<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4085
POLAROID CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 04-1734655
- ----------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
784 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 386-2000
- ---------------------------------------- --------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Shares of Common Stock, $1 par value,
outstanding as of August 6, 1999: 44,373,221 shares
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This document contains 34 pages.
Exhibit index appears on page 33
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<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Earnings
Periods Ended June 28, 1998 and June 27, 1999
(In millions, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
Second Quarter Six Months
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $464.7 $486.8 $855.3 $865.8
- -------------------------------------------------------------------------------------------------------------------------------
Cost of sales 255.0 280.9 498.8 518.2
Marketing, research, engineering and administrative expenses 204.9 165.0 364.7 313.6
- -------------------------------------------------------------------------------------------------------------------------------
Total costs 459.9 445.9 863.5 831.8
- -------------------------------------------------------------------------------------------------------------------------------
Profit/(loss) from operations 4.8 40.9 (8.2) 34.0
Other income/(expense) 27.2 1.1 25.6 (21.5)
Interest expense 13.5 19.3 25.6 37.2
- -------------------------------------------------------------------------------------------------------------------------------
Earnings/(loss) before income taxes 18.5 22.7 (8.2) (24.7)
Federal, state and foreign income tax expense/(benefit) 6.4 7.9 (2.9) (8.7)
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings/(loss) $12.1 $14.8 ($5.3) ($16.0)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Basic earnings/(loss) per common share $0.27 $0.33 ($0.12) ($0.36)
Diluted earnings/(loss) per common share $0.27 $0.33 ($0.12) ($0.36)
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $0.15 $0.15 $0.30 $0.30
Weighted average common shares used for basic
earnings/(loss) per share calculation (in thousands) 44,353 44,227 44,413 44,148
Weighted average common shares used for diluted
earnings/(loss) per share calculation (in thousands) 44,648 44,229 44,413 44,148
Common shares outstanding at end of period (in thousands) 44,132 44,319 44,132 44,319
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Balance Sheet
(In millions)
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 27,
Assets 1998 1999
---- ----
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 105.0 $68.9
Receivables 459.6 438.7
Inventories:
Raw materials 83.5 89.6
Work-in-process 190.5 158.2
Finished goods 259.3 218.7
- ---------------------------------------------------------------------------------------------------------
Total inventories 533.3 466.5
Prepaid expenses and other assets 195.5 224.5
- ---------------------------------------------------------------------------------------------------------
Total current assets 1,293.4 1,198.6
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Property, plant and equipment
Gross property, plant and equipment 1,975.9 2,017.4
Less accumulated depreciation 1,409.4 1,423.7
- ---------------------------------------------------------------------------------------------------------
Net property, plant and equipment 566.5 593.7
- ---------------------------------------------------------------------------------------------------------
Deferred tax assets 208.2 201.1
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Other assets 129.6 68.4
- ---------------------------------------------------------------------------------------------------------
Total assets $2,197.7 $2,061.8
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- ---------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Short-term debt $331.7 $279.5
Payables and accruals 358.4 304.2
Compensation and benefits 208.5 170.9
Federal, state and foreign income taxes 34.4 25.5
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 933.0 780.1
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Long-term debt 497.4 572.7
- ---------------------------------------------------------------------------------------------------------
Accrued postretirement benefits 241.9 239.5
- ---------------------------------------------------------------------------------------------------------
Other long-term liabilities 135.5 122.9
- ---------------------------------------------------------------------------------------------------------
Common Stockholders' equity:
Common stock, $1 par value 75.4 75.4
Additional paid-in capital 413.4 403.9
Retained earnings 1,226.7 1,197.4
Accumulated other comprehensive income (33.4) (54.8)
Less: Treasury stock, at cost 1,291.5 1,274.9
Deferred compensation .7 .4
- ---------------------------------------------------------------------------------------------------------
Total common stockholders' equity 389.9 346.6
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,197.7 $2,061.8
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- ---------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 28, 1998 and June 27, 1999
(In millions)
<TABLE>
<CAPTION>
(Unaudited)
Cash flows from operating activities 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss ($5.3) ($16.0)
Depreciation of property, plant and equipment 52.9 48.7
Decrease in receivables 47.5 7.8
(Increase)/decrease in inventories (37.3) 50.4
Increase in prepaids and other assets (17.3) (24.8)
Increase/(decrease) in payables and accruals 15.4 (55.1)
Decrease in compensation and benefits (29.9) (48.9)
(Decrease)/increase in federal, state and foreign income taxes payable (12.4) .4
Gain on sale of real estate (45.9) (10.4)
Other non cash items (22.5) 43.6
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Net cash used by operating activities (54.8) (4.3)
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Cash flows from investing activities
- -----------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in other assets (27.1) 26.1
Additions to property, plant and equipment (70.7) (95.6)
Proceeds from sale of property, plant and equipment 92.8 22.0
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Net cash used by investing activities (5.0) (47.5)
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Cash flows from financing activities
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Net increase/(decrease) in short-term debt (maturities 90 days or less) 93.1 (46.9)
Short-term debt having (maturities over 90 days):
Proceeds 43.5 17.6
Payments (71.2) (17.4)
Proceeds from issuances of long-term debt - 268.2
Repayments of long-term debt - (200.0)
Cash dividends paid (13.3) (6.6)
Proceeds from issuance of shares in connection with stock incentive plan 5.8 -
Purchase of treasury stock (30.6) -
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 27.3 14.9
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Effect of exchange rate changes on cash 2.2 .8
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Net decrease in cash and cash equivalents (30.3) (36.1)
Cash and cash equivalents at beginning of period 68.0 105.0
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Cash and cash equivalents at end of period $37.7 $68.9
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- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company's domestic and foreign subsidiaries, all of which are either wholly
owned or majority owned. In these statements intercompany accounts and
transactions have been eliminated. This is an interim unaudited report, subject
to year-end audit and adjustments. The information furnished, however, reflects
all adjustments (consisting of normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results of the
interim period. Certain prior year amounts have been reclassified to conform to
the current year's presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), that establishes accounting and
reporting requirements for derivative instruments and for hedging activities.
FAS 133 requires companies to recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposures to changes in fair value of recognized assets or liabilities or
unrecognized firm commitments, a hedge of the exposure to variable cash flows of
a forecasted transaction, or a hedge of the foreign currency exposure of a net
investment in a foreign operation, unrecognized firm commitments, an
available-for-sale security or a foreign-currency denominated forecasted
transaction. The accounting for changes in fair value under FAS 133 depends on
the intended use of the derivative and the resulting designation. In June 1999,
the FASB decided that the effective date for adopting the requirements of FAS
133 should be delayed one year to fiscal years beginning after June 15, 2000.
This delay, published as Financial Accounting Standards Board Statement No. 137,
applies to quarterly and annual financial statements. The Company is currently
evaluating the effect of FAS 133 on its reported financial results.
5
<PAGE>
EARNINGS PER SHARE RECONCILIATION
The reconciliation of the numerators and denominators of the basic and diluted
earnings/(loss) per common share computations for the Company's reported net
earnings/(loss) is as follows (in millions except per share amounts):
<TABLE>
<CAPTION>
Weighted
Average Per Share
Earnings/(loss) Shares Amount
--------------- ------ ------
<S> <C> <C> <C>
QUARTER ENDED JUNE 28, 1998
Basic earnings per share $ 12.1 44.4 $ .27
-------- -------- --------
-------- -------- --------
Diluted earnings per share $ 12.1 44.6* $ .27
-------- -------- --------
-------- -------- --------
QUARTER ENDED JUNE 27, 1999
Basic earnings per share $ 14.8 44.2 $ .33
-------- -------- --------
-------- -------- --------
Diluted earnings per share $ 14.8 44.2* $ .33
-------- -------- --------
-------- -------- --------
SIX MONTHS ENDED JUNE 28, 1998
Basic loss per share $ (5.3) 44.4 $ (.12)
-------- -------- --------
-------- -------- --------
Diluted loss per share $ (5.3) 44.4* $ (.12)
-------- -------- --------
-------- -------- --------
SIX MONTHS ENDED JUNE 27, 1999
Basic loss per share $ (16.0) 44.1 $ (.36)
-------- -------- --------
-------- -------- --------
Diluted loss per share $ (16.0) 44.1* $ (.36)
-------- -------- --------
-------- -------- --------
</TABLE>
* Stock options for shares of common stock were outstanding but not included in
the calculations of diluted earnings/(loss) per share because the effects were
anti-dilutive. In addition the effects of outstanding performance shares were
not included since the performance criteria were not met. The stock options and
performance shares not included in these calculations were as follows: (in
millions)
<TABLE>
<CAPTION>
Stock Performance
options shares
------- ------
<S> <C> <C>
QUARTER ENDED JUNE 28, 1998 2.9 .2
------- ------
------- ------
QUARTER ENDED JUNE 27, 1999 5.4 .3
------- ------
------- ------
SIX MONTHS ENDED JUNE 28, 1998 4.7 .2
------- ------
------- ------
SIX MONTHS ENDED JUNE 27, 1999 5.6 .3
------- ------
------- ------
</TABLE>
6
<PAGE>
COMPREHENSIVE INCOME
The Company's total of comprehensive income/(loss) was as follows (in millions):
<TABLE>
<CAPTION>
Quarter Ended
-------------
JUNE 28, 1998 JUNE 27,1999
------------- ------------
<S> <C> <C>
Net earnings $ 12.1 $ 14.8
Other comprehensive income:
Currency translation adjustment (5.4) (6.1)
Unrealized gain on available-for-sale securities, net-of-tax - .3
---------- ----------
Total comprehensive income/(loss) $ 6.7 $ 9.0
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
----------------
JUNE 28, 1998 JUNE 27,1999
------------- ------------
<S> <C> <C>
Net loss $ (5.3) $ (16.0)
Other comprehensive income:
Currency translation adjustment (7.5) (21.1)
Unrealized loss on available-for-sale securities, net-of-tax - (.3)
---------- ----------
Total comprehensive income/(loss) $ (12.8) $ (37.4)
---------- ----------
---------- ----------
</TABLE>
7
<PAGE>
SEGMENTS
The following is a summary of information related to the Company's segments
(in millions):
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
--------------------------------- -----------------------------------
6/28/98 6/27/99 6/28/98 6/27/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales to customers:
Americas Region $281.9 $301.5 $493.7 $528.6
European Region 117.2 107.4 231.0 193.9
Asia Pacific Region 65.6 77.9 130.6 143.3
Global Operations - - - -
Research and Development - - - -
------------- -------------- ------------- ----------------
Subtotal of Segments 464.7 486.8 855.3 865.8
Corporate - - - -
------------- -------------- ------------- ----------------
Total $464.7 $486.8 $855.3 $865.8
------------- -------------- ------------- ----------------
------------- -------------- ------------- ----------------
Profit/(Loss) from operations:
Americas Region $ 81.8 $ 91.9 $ 133.7 $ 149.8
European Region 12.4 19.6 26.8 32.4
Asia Pacific Region 19.0 20.4 34.3 34.2
Global Operations (47.8) (38.3) (89.6) (85.0)
Research and Development (33.6) (23.1) (62.4) (43.8)
------------- -------------- ------------- ----------------
Subtotal of Segments 31.8 70.5 42.8 87.6
Corporate (27.0) (29.6) (51.0) (53.6)
------------- -------------- ------------- ----------------
Total $4.8 $40.9 ($8.2) $34.0
------------- -------------- ------------- ----------------
------------- -------------- ------------- ----------------
</TABLE>
8
<PAGE>
RESTRUCTURING AND OTHER CHARGES
In 1997, the Company recorded restructuring and other charges of $340 million
of which $17 million represented inventory write-offs, which were not
individually material, that were recorded in cost of goods sold. In 1998, the
Company recorded a $50 million restructuring charge related to an expansion
of the severance component of the 1997 program. These charges (the "1997
Program") were undertaken as the result of an assessment by management of the
Company's infrastructure to strengthen the Company's competitive cost
position, to streamline operations and to improve profitability by
consolidating and selling manufacturing facilities and reducing corporate
overhead. The strategic objective of this program was to reduce the cost of
developing, manufacturing, selling and distributing the Company's products;
to change and improve the Company's business processes to position it to
deliver new products more efficiently; to improve financial performance; and
to fundamentally alter how the Company conducts its business globally.
Approximately $150 million of the charges recorded in 1997 for the 1997
Program related to an involuntary severance program under which approximately
1,800 employees (consisting of sales and marketing employees in the regional
segments: Americas - 16%, Europe - 24%, Asia Pacific - 9%; primarily
manufacturing employees in Global Operations - 36%; research and engineering
employees in Research and Development - 5%; and administrative employees in
the non-segment Corporate group - 10%) are expected to leave the Company at
various times before the end of 1999. The 1998 extension to this involuntary
severance program added approximately 1,000 additional employees who are
expected to leave the Company by the end of 1999 (consisting of sales and
marketing employees in the regional segments: Americas - 7%, Europe - 14%,
Asia Pacific - 3%; primarily manufacturing employees in Global Operations -
65%; research and engineering employees in Research and Development - 10%;
and administrative employees in the non-segment Corporate group - 1%).
