capital gain rate. Options
that do not satisfy the Code requirements for Incentive Stock Options will be
taxed as Nonqualified Stock Options.
Upon exercise of a Nonqualified Stock Option, the difference between the option
price and the fair market value at the time of exercise is treated as ordinary
income to the participant and the Company is entitled to a deduction for the
same amount, subject to the application of section 162(m) of the Code. Gain or
loss upon a subsequent sale of any shares of Common Stock received upon the
exercise of a Nonqualified Stock Option is taxed as capital gain or loss to the
participant (long-term or short-term, depending upon the holding period of the
stock sold).
A participant generally will not realize taxable income and the Company will not
be entitled to a deduction upon the grant of restricted shares. When the shares
are no longer subject to a substantial risk of forfeiture, the participant will
realize taxable ordinary income in an amount equal to the fair market value of
the stock at the time, and the Company will be entitled to a deduction in the
same amount, subject to the provisions of section 162(m) of the Code. However, a
participant may elect to realize taxable ordinary income in the year the
restricted shares are granted in an amount equal to their fair market value at
the time, determined without regard to the restrictions. In that event, subject
to section 162(m) of the Code, the Company will be entitled to a deduction in
such year in the same amount, and any gain or loss realized by the participant
upon the subsequent disposition of the stock will be taxable at short or long
term capital gain rates but will not result in any further deduction to the
Company.
NEW PLAN BENEFITS
Prior to the Distribution, certain employees of the Company participated in 3M's
Management Stock Ownership Program covering management employees of 3M. In lieu
of a 1996 annual grant under 3M's Program, the Company intends to grant to its
employees who would otherwise have been eligible to receive a 1996 grant under
3M's Program options to purchase shares of Common Stock under the Stock Option
Plan. The exercise price of these options will be the fair market value of the
Common Stock at the time of the grant. As a result, shortly after the
Distribution the Company expects to grant to such employees options to purchase
approximately 800,000 shares of Common Stock.
The following table sets forth the options which would have been received in
1996 by certain employees under 3M's Management Stock Ownership Program.
NEW PLAN BENEFITS
EMPLOYEE STOCK INCENTIVE PROGRAM
NAME AND POSITION NUMBER OF OPTIONS
- ----------------- -----------------
W.T. Monahan 36,100
K.K. Burhardt 5,280
C.D. Oesterlein 5,280
D.G. Mell 5,280
D.A. Farmer 5,280
Executive Group 98,580
Non-Executive Director Group 0
Non-Executive Officer Employee Group (1)
(1) Not determinable as of May 31, 1996.
It cannot be determined at this time the number of options that, will be granted
to the above-named individuals in 1996 under the Stock Option Plan. For options
to purchase shares of common stock of 3M that were granted to the five named
executive officers of the Company in the previous fiscal year under the 3M Stock
Option Plan, see "-- Option Grants in Last Fiscal Year (1995)".
The Stock Option Plan has been included as an exhibit to the Registration
Statement of which this Information Statement forms a part. The preceding
description is subject in all respects to the provisions of the Stock Option
Plan.
TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK
IN THE DISTRIBUTION
Certain employees of 3M (including certain employees who, as a result of the
Distribution, will become employees of the Company) currently hold options to
purchase 3M common stock (the "3M Options") pursuant to the 3M Stock Plans.
In connection with the Distribution, and pursuant to the 3M Stock Plans and the
related option agreements, the number of shares subject to each 3M Option and
the exercise prices thereof will be equitably adjusted to reflect the
Distribution. 3M will remain solely responsible for satisfying all exercises of
3M Options.
Pursuant to the terms of the 3M Management Stock Ownership Program, and pursuant
to a determination of 3M's Compensation Committee, holders of 3M restricted
common stock will not receive shares of Common Stock in the Distribution. In
lieu of such Common Stock, the holders of 3M restricted common stock will
receive additional shares of restricted common stock of 3M with a value equal to
the value of the Common Stock which would have been received by such holders in
the Distribution with respect to such restricted common stock.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The businesses to be conducted by the Company have in the past engaged in
transactions with 3M and its businesses. Such transactions have included, among
other things, various types of financial support by 3M. Following the
Distribution, 3M will continue to have a relationship with the Company as a
result of the agreements being entered into between 3M and the Company in
connection with the Distribution. Except as referred to above or as otherwise
described in this Information Statement, 3M and the Company will cease to have
any material contractual or other material relationships with each other. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on information which has been obtained from 3M's records and a review of
statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d) and 13(g) of the Exchange Act with respect to 3M common stock and
received by 3M prior to March 1, 1996, no person known to the Company will be
the beneficial owner of more than 5% of the outstanding voting securities of any
class of the Company upon completion of the Distribution.
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares of Common
Stock which are expected to be beneficially owned by each director and the named
executive officers of the Company and by all directors and officers of the
Company as a group as of the Distribution Date based upon their respective
holdings of 3M common stock as of June 18, 1996. The table does not include as a
basis for calculation options to purchase shares of 3M common stock exercisable
at or within 60 days of June 18, 1996 as such options will not be converted in
the Distribution to options to purchase shares of Common Stock. See "TREATMENT
OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE DISTRIBUTION." In addition, the
table does not include any options which may be granted as part of the Company's
employee benefit programs following the Distribution. Based upon such data, no
director or officer will own beneficially, as of the Distribution Date, more
than 1% of the shares of Common Stock outstanding at such date and all directors
and officers as a group will beneficially own less than five-tenths of one
percent (0.5%) of the common stock outstanding at such date.
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP
- ---- --------------------
William T. Monahan 1,248
Linda W. Hart 0
Daryl J. White 0
William W. George 0
Lawrence E. Eaton 4,153
Carolyn A. Bates 121
Jill D. Burchill 188
Dr. Krzysztof K. Burhardt 1,914
Wilmer G. DeBoer 77
Dennis A. Farmer 433
Barry R. Melchior 88
David G. Mell 209
Richard W. Northrop 71
Charles D. Oesterlein 110
Clifford T. Pinder 955
Michael E. Sheridan 367
James R. Stewart 87
Deborah D. Weiss 288
David H. Wenck 565
All directors and officers of the
Company as a group (19 persons) 10,874
DESCRIPTION OF COMPANY CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Certificate of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 125 million, of
which 25 million are shares of preferred stock, and 100 million are shares of
Common Stock. Based on the number of shares of 3M common stock outstanding at
May 1, 1996, approximately 41,863,000 shares of Common Stock will be issued to
shareholders of 3M.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share on all
matters voted on by stockholders, and the holders of such shares will possess
all voting power, except as otherwise required by law or provided in any
resolution adopted by the Board of Directors of the Company with respect to any
series of preferred stock. Subject to any preferential or other rights of any
outstanding series of Company preferred stock that may be designated by the
Board of Directors of the Company, the holders of Common Stock will be entitled
to such dividends as may be declared from time to time by the Board of Directors
of the Company from funds available therefor, and upon liquidation will be
entitled to receive pro rata all assets of the Company available for
distribution to such holders. See "SPECIAL FACTORS -- Common Stock Dividend
Policy."