Approximately 1,980 of the 2,800 expected total terminations had occurred as
of June 27, 1999. The cash payments related to this severance program will be
paid over time and are expected to be completed by the end of 2000.
Approximately $107 million of cash payments related to this program had been
made as of June 27, 1999. Of the total amount provided for severance,
approximately $10 million related to pension curtailment costs related to the
number of U.S. employees expected to terminate under this program and
approximately $4 million related to pension enhancement costs incurred for
certain non-U.S. employees expected to terminate under this program.
In the Americas, European, and Asia Pacific Regions, the major impact of the
1997 Program consists of reducing the number of employees associated with sales
and marketing activities. The impact of this program in the European Region also
consists of consolidating back office activities in a centralized location.
The impact of the 1997 Program in Global Operations consists of reducing the
number of direct and indirect employees associated with the manufacture of
instant film and, to a lesser degree, instant hardware along with employees
required to procure goods and services, distribute finished products and
employees at the Company's chemical manufacturing facility in Freetown,
Massachusetts that the Company sold in February 1998.
The impact of the 1997 Program in Research and Development consists of reducing
the number of employees associated with the research, engineering and
development activities.
The 1997 Program affected the corporate overhead groups, which are not part of a
segment, by reductions in the number of employees in corporate support functions
such as central marketing, finance, legal, information management,
administration, human resources and facilities support.
In addition, the asset impairment portion of the 1997 restructuring and other
charges amounted to $163 million and consisted of a write-down of the carrying
value
9
<PAGE>
of the Company's underutilized New Bedford coating facility by $106 million
to an independently determined fair value of $18 million and a write-off of
the $22 million carrying value of unused battery manufacturing equipment that
was not required to support anticipated production requirements. The Company
also recognized a charge of $26 million related to the sale of its
underutilized chemical manufacturing facility located in Freetown,
Massachusetts that included a $22 million loss on the sale of the facility
and $3 million in related exit costs for environmental liabilities and $1
million of severance liabilities. Additionally, these asset impairments
included $13 million of other fixed asset write-downs, which were
individually not material, related to assets that were no longer required
primarily due to the consolidation of certain manufacturing operations.
In addition to the $3 million of exit costs relating to the Freetown facility,
the balance of the 1997 restructuring and other charges consisted of $6 million
of exit costs, primarily for lease and contract termination and other costs
directly related to restructuring activities. The Company is pursuing several
strategic options for future use of the New Bedford coating facility, including
outright sale. The Company sold the Freetown chemical manufacturing facility in
February 1998. Under the terms of the agreement to sell the Freetown chemical
facility, the Company entered into a long-term supply agreement with the new
owner to purchase certain specialty chemicals used to manufacture the Company's
instant film. The assets included in the 1997 Program were primarily located in
Global Operations.
The reserves established for the 1997 Program and related cash and non-cash
charges to those reserves as of June 27, 1999 are as shown on the following
page:
10
<PAGE>
1997 RESTRUCTURING AND OTHER
(In millions)
<TABLE>
<CAPTION>
PENSION
ENHANCEMENT
AND ASSET EXIT
SEVERANCE CURTAILMENTS IMPAIRMENTS COSTS TOTAL
--------- ------------ ----------- ----- -----
1997:
- -----
<S> <C> <C> <C> <C> <C>
Restructuring
and Other $144.0* $7.5 $162.5 $9.5** $323.5
Reclassification
of Pension
Enhancements (1.6) 1.6 - - 0.0
Non-Cash
Charges - (9.1) (162.5) - (171.6)
----- ----- ------- --- -------
Ending Reserve
Balance 142.4 0.0 0.0 9.5 151.9
----- ----- ----- --- -----
----- ----- ----- --- -----
1998:
- -----
Restructuring
and Other 47.4 2.6 - - 50.0
Reclassification
of Pension
Enhancement (2.4) 2.4 - - 0.0
Cash Charges (69.2) - - (7.1) (76.3)
Non-Cash
Charges - (5.0) - - (5.0)
----- ----- ----- ---- -----
Ending Reserve
Balance 118.2 0.0 0.0 2.4 120.6
----- ----- ----- ---- -----
----- ----- ----- ---- -----
1999:
- -----
Q1
- --
Cash Charges (16.8) - - - (16.8)
------ ----- ----- --- ------
Ending Reserve
Balance 101.4 0.0 0.0 2.4 103.8
----- ----- ----- --- -----
----- ----- ----- --- -----
Q2
- --
Cash Charges (20.7) - - (.2) (20.9)
------ ----- ----- ----- ------
Ending Reserve
Balance $80.7 $0.0 $0.0 $2.2 $82.9
----- ----- ----- ---- -----
----- ----- ----- ---- -----
</TABLE>
* Includes approximately $1.5 million of termination costs related to the
sale of the Company's Freetown, Massachusetts chemical manufacturing
facility
** Primarily consisting of lease termination costs related to abandon
facilities, contract settlement costs related to discontinued product
lines and environmental remediation costs associated with the sale of
the Freetown chemical facility.
11
<PAGE>
LONG-TERM DEBT
In a public offering in February 1999, the Company issued 11 1/2 % Notes due
2006 (the "2006 Notes") in an aggregate principal amount of $275.0 million. The
2006 Notes were placed at par value. The net proceeds of $268.2 million from the
sale of the 2006 Notes were used primarily for the payment of $200.0 million
aggregate principal amount of the Company's 8% Notes due March 15, 1999 and for
general corporate purposes, including reducing outstanding borrowings under the
Amended Credit Agreement and short-term lines of credit. The indenture, pursuant
to which the 2006 Notes were issued (the "Indenture"), contains certain
covenants that restrict, among other things, the Company and its subsidiaries
from making certain restricted payments, including dividends on and the purchase
of the Company's common stock and certain other payments; incurring additional
debt and issuing preferred stock; creating certain liens; entering into sale and
leaseback transactions; entering into certain transactions with affiliates; and
entering into certain mergers and consolidations or selling all or substantially
all of the properties or assets of the Company.
OTHER
In fourth quarter of 1996, the Company sold its Helios medical diagnostic
imaging equipment line to Sterling Dry Imaging Systems, Inc. ("SDIS"), a
subsidiary of SDI Holding Corporation ("SDHI"), and acquired a minority interest
in the buyer (i.e., SDIS) and its parent company (i.e., SDHI).
The Company's interest as of December 31, 1998 consisted of: (1) 14% of the
common stock of SDHI with a book value of approximately $14 million; (2)
preferred stock of SDIS with a book value of approximately $35 million; and (3)
111 shares of SDIS common stock valued at $.01 per share. These investments were
made in cash and were carried at cost. The carrying value of these investments
was initially supported by an independent third-party business valuation and was
subsequently confirmed periodically by comparing SDHI's actual operating
results, including SDIS, with SDHI's original and revised business plans.
In January 1999, Agfa-Gevaert N.V. ("AGFA") agreed to acquire SDHI, excluding
SDIS which, under the acquisition agreement, would not be acquired by AGFA and
which would be spun off to a liquidating trust, the proceeds of which would be
distributed to the shareholders of SDHI. In the first quarter of 1999, the
Company recorded a non-cash charge of $35 million to establish a reserve for the
book value of its preferred stock investment in SDIS because it was probable
based on the information available to the Company at that time that SDIS would
not be viable as a stand-alone business and that the proceeds from the
liquidation would not be sufficient to redeem the preferred stock. During the
second quarter of 1999, AGFA completed its acquisition of SDHI, and the Company
received cash proceeds of approximately $16 million in return for its investment
in SDHI. The net gain of approximately $2 million on this transaction was
recorded in other income and expense. Any future recovery of the Company's
interest in SDHI upon liquidating SDHI's remaining assets is not expected to be
material to the financial position or results of operations of the Company.
In a related transaction during the second quarter of 1999, the Company acquired
certain assets of SDIS consisting of machinery and equipment and intellectual
property in return for the Company's preferred and common stock in SDIS,
forgiveness of approximately $2 million of amounts owed to the Company by SDIS
and the Company's rights under certain supply and technology agreements with
SDIS. The machinery and equipment and intellectual property acquired from SDIS
were deemed to have no value
12
<PAGE>
by the Company. The Company recognized the cost of the forgiveness of
approximately $2 million in amounts owed to it by SDIS in other income and
expense. To replace the Company's supply agreement with SDIS and as a result of
negotiations with AGFA, the Company has entered into a Helios media supply
contract with AGFA who has agreed to assume SDIS' marketing and service
responsibilities.
SUBSEQUENT EVENT
On August 3, 1999, the Company and Polaroid (U.K.) Limited, the Company's
wholly owned subsidiary ("Polaroid UK"), entered into a new loan agreement
with Deutsche Bank A.G. and ABN AMRO Bank NV totaling 72.5 million EUROS
which refinanced most of the Company's existing short-term lines of credit
with these banks. Borrowings under this facility bear an interest rate of
approximately 25 basis points higher than that paid under the Company's
$350 million Amended Credit Agreement. The facility is scheduled to mature on
December 31, 2001. Several of the Company's foreign subsidiaries granted
lenders under this facility a security interest in certain inventories and
receivables. In addition, the Company has guaranteed the obligations of
Polaroid UK under the new facility.
LEGAL PROCEEDINGS
Certain legal proceedings to which the Company is a party are discussed in Part
II, Item 1 of this filing on Form 10-Q.
INDEPENDENT AUDITORS' REPORT
The June 28, 1998 and June 27, 1999 condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by KPMG LLP, independent
certified public accountants, in accordance with established professional
standards and procedures for such review. The report by KPMG LLP commenting upon
their review of the condensed consolidated financial statements appears on the
following page.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Polaroid Corporation:
We have reviewed the condensed consolidated balance sheet of Polaroid
Corporation and subsidiary companies as of June 27, 1999 and the related
condensed consolidated statements of earnings for the three and six month
periods ended June 28, 1998 and June 27, 1999, and cash flows for the six month
periods then ended. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Polaroid Corporation and subsidiary
companies as of December 31, 1998, and the related consolidated statements of
earnings, cash flows and changes in common stockholders' equity for the year
then ended (not presented herein); and in our report dated January 20, 1999,
except for Note 8 to which the date is February 17, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1998 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG LLP
Boston, Massachusetts
July 13, 1999
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is managed in five primary segments: the Americas Region; the
European Region; the Asia Pacific Region; Global Operations; and Research and
Development. The Americas Region is comprised of all countries in North and
South America. The European Region includes all of the countries of the European
continent, the United Kingdom, Russia, the middle-eastern countries and the
African continent. The Asia Pacific Region includes Japan, China, Australia and
the rest of Asia. These three regions consist of sales and marketing operations.
Global Operations includes worldwide activities associated with manufacturing,
distribution, logistics, new product manufacturing development and inventory
management. Research and Development is comprised of corporate research and
engineering activities.
Additionally, the Company has one category called Corporate, which is not a
segment. This category includes central marketing, general and administrative
costs and certain other corporate costs, including worldwide restructuring and
other charges.
The Company evaluates the performance of its segments primarily based on
profit/(loss) from operations with recognition of assets employed. For the
regional sales and marketing segments, profit/(loss) from operations is based on
standard product costs excluding inter-company margins and therefore reflects a
contribution to worldwide Company profits related to segment third party sales.
Non-standard manufacturing costs are reported as incurred in the Global
Operations segment along with new product manufacturing development costs and
regional warehousing and distribution costs. The Research and Development
segment is also reported on an as-incurred cost basis.
The Company uses quantitative terms to explain changes in instant film sales
unit volumes. The table below quantifies the use of these terms:
<TABLE>
<CAPTION>
Term REPRESENTS CHANGE OF
<S> <C>
low single digits 1 to 4 percent
high single digits 5 to 9 percent
low double digits 10 to 19 percent
mid double digits 20 to 39 percent
high double digits 40 to 99 percent
</TABLE>
SECOND QUARTER RESULTS
Sales
- -----
Worldwide net sales to customers for the second quarter of 1999 were $487
million, a 5% increase compared with worldwide net sales of $465 million in the
second quarter of 1998. The principal reason for this increase was the sales of
new products. To a lesser degree, revenues in 1999 benefited from higher instant
film sales, which were depressed in the same quarter in 1998 due to the
Company's dealer inventory adjustment initiative. These sales increases were
offset, in part, by declines in revenues from the Company's non-core businesses.
The Company's non-core businesses consist of primarily Graphics, Sunglasses,
Polarizer and Holography ("non-core businesses"). On a unit basis, worldwide
shipments of instant cameras totaled 1.7 million in the second quarter of 1999
compared with 1.1 million in the second quarter of 1998. Nearly all of this
increase came from new products. Worldwide unit shipments to customers of
instant film increased by low double digits in the second quarter of 1999
compared with the second quarter of 1998.
15
<PAGE>
Sales in the Americas Region increased 7% to $302 million during the second
quarter of 1999 from $282 million in the second quarter of 1998. (These
regional segment totals include sales in the United States of $267 million in
1999 and $245 million in 1998.) The Americas Region increase was due
primarily to higher instant film sales, which were depressed, in the same
quarter in 1998 due to the Company's dealer inventory adjustment initiative.
In addition, the Company also achieved sales increases in other core
products, which consist primarily of digital hardware, conventional film,
videotapes, and unique ID products, excluding instant film ("other core"), as
well as from new products and instant cameras. However, these sales increases
were offset, in part, by reductions in revenues in the non-core businesses.
On a unit basis in the Americas Region, shipments to customers of instant
cameras increased 9%, while shipments to customers of instant film increased by
low double digits in the second quarter of 1999 compared with the same period of
1998. In addition, at the United States retail level, the Company estimates that
the unit volume of integral film in the second quarter of 1999 decreased by high
single digits, while instant cameras increased by low double digits compared
with the second quarter of 1998.
Sales in the European Region decreased 8% to $107 million for the second quarter
of 1999 compared with $117 million in the same period of 1998. The decrease was
due to lower revenues from instant film, instant cameras, other core products
and the impact of a stronger U.S. dollar. On a unit basis, shipments to
customers of instant cameras increased 5%, while shipments of instant film to
customers increased by low double digits in the second quarter of 1999 compared
with the second quarter of 1998. This increase in film shipments was primarily
due to film supplied to two identification programs associated with national
elections. These unit increases did not translate into revenue increases because
of the impact of product mix.
Sales in the Asia Pacific Region increased 18% to $78 million for the second
quarter of 1999 from $66 million in the second quarter of 1998. This sales
increase was primarily due to sales of new products in Japan. Sales in 1999 also
benefited from the impact of a weaker U.S. dollar, but this was offset by lower
instant film sales (other than new products). On a unit basis, shipments of
instant cameras increased over 200% while shipments to customers of instant film
increased by low double digits. Both of these increases were driven by sales of
new products.
Profit/(Loss)
- -------------
In the second quarter of 1999, the Company generated an operating profit of $41
million compared with operating profit of $5 million in the second quarter of
1998. The 1998 operating profit totaled $15 million before the establishment of
a $10 million reserve for doubtful receivables in Russia which was prompted by
economic turmoil in that country.
The increase of $26 million, excluding the Russian reserve,($41 million vs. $15
million) was due primarily to lower overhead expenses in most areas of the
Company, and, to a lesser degree, the margin generated by sales of new products.
These increases in operating profits were offset, in part, by a decline in most
of the Company's non-core businesses.
Profit from operations in the Americas Region was $92 million in the second
quarter of 1999 compared with $82 million in the second quarter of 1998. This
increase was due to lower overhead expenses and the margin earned on higher film
sales, offset in part by the impact of a stronger U.S. Dollar.
16
<PAGE>
Profit from operations in the European Region was $20 million in the second
quarter of 1999 compared with $12 million in the second quarter of 1998. This
increase was due to lower overhead spending in the region and the absence of the
$10 million reserve recorded in the Russian operation in 1998. These reduced
expenses were offset, in part, by the margin impact of lower instant film sales
and lower revenues from other core products.
Profit from operations in the Asia Pacific Region increased to $20 million in
the second quarter of 1999 compared with $19 million in the same period of 1998.
The margin from the sales of new products in the quarter was largely offset by
the impact of lower instant film sales (other than new products).
Global Operations costs were $38 million in the second quarter of 1999 compared
with $48 million in the second quarter of 1998. This improvement was due to
several factors, especially enhanced efficiencies associated with the
manufacturing of the Company's products.
Research and Development costs were $23 million in the second quarter of 1999
compared with $34 million in the second quarter of 1998. This reduction reflects
a restructuring of the segment and a focusing of the Company's research and
development efforts.
Corporate costs were $30 million in the second quarter of 1999 compared with $27
million in the same quarter last year.
The net of other income and other expense for the second quarter of 1999 was
income of $1 million. In the second quarter of 1998, this net of other income
and other expense was income of $27 million which included a gain from the sale
of real estate of $26 million.
Interest expense was $19 million and $13 million in the second quarter of 1999
and 1998, respectively. The increase in 1999 was primarily due to higher levels
of debt and, to a lesser degree, higher interest rates on the debt.
The effective tax rate was 35% for both the second quarter of 1999 and 1998.
Net earnings were $15 million in the second quarter of 1999 or $.33 basic
earnings per common share. This compares with net earnings of $12 million in the
second quarter of 1998, or $.27 basic earnings per common share. Diluted
earnings per common share were the same as the basic earning per common share in
both periods.
SIX MONTH REVIEW
Sales
- -----
Worldwide net sales to customers for the first half of 1999 increased 1% to $866
million, from $855 million in the first half of 1998. The principal reason for
this increase was the sales of new products. The increase in revenues was
offset, in large part, by lower sales of other core products and instant film,
which was unfavorably affected by product mix. On a unit basis, worldwide
shipments of instant cameras led by new products, totaled 2.9 million in the
first half of 1999 compared with 2.0 million in the first half of 1998.
Worldwide unit shipments to customers of instant film increased by high single
digits in the first half of 1999 compared with the first half of 1998.
17
<PAGE>
Sales in the Americas Region increased 7% to $529 million during the first half
of 1999 from $494 million in the first half of 1998. (These regional totals
include sales in the United States of $465 million in 1999 and $425 million in
1998.) The Americas Region increase was primarily due to higher instant film
sales, which were depressed in the same period in 1998 due to the Company's
dealer inventory adjustment initiative, and sales of new products.
On a unit basis in the Americas Region, shipments to customers of instant
cameras increased 11%, while shipments to customers of instant film increased by
high single digits in the first half of 1999 compared with the same period of
1998. In addition, at the United States retail level, the Company estimates that
the unit volume of integral film decreased by high single digits, while instant
cameras increased by low double digits compared with the first half of 1998.
Sales in the European Region decreased 16% to $194 million for the first half
of 1999 compared with $231 million in the same period of 1998. This decrease
was primarily due to lower instant film sales which included the effect of
unfavorable product mix. To a lesser degree, sales were adversely affected by
declines in revenue from other core products and instant cameras. On a unit
basis, shipments to customers of instant cameras decreased 15% while
shipments to customers of instant film decreased by low single digits in the
first half of 1999 compared with the first half of 1998.
Sales in the Asia Pacific Region increased 10% to $143 million in the first half
of 1999 from $130 million in the first half of 1998. The sales increase was
primarily due to the sales of new products in Japan, and to a lesser degree, a
weaker U.S. dollar. These favorable factors were offset, in part, by lower sales
of instant film in the region (excluding new products) and lower revenues earned
on other core products. On a unit basis, including new products, shipments to
customers of instant cameras increased over 200% and shipments to customers of
instant film increased by high single digits.
Profit/(Loss)
- -------------
In the first half of 1999, the Company generated an operating profit of $34
million compared with an operating loss of $8 million in the first half of 1998.
This improvement reflected lower overhead expenses, including the absence of $10
million 1998 reserve for Russian receivables. The Company also benefited, to a
lesser degree, from the profit on the sales of new products. These increases in
profit were offset, in part, by higher costs of products sold.
Profit from operations in the Americas Region increased 12% to $150 million in
the first half of 1999 compared with $134 million in the first half of 1998.
This increase was due to the margin impact of higher instant film sales and, to
a lesser degree, lower overhead expenses.
Profit from operations in the European Region increased 19% to $32 million in
the first half of 1999 from $27 million in the first half of 1998. The increase
was driven by lower overhead expenses in the region and the absence of the $10
million Russian reserve recorded in 1998. These lower overhead expenses were
offset, in part, by the adverse margin impact of lower instant film sales (other
than new products).
The profit from operations in the Asia/Pacific region totaled $34 million in
both the first half of 1999 and 1998. Profits from the sales of new products
were largely offset by the margin impact of lower instant film sales (other
than new products).
Global Operations costs declined 4% to $85 million in the first half of 1999
from $89 million in the first half of 1998. The decrease was due to several
factors, especially enhanced efficiencies associated with the manufacturing of
the Company's products.
18
<PAGE>
Research and Development costs decreased 29% to $44 million in the first half of
1999 from $62 million in the first half of 1998. This reduction reflects a
restructuring of this segment and a focusing of the Company's research and
development efforts.
Corporate costs were $54 million in the first half of 1999 compared with $51
million during the same period in 1998.
The net of other income and other expense for the first six months of 1999 was
an expense of $22 million compared with income of $26 million during the same
period in 1998. In 1999, net other expense included a non-cash charge of $35
million to establish a reserve for the Company's preferred stock investment in
Sterling Dry Imaging Systems, Inc. ("SDIS"). The 1999 net other expense also
included a gain on the sale of excess real estate totaling $11 million. In the
first six months of 1998, the net of other income and other expense included a
$26 million gain on the sale of real estate.
Interest expense was $37 million and $26 million in the first six months of 1999
and 1998, respectively. The increase in 1999 was primarily due to higher levels
of debt and, to a lesser degree, higher interest rates.
The effective tax rate was 35% for both the first half of 1999 and 1998.
For the first half of 1999, the net loss was $16 million, or $.36 basic loss per
common share. This compares with a net loss of $5 million, of $.12 basic loss
per common share for the first half of 1998. The diluted loss per common share
was the same as the basic loss per common share in the first half of 1999 and
1998.
RESTRUCTURING AND OTHER CHARGES
In 1997, the Company recorded restructuring and other charges of $340 million
of which $17 million represented inventory write-offs, which were not
individually material, that were recorded in cost of goods sold. In 1998, the
Company recorded a $50 million restructuring charge related to an expansion
of the severance component of the 1997 program. These charges (the "1997
Program") were undertaken as the result of an assessment by management of the
Company's infrastructure to strengthen the Company's competitive cost
position, to streamline operations and to improve profitability by
consolidating and selling manufacturing facilities and reducing corporate
overhead. The strategic objective of this program was to reduce the cost of
developing, manufacturing, selling and distributing the Company's products;
to change and improve the Company's business processes to position it to
deliver new products more efficiently; to improve financial performance; and
to fundamentally alter how the Company conducts its business globally.
Approximately $150 million of the charges recorded in 1997 for the 1997
Program related to an involuntary severance program under which approximately
1,800 employees (consisting of sales and marketing employees in the regional
segments: Americas - 16%, Europe - 24%, Asia Pacific - 9%; primarily
manufacturing employees in Global Operations - 36%; research and engineering
employees in Research and Development - 5%; and administrative employees in
the non-segment Corporate group - 10%) are expected to leave the Company at
various times before the end of 1999. The 1998 extension to this involuntary
severance program added approximately 1,000 additional employees who are
expected to leave the Company by the end of 1999 (consisting of sales and
marketing employees in the regional segments: Americas - 7%, Europe - 14%,
Asia Pacific - 3%; primarily manufacturing employees in Global Operations -
65%; research and engineering employees in Research and Development - 10%;
and administrative employees in the non-segment Corporate group - 1%).
Approximately 1,980 of the 2,800 expected total terminations had occurred as
of June 27, 1999. The cash payments related to this severance program will be
paid over time and are expected to be completed by the end of 2000.
Approximately $107 million of cash payments related to this program had been
made as of June 27, 1999. Of the total amount provided for
19
<PAGE>
severance, approximately $10 million related to pension curtailment costs
related to the number of U.S. employees expected to terminate under this program
and approximately $4 million related to pension enhancement costs incurred for
certain non-U.S. employees expected to terminate under this program.
In the Americas, European, and Asia Pacific Regions, the major impact of the
1997 Program consists of reducing the number of employees associated with sales
and marketing activities. The impact of this program in the European Region also
consists of consolidating back office activities in a centralized location.
The impact of the 1997 Program in Global Operations consists of reducing the
number of direct and indirect employees associated with the manufacture of
instant film and, to a lesser degree, instant hardware along with employees
required to procure goods and services, distribute finished products and
employees at the Company's chemical manufacturing facility in Freetown,
Massachusetts that the Company sold in February 1998.
The impact of the 1997 Program in Research and Development consists of reducing
the number of employees associated with the research, engineering and
development activities.
The 1997 Program affected the corporate overhead groups, which are not part of a
segment, by reductions in the number of employees in corporate support functions
such as central marketing, finance, legal, information management,
administration, human resources and facilities support.
In addition, the asset impairment portion of the 1997 restructuring and other
charges amounted to $163 million and consisted of a write-down of the
carrying value of the Company's underutilized New Bedford coating facility by
$106 million to an independently determined fair value of $18 million and a
write-off of the $22 million carrying value of unused battery manufacturing
equipment that was not required to support anticipated production
requirements. The Company also recognized a charge of $26 million related to
the sale of its underutilized chemical manufacturing facility located in
Freetown, Massachusetts that included a $22 million loss on the sale of the
facility and $3 million in related exit costs for environmental liabilities
and $1 million of severance liabilities. Additionally, these asset
impairments included $13 million of other fixed asset write-downs, which were
individually not material, related to assets that were no longer required
primarily due to the consolidation of certain manufacturing operations.