PREFERRED STOCK
The Board of Directors of the Company will be authorized to provide for the
issuance of shares of preferred stock, in one or more series, and to fix for
each such series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolution adopted by the
Board of Directors of the Company providing for the issuance of such series as
are permitted by the Delaware General Corporation Law (the "Delaware GCL"). See
"PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AND BY-LAWS -- Preferred Stock."
NO PREEMPTIVE RIGHTS
No holder of any stock of the Company of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of the Company of any kind or class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS
GENERAL
The Certificate of Incorporation and By-laws contain certain provisions that
could make more difficult the acquisition of control of the Company by means of
a tender offer, open market purchases, a proxy contest or otherwise. Set forth
below is a description of such provisions contained in the Certificate of
Incorporation and By-laws. Such description is intended as a summary only and is
qualified in its entirety by reference to the Certificate of Incorporation and
By-laws, the forms of which are included as exhibits to the Registration
Statement of which this Information Statement forms a part.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides that the number of directors shall be
fixed from time to time by the Board of Directors of the Company. The directors
shall be divided into three classes, as nearly equal in number as is reasonably
possible, serving staggered terms so that directors' initial terms will expire
either at the 1997, 1998 or 1999 annual meeting of the Company's stockholders.
Starting with the 1997 annual meeting of the Company's stockholders, one class
of directors will be elected each year for a three-year term. See "MANAGEMENT OF
THE COMPANY -- Directors."
The Company believes that a classified Board of Directors will help to assure
the continuity and stability of the Company's Board of Directors and the
Company's business strategies and policies as determined by the Board of
Directors of the Company, since a majority of the directors at any given time
will have had prior experience as directors of the Company. The Company believes
that this, in turn, will permit the board to more effectively represent the
interests of stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. As a result, a classified Board of Directors
of the Company may discourage proxy contests for the election of directors or
purchases of a substantial block of the Common Stock because its provisions
could operate to prevent obtaining control of the Board of Directors of the
Company in a relatively short period of time. The classification provisions
could also have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of the Company. In addition,
because under Delaware law a director serving on a classified Board of Directors
may be removed only for cause, a classified Board of Directors would delay
stockholders who do not agree with the policies of the Board of Directors from
replacing a majority of the Board of Directors for two years unless they can
demonstrate that the directors should be removed for cause and can obtain the
requisite vote. Such a delay may help ensure that the Board of Directors of the
Company, if confronted by a holder conducting a proxy contest or an
extraordinary corporate transaction, will have sufficient time to review the
proposal and appropriate alternatives to the proposal and to act in what it
believes are the best interests of the Company's stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT; ADVANCE NOTICE
PROVISIONS
The By-laws provide that special meetings of stockholders of the Company may be
called by the Board of Directors of the Company or the Chairman of the Board.
The Certificate of Incorporation also requires that stockholder action be taken
at a meeting of stockholders and prohibits action by written consent.
STOCKHOLDER NOMINATIONS
The By-laws establish procedures that must be followed for a stockholder to
nominate individuals for election to the Company's Board of Directors.
Nominations of persons for election to the Board will be required to be made by
delivering written notice to the Secretary of the Company not less than 60 days
and not more than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED HOWEVER, that in the event
that the annual meeting is called for a date that is not within 10 days before
or after such anniversary date, notice by the stockholder to be timely will be
required to be so received before the later of the close of business on the 10th
day following the day on which such notice of the date of the meeting was mailed
or public disclosure made of the date of the annual meeting was made, whichever
first occurs and the close of business on the day which is 60 days prior to the
date of the annual meeting. The nomination notice will be required to set forth
certain background information about the persons to be nominated, including the
nominees' principal occupation or employment and the class and number of shares
of capital stock of the Company that are beneficially owned by such person. If
the presiding officer at the annual meeting determines that a nomination was not
made in accordance with these procedures, he may so declare at the meeting and
the nomination may be disregarded.
STOCKHOLDER PROPOSALS
The By-laws establish procedures that must be followed for a stockholder to
submit a proposal at an annual meeting of the stockholders of the Company. Under
these procedures, no proposal for a stockholder vote will be able to be
submitted to the stockholders unless the submitting stockholder has timely filed
with the Secretary of the Company a written statement setting forth specified
information, including the names and addresses of the persons making the
proposal, the class and number of shares of capital stock of the Company
beneficially owned by such persons, a description of the proposal and the
reasons for bringing such business before the annual meeting and any material
interest of the stockholder in such business. The statement will be required to
be filed no later than the latest date for filing a nomination notice as
described above under "--Stockholder Nominations." If the presiding officer at
any stockholder meeting determines that any such proposal was not made in
accordance with these procedures or is otherwise not in accordance with
applicable law, he may so declare at the meeting and such defective proposal may
be disregarded.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to establish
a series of preferred stock and to determine, with respect to any series of
preferred stock, the terms and rights of such series, including the following:
(i) the designation of such series; (ii) the rate and time of, and conditions
and preferences with respect to, dividends, and whether such dividends are
cumulative; (iii) the voting rights, if any, of shares of such series; (iv) the
price, timing and conditions regarding the redemption of shares of such series
and whether a sinking fund should be established for such series; (v) the rights
and preferences of shares of such series in the event of voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; and (vi) the right, if any, to convert or exchange shares of such
series into or for stock or securities of any other series or class.
The Company believes that the availability of the preferred stock will provide
the Company with increased flexibility in structuring possible future financing
and acquisitions, and in meeting other corporate needs which might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of preferred stock without the expense and delay of a special
stockholders' meeting. The authorized shares of preferred stock, as well as
shares of Common Stock, will be available for issuance without further action by
the Company's stockholders, unless action is required by applicable law or the
rules of any stock exchange on which the Company's securities may be listed or
unless the Company is restricted by the terms of previously issued preferred
stock or by the Company's bank credit facility.
SUPERMAJORITY PROVISION
The Certificate of Incorporation generally provides that, whether or not a vote
of the stockholders is otherwise required, the affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of Common Stock
shall be required for the approval or authorization of any Business Transaction
with a related Person, or any Business Transaction in which a Related Person has
an interest; provided, however, that the eighty percent (80%) voting requirement
shall not be applicable if (1) the Business Transaction is approved by the
Continuing Directors, or (2) all of the following conditions are satisfied:
(a) the Business Transaction is a merger or consolidation or sale of
substantially all of the assets of the Company, and the aggregate amount of cash
to be received per share by holders of Common Stock in connection with such
Business Transaction is at least equal in value to the highest amount of
consideration paid by such related person for a share of Common Stock in the
transaction in which such person became a Related Person, or within one year
prior to the date such related Person became a Related Person, whichever is
higher; and
(b) after such Related Person has become the beneficial owner of not less than
ten percent (10%) of the voting power of the stock of the Company entitled to
vote generally in the election of directors, and prior to the consummation of
such Business Transaction, such Related Person shall not have become the
Beneficial Owner of any additional shares of voting stock or securities
convertible into voting stock, except (i) as a part of the transaction which
resulted in such Related Person becoming the beneficial owner of not less than
ten percent (10%) of the voting power of the voting stock or (ii) as a result of
a pro rata stock dividend or stock split; and
(c) prior to the consummation of such Business Transaction, such Related Person
shall not have, directly or indirectly, (i) received the benefit (other than
only a proportionate benefit as a stockholder of the Company) of any loans,
advances, guarantees, pledges, or other financial assistance or tax credits
provided by the Company or any of its subsidiaries, (ii) caused any material
change in the Company's business or equity capital structure, including, without
limitation, the issuance of shares of capital stock of the Company, or (iii)
except as approved by the Continuing Directors, caused the Company to fail to
declare and pay (y) at the regular date therefor any full quarterly dividends on
any outstanding preferred stock or (z) quarterly cash dividends on the
outstanding Common Stock on a per share basis at least equal to the cash
dividends being paid thereon by the corporation immediately prior to the date on
which the Related Person became a Related Person.