In addition to the $3 million of exit costs relating to the Freetown facility,
the balance of the 1997 restructuring and other charges consisted of $6 million
of exit costs, primarily for lease and contract termination and other costs
directly related to restructuring activities. The Company is pursuing several
strategic options for future use of the New Bedford coating facility, including
outright sale. The Company sold the Freetown chemical manufacturing facility in
February 1998. Under the terms of the agreement to sell the Freetown chemical
facility, the Company entered into a long-term supply agreement with the new
owner to purchase certain specialty chemicals used to manufacture the Company's
instant film. The assets included in the 1997 program were primarily located in
Global Operations.
Under the 1997 Program, the Company realized benefits of approximately $55
million in 1998 and expects an additional benefit of approximately $60 million
in 1999 and a further benefit of approximately $25 million in 2000 bringing the
estimated total benefit from the Program to approximately $140 million on an
annualized basis in 2000 when the benefits are expected to be fully realized.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
20
<PAGE>
At June 27, 1999, the Company's cash and cash equivalents was $69 million,
compared with $105 million at December 31, 1998. The primary sources of cash in
the first half of 1999 were cash flows provided by financing activities and the
sale of real estate and other investments. Working capital increased to $418
million at June 27, 1999 from $360 million at December 31, 1998. This net
increase was due to several factors including lower payables and accruals, lower
short-term debt and higher prepaid expenses, offset, in part, by lower cash,
receivables and inventories.
In the first half of 1999, capital spending totaled $96 million and depreciation
expense was $49 million. This compares with capital expenditures of $71 million
and depreciation expense of $53 million during the first half of 1998. The
increase in capital spending was primarily related to spending associated with
the Company's new enterprise-wide software system and new products. Capital
spending in both years also included a combination of other on-going capital
programs and the Company's efforts to consolidate real estate.
During the first half of 1999, the Company also expended approximately $38
million to make payments relating to the 1997 involuntary severance program
portion of the December 1997 restructuring (including the extension of this
program in 1998) and $7 million to pay dividends to common stockholders.
In the first half of 1999, the Company sold certain assets primarily consisting
of real estate and other investments, which resulted in cash proceeds of
approximately $51 million.
The Company has three sources of debt financing: short-term lines of credit;
the Amended Credit Agreement (as defined below); and the Company's outstanding
6 3/4% Notes due 2002, 7 1/4% Notes due 2007 and 11 1/2% Notes due 2006 (the
"2006 Notes").
At June 27, 1999, the Company had outstanding $280 million in short-term debt.
This was comprised of $225 million of borrowings under the Company's Amended
Credit Agreement and $55 million borrowed under the Company's short-term lines
of credit.
In December 1998, the Company entered into an amendment to its existing $350
million Credit Agreement and amended that agreement effective March 31, 1999.
The amended Credit Agreement (the "Amended Credit Agreement") provides for loans
up to $350 million will expire on December 31, 2001 and will be available on a
revolving basis prior to its expiration. In connection with the Amended Credit
Agreement, the Company entered into a collateral agreement and certain related
documents that granted the lenders under the Amended Credit Agreement a first
security interest in certain of the Company's domestic inventories and accounts
receivable. This security will be released if the Company's credit rating is
BBB- or higher by Standard & Poor's ("S&P") and Baa3 or higher by Moody's
Investor's Services, Inc. ("Moody's").
The Amended Credit Agreement restricts, among other things, the Company's
ability to do the following: to make certain capital expenditures; to make
certain restricted payments; to incur debt in addition to the issuance of the
2006 Notes; to incur certain liens; to make certain investments; to enter into
certain sale and leaseback transactions; and to merge, consolidate, sell or
transfer all or substantially all of the Company's assets, subject to certain
conditions; and to enter into certain transactions with affiliates. Certain of
these covenants were made somewhat more restrictive by Amendment No. 1 to the
Amended Credit Agreement by incorporating certain provisions of the covenants in
the Indenture (as defined below).
The Amended Credit Agreement also requires the Company to maintain financial
ratios relating to the maximum level of debt to EBITDA (earnings before
interest, taxes, depreciation and amortization) and minimum interest coverage.
In addition, the Amended Credit Agreement affords the lenders the right to
incorporate covenants given to holders of notes or other securities of the
Company which, in their judgement, are more restrictive. The lenders exercised
this right to incorporate certain covenants included in the 2006 Notes in
Amendment No. 1 to the Amended Credit Agreement.
21
<PAGE>
The Amended Credit Agreement restricts the Company's ability to pay dividends
and repurchase stock. This agreement limits the payment of dividends and
repurchase of the Company's common stock to $3.75 million per quarter in excess
of the value of ESOP shares issued and proceeds from the exercise of stock
options on a cumulative basis. Since the Company issues ESOP shares to all
qualified United States employees as part of their compensation, this amount is
expected to total approximately $14 million per annum. As a result, the Company
believes it is unlikely that this limitation will prevent it from continuing the
current dividend payment of $.60 per share, per annum. In addition, the
Indenture, pursuant to which the 2006 Notes were issued (the "Indenture"), also
includes restrictions on dividends which the Company considers to be less
restrictive than those contained in the Amended Credit Agreement.
Funds borrowed under the Amended Credit Agreement bear interest, at the
Company's option, at either the prime rate of Morgan Guaranty Trust Company
("Prime") plus a margin or LIBOR on Euro-dollar loans ("Euro-dollar loans"),
plus a margin. The margin ranges from 0.085% to 2.0% for Prime-based loans and
from 0.275% to 3.0% for Euro-dollar loans, based on the Company's credit
ratings. In addition, the Company pays the lenders a commitment fee on unused
commitments ranging from 0% to 0.025% on an annual basis, depending on the
Company's credit rating, and a fee to the administrative agent.
At June 27, 1999 the Company and several of its subsidiaries had short-term
lines of credit with a number of commercial banks that totaled $98 million in
maximum commitments, of which $55 million was outstanding. One of these lines of
credit, for a maximum amount of 115 million Deutsche Marks (or approximately $61
million at June 27, 1999), is on a committed basis with Deutsche Bank A.G.,
Amsterdam, the Dutch branch of Deutsche Bank A.G. A total of $18 million was
outstanding under this agreement at June 27, 1999. The interest rate on this
facility is LIBOR plus 2.0%. On August 3, 1999, the Company and Polaroid UK
entered into a new loan agreement with Deutsche Bank A.G. and ABN AMRO Bank NV
totaling 72.5 million EUROS which refinanced most of the Company's existing
short-term lines of credit with these banks. Borrowings under this facility bear
an interest rate of approximately 25 basis points higher than that paid under
the Company's Amended Credit Agreement. The facility is scheduled to mature on
December 31, 2001. Several of the Company's foreign subsidiaries granted lenders
under this facility a security interest in certain inventories and receivables.
In addition, the Company has guaranteed the obligations of Polaroid UK under the
new facility.
At June 27, 1999, the Company had, in addition to the $125 million under the
Amended Credit Agreement, $43 million available in overseas lines of credit to
support international operations.
In February 1999, the Company issued in a public offering, the 2006 Notes in an
aggregate principal amount of $275 million. The 2006 Notes were placed at par
value. The net proceeds of $268 million from the sale of the 2006 Notes were
used primarily for the payment of $200 million aggregate principal amount of the
Company's 8% Notes that were due March 15, 1999 and for general corporate
purposes, including reducing outstanding borrowings under the Amended Credit
Agreement and short-term lines of credit. Since the Company refinanced the 8%
Notes, the principal amount of these notes at December 31, 1998 was classified
as a long-term note payable. The Indenture contains certain covenants that
restrict, among other things, the Company and its subsidiaries from making
certain restricted payments, including dividends on and the purchase of the
Company's common stock and certain other payments; incurring additional debt and
issuing preferred stock; creating certain liens; entering into sale and
leaseback transactions; entering into certain transactions with affiliates; and
entering into certain mergers and consolidations or selling all or substantially
all of the properties or assets of the Company. The Company's cost of borrowing
is dependent, in part, upon the Company's corporate long-term debt credit
ratings. Currently, the Company's long-term debt is rated BB- by S&P, Ba3 by
Moody's and BB by Duff & Phelps Credit Ratings Co.'s, ("D&P"). In late 1998, S&P
lowered its long-term debt rating from BBB- to BB- with a negative
22
<PAGE>
outlook. Also in late 1998, D&P's lowered its long-term debt ratings from BBB to
BB. In early 1999, Moody's lowered its long-term debt rating from Baa3 to Ba3
with a negative outlook.
In October 1997, the Company's Board of Directors authorized the repurchase of
up to five million shares of the Company's common stock over three years. During
the first half of 1999, the Company did not repurchase any of its common stock.
As of June 27, 1999, approximately 2.8 million shares remain to be purchased
under the current program. Given the restricted payment covenants contained in
the Amended Credit Agreement and in the Indenture, it is unlikely that the
Company will complete this repurchase plan within the program's three-year
period. If the Company were to repurchase its common stock, its policy is to
make these repurchases on the open market, in privately negotiated transactions
or otherwise which may include transactions with Polaroid retirement plans,
including the employee stock ownership portion of the Polaroid Retirement
Savings Plan. The timing and amounts of future purchases under this program will
depend upon many factors, including market conditions, and the Company's
business and financial condition, and are limited by the terms of the Amended
Credit Agreement and the Indenture.
In fourth quarter of 1996, the Company sold its Helios medical diagnostic
imaging equipment line to Sterling Dry Imaging Systems, Inc. ("SDIS"), a
subsidiary of SDI Holding Corporation ("SDHI"), and acquired a minority interest
in the buyer (i.e., SDIS) and its parent company (i.e., SDHI).
The Company's interest as of December 31, 1998 consisted of: (1) 14% of the
common stock of SDHI with a book value of approximately $14 million; (2)
preferred stock of SDIS with a book value of approximately $35 million; and (3)
111 shares of SDIS common stock valued at $.01 per share. These investments were
made in cash and were carried at cost. The carrying value of these investments
was initially supported by an independent third-party business valuation and was
subsequently confirmed periodically by comparing SDHI's actual operating
results, including SDIS, with SDHI's original and revised business plans.
In January 1999, Agfa-Gevaert N.V. ("AGFA") agreed to acquire SDHI, excluding
SDIS which, under the acquisition agreement, would not be acquired by AGFA and
which would be spun off to a liquidating trust, the proceeds of which would be
distributed to the shareholders of SDHI. In the first quarter of 1999, the
Company recorded a non-cash charge of $35 million to establish a reserve for the
book value of its preferred stock investment in SDIS because it was probable
based on the information available to the Company at that time that SDIS would
not be viable as a stand-alone business and that the proceeds from the
liquidation would not be sufficient to redeem the preferred stock. During the
second quarter of 1999, AGFA completed its acquisition of SDHI, and the Company
received cash proceeds of approximately $16 million in return for its investment
in SDHI. The net gain of approximately $2 million on this transaction was
recorded in other income and expense. Any future recovery of the Company's
interest in SDHI upon liquidating SDHI's remaining assets is not expected to be
material to the financial position or results of operations of the Company.
In a related transaction during the second quarter of 1999, the Company acquired
certain assets of SDIS consisting of machinery and equipment and intellectual
property in return for the Company's preferred and common stock in SDIS,
forgiveness of approximately $2 million of amounts owed to the Company by SDIS
and the Company's rights under certain supply and technology agreements with
SDIS. The machinery and equipment and intellectual property acquired from SDIS
were deemed to have no value by the Company. The Company recognized the cost of
the forgiveness of approximately $2 million in amounts owed to it by SDIS in
other income and expense. To replace the Company's supply agreement with SDIS
and as a result of negotiations with AGFA, the
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<PAGE>
Company has entered into a Helios media supply contract with AGFA who has agreed
to assume SDIS' marketing and service responsibilities.
The Company believes that the availability of funds under the Amended Credit
Agreement, funds generated from operations and additional debt capacity will
be adequate for at least the next twelve months to meet working capital
needs, to fund spending for growth and maintenance of existing operations and
to make severance payments associated with the 1997 program.
FOREIGN CURRENCY EXCHANGE
The Company generates a substantial portion of its revenues in international
markets, which subjects its operations to the exposure of currency exchange
fluctuations. The impact of currency fluctuations can be positive or negative in
any given period. The Company's ability to counteract currency exchange movement
is primarily dependent on pricing in local markets.
To minimize the adverse impact of currency fluctuations on net monetary assets
denominated in currencies other than the relevant functional currency
("nonfunctional currencies"), the Company engages in nonfunctional
currency-denominated borrowings. The Company determines the aggregate amount of
such borrowings based on forecasts of each entity's nonfunctional
currency-denominated net monetary asset position and the relative strength of
the functional currencies compared to the nonfunctional currencies. These
borrowings create nonfunctional currency-denominated liabilities that hedge the
Company's nonfunctional currency-denominated net monetary assets. Upon receipt
of the borrowed nonfunctional currency-denominated funds, the Company converts
those funds to the functional currency at the spot exchange rate. Exchange gains
and losses on the nonfunctional currency-denominated borrowings are recognized
in earnings as incurred. At June 27, 1999, the amount of the Company's
outstanding short-term debt incurred for hedging purposes was $55 million.
From time to time, the Company may use over-the-counter currency exchange swaps
to reduce the interest expense incurred through the borrowings described above
and to replace the hedge created by those borrowings. When a currency exchange
swap is used to replace a hedge, the currency received by the Company in the
spot market component of the currency exchange swap is used to close out the
borrowings and, simultaneously, the hedge is re-instituted through a forward
contract (not exceeding six months). The net interest value of the currency
exchange swap contract is amortized to earnings over the life of the contract.
Exchange gains or losses on the foreign currency obligation component of the
forward contract are recognized in earnings as incurred in each accounting
period. The Company does not enter into currency exchange swaps for trading
purposes. At June 27, 1999, the aggregate notional value of the Company's
outstanding short-term foreign exchange swap contracts was $50 million.
Since the Company has limited flexibility to increase prices in local currency
to offset the adverse impact of foreign exchange, the Company may also purchase
foreign currency call options. The term of these call options typically does not
exceed 18 months. The Company's purchase of call options allows it to protect a
portion of its expected foreign currency-denominated revenues from adverse
foreign currency exchange movement. The Company typically does not buy call
options, which can be exercised prior to the expiration date, nor does it
typically write options or purchase call options for trading purposes. The
Company amortizes premiums over the term of the option and defers any gains for
its call options activity until the option exercise date. At June 27, 1999,
option contracts with a notional value of $133 million were outstanding, all of
which expire in 1999.
The Company maintains a Monetary Control Center (the "MCC"), which operates
under written policies and procedures defining day-to-day operating
guidelines, including exposure limits, to contract for the foreign currency
denominated borrowings, foreign exchange swaps and call options described
above. The MCC is subject to random independent audits and reports to a
supervisory committee comprised of
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members of the Company's management. The MCC publishes regular reports to the
Company's management detailing the foreign currency activities.
IMPACT OF INFLATION
Inflation continues to be a factor in many countries in which the Company does
business. The Company's pricing strategy has offset to a considerable degree
inflation and normal cost increases. The overall inflationary impact on the
Company's earnings has been material.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), that establishes accounting and
reporting requirements for derivative instruments and for hedging activities.
FAS 133 requires companies to recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposures to changes in fair value of recognized assets or liabilities or
unrecognized firm commitments, a hedge of the exposure to variable cash flows of
a forecasted transaction, or a hedge of the foreign currency exposure of a net
investment in a foreign operation, unrecognized firm commitments, an available
for sale security or a foreign currency-denominated forecasted transaction. The
accounting for changes in fair value under FAS 133 depends on the intended use
of the derivative and the resulting designation. In June 1999, the FASB decided
that the effective date for adopting the requirements of FAS 133 should be
delayed one year to fiscal years beginning after June 15, 2000. This delay,
published as Financial Accounting Standard Board Statement No 137, applies to
quarterly and annual financial statements. The Company is currently evaluating
the effect of FAS 133 on its reported financial results.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
(the "legacy currencies") and one common currency (the "Euro"). The
participating countries had to adopt the Euro as their common legal currency on
that date. The Euro is now traded on currency exchanges and may be used in
business transactions. On January 1, 2002, new Euro-denominated bills and coins
will be issued by participating countries. The legacy currencies will be
withdrawn from circulation as legal tender effective January 1, 2002. During the
period from January 1, 1999 and June 30, 2002, parties may use either the Euro
or a participating country's legacy currency as legal tender.
In 1998, the Company formed an Economic and Monetary Union Steering Committee
and Project Team (the "EMU Committee"). The EMU Committee has analyzed the
impact of the Euro conversion on the Company in a number of areas, including the
Company's information systems, product pricing, finance and banking resources,
foreign exchange management, contracts and accounting and tax departments. While
the Company is in the process of making certain adjustments to its business and
operations to accommodate the Euro conversion, the EMU Committee believes, based
on information available at the time and numerous assumptions, that this process
of Euro conversion will not have a material adverse impact on the Company's
financial position and results of operations.
YEAR 2000 DATE CONVERSION
The Year 2000 problem is the result of computer programs and embedded chips
being written with two instead of four digits to define the applicable year. As
a result, computer programs and embedded chips that use date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. If
the Company, or third parties with whom the Company has a material relationship,
do not correct a
25
<PAGE>
material Year 2000 problem, the result could be an interruption in, or a failure
of, certain normal business activities.
To prepare for the year 2000, the Company formed a Year 2000 Steering
Committee (the "Year 2000 Committee") and dedicated officers to identify the
major areas of the Company that will be affected by the Year 2000 problem and
to manage a three-step process of (i) assessing Year 2000 compliance, (ii)
analyzing possible solutions and implementing remedial programs and (iii)
testing such programs for each major area. To manage the process of becoming
Year 2000 compliant across its major areas, the Year 2000 Committee has taken
the following steps: it has established, and periodically evaluates and
updates, a master schedule for each major area (ranked by the priority of its
tasks), has retained a number of consultants to assist the Company's
verification and validation processes, has licensed several software
applications and is preparing contingency plans in the event that the Company
or third parties fail to or are unable to make their systems Year 2000
compliant in a timely fashion. In addition, the Company is in the process of
installing a new enterprise-wide software system for most domestic and
foreign locations. This new software will primarily facilitate the Company's
effort to operate more efficiently and will also benefit the Company in
becoming Year 2000 compliant. What follows is a summary of the six major
areas identified by the Year 2000 Committee and the status of the three-step
process for each.
The first major area comprises the business information systems that support the
collection, processing and management of the Company's many internal data and
recording needs, including those regarding order entry and billing, accounts
receivable, accounts payable, product, customer and employee information,
general ledger entries and related accounting functions, among others
(collectively "Business Applications"). The Year 2000 Committee has completed
the assessment phase for the Business Applications area. As of June 27, 1999,
the Company had remediated, tested and placed into production approximately 84%
of the Business Applications. The remaining implementation of the new
enterprise-wide software system will replace approximately an additional 11% of
the Business Applications. The Year 2000 Committee is forecasting based on
current information, completion of the entire Business Applications area during
the third quarter of 1999.
The second major area is the Company's extensive computer hardware and software
systems, including hardware platforms, telecommunications equipment and
scientific and engineering applications and the networking of these systems
throughout the Company's factories and offices (collectively, "IT
Infrastructure"). The Year 2000 Committee completed the assessment phase of the
IT Infrastructure and, as of June 27, 1999 had remediated, tested and placed
into production approximately 96% of the IT Infrastructure area. The Company
expects that the remaining portions will be completed during the third quarter
of 1999.
The third major area is the embedded chips and related systems that enable the
Company to manufacture products and track and control certain inventory
(collectively, "Shop Floor"). The Year 2000 Committee has completed the
assessment phase of the Shop Floor systems and as of June 27, 1999 had completed
approximately 71% of the Shop Floor remediation. The Year 2000 Committee's
remediation efforts are complicated by the high degree to which Shop Floor
applications are customized for the Company's manufacturing systems and the need
to accommodate ongoing production schedules. Based on current information, the
Year 2000 Committee believes that the remediation and testing phases of the Shop
Floor area will be completed in the third quarter of 1999.
The fourth major area is the Company's physical plant, including the security,
heating and ventilation of factories and other buildings (collectively,
"Facilities"). The Year 2000 Committee has completed the assessment phase of the
Facilities area and, as of June 27, 1999, had certified 98% of this area as
compliant. Based on current information, the Year 2000 Committee expects that
remediation and testing of the Facilities area will be completed in the third
quarter of 1999.
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<PAGE>
The fifth major area relates to the Company's products. The majority of the
Company's traditional instant camera and film products are not vulnerable to the
Year 2000 problem. The Committee is continuing its assessment to determine any
other product vulnerability and to evaluate the possible upgrading of certain
products in a cost-effective manner. The Company has initiated remediation and
testing for certain of these products. Since October 1, 1998, the Company has
been shipping only Year 2000 compliant products to its customers. Based on
current information, the Year 2000 Committee expects to complete all phases
related to the Company's products in the third quarter of 1999.
The sixth major area is the Company's material relationships and transactions
with third parties, including the ability of suppliers to provide materials and
services to the Company and the ability of customers to order and pay for
products from the Company (collectively, "Third Parties"). The Year 2000
Committee has completed the assessment phase of the Third Parties area. The
Company has identified the most critical of the Company's Third Parties
relationships, has communicated with these companies to address their state of
readiness, is identifying potential alternative vendors and has developed and
executed contingency plans on a supplier by supplier basis. Based on current
information, the Year 2000 Committee is forecasting the completion of all phases
of the Third Parties area, including the possible replacement of existing
vendors, by the end of the third quarter of 1999.
The Year 2000 Committee has developed contingency plans to address the most
reasonably likely worst case scenario resulting from Year 2000 problems.
Contingency plans were established to ensure the completion of critical
remediation projects. Some aspects of these plans were executed to deliver the
status described above. Other contingency plans address the continuation of
business in the event of problems in 2000. Some of these business continuation
plans have already been executed, others may be executed later in 1999 or only
in the event of an actual problem in 2000. For example, the Company has decided
to order an additional one-month's supply of critical raw materials and to
convert these materials into work-in-process inventory between September and
December 1999. Also, the Company is planning to establish a Y2K command center
in October 1999 and continue to operate it into 2000 until it is no longer
necessary. Its mission will be to serve as a hotline for reporting problems and
a central area for deploying resources to remediate problems.
The Year 2000 Committee has forecasted that the total cost of completing its
Year 2000 project to be approximately $20 million to $25 million. The total
projected amount of $20 million to $25 million includes internal staff costs
associated with the Year 2000 project but does not include the estimated costs
of the Company's new enterprise-wide software system or a forecast of the total
cost for contingency plans for each of the six major areas. The Company has
spent approximately $15 million of the projected total as of June 27, 1999. The
Company expects to fund the cost of the Year 2000 project from general corporate
funds.
The failure of the Company or the failure of its material third party vendors
and customers to make their systems Year 2000 compliant could have a material
adverse impact on the results of operations and financial condition of the
Company. While recognizing the risks involved, the Company believes that the
steps that the Year 2000 Committee has taken and is expected to take will
significantly reduce the Company's exposure to the Year 2000 problem. The Year
2000 problem has, however, certain inherent risks that are difficult to measure,
including the Company's ability to test all material remediated systems in a
timely fashion and the readiness of third party vendors and customers. There can
be no assurance that the Company will foresee all Year 2000 problems or
remediate them on a timely basis.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Many statements in this report may be forward looking in nature, or
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995 (the "Act") including the description of our business
strategy, are forward-looking.
27
<PAGE>
These statements may be identified by the use of forward-looking words or
phrases such as "believe", expect", "anticipate", "should", "plan", "estimate"
and "potential" among others. The Company desires to take advantage of the "safe
harbor" provisions of the Act. The Company therefore cautions shareholders and
investors that actual results may differ materially from those projected in or
implied by any forward-looking statement as the result of a wide variety of
factors, which include but are not limited to those set forth below. Many of the
important factors below have been discussed in prior filings by the Company with
the Securities and Exchange Commission.
Ability to implement business strategy
- --------------------------------------
The Company has implemented a business strategy to revitalize its instant
imaging business which calls for, among other steps, the introduction of between
20 and 25 new products each year, the expansion of certain profitable
businesses, and the continued reduction of costs and the improvement of
operating efficiencies from its restructurings. As part of this strategy, the
Company is promoting new uses of, and new markets for, its products and
technology and is targeting new demographic segments, such as children, teens
and young adults, through product innovations and marketing campaigns. There can
be no assurance that the Company will be able to effectively implement this
strategy. If this strategy is not successful, the Company's business and results
of operations could be negatively impacted. Similarly, a decline in retail
demand could have a material adverse effect on the Company's business and
financial results.
Net losses
- ----------
While the Company was profitable in the second quarter of 1999, it has
experienced net losses for four of the last five fiscal years. These losses
have been primarily due to the cost of restructurings, dealers' reduction in
their inventories of the Company's products, the deterioration of economic
conditions in the emerging markets in which the Company operates and lower
than expected performance in its non-core businesses. If the Company
continues to experience net losses, it may be required to find additional
sources of financing to fund operating deficits, implement its business
strategy and meet anticipated capital expenditures, research and development
costs and financing commitments. There can be no assurance that if the
Company needs to obtain such financing, that it will find it on acceptable
terms or that it would be permitted under the Indenture or the Amended Credit
Agreement.
Developing digital imaging products market
- ------------------------------------------
The Company's ability to effectively compete in the digital imaging market is
dependent on its ability to develop new digital imaging products, including
digital hardware with chemical-based media, in a profitable and timely manner
and to market them effectively. In many instances, the Company will enhance its
ability to succeed by developing meaningful strategic business relationships
with other companies. The market for digital imaging products is, however,
highly competitive in price, quality and product performance. Because it is a
relatively new market, with high research and development and other costs, it is
also currently a low margin business. Many of the Company's competitors have
greater financial and other resources and have more experience serving the
demands of these markets. Accordingly, there can be no assurance that the
Company will succeed in the digital imaging business. In addition, markets for
digital imaging products are increasing rapidly and over time may erode either
the growth or the absolute size of the Company's instant photography business.