The term "Business Transaction" is generally defined as (a) any merger or
consolidation involving the Company or a subsidiary of the Company, (b) any
sale, lease, exchange, transfer, or other disposition (in one transaction or a
series of related transactions), including, without limitation, a mortgage or
any other security device, of all or any substantial part of the assets either
of the Company or of a subsidiary of the Company, (c) any sale, lease, exchange,
transfer, or other disposition (in one transaction or a series of related
transactions) of all or any substantial part of the assets of an entity to the
Company, (d) the issuance, sale, exchange, transfer, or other disposition (in
one transaction or a series of related transactions) by the Company or a
subsidiary of the Company of any securities of the Company or any subsidiary of
the Company, (e) any recapitalization or reclassification of the securities of
the Company or other transaction that would have the effect of increasing the
voting power of a Related Person or reducing the number of shares of each class
of voting stock outstanding, (f) any liquidation, spin-off, split-off, split-up,
or dissolution of the Company, and (g) any agreement, contract, or other
arrangement providing for any of the transactions described in this definition
of Business Transaction. "Continuing Director" is generally defined as a member
of the Board of Directors on the Distribution Date and any member of the Board
of Directors whose election was approved by the Continuing Directors. "Related
Person" generally is defined as any individual or entity which, together with
its affiliates and associates owns not less than 10% of the voting power of the
voting stock of the Company.
RIGHTS AGREEMENT
The Board of Directors of the Company has declared a dividend distribution of
one right (a "Right") to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock for each outstanding share of Common Stock
to stockholders of record of the Company on the Record Date. The description and
terms of the Rights are set forth in a Rights Agreement, dated as of June 18,
1996, between the Company and Norwest Bank Minnesota, N.A. (the "Rights
Agreement").
The Rights remain non-exercisable, nontransferable and non-separable from the
Company's Common Stock until the earlier of (i) 10 days after a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of the Company's Common Stock
(the "Stock Acquisition Date") or (ii) 10 business days (or such later date as
may be determined by the Board of Directors) after the commencement of a tender
offer or exchange offer for 15% or more of the Common Stock.
In the event that a person becomes the beneficial owner of 15% or more of the
then outstanding shares of the Common Stock (except pursuant to an offer for all
outstanding shares of Common Stock that the independent directors of the Company
determine to be fair to and otherwise in the best interests of the Company and
its stockholders (an "Approved Offer"), each holder of a Right will thereafter
have the right to receive, upon exercise, shares of Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Rights. Each Right, when
exercisable, currently entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock at a price of $125, subject to adjustment. In the event that, at any time
following the Stock Acquisition Date, (i) the Company is acquired in a merger or
other business combination transaction in which the Company is not the surviving
corporation (other than a merger that follows an Approved Offer and meets
certain other requirements) or (ii) more than 50% of the Company's assets, cash
flows or earning power is sold or transferred, each holder of a Right shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
In general, at any time prior to their expiration on July 1, 2006 or until 10
days following the Stock Acquisition Date, the Board of Directors in its
discretion may redeem the Rights in whole, but not in part, at a price of $.01
per Right.
Each share of Series A Junior Participating Preferred Stock, when issued, will
be nonredeemable and entitled to cumulative dividends and will rank junior to
any series of Preferred Stock senior to it. Dividends are payable on the Series
A Junior Participating Preferred Stock in an amount equal to the greater of (i)
$1.00 per share or (ii) 100 times the aggregate per share amount of all cash and
noncash dividends (other than dividends payable in Common Stock) declared on the
Common Stock since the last quarterly dividend payment date or, with respect to
the first such date, since the first issuance of the Series A Junior
Participating Preferred Stock. Each share of Series A Junior Participating
Preferred Stock will entitle the holder (subject to adjustment) to 100 votes on
all matters submitted to a vote of the stockholders of the Company. The number
of shares constituting the series of Series A Junior Participating Preferred
Stock is 1,000,000.
The Rights may have certain anti-takeover effects, including deterring someone
from acquiring control of the Company in a manner or on terms not approved by
the Board of Directors. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors, since the Rights
generally may be redeemed at any time by the Company as set forth above.
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS
GENERAL
Officers and directors of the Company are covered by certain provisions of the
Delaware GCL, the Certificate of Incorporation, the By-laws and insurance
policies which serve to limit, and, in certain instances, to indemnify them
against, certain liabilities which they may incur in such capacities. None of
such provisions would have retroactive effect for periods prior to the
Distribution Date, and the Company is not aware of any claim or proceeding in
the last three years, or any threatened claim, which would have been or would be
covered by these provisions. These various provisions are described below.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
In June 1986, Delaware enacted legislation which authorizes corporations to
limit or eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations now authorized
by such legislation, directors are accountable to corporations and their
stockholders for monetary damages for conduct constituting negligence or gross
negligence in the exercise of their duty of care. Although the statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the liability of directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by such legislation. Specifically, the
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware GCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
INDEMNIFICATION AND INSURANCE
As a Delaware corporation, the Company has the power, under specified
circumstances generally requiring the director or officer to act in good faith
and in a manner he reasonably believes to be in or not opposed to the Company's
best interests, to indemnify its directors and officers in connection with
actions, suits or proceedings brought against them by a third party or in the
name of the Company, by reason of the fact that they were or are such directors
or officers, against expenses, judgments, fines and amounts paid in settlement
in connection with any such action, suit or proceeding. The By-laws generally
provide for mandatory indemnification of the Company's directors and officers to
the full extent provided by Delaware corporate law.
The Company intends to purchase and maintain insurance on behalf of any person
who is or was a director or officer of the Company, or is or was a director or
officer of the Company serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Company would have the power or obligation to
indemnify him against such liability under the provisions of the By-laws.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Coopers & Lybrand L.L.P. as the Company's independent
public accountants to audit the Company's financial statements as of and for the
year ending December 31, 1996. Coopers & Lybrand L.L.P. has audited the
Company's historical financial statements as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form 10
(the "Registration Statement", which term shall include any amendments or
supplements thereto) under the Exchange Act with respect to the shares of Common
Stock being received by 3M stockholders in the Distribution. This Information
Statement does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements made in this Information Statement as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, 13th Floor, New York, New York 10048. Copies
of such information can be obtained by mail from the Public Reference Branch of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Report of Independent Accountants F-2
Historical Statements of Operations for the three month periods ended March 31,
1996 and 1995 (unaudited) and for each of the three years in the period ended
December 31, 1995 F-3
Historical Balance Sheets as of March 31, 1996 (unaudited) and as of December 31, 1995 and
1994 F-4
Historical Statements of Cash Flows for the three month periods ended March 31,
1996 and 1995 (unaudited) and for each of the three years in the period ended
December 31, 1995 F-5
Notes to Historical Financial Statements F-6
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Minnesota Mining
and Manufacturing Company:
We have audited the historical financial statements of the businesses to
comprise Imation Corp. (as described in Note 1 to the historical financial
statements) listed on page F-1 of this Information Statement. These historical
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these historical financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the historical financial statements referred to above present
fairly, in all material respects, the financial position of Imation Corp. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 29, 1996
IMATION CORP.