Failure to market new products
- ------------------------------
The Company's plan to increase profits relies on the development of new products
and their speedy introduction into the market. Future operating results may be
negatively affected if the Company is unable to promptly design, develop,
manufacture and market innovative imaging products that receive customer
acceptance.
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<PAGE>
In addition, because some of the Company's new products will replace or compete
with existing products, its operating results could be adversely affected even
if the Company is successful in developing and introducing new products.
Substantial level of debt
- -------------------------
The Company has a significant amount of debt. The Company's high level of debt
could have important consequences to investors and stockholders. For example, it
could:
- make it more difficult to satisfy its debt and other
obligations;
- increase the Company's vulnerability to general adverse
economic and industry conditions;
- limit the Company's ability to fund future working capital
needs, capital expenditures, acquisitions, research and
development costs and other general corporate requirements;
- require the Company to dedicate a substantial portion of its
cash flow from operations to payments on its debt, thereby
reducing the availability of the Company's cash flow to fund
working capital needs, capital expenditures and acquisitions,
research and development efforts and other general corporate
purposes;
- limit the Company's flexibility in planning for, or reacting
to, changes in its business and the industry in which it
operates;
- place the Company at a competitive disadvantage compared to
its competitors that are less leveraged; and
- limit its ability to borrow additional funds.
Restrictions imposed by the company's debt and financial flexibility
- --------------------------------------------------------------------
The Company has financial and other restrictive covenants in the Company's debt
instruments including restrictions in the event of a change in control. Failure
to comply with these covenants could result in an event of default under the
Amended Credit Agreement, the Indenture, and certain of the agreements governing
short-term debt. If such default is not cured or waived, it could have a
material adverse effect on the Company.
The Company's ability to make payments on and to refinance its debt, to execute
its business strategy, to make capital expenditures and to fund research and
development costs will depend on its ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory, exchange rate fluctuation and other
factors, including retail demand and dealer inventory practices, that are beyond
the Company's control. It is also subject to the Company's success in
implementing its strategies. There can be no assurance that the Company will
generate sufficient cash flow or that future borrowings will be available to the
Company under the Amended Credit Agreement or short-term lines of credit in an
amount sufficient to enable the Company to repay its debt and to fund other
liquidity needs.
Failure to reduce cycle time
- ----------------------------
The Company has already reduced and is committed to further reducing its cycle
time in bringing new products to market. There is no guarantee that the Company
will succeed in this endeavor. Shorter cycle times present a challenge for the
effective management of the transition from existing products to new products
and could negatively impact the Company's future operating results.
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Highly competitive markets
- --------------------------
The timing and introduction of new products by the Company's competitors could
have a material negative impact upon the Company's introduction of new or
enhanced products. The Company has competitors worldwide, ranging from large
corporations to smaller and more specialized companies. In the instant imaging
market, the Company faces competition from Fuji Photo Film Co., Ltd. ("Fuji"),
which has introduced selected new competitive products in Japan and Europe. In
the digital imaging market, the Company faces competition from Eastman Kodak
Company, Fuji, Hewlett-Packard Company, Canon U.S.A., Inc., Sony Corporation,
and others. Many of the Company's competitors are larger and have greater
financial and other resources. There can be no assurance that the Company will
be able to compete successfully and its failure to do so could have a material
adverse effect on its business and financial results.
Customer concentration
- ----------------------
One customer, Wal-Mart Stores, Inc., comprises over 10% of the Company's net
sales. Net sales to Wal-Mart totaled 11.9%, 12.5%, and 13.0% of the Company's
annual net sales in 1996, 1997 and 1998 respectively. [There has been no major
change in the importance of this customer during the second quarter of 1999.]
Emerging markets
- ----------------
The Company continues to believe that the emerging markets in all regions in
which it operates may offer attractive opportunities in the future. These
markets are, however, considerably less stable than more established markets and
continue to be troubled. For the foreseeable future, the Company does not
anticipate that it will generate revenues in material amounts from Russia or
certain other emerging markets. In Asia, the currency crisis and instability of
the financial system have continued to negatively affect the Company's net
sales. Accordingly, there can be no assurance that it will be able to increase
its revenues from the emerging markets in which it operates.
Foreign exchange rate fluctuations
- ----------------------------------
The Company sells and markets its products worldwide. A major risk associated
with such worldwide operations is the fluctuation of foreign exchange rates,
particularly the Japanese Yen and German Mark. Although the Company engages in
some foreign exchange hedging, fluctuations in foreign currencies could have a
material adverse effect on the business and financial results of the Company.
Raw materials and supplies
- --------------------------
The Company is affected by the price and availability of several raw
materials and supplies, such as chemicals, polyester film base, specialty
paper, and electronic components that the Company uses to manufacture its
products. The Company therefore could be adversely affected by its inability
to obtain these raw materials and supplies on favorable terms, and, in
particular, by an increase in the costs of such raw materials and supplies if
the Company is unable to pass along such price increases to its customers.
Loss of patents and trademarks
- ------------------------------
The Company obtains patents where feasible to protect its investment in research
and development. The ownership of patents contributes to the Company's ability
to use its inventions and at the same time may provide significant patent
license revenue. In addition, the Company owns a number of valuable trademarks,
including the trademark "Polaroid," which are important to its business. The
loss of certain significant patents or trademarks would have a material adverse
effect on the Company's business and financial results.
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<PAGE>
Potential exposure to environmental liabilities
- -----------------------------------------------
The Company's business and facilities are subject to a number of federal,
state and local laws and regulations, which govern, among other things, the
discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of such materials. Under certain environmental
laws, a current or previous owner or operator of land may be liable for the
costs of investigation, removal or remediation of hazardous materials at that
property. These laws typically impose liability whether or not the owner or
operator of the land knew of, or was responsible for, the presence of the
hazardous materials or for the disposal or treatment of hazardous materials.
The owner or operator may also be liable for the costs of investigation,
removal or remediation of such substances at the disposal or treatment site,
regardless of whether the affected site is owned or operated by that party.
Because the Company owns and operates a number of facilities and because it
arranges for the disposal of hazardous materials at many disposal sites, the
Company expects to incur costs for investigation, removal and remediation, as
well as capital costs associated with compliance with these laws. In
addition, changes in environmental laws or unexpected investigations and
clean-up costs could have a material adverse effect on the Company's business
and financial condition.
Dependence on key personnel
- ---------------------------
The Company's success depends upon the continued contributions of a number of
key senior managers and the loss of the services provided by them could have
a material adverse effect on the Company. In particular, the loss of the
services provided by Gary DiCamillo, the Chairman and Chief Executive
Officer, as well as certain other senior managers, could have a material
adverse effect upon the Company's business and development. If that were to
occur, there is no assurance that the Company would be able to locate such
qualified personnel or employ them on acceptable terms or on a timely basis.
In addition, the Company's continued growth depends in part on its continuing
ability to attract and retain qualified senior managers who can implement the
Company's business strategy. There can be no assurance that the Company will
be able to attract and retain such senior managers.
Impact of the year 2000 problem
- -------------------------------
The failure of the Company and its material third party vendors and suppliers to
make their systems Year 2000 compliant could have a material adverse impact on
the results of operations and financial condition of the Company. While
recognizing the risks involved, the Company believes that the steps that the
Year 2000 Committee has taken and is expected to take will significantly reduce
the Company's exposure to the Year 2000 problem. The Year 2000 problem has
certain inherent risks that are difficult to measure, including the Company's
ability to test all material systems in a timely fashion and the readiness of
third party vendors and suppliers. There can be no assurance that the Company
will foresee all Year 2000 problems or correct them on a timely basis.
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in several lawsuits, the unfavorable
disposition of which may have a material adverse effect on the financial
condition or operating results of the Company.
Potentially material are three suits against the Company and certain of its
officers by individuals claiming to have purchased stock in the Company and
purporting to represent a class of its shareholders in actions alleging
violations of the Federal Securities Law regarding the public disclosure of
information about the Company's business during a time period between April 16,
1997 and August 28, 1998. The
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initial suit, SCHREIBER V. POLAROID CORPORATION, GARY DICAMILLO AND WILLIAM J.
O'NEILL, JR. was filed in United States District Court for the District of
Massachusetts on June 8, 1999. Additional suits making essentially the same
allegations have been filed, but not yet served upon the defendants. The Company
believes the suits to be without merit and intends to defend them vigorously.
A declaratory judgment action was filed by the Company against the successor to
the former trustee of the Polaroid Stock Equity Plan, NationsBank, NA, and its
insurer, American Casualty Company. The amended complaint in the action,
POLAROID CORPORATION V. NATIONSBANK, NA., A SUCCESSOR TO NATIONSBANK OF GEORGIA,
NA., AND AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, was filed in the
United States District Court for the District of Massachusetts on June 21, 1999.
The former trustee and its insurer both indicated it would seek indemnification
for costs incurred in this action by the Company. The Company has requested the
court to rule that the Company is not liable under an indemnity provision of the
Trust Agreement between the Company and the former trustee for attorney fees
incurred by the declaratory defendants in defending claims by the United States
Department of Labor that NationsBank breached its fiduciary duty as trustee, or
for the resulting settlement amounts paid by the defendants.
On June 23, 1999 Polaroid received Notice of Service of Process in a patent
infringement action filed against Polaroid Corp. and many others by the Lemelson
Medical, Education and Research Foundation alleging that a broad range of the
Company's manufacturing equipment and products infringe a number of patents. The
Company believes the suit to be without merit and intends to defend it
vigorously.
The Company, together with other parties, is currently designated a Potentially
Responsible Party (PRP) by the United States Environmental Protection Agency and
certain state agencies with respect to the response costs for environmental
remediation at several sites. The Company believes that its potential liability
with respect to any site and with respect to all sites in the aggregate will not
have a materially adverse effect on the financial condition or operating results
of the Company.
Due to a wide range of estimates with regard to response costs at these sites
and various other uncertainties, the Company cannot firmly establish its
ultimate liability concerning these sites. In each case in which the Company is
able to determine its likely exposure, such amount has been included in the
Company's reserve for environmental liabilities. The Company's aggregate reserve
for these liabilities as of June 27, 1999 was $1 million. The Company currently
estimates that the majority of the $1 million amount reserved for environmental
liabilities on June 27, 1999 will be payable over the next two to three years.
The Company's analysis of data that underlies its establishment of this reserve
is undertaken on a quarterly basis. The Company will continue to accrue in its
reserve such amounts, as management believes appropriate from time to time as
circumstances warrant.
The Company is involved in various other legal proceedings and claims arising in
the ordinary course of business. Management believes that the disposition of
these matters will not have a materially adverse effect on the financial
condition or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
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<PAGE>
(c) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in the second quarter of 1999.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (LOUISE)
(a) Exhibits:
(10.1) Change in Control Severance Agreement dated as of April 25,
1997 between Polaroid Corporation and John Jenkins.
(10.2) Change in Control Severance Agreement dated as of April 25,
1997 between Polaroid Corporation and Paul E. Lambert.
(10.3) Change in Control Severance Agreement dated as of April 7,
1999 between Polaroid Corporation and Neal G. Goldman.
(10.4) Change in Control Severance Agreement dated as of April 7,
1999 between Polaroid Corporation and Harvey M. Greenberg.
(12) Ratio of Earnings to Fixed Charges.
(15) Letter from KPMG LLP re: unaudited interim financial
information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
During the second quarter of 1999, the Company did not file any current reports
on Form 8-K.
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<PAGE>
SIGNATURES
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.
POLAROID CORPORATION
----------------------------------
(Registrant)
/s/ JUDITH G. BOYNTON
--------------------------------
August 10, 1999 Judith G. Boynton
Executive Vice President and
Chief Financial Officer
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EXHIBIT 10.1
CHANGE IN CONTROL SEVERANCE AGREEMENT
AGREEMENT made as of April 25, 1997 between Polaroid
Corporation ("Polaroid" or "Company") and John Jenkins (the "Executive").
Executive is a skilled and dedicated employee who has
important management responsibilities and talents which benefit Polaroid.
Polaroid believes that its best interests will be served if Executive is
encouraged to remain with Polaroid. Polaroid has determined that Executive's
ability to perform Executive's responsibilities and utilize Executive's talents
for the benefit of Polaroid, and Polaroid's ability to retain Executive as an
employee, will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or control of
Polaroid. Accordingly, Polaroid and Executive agree as follows:
1. DEFINED TERMS.
(a) "ANNUAL BONUS" shall mean the Executive's annual bonus paid
pursuant to the Company's annual bonus plan in effect at the
time (currently the Polaroid Incentive Plan for Executives).