HISTORICAL STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------- --------------------------------
1996 1995 1995 1994 1993
------ ------ -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues $576.1 $576.7 $2,245.6 $2,280.5 $2,307.8
Cost of goods sold 373.8 364.2 1,520.9 1,442.0 1,421.6
------ ------ -------- -------- --------
Gross profit 202.3 212.5 724.7 838.5 886.2
Operating expenses:
Selling, general and
administrative 130.7 137.9 539.4 531.5 529.0
Research and development 47.9 56.4 222.4 211.2 216.7
Restructuring charges 10.4 -- 111.8 -- --
------ ------ -------- -------- --------
Total 189.0 194.3 873.6 742.7 745.7
Operating income (loss) 13.3 18.2 (148.9) 95.8 140.5
Interest expense and other 3.2 5.2 17.9 14.5 13.1
------ ------ -------- -------- --------
Income (loss) before tax and
minority interest 10.1 13.0 (166.8) 81.3 127.4
Income tax provision
(benefit) 4.1 5.5 (70.5) 29.3 51.8
Minority interest (0.1) -- (11.3) (2.3) 0.3
------ ------ -------- -------- --------
Net income (loss) $ 6.1 $ 7.5 $ (85.0) $ 54.3 $ 75.3
====== ====== ======== ======== ========
</TABLE>
Unaudited pro forma information assuming tax provision (benefit) based on a
purely separate return basis:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1996 1995
--------------- ------------
<S> <C> <C>
Income (loss) before tax and minority
interest $10.1 $(166.8)
Income tax provision (benefit) 4.7 (47.5)
Minority interest (0.4) (22.8)
----- -------
Net income (loss) $ 5.8 $ (96.5)
===== =======
</TABLE>
THE ACCOMPANYING NOTES TO HISTORICAL FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
IMATION CORP.
HISTORICAL BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
--------------- ---------------------
1996 1995 1994
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Accounts receivable, net $ 472.2 $ 479.5 $ 476.5
Inventories:
Finished goods 240.1 244.0 290.5
Work in process 77.6 81.2 75.2
Raw materials and supplies 102.4 101.1 107.8
-------- -------- --------
Total inventories 420.1 426.3 473.5
Other current assets 48.1 48.8 47.6
-------- -------- --------
Total current assets 940.4 954.6 997.6
Property, Plant and Equipment, Net 503.9 513.2 654.9
Other Assets 75.7 73.7 19.2
-------- -------- --------
Total Assets $1,520.0 $1,541.5 $1,671.7
======== ======== ========
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 117.0 $ 125.9 $ 129.0
Accrued payroll 52.8 44.4 42.4
Other current liabilities 137.2 125.9 112.2
-------- -------- --------
Total current liabilities 307.0 296.2 283.6
Other Liabilities 91.3 96.6 88.1
Commitments and Contingencies
Equity 1,121.7 1,148.7 1,300.0
-------- -------- --------
Total Liabilities and Equity $1,520.0 $1,541.5 $1,671.7
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES TO HISTORICAL FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
IMATION CORP.
HISTORICAL STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------- -------------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6.1 $ 7.5 $ (85.0) $ 54.3 $ 75.3
Non-cash items included in net income (loss):
Depreciation 48.5 49.1 189.5 185.9 184.4
Deferred income taxes 6.1 0.6 (68.1) 14.0 (10.0)
Restructuring charge and asset write-offs 9.8 -- 166.3 -- --
Other (0.2) 1.6 2.1 1.5 5.1
Changes in operating assets and liabilities:
Accounts receivable 5.1 3.1 (0.6) (16.8) (53.6)
Inventories 4.6 (26.3) 25.4 (87.8) 8.7
Other (10.3) (6.1) 27.2 19.0 19.3
------ ------ ------- ------- -------
Net cash provided by operating activities 69.7 29.5 256.8 170.1 229.2
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40.7) (46.0) (180.2) (182.7) (211.4)
Other 0.6 (0.9) (7.3) 3.0 1.2
------ ------ ------- ------- -------
Net cash used in investing activities (40.1) (46.9) (187.5) (179.7) (210.2)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash (paid to) received from 3M (27.0) 13.4 (72.9) 18.5 (13.1)
Effect of exchange rate changes on cash (2.6) 4.0 3.6 (8.9) (5.9)
------ ------ ------- ------- -------
Net change in cash and equivalents $ -- $ -- $ -- $ -- $ --
====== ====== ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES TO HISTORICAL FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
IMATION CORP.
NOTES TO HISTORICAL FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
Imation Corp. (the "Company") is a newly formed Delaware corporation which
initially will be a wholly-owned subsidiary of Minnesota Mining and
Manufacturing Company ("3M"). On November 13, 1995, 3M announced its intention
to launch its data storage and imaging systems businesses as an independent,
publicly owned company. This transaction is expected to be effected through the
distribution of shares of the Company to 3M shareholders effective on or about
July 1, 1996 ("the Distribution"). Prior to the Distribution, 3M plans to
transfer to the Company substantially all of the assets and liabilities
associated with 3M's global data storage and imaging systems businesses. 3M and
the Company will enter into a number of agreements to facilitate the
Distribution and the transition of the Company to an independent business
enterprise.
BASIS OF PRESENTATION
The historical financial statements reflect the assets, liabilities, revenues
and expenses that were directly related to the Company as they were operated
within 3M. In cases involving assets and liabilities not specifically
identifiable to any particular business of 3M, only those assets and liabilities
expected to be transferred to the Company prior to the Distribution were
included in the Company's separate historical balance sheets. Regardless of the
allocation of these assets and liabilities, however, the Company's Statements of
Operations include all of the related costs of doing business including an
allocation of certain general corporate expenses of 3M which were not directly
related to these businesses including costs for corporate logistics, corporate
research and development, information technologies, finance, legal and corporate
executives. These allocations were based on a variety of factors including, for
example, personnel, space, time and effort, and sales volume. Management
believes these allocations were made on a reasonable basis. All material
inter-company transactions and balances between the Company's businesses have
been eliminated.
3M uses a centralized approach to cash management and the financing of its
operations. As a result, cash and equivalents, and debt were not allocated to
the Company in the financial statements. The historical statements of operations
include an allocation of 3M's interest expense (see Note 6). The Company's
financing requirements are represented by cash transactions with 3M and are
reflected in the "Net Investment by 3M" account (see Note 7). Certain assets and
liabilities of 3M such as certain employee benefit and income tax-related
balances have not been allocated to the Company and are included in the Net
Investment by 3M account. Activity in the Net Investment by 3M equity account
relates to net cash flows of the Company as well as changes in the assets and
liabilities not allocated to the Company.
The Company also participated in 3M's centralized interest rate risk management
function. As part of this activity, derivative financial instruments are
utilized to manage risks generally associated with interest rate market
volatility. 3M does not hold or issue derivative financial instruments for
trading purposes. 3M is not a party to leveraged derivatives. The historical
balance sheets of the Company do not reflect any of the associated asset or
liability positions resulting from this activity because the Company will not
assume any of 3M's derivative financial instruments. The historical statements
of operations and statements of cash flows, however, do reflect an allocation of
the related gains and losses. Such gains and losses were recognized by 3M as
interest expense over the borrowing period and, as a result, are reflected in
the effective interest rates utilized by the Company in deriving its interest
expense. See Note 6.
The minority interest within the historical statements of operations gives
recognition to the Company's share of net income (loss) of certain majority
owned subsidiaries of 3M. The minority shareholders' proportionate interests in
the net assets of majority owned subsidiaries have not been presented in the
historical balance sheets based on the assumption that the Company will obtain
100 percent ownership of the assets and liabilities of these subsidiaries in
connection with the Distribution. See Note (i) to Pro Forma Balance Sheet.
The financial information included herein may not necessarily be indicative of
the financial position, results of operations or cash flows of the Company in
the future or what the financial position, results of operations or cash flows
would have been if the Company had been a separate, independent company during
the periods presented.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of March 31, 1996 and for each of the
three month periods ended March 31, 1996 and 1995 is unaudited. In the opinion
of management, this financial information reflects all adjustments necessary for
a fair presentation of the financial information for such periods. These
adjustments, except for the restructuring charge recorded in the three months
ended March 31, 1996, consist of normal, recurring items.
The results of operations for the three month period ended March 31, 1996 should
not necessarily be taken as indicative of the results of operations that may be
expected for the entire year 1996.
FOREIGN CURRENCY TRANSLATION
Local currencies are generally considered the functional currencies outside the
United States. Assets and liabilities are translated at year-end exchange rates
with cumulative translation adjustments included as a component of equity.
Income and expense items are translated at average rates of exchange prevailing
during the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Principal areas requiring the
use of estimates include: the allocation of financial statement amounts between
the Company and 3M, determination of allowances for uncollectible accounts
receivable and obsolete/excess inventories, and assessments of the
recoverability of deferred tax assets and certain long-lived assets.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost generally
determined on a first-in first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Plant and equipment are
depreciated on a straight-line basis over their estimated useful lives.
Maintenance and repairs are expensed as incurred. Periodic reviews for
impairment of the carrying value of property, plant and equipment are made based
on undiscounted future cash flows.
EMPLOYEE SEVERANCE INDEMNITIES
Employee severance indemnities consist of termination indemnities and are
accrued for each employee in accordance with labor legislation in each
applicable country.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers or upon performance of
services. Revenues from service contracts are deferred and recognized over the
life of the contracts as service is performed.
CONCENTRATIONS OF CREDIT RISK
The Company sells a wide range of products and services to a diversified base of
customers around the world and performs ongoing credit evaluations of its
customers' financial condition, and therefore believes there is no material
concentration of credit risk.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and totaled $52 million,
$52 million and $45 million in 1995, 1994 and 1993 respectively.
INCOME TAXES
As an operating unit within 3M, the Company does not file separate tax returns
but rather is included in the income tax returns filed by 3M and its
subsidiaries in various domestic and foreign jurisdictions. For purposes of the
historical financial statements, the Company's allocated share of 3M's income
tax provision was based on the "separate return" method, except that the tax
benefit of the Company's tax losses in certain jurisdictions was allocated to
the Company on a current basis if such losses could be utilized by 3M in its tax
returns and an assessment of realizability of certain deferred tax assets was
made assuming the availability of future 3M taxable income. The unaudited pro
forma information on the face of the historical statements of operations for the
three months ended March 31, 1996 and for the year ended December 31, 1995
assumes that the Company's income tax provision (benefit) was calculated based
on a purely "separate return" method (see Note (c) to Pro Forma Statements of
Operations). The balance of accrued current income taxes for the Company's
operations is included in the Net Investment by 3M equity account because 3M
pays all taxes and receives all tax refunds on the Company's behalf.
NOTE 3 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
1995 1994
-------- --------
(MILLIONS)
ACCOUNTS RECEIVABLE
Accounts receivable $ 497.0 $ 495.2
Less allowances 17.5 18.7
-------- --------
Accounts receivable, net $ 479.5 $ 476.5
-------- --------
OTHER CURRENT ASSETS
Deferred taxes $ 23.4 $ 21.9
Other 25.4 25.7
-------- --------
Total other current assets $ 48.8 $ 47.6
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land $ 7.7 $ 7.6
Buildings and leasehold improvements 180.9 170.5
Machinery and equipment 1,616.2 1,489.3
Construction in progress 63.5 98.3
-------- --------
1,868.3 1,765.7
Less accumulated depreciation 1,355.1 1,110.8
-------- --------
Property, plant and equipment, net $ 513.2 $ 654.9
-------- --------
OTHER ASSETS
Deferred taxes $ 60.6 $ 3.2
Other 13.1 16.0
-------- --------
Total other assets $ 73.7 $ 19.2
-------- --------
OTHER CURRENT LIABILITIES
Accrued rebates $ 44.6 $ 30.6
Deferred income 35.8 38.8
Other 45.5 42.8
-------- --------
Total other current liabilities $ 125.9 $ 112.2
-------- --------
OTHER LIABILITIES
Employee severance indemnities $ 59.2 $ 49.4
Other 37.4 38.7
-------- --------
Total other liabilities $ 96.6 $ 88.1
-------- --------
NOTE 4 -- RESTRUCTURING CHARGES AND ASSET WRITE-OFFS
In late 1995, the Company initiated a review of all of its operations, including
its organizational structure, manufacturing operations, products and markets. In
connection with this review, the Company has adopted a reorganization plan to
rationalize its manufacturing operations, streamline its organizational
structure and write-off impaired assets.
To reflect the direct and indirect costs associated with this reorganization
plan, 3M recognized a loss on disposal which included pre-tax charges of
approximately $340 million in the fourth quarter of 1995 as a part of its
discontinued operations. The Company will reflect the direct portion of these
charges, approximately $250 million, in its separate financial statements
partially in 1995 and partially in 1996 based upon the timing recognition
criteria required for restructuring charges. The Company recorded $166.3 million
of these charges ($88.3 million after taxes and minority interest) in its 1995
historical financial statements and an additional $10.4 million ($6.1 million
after taxes and minority interest) in the first quarter of 1996. The balance of
the $250 million relates primarily to employee severance costs and is expected
to be reflected in the Company's financial statements during the remaining
quarters of 1996.
The 1995 special charge of $166.3 million includes $111.8 million related to
world-wide manufacturing rationalization programs to exit less profitable
manufacturing locations and to centralize manufacturing in the United States and
in Italy, and consists principally of write-offs of property, plant and
equipment. This $111.8 million charge is included as a separate restructuring
charge in the statement of operations. The remaining 1995 special charge of
$54.5 million relates primarily to asset write-offs included in cost of goods
sold.
The first quarter 1996 restructuring charge reflects costs for certain voluntary
separation programs.