Unless otherwise specifically provided, the Annual Bonus shall
be calculated assuming the Corporate target is reached and no
additional factors are considered to decrease the Executive's
award under the Plan.
(b) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, is
the Beneficial Owner of 20% or more of the Stock then
outstanding, but does not include any Subsidiary of the
Company, any employee benefit plan of the Company or of any of
its Subsidiaries or any Person holding Stock for or pursuant
to the terms of any such employee benefit plan.
(c) "AFFILIATE" and "ASSOCIATE" when used with reference to any
Person, shall have the meaning given to such terms in Rule
12b-2 of the General Rules and Regulations under the Exchange
Act.
(d) "BASE SALARY" shall mean the annual rate of base salary
(disregarding any reduction in such rate that constitutes
Constructive Termination) as increased by the Board from time
to time.
(e) "BENEFICIAL OWNER" shall be a Person deemed to "beneficially
own," any securities:
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(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or
indirectly; or
(ii) which such Person or any of such Person's Affiliates
or Associates has:
(A) the right to acquire (whether such right is
exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement or understanding (written or
oral), or upon the exercise of conversion
rights, exchange rights, warrants or
options, or otherwise; provided, however,
that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or
exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or
Associates until such tendered securities
are accepted for purchase or exchange
thereunder; or
(B) the right to vote pursuant to any agreement,
arrangement or understanding (written or
oral); provided however, that a Person shall
not be deemed the Beneficial Owner of, or to
beneficially own, any security if the
agreement, arrangement or understanding
(written or oral) to vote such security (1)
arises solely from a revocable proxy given
to such Person in response to a public proxy
or consent solicitation made pursuant to,
and in accordance with, the applicable rules
and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule
13D (or any comparable or successor report)
under the Exchange Act; or,
(C) which are beneficially owned, directly or
indirectly, by any Person with which such
Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or
understanding (written or oral), for the
purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as
described above) or disposing of any
securities of the Company.
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(f) "BOARD" shall mean the Board of Directors of the Company.
(g) "BONUS" means the amount payable to the Executive under any
plan, or agreement offered by Polaroid.
(h) "CAUSE" means either of the following:
(i) Executive's willful malfeasance having a material
adverse effect on Polaroid; or
(ii) Executive's conviction of a felony;
PROVIDED, that any action or refusal by Executive shall not
constitute Cause if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Polaroid, or if Executive shall be entitled,
under applicable law or under an applicable Polaroid
Certificate of Incorporation or the Polaroid By-Laws, as they
may be amended or restated from time to time, to be
indemnified with respect to such action or refusal.
(i) "CHANGE IN CONTROL" shall mean:
(i) the date on which a change in control of the Company
occurs of a nature that would be required to be
reported (assuming that the Company's Stock was
registered under the Exchange Act) in response to an
item (currently item 6(e)) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act or
an item (currently Item l(a)) of Form 8-K under the
Exchange Act;
(ii) the date on which there is an Acquiring Person and a
change in the composition of the Board of the Company
within two years after the Share Acquisition Date
such that the individuals who constitute the Board
prior to the Share Acquisition Date shall cease for
any reason to constitute at least a majority of the
Board;
(iii) any day on or after the Share Acquisition Date when
directly or indirectly, any of the transactions
specified in the following clauses occurs:
(A) the Company shall consolidate with, or merge
with and into, any other Person;
(B) any Person shall merge with and into the
Company; or
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<PAGE>
(C) the Company shall sell, lease, exchange or
otherwise transfer or dispose of (or one or
more of its Subsidiaries shall sell, lease,
exchange or otherwise transfer or dispose
of), in one or more transactions, the major
part of the assets of the Company and its
Subsidiaries (taken as a whole) to any other
Person or Persons;
(iv) the date when a Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan
of the Company or any of its Subsidiaries or any
Person holding Stock for or pursuant to the terms of
any such employee benefit plan) alone or together
with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 30% or more of the
Stock then outstanding;
(v) the date on which the stockholders of the Company
approve a merger or consolidation of the Company with
any other corporation other than:
(A) a merger or consolidation which would result
in voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into
voting securities of the surviving or parent
entity) 50% or more of the combined voting
power of the voting securities of the
Company or such surviving or parent entity
outstanding immediately after such merger or
consolidation, or
(B) a merger or consolidation effected to
implement a recapitalization of the Company
(or similar transaction) in which no Person
acquires 50% or more of the combined voting
power of the Company's then outstanding
securities; or
(vi) the date stockholders of the Company approve a plan
of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets
(or any transaction having a similar effect).
(j) "CODE" means the Internal Revenue Code of 1986, as amended.
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(k) "CONFIDENTIAL INFORMATION" means non-public information
relating to the business plans, marketing plans, customers or
employees of Polaroid other than information the disclosure of
which cannot reasonably be expected to adversely affect the
business of Polaroid.
(l) "CONSTRUCTIVE TERMINATION" shall occur when the Executive
voluntarily terminates his employment with the Company or
retires after the occurrence of one or more of the following
events on or after the Change in Control:
(i) a reduction in Base Salary from the amount of Base
Salary on the day immediately preceding the Change in
Control;
(ii) the elimination of or reduction of any benefit under
any bonus, incentive or other employee benefit plan
in effect on the day immediately preceding the Change
in Control, without an economically equivalent
replacement, if Executive was a participant or member
of such plan on the day immediately preceding the
Change in Control;
(iii) the discontinuation of or any reduction in
Executive's participation or membership in any bonus,
incentive or other benefit plan in which Executive
was a participant or member on the day immediately
preceding the Change in Control, without an
economically equivalent replacement;
(iv) the reassignment of Executive without Executive's
consent from Executive's regular shift or regular
duties as they existed on the day immediately
preceding the Change in Control;
(v) the reassignment of Executive without Executive's
consent to a location more than thirty (30) miles
from Executive's regular workplace on the day
immediately preceding the Change in Control;
(vi) the reduction in Executive's job title or level in
effect on the day immediately preceding the Change in
Control;
(vii) the provision of significantly less favorable working
conditions than those provided on the day immediately
preceding the Change in Control; or
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<PAGE>
(viii) a significant diminution in duties or
responsibilities or the reassignment of Executive to
duties which represent a position of lesser
responsibility than Executive's duties as they
existed on the day immediately preceding the Change
in Control.
(m) "DISABILITY" shall mean the Executive's disability within the
meaning of the Polaroid Long Term Disability Plan.
(n) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as in effect on the date in question.
(o) "PERSON" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization
or other entity.
(p) "SHARE ACQUISITION DATE" shall mean the first date any Person
shall become an Acquiring Person.
(q) "STOCK" shall mean the outstanding shares of Common Stock of
the Company and, for purposes of the Change in Control
provision, any other shares of capital stock of the Company
into which the Common Stock shall be reclassified or changed.
(r) "SUBSIDIARY" of the Company shall mean any corporation of
which the Company owns, directly or indirectly, more than 50%
of the Voting Stock.
(s) "TERMINATED" shall mean:
(i) termination by Polaroid without Cause at any time
within the two (2) years following a Change in
Control;
(ii) Executive's termination due to a Constructive
Termination at any time within the two (2) years
following a Change in Control; or
(iii) termination within three (3) months prior to a Change
of Control at the request of any individual or entity
acquiring ownership and control of Polaroid. If
Executive's employment with Polaroid is terminated
prior to a Change in Control at the request of
Acquiring Person, this Agreement shall become
effective upon the subsequent occurrence of a Change
in Control involving such Acquiring Person. In such
situation the Executive's Termination Date shall be
deemed to have occurred immediately following the
Change in Control, and therefore
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<PAGE>
Executive shall be entitled to the benefits provided
in this Agreement.
(t) "TERMINATION DATE" shall mean the date on which Executive is
terminated.
(u) "VOTING STOCK" shall mean capital stock of any class or
classes having general voting power under ordinary
circumstances, in the absence of contingencies, to elect the
directors of a corporation.
2. EFFECTIVE DATE; TERM. This Agreement shall be effective immediately
prior to a Change in Control (the "Effective Date") and shall remain in
effect for two (2) years following such Change in Control, and such
additional time as may be necessary to give effect to the terms of the
Agreement.
3. CHANGE IN CONTROL BENEFITS. If Executive's employment with Polaroid is
Terminated, Executive shall be entitled to the following benefits:
(a) SEVERANCE BENEFITS. Within ten (10) business days after the
Termination Date, Polaroid shall pay Executive a lump sum
amount, in cash, equal to the greater of the severance benefit
Executive would otherwise be entitled to receive under the
Extended Severance Plan or:
(i) two (2) times the sum of:
(A) Executive's Base Salary; and
(B) Executive's Annual Bonus; and
(ii) Executive's Annual Bonus multiplied by a fraction,
the numerator of which shall equal the number of days
Executive was employed by Polaroid in the calendar
year in which the Termination Date occurs and the
denominator of which shall equal 365.
(b) CONTINUED WELFARE BENEFITS. Until the second anniversary of
the Termination Date, Executive shall be entitled to
participate in the Company's medical, dental, and life
insurance plans, at the highest level provided to Executive
during the period beginning immediately prior to the Change in
Control and ending on the Termination Date and at no greater
cost than the cost Executive was paying immediately prior to
Change in Control; PROVIDED, HOWEVER, that if Executive
becomes employed by a new employer, Executive's coverage under
the applicable Polaroid plans shall continue, but Executive's
coverage thereunder shall be
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<PAGE>
secondary to (i.e., reduced by) any benefits provided under
like plans of such new employer.
(c) PAYMENT OF ACCRUED BUT UNPAID AMOUNTS. Within ten (10)
business days after the Termination Date, Polaroid shall pay
Executive:
(i) earned but unpaid compensation, including, without
limitation, any unpaid portion of Executive's Bonus
accrued with respect to the full calendar year ended
prior to the Termination Date; and
(ii) all compensation previously deferred by Executive on
a non-qualified basis but not yet paid.
(d) RETIREE-MEDICAL BENEFITS. If Executive is or would become
fifty-five (55) or older and Executive's age and service equal
sixty-five (65) and Executive has at least five (5) years of
service with the Company within two (2) years of Change in
Control, Executive is eligible for retiree medical benefits
(as such are determined immediately prior to Change in
Control). Executive is eligible to commence receiving such
retiree medical benefits based on the terms and conditions of
the applicable plans in effect immediately prior to the Change
in Control.
(e) SUPPLEMENTAL RETIREMENT AND PROFIT SHARING BENEFITS.
(i) On the Termination Date, Executive shall become
vested in the benefits provided under Polaroid's
non-qualified defined benefit pension plans or any
successor plans (the "Supplemental Plans").
(ii) Within ten (10) business days after the Termination
Date, Polaroid shall pay Executive a lump sum cash
amount equal to the present value of Executive's
accrued benefit under the Supplemental Plans. For
purposes of computing the lump sum present value of
Executive's accrued benefit under the Supplemental
Plans,
(A) Polaroid shall credit Executive with two (2)
years of plan participation and service and
two (2) years of age for all purposes
(including additional accruals and
eligibility for early retirement) over
Executive's actual years and fractional
years of plan participation and service and
age credited to Executive on the Termination
Date; and
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<PAGE>
(B) Polaroid shall apply the present value (and
any other actuarial adjustments required by
this Agreement) using the applicable
actuarial assumptions set forth in the
Pension Plan. In determining Executive's
benefits under this paragraph (e)(B), the
terms of the Supplemental Plans as in effect
immediately prior to the Change in Control,
except as expressly modified in this
paragraph (e), shall govern.
(f) EFFECT ON EXISTING PLANS. All Change in Control provisions
applicable to Executive and contained in any plan, program,
agreement or arrangement maintained as of the date this
Agreement is signed (including, but not limited to, any stock
option, restricted stock or pension plan) shall remain in
effect through the date of a Change in Control, and for such
period thereafter as is necessary to carry out such provisions
and provide the benefits payable thereunder, and may not be
altered in a manner which adversely affects Executive without
Executive's prior written approval. This means that all awards
of options, performance shares or such other awards as may be
granted shall upon Change in Control be fully vested
consistent with the terms of these Agreements. Notwithstanding
the foregoing, no benefits shall be paid to Executive,
however, under the Polaroid Extended Severance Plan or any
other severance plan maintained generally for the employees of
Polaroid if Executive is eligible to receive severance
benefits under this Agreement.
(g) OUTPLACEMENT COUNSELING. Outplacement services will be
provided consistent with Polaroid's outplacement practices in
effect prior to the Change in Control.
4. MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking
other employment or otherwise, and compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable
under this Agreement. No amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Polaroid
(or any other person or entity) may have against Executive unless
specifically referenced herein.