NOTE 5 -- INCOME TAXES
1995 1994 1993
------- ----- ------
(MILLIONS)
INCOME (LOSS) BEFORE TAX AND MINORITY
INTEREST
U.S. $(136.1) $63.2 $ 74.8
International (30.7) 18.1 52.6
------- ----- ------
Total $(166.8) $81.3 $127.4
------- ----- ------
INCOME TAX PROVISION (BENEFIT)
Currently payable (refundable)
Federal $ (14.0) $ 8.3 $ 24.0
State (4.3) 1.7 3.5
International 15.6 4.6 34.4
Deferred
Federal (34.9) 9.4 (5.6)
State (3.1) 0.8 (0.4)
International (29.8) 4.5 (4.1)
------- ----- ------
Total $ (70.5) $29.3 $ 51.8
------- ----- ------
1995 1994
----- ------
(MILLIONS)
COMPONENTS OF NET DEFERRED TAX ASSETS AND
LIABILITIES
Receivables $ 4.0 $ 5.3
Inventories 5.9 5.8
Property, plant and equipment 44.5 (16.9)
Payroll 19.2 16.9
Other, net 9.5 4.2
----- ------
Net Deferred Tax Assets and Liabilities $83.1 $ 15.3
----- ------
Management believes the Company, or in certain cases 3M prior to the
Distribution, will generate sufficient taxable income in future periods to
recover fully the Company's deferred tax assets.
1995 1994 1993
----- ---- ----
RECONCILIATION OF EFFECTIVE INCOME TAX RATE
Statutory U.S. tax rate (35.0)% 35.0% 35.0%
State income taxes, net of federal benefit (6.3) 3.1 2.4
International taxes in excess of statutory rate (0.3) 3.4 9.3
All other, primarily foreign tax credits (0.7) (5.5) (6.0)
----- ---- ----
Effective Worldwide Tax Rate (42.3)% 36.0% 40.7%
----- ---- ----
NOTE 6 -- INTEREST EXPENSE
The Company's financial statements include allocations of 3M's interest expense
totaling $18.8 million, $16.3 million and $13.3 million in 1995, 1994 and 1993,
respectively. These allocations are based on a targeted non-ESOP debt
anticipated at the Distribution Date of $250 million. The interest rates used
were 7.5%, 6.5% and 5.3% in 1995, 1994 and 1993, respectively, which reflect
3M's weighted average effective interest rates on non-ESOP debt during these
periods. The historical balance sheets of the Company do not include this debt
as the total capitalization of the Company is reflected in its equity.
NOTE 7 -- EQUITY
Changes in equity during each of the years ended December 31 were as follows:
NET CUMULATIVE
INVESTMENT TRANSLATION TOTAL
BY 3M ADJUSTMENT EQUITY
----- ---------- ------
(MILLIONS)
Balance at December 31, 1992 $1,210.7 $(38.5) $1,172.2
Net income 75.3 75.3
Net amount paid to 3M (13.1) (13.1)
Net change in cumulative
translation (34.6) (34.6)
-------- ------ --------
Balance at December 31, 1993 1,272.9 (73.1) 1,199.8
Net income 54.3 54.3
Net amount received from 3M 18.5 18.5
Net change in cumulative
translation 27.4 27.4
-------- ------ --------
Balance at December 31, 1994 1,345.7 (45.7) 1,300.0
Net loss (85.0) (85.0)
Net amount paid to 3M (72.9) (72.9)
Net change in cumulative
translation 6.6 6.6
-------- ------ --------
Balance at December 31, 1995 $1,187.8 $(39.1) $1,148.7
-------- ------ --------
NOTE 8 -- REVENUES BY CLASS OF SIMILAR PRODUCTS OR SERVICES (UNAUDITED)
The Company operates in one industry segment, the information processing
industry, supplying products and services to meet the information processing
needs for a variety of customer applications. Below are the product and service
revenues by class of similar products or services for each of the years ended
December 31.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
REVENUE BY CLASSES OF SIMILAR PRODUCTS OR
SERVICES
Information processing, management and storage $ 930.7 $ 935.4 $ 947.3
Information printing 542.2 566.0 567.0
Medical and photo imaging 608.1 589.1 564.4
Other 164.6 190.0 229.1
-------- -------- --------
Total $2,245.6 $2,280.5 $2,307.8
-------- -------- --------
</TABLE>
NOTE 9 -- GEOGRAPHIC AREAS
Information in the table below is presented on the same basis utilized by the
Company to manage its business. Export sales and certain income and expense
items are reported in the geographic area where the final sale to customers is
made, rather than where the transaction originates.
<TABLE>
<CAPTION>
OTHER
UNITED INTERNATIONAL ELIMINATIONS TOTAL
STATES EUROPE* AREAS** AND OTHER COMPANY
------ ------- ------- --------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues 1995 $1,128.8 $803.8 $313.0 $2,245.6
to Customers 1994 1,199.9 764.1 316.5 2,280.5
1993 1,247.8 763.2 296.8 2,307.8
Transfers Between 1995 $ 290.9 $ 76.2 $ 4.0 $(371.1)
Geographic Areas 1994 341.2 89.4 0.1 (430.7)
1993 310.9 86.5 0.1 (397.5)
Operating 1995*** $ (169.0) $ 55.8 $(35.7) $ (148.9)
Income (Loss) 1994 1.5 72.9 21.4 95.8
1993 6.0 97.8 36.7 140.5
Identifiable
Assets 1995 $ 816.4 $575.7 $149.7 $ (0.3) $1,541.5
1994 894.9 582.9 194.7 (0.8) 1,671.7
1993 857.4 517.8 176.2 (5.8) 1,545.6
</TABLE>
* Includes operations in the Middle East and Africa since such regions are
managed together with Europe. These operations are not material to the
overall financial results of the Company.
** Includes Latin America, Asia and Canada.
*** Includes special charges of $99.8 million in the United States, $20.4
million in Europe and $46.1 million in Other International Areas.
NOTE 10 -- RETIREMENT PLANS
Prior to the Distribution, employees of the Company participated in various
3M-sponsored retirement plans covering substantially all 3M United States
employees and many employees outside the United States. The following
information is provided for historical purposes only, since the Company intends
to adopt different retirement plans.
3M's pension benefits are based principally on an employee's years of service
and compensation near retirement. Plan assets are invested in common stocks,
fixed-income securities, real estate and other investments.
3M's funding policy is to deposit with an independent trustee amounts at least
equal to those required by law. A trust fund is maintained to provide pension
benefits to United States plan participants and their beneficiaries. In
addition, a number of plans are maintained by deposits with insurance companies.
The Company's allocated portion of pension costs were $24 million, $25 million
and $28 million in 1995, 1994 and 1993, respectively.
Net pension cost and the funded status of pension plans as shown below includes
all employees covered by 3M plans including those associated with the Company.
3M has decided to retain the accrued liabilities (and the assets attributable to
such liabilities) under its United States pension plan pertaining to employees
of the Company. The Company intends to adopt a separate cash balance pension
plan to be effective July 1, 1996 which will cover substantially all United
States employees of the Company. All employees of the Company who are previous
employees of 3M will retain their rights to receive their accrued benefits under
3M's United States pension plan.
<TABLE>
<CAPTION>
U.S. PLAN INTERNATIONAL PLANS
------------------------- ------------------------
1995 1994 1993 1995 1994 1993
----- ----- ----- ----- ---- -----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET PENSION COST
Service cost $ 96 $ 117 $ 110 $ 86 $ 85 $ 86
Interest cost 304 280 276 92 89 80
Return on plan assets --
actual (846) 70 (430) (124) (2) (185)
Net amortization and deferral 532 (377) 154 39 (79) 112
----- ----- ----- ----- ---- -----
Net pension cost $ 86 $ 90 $ 110 $ 93 $ 93 $ 93
----- ----- ----- ----- ---- -----
</TABLE>
<TABLE>
<CAPTION>
U.S. PLAN INTERNATIONAL PLANS
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
FUNDED STATUS OF PENSION PLANS
Plan assets at fair value $4,134 $3,343 $1,293 $1,333
Accrued pension cost 97 161 110 97
------ ------ ------ ------
Amount provided for future benefits $4,231 $3,504 $1,403 $1,430
Actuarial present value of:
Vested benefit obligation 3,666 2,889 1,051 1,022
Non-vested benefit obligation 521 423 108 100
------ ------ ------ ------
Accumulated benefit obligation $4,187 $3,312 $1,159 $1,122
Amount provided for future benefits less
accumulated benefit obligation 44 192 244 308
Projected benefit obligation 4,696 3,721 1,482 1,514
------ ------ ------ ------
Plan assets at fair value less projected benefit
obligation $ (562) $ (378) $ (189) $ (181)
Unrecognized net transition (asset) obligation (149) (187) 22 22
Other unrecognized items 614 404 57 62
------ ------ ------ ------
Accrued pension cost $ (97) $ (161) $ (110) $ (97)
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
U.S. PLAN INTERNATIONAL PLANS
------------------------ ------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSUMPTIONS AT YEAR-END
Discount rate 7.00% 8.25% 7.25% 7.10% 7.45% 7.26%
Compensation rate increase 5.00% 5.00% 5.00% 5.38% 5.71% 5.31%
Long-term rate of return on assets 9.00% 9.00% 9.00% 7.59% 7.65% 7.64%
</TABLE>
Net pension cost is determined using assumptions at the beginning of the year.
Funded status is determined using assumptions at year-end.
Prior to the Distribution, U.S. employees of the Company also participated in a
3M-sponsored employee savings plan under Section 401(k) of the Code. Under this
plan, 3M matches employee contributions of up to 6 percent of compensation at
rates ranging from 35 to 85 percent depending upon financial performance. 3M's
matching contributions to the employee savings plan are funded through an
employee stock ownership plan. The Company's allocation of the expense related
to the employee savings plan was $4.5 million, $4.6 million and $4.7 million in
1995, 1994 and 1993, respectively.
The Company expects to adopt its own employee savings plan under Section 401(k)
of the Code pursuant to which it will make matching contributions through an
employee stock ownership plan.
NOTE 11 -- OTHER POSTRETIREMENT BENEFITS
Prior to the Distribution, employees of the Company who were eligible to retire
from 3M were eligible to participate in various 3M health care and life
insurance benefit plans available to substantially all of 3M's United States
employees. The following information is provided for historical purposes only,
since the Company does not intend to adopt similar postretirement benefit plans.
3M has set aside funds with an independent trustee for these postretirement
benefits and makes periodic contributions to the plans. The assets held by the
trustee are invested in common stocks and fixed-income securities. Employees
outside the United States are covered principally by government-sponsored plans.
The cost of 3M-provided plans for these employees is not material. The Company's
allocation of the net charges to income for plans covering United States
employees was $9 million, $8 million and $8 million in 1995, 1994 and 1993,
respectively.
The table below sets forth the historical components of the net periodic
postretirement benefit cost and a reconciliation of the funded status of the
postretirement benefit plans for all 3M United States employees including those
associated with the Company.
1995 1994 1993
---- ---- ----
(MILLIONS)
NET PERIODIC POSTRETIREMENT BENEFIT
COST
Service cost $ 26 $ 28 $ 23
Interest cost 63 55 53
Return on plan assets -- actual (76) 16 (23)
Net amortization and deferral 51 (40) 1
---- ---- ----
Total $ 64 $ 59 $ 54
---- ---- ----
1995 1994
----- -----
(MILLIONS)
FUNDED STATUS OF POSTRETIREMENT BENEFIT PLANS
Fair value of plan assets $ 398 $ 319
----- -----
Accumulated postretirement benefit
obligation:
Retirees $ 286 $ 256
Fully eligible active plan participants 201 167
Other active plan participants 468 367
----- -----
Benefit obligation $ 955 $ 790
----- -----
Plan assets less benefit obligation $(557) $(471)
Adjustments and unrecognized items 134 67
----- -----
Accrued postretirement cost $(423) $(404)
----- -----
The accumulated postretirement benefit obligation and related benefit cost are
determined through the application of relevant actuarial assumptions. 3M
anticipates its health care cost trend rate to slow from 6.9 percent in 1996 to
5.0 percent in 2003, after which the trend rate is expected to stabilize. The
effect of a one percentage point increase in the assumed health care cost trend
rate for each future year would increase the benefit obligation by $78 million
and the current year benefit expense by $9 million. Other actuarial assumptions
include an expected long-term rate of return on plan assets of 9.0 percent
(before taxes applicable to a portion of the return on plan assets), and a
discount rate of 7.0 percent.
NOTE 12 -- EMPLOYEE STOCK PLANS
Prior to the Distribution certain employees of the Company participated in 3M's
Management Stock Ownership Program covering management employees of 3M. In lieu
of a 1996 annual grant under 3M's program, the Company intends to grant to its
employees who would otherwise have been eligible to receive a 1996 grant under
such Program, options to purchase shares of Common Stock under the new stock
option plan of the Company which was approved by 3M, as the sole stockholder of
the Company, prior to Distribution.
As a result, shortly after the Distribution the Company expects to grant to such
employees options to purchase approximately 800,000 shares of Common Stock.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company is a party to various claims and litigation arising from the normal
course of business, including product liability and environmental claims. While
there can be no certainty that the Company may not ultimately incur charges in
excess of presently established accruals, management believes that such
additional charges, if any, will not have a material adverse effect on the
Company's financial position.
On or immediately after the Distribution, the Company expects to enter into a
debt facility agreement to borrow approximately $280 million. Of this amount,
the Company will lend $30 million to the employee stock ownership plan it will
establish. The terms of these borrowings are expected to contain customary
covenants including financial covenants. In addition, in connection with the
Distribution the Company intends to enter into a number of agreements with 3M to
facilitate the Distribution and the transition of the Company to an independent
business enterprise. Such agreements are expected to relate to tax sharing
matters, corporate services to be provided by 3M, environmental liabilities,
intellectual property, supply, service, contract manufacturing and sales agency
matters, and shared facilities.
NOTE 14 -- NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
undiscounted expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. The impact of this statement on the
Company is immaterial.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company intends to follow the option that permits
entities to continue to apply current accounting standards to stock-based
employee compensation arrangements. Effective with year-end 1996 reporting, the
Company will disclose pro forma net income and earnings per share amounts as if
Statement No. 123 accounting were applied to the Company's stock compensation
programs that may exist once the Company is established as a separate entity
from 3M.
ANNEX A
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
ONE FINANCIAL PLACE
440 SOUTH LA SALLE STREET
CHICAGO, IL 60605
(312) 765-6000
June 18, 1996
Board of Directors
Minnesota Mining and Manufacturing Company
3M Center
St. Paul, Minnesota 55144
Dear Sirs and Mesdames:
We understand that Minnesota Mining and Manufacturing Company ("3M" or the
"Company") is proposing to distribute 100% of the common stock of Imation
Corp. ("Imation") on a pro rata basis, to the holders of 3M common stock (the
"Spin-Off"). We further understand that, at the time of the Spin-Off, Imation
will be comprised of the businesses conducted by 3M's Imaging Systems and
Memory Technologies Groups other than the Audio and Video Products Division
(the "Transferred Businesses").
You have asked for our opinion as of the date hereof whether the proposed
Spin-Off is fair, from a financial point of view, to the holders of 3M common
stock. A detailed description of the Spin-Off is set forth in the
Registration Statement on Form 10 and related Information Statement (the
"Information Statement") to be distributed to the holders of 3M common stock.
For purposes of this opinion, we have:
(i) analyzed certain available financial statements and other
information relating to 3M and Imation, including the
Information Statement relating to the Spin-Off;
(ii) analyzed certain internal financial statements and other
financial operating data concerning 3M and Imation prepared by
their respective managements;
(iii) analyzed certain financial budgets and forecasts prepared by
the respective managements of 3M and Imation;
(iv) compared the financial performance of Imation with that of
certain other companies with publicly traded securities which
we deemed to be comparable to Imation and its respective
business units; MORGAN STANLEY
(v) compared the financial performance of 3M (both with or without
the Transferred Businesses) with that of certain other
companies with publicly traded securities which we deemed to
be comparable to 3M (both with or without the Transferred
Businesses) respectively;
(vi) discussed past and current operations and financial condition
and the prospects of 3M with senior executives of 3M and of
Imation with senior executives of Imation;
(vii) participated in discussions among representatives of 3M and
Imation and their legal advisors; and
(viii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial budgets and forecasts, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial
performance of 3M and Imation. We have not made any independent valuation or
appraisal of the assets or liabilities, contingent or otherwise, of 3M or
Imation, nor have we been furnished with any such appraisals.
We have noted that 3M has received a ruling from the Internal Revenue Service
to the effect that the Spin-Off will not be a taxable transaction to the
shareholders of 3M under federal income tax laws (except to the extent of any
cash distributed in lieu of fractional shares of Imation). In that regard, we
have assumed the correctness of the conclusions set forth in such ruling. We
have also assumed that the Spin-Off will comply with all federal, state,
local and foreign laws and applicable regulations, except for any
noncompliance with such applicable laws and regulations that would not have a
material adverse effect on 3M or Imation.
In rendering our opinion, we have, with your consent, not considered the
effect of any terms or arrangements relating to the Spin-Off (other than as
set forth in the first paragraph of this letter or as described in the
Information Statement), including the terms of any distribution, tax or other
agreement or arrangement, or any amendment or modification to any existing
such agreement or arrangement.
Our opinion is rendered on the basis of securities markets, economic and
general business and financial conditions prevailing as of the date hereof
and the conditions and prospects, financial and otherwise, of 3M and Imation
as they are represented to us as of the date hereof or as they were reflected
in the information and documents reviewed by us. Our opinion assumes that the
Spin-Off is completed substantially on the basis set out in the Information
Statement and that the shares of 3M and Imation are fully and widely
distributed among investors and are subject only to normal trading activity.
The estimation of market trading prices of newly distributed securities is
subject to uncertainties and contingencies, all of which are difficult to
predict and beyond the control of the firm making such estimates.
MORGAN STANLEY
In addition, the market prices of such securities will fluctuate with changes
in market conditions, the conditions and prospects, financial and otherwise,
of 3M and Imation, and other factors which generally influence the prices of
securities. In rendering our opinion, we are not opining as to the price at
which the common stock of 3M or Imation will trade after the Spin-Off is
effected.
We have acted as financial advisor to the Board of Directors of 3M in
connection with the Spin-Off and will receive a fee for our services. In the
past, Morgan Stanley and its affiliates have provided investment banking and
financing services for 3M and have received fees for the rendering of such
services.
Our advisory services and the opinion expressed herein are provided solely
for the benefit of 3M's Board of Directors in evaluating the Spin-Off and are
not on behalf of, and are not intended to confer any rights or remedies upon,
3M, Imation, any shareholder of 3M or Imation or any person other than 3M's
Board of Directors.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that the proposed Spin-Off is fair, from a financial point of view, to
the holders of 3M common stock.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ STEVEN P. ANDERSON
Steven P. Anderson
FOR IMMEDIATE RELEASE
Media Contact: Dan Gahlon, 3M
612/733-8806
Investor Contact: Jon Greer, 3M
612/736-1915
3M SETS SPIN-OFF OF DATA STORAGE AND IMAGING SYSTEMS BUSINESSES
ST. PAUL, Minn. -- June 19, 1996 -- 3M announced today that its Board of
Directors has formally approved the spin-off of the company's data storage and
imaging systems businesses as an independent company named Imation Corp. 3M
shareholders of record at the close of business on June 28, 1996, will receive
one share of Imation Corp. for every 10 shares of 3M stock.
Approximately 42 million shares of Imation Corp. will be distributed to 3M
shareholders. An Information Statement containing financial and other
information about Imation's business, management and properties will be mailed
to 3M shareholders on or about June 24, 1996. Stock certificates for Imation
Corp. are expected to be mailed on or about July 15, 1996.
Imation Corp. common stock will be listed on the New York and Chicago Stock
Exchanges under the ticker symbol IMN. 3M common stock (symbol: MMM) will
continue to trade on the New York Stock Exchange and several other exchanges.
3M said that the distribution of Imation Corp. stock to 3M shareholders
completes an important element of a strategic initiative announced last
November. As part of this initiative, 3M also plans to discontinue its audiotape
and videotape business.
"We are eager to complete this process to allow both companies to focus
their energy on becoming even stronger and more successful," said L.D. DeSimone,
3M chairman of the board and chief executive officer.
Imation Corp. develops, manufactures and markets a wide variety of products
and services worldwide for information processing, specializing in data storage
and imaging applications. The company is the world's largest supplier of
removable media products used to store and transmit computer information, and is
a leading supplier of color-proofing materials and private label photographic
films. Imation was the first to develop the new, widely used laser imager for
medical imaging applications. The businesses that will be operated by Imation
Corp. generated revenues of more than $2 billion in 1995.
"3M is launching Imation in a solid financial situation and with a strong
legacy of innovation and customer satisfaction," says William T. Monahan,
Imation chief executive officer.
3M DECLARES QUARTERLY DIVIDEND
3M's Board of Directors also announced that the quarterly dividend would be
increased from 47 cents a share to 49 cents a share, effective with the
third-quarter dividend payable on September 12, 1996, to stockholders of record
on August 23, 1996. This marks the 320th consecutive quarterly payment on 3M
common stock and marks the 38th consecutive yearly increase.
In February 1996, the 3M Board of Directors had said it would reconsider
the annual dividend increase when the Imation spin-off was ready to be launched.
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FROM: Internet
3M Corporate Public Relations & Government Affairs A002578.rel
3M Center, Building 225-1S-15
St. Paul, MN 55144-1000