5. GROSS-UP.
(a) In the event it shall be determined that any payment, benefit
or distribution (or combination thereof) by Polaroid, or one
or more trusts established by Polaroid for the benefit of its
employees, to or for the benefit of Executive (whether paid or
payable or distributed or
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<PAGE>
distributable pursuant to the terms of this Agreement, or
otherwise) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, hereinafter collectively referred to as the
"Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and the
Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether
and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Polaroid and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as is requested by Polaroid. In the event that
the Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of
the Code), Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Polaroid. Any
Gross-Up Payment, as determined pursuant to this Section 5,
shall be paid by Polaroid to Executive within five (5)
business days after the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall so indicate to
Executive in writing. Any determination by the Accounting Firm
shall be binding upon Polaroid and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by Polaroid should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the
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<PAGE>
event that Polaroid exhausts its remedies pursuant to Section
5(c) and Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Polaroid to or for the
benefit of Executive.
(c) The Executive shall notify the Company in writing of any
written claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid (but the
Executive's failure to comply with this notice obligation
shall not eliminate his rights under this Section except to
the extent Polaroid's defense against the imposition of the
Excise Tax is actually prejudiced by any such failure). The
Executive shall not pay such claim prior to the expiration of
the thirty (30) day period following the date on which he
gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give Polaroid any information reasonably requested by
Polaroid relating to such claim;
(ii) take such action in connection with contesting such
claim as Polaroid shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by Polaroid;
(iii) cooperate with Polaroid in good faith in order to
effectively contest such claim; and
(iv) permit Polaroid to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that Polaroid shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c),
Polaroid
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<PAGE>
shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct Executive to pay
the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more
appellate courts, as Polaroid shall determine; PROVIDED,
HOWEVER, that if Polaroid directs Executive to pay such claim
and sue for a refund, Polaroid shall advance the amount of
such payment to Executive, on an interest-free basis, and
shall indemnify and hold Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and PROVIDED, FURTHER, that if
Executive is required to extend the statute of limitations to
enable Polaroid to contest such claim, Executive may limit
this extension solely to such contested amount. Polaroid's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by
Polaroid pursuant to Section 5(c), Executive receives any
refund with respect to such claim, Executive shall (subject to
Polaroid's complying with the requirements of Section 5(c))
promptly pay to Polaroid the amount of such refund (together
with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an
amount advanced by Polaroid pursuant to Section 5(c), a
determination is made that Executive shall not be entitled to
any refund with respect to such claim and Polaroid does not
notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent Polaroid from terminating Executive's employment for Cause. If
Executive is terminated for Cause, Polaroid shall have no obligation to
make any payments under this Agreement, except for payments that may
otherwise be
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<PAGE>
payable under then existing employee benefit plans, programs and
arrangements of Polaroid.
7. INDEMNIFICATION; DIRECTOR'S AND OFFICER'S LIABILITY INSURANCE.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Polaroid Certificate of
Incorporation or the Polaroid By-Laws, as they may be amended or
restated from time to time. In addition, Polaroid shall maintain
Director's and Officer's liability insurance on behalf of Executive at
the better of the level in effect immediately prior to the Change in
Control or the Executive's Termination Date, for the two (2) year
period following the Termination Date, and throughout the period of any
applicable statute of limitations.
8. CONFIDENTIALITY. Without the prior written consent of the Company,
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency,
the Executive shall comply with the Confidentiality Agreement he
executed when hired, and shall not disclose any trade secrets, customer
lists, drawings, designs, information regarding product development,
marketing plans, sales plans, manufacturing plans, management
organization information (including data and other information relating
to members of the Board and management), operating policies or manuals,
business plans, financial records or other financial, commercial,
business or technical information relating to the Company or any of its
subsidiaries or information designated as confidential or proprietary
that the Company or any of its Subsidiaries may receive belonging to
suppliers, customers or others who do business with the Company or any
of its subsidiaries (collectively, "Confidential Information") to any
third person unless such Confidential Information has been previously
disclosed to the public by the Company or is in the public domain
(other than by reason of Executive's breach of this Section 8).
9. DISPUTES. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect. Judgment may be
entered on an arbitrator's award relating to this Agreement in any
court having jurisdiction.
10. COSTS OF PROCEEDINGS. Polaroid shall pay all costs and expenses,
including attorneys' fees and disbursements, at least monthly, of
Executive in connection with any legal proceeding (including
arbitration), whether or not instituted by Polaroid or Executive,
relating to the interpretation or enforcement of any provision of this
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<PAGE>
Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including attorneys'
fees and disbursements, of Executive. Polaroid shall pay pre-judgment
interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of The Chase Manhattan
Bank (or its successors), as in effect from time to time, from the date
that payment should have been made to Executive under this Agreement.
11. ASSIGNMENT. Except as otherwise provided herein, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by Polaroid
and Executive and their respective heirs, legal representatives,
successors and assigns. If Polaroid shall be merged into or
consolidated with another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. Polaroid will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
or assets of Polaroid, by agreement in form and substance satisfactory
to Executive, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Polaroid would be
required to perform it if no such succession had taken place. The
provisions of this Section 11 shall continue to apply to each
subsequent employer of Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such
subsequent employer.
12. PAYMENTS IN EVENT OF DEATH. Should the Executive become eligible to
receive payments and benefits under this Agreement and die prior to
receipt of all such payments and benefits, the residual payments shall
be made to the beneficiaries identified on the Executive's beneficiary
form for the Executive Deferral Compensation Plan. Any residual family
medical and dental benefits which the Executive was receiving on the
Executive's date of death shall continue to the family members the
Executive had covered in such medical and dental plans on such date.
13. WITHHOLDING. Polaroid may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any
payments due to Executive hereunder.
14. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
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Massachusetts applicable to contracts made and to be performed therein.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and, except as expressly provided herein,
supersedes all other prior agreements concerning the effect of a Change
in Control on the relationship between Polaroid and Executive. This
Agreement may be changed only by a written agreement executed by
Polaroid and Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 25th day of April, 1997.
POLAROID CORPORATION
By GARY T. DICAMILLO
---------------------------
Gary T. DiCamillo
JOHN JENKINS
- -----------------------------
John Jenkins
Executive
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EXHIBIT 10.2
CHANGE IN CONTROL SEVERANCE AGREEMENT
AGREEMENT made as of April 25, 1997 between Polaroid
Corporation ("Polaroid" or "Company") and Paul E. Lambert (the "Executive").
Executive is a skilled and dedicated employee who has
important management responsibilities and talents which benefit Polaroid.
Polaroid believes that its best interests will be served if Executive is
encouraged to remain with Polaroid. Polaroid has determined that Executive's
ability to perform Executive's responsibilities and utilize Executive's talents
for the benefit of Polaroid, and Polaroid's ability to retain Executive as an
employee, will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or control of
Polaroid. Accordingly, Polaroid and Executive agree as follows:
1. DEFINED TERMS.
(a) "ANNUAL BONUS" shall mean the Executive's annual bonus paid
pursuant to the Company's annual bonus plan in effect at the
time (currently the Polaroid Incentive Plan for Executives).
Unless otherwise specifically provided, the Annual Bonus shall
be calculated assuming the Corporate target is reached and no
additional factors are considered to decrease the Executive's
award under the Plan.
(b) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, is
the Beneficial Owner of 20% or more of the Stock then
outstanding, but does not include any Subsidiary of the
Company, any employee benefit plan of the Company or of any of
its Subsidiaries or any Person holding Stock for or pursuant
to the terms of any such employee benefit plan.
(c) "AFFILIATE" and "ASSOCIATE" when used with reference to any
Person, shall have the meaning given to such terms in Rule
12b-2 of the General Rules and Regulations under the Exchange
Act.
(d) "BASE SALARY" shall mean the annual rate of base salary
(disregarding any reduction in such rate that constitutes
Constructive Termination) as increased by the Board from time
to time.
(e) "BENEFICIAL OWNER" shall be a Person deemed to "beneficially
own," any securities:
<PAGE>
(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or
indirectly; or
(ii) which such Person or any of such Person's Affiliates
or Associates has:
(A) the right to acquire (whether such right is
exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement or understanding (written or
oral), or upon the exercise of conversion
rights, exchange rights, warrants or
options, or otherwise; provided, however,
that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or
exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or
Associates until such tendered securities
are accepted for purchase or exchange
thereunder; or
(B) the right to vote pursuant to any agreement,
arrangement or understanding (written or
oral); provided however, that a Person shall
not be deemed the Beneficial Owner of, or to
beneficially own, any security if the
agreement, arrangement or understanding
(written or oral) to vote such security (1)
arises solely from a revocable proxy given
to such Person in response to a public proxy
or consent solicitation made pursuant to,
and in accordance with, the applicable rules
and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule
13D (or any comparable or successor report)
under the Exchange Act; or,
(C) which are beneficially owned, directly or
indirectly, by any Person with which such
Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or
understanding (written or oral), for the
purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as
described above) or disposing of any
securities of the Company.
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(f) "BOARD" shall mean the Board of Directors of the Company.
(g) "BONUS" means the amount payable to the Executive under any
plan, or agreement offered by Polaroid.
(h) "CAUSE" means either of the following:
(i) Executive's willful malfeasance having a material
adverse effect on Polaroid; or
(ii) Executive's conviction of a felony;
PROVIDED, that any action or refusal by Executive shall not
constitute Cause if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Polaroid, or if Executive shall be entitled,
under applicable law or under an applicable Polaroid
Certificate of Incorporation or the Polaroid By-Laws, as they
may be amended or restated from time to time, to be
indemnified with respect to such action or refusal.
(i) "CHANGE IN CONTROL" shall mean:
(i) the date on which a change in control of the Company
occurs of a nature that would be required to be
reported (assuming that the Company's Stock was
registered under the Exchange Act) in response to an
item (currently item 6(e)) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act or
an item (currently Item l(a)) of Form 8-K under the
Exchange Act;
(ii) the date on which there is an Acquiring Person and a
change in the composition of the Board of the Company
within two years after the Share Acquisition Date
such that the individuals who constitute the Board
prior to the Share Acquisition Date shall cease for
any reason to constitute at least a majority of the
Board;
(iii) any day on or after the Share Acquisition Date when
directly or indirectly, any of the transactions
specified in the following clauses occurs:
(A) the Company shall consolidate with, or merge
with and into, any other Person;
(B) any Person shall merge with and into the
Company; or
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(C) the Company shall sell, lease, exchange or
otherwise transfer or dispose of (or one or
more of its Subsidiaries shall sell, lease,
exchange or otherwise transfer or dispose
of), in one or more transactions, the major
part of the assets of the Company and its
Subsidiaries (taken as a whole) to any other
Person or Persons;
(iv) the date when a Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan
of the Company or any of its Subsidiaries or any
Person holding Stock for or pursuant to the terms of
any such employee benefit plan) alone or together
with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 30% or more of the
Stock then outstanding;
(v) the date on which the stockholders of the Company
approve a merger or consolidation of the Company with
any other corporation other than:
(A) a merger or consolidation which would result
in voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into
voting securities of the surviving or parent
entity) 50% or more of the combined voting
power of the voting securities of the
Company or such surviving or parent entity
outstanding immediately after such merger or
consolidation, or
(B) a merger or consolidation effected to
implement a recapitalization of the Company
(or similar transaction) in which no Person
acquires 50% or more of the combined voting
power of the Company's then outstanding
securities; or
(vi) the date stockholders of the Company approve a plan
of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets
(or any transaction having a similar effect).
(j) "CODE" means the Internal Revenue Code of 1986, as amended.
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(k) "CONFIDENTIAL INFORMATION" means non-public information
relating to the business plans, marketing plans, customers or
employees of Polaroid other than information the disclosure of
which cannot reasonably be expected to adversely affect the
business of Polaroid.
(l) "CONSTRUCTIVE TERMINATION" shall occur when the Executive
voluntarily terminates his employment with the Company or
retires after the occurrence of one or more of the following
events on or after the Change in Control:
(i) a reduction in Base Salary from the amount of Base
Salary on the day immediately preceding the Change in
Control;
(ii) the elimination of or reduction of any benefit under
any bonus, incentive or other employee benefit plan
in effect on the day immediately preceding the Change
in Control, without an economically equivalent
replacement, if Executive was a participant or member
of such plan on the day immediately preceding the
Change in Control;
(iii) the discontinuation of or any reduction in
Executive's participation or membership in any bonus,
incentive or other benefit plan in which Executive
was a participant or member on the day immediately
preceding the Change in Control, without an
economically equivalent replacement;
(iv) the reassignment of Executive without Executive's
consent from Executive's regular shift or regular
duties as they existed on the day immediately
preceding the Change in Control;
(v) the reassignment of Executive without Executive's
consent to a location more than thirty (30) miles
from Executive's regular workplace on the day
immediately preceding the Change in Control;
(vi) the reduction in Executive's job title or level in
effect on the day immediately preceding the Change in
Control;
(vii) the provision of significantly less favorable working
conditions than those provided on the day immediately
preceding the Change in Control; or
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(viii) a significant diminution in duties or
responsibilities or the reassignment of Executive to
duties which represent a position of lesser
responsibility than Executive's duties as they
existed on the day immediately preceding the Change
in Control.
(m) "DISABILITY" shall mean the Executive's disability within the
meaning of the Polaroid Long Term Disability Plan.
(n) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as in effect on the date in question.
(o) "PERSON" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization
or other entity.
(p) "SHARE ACQUISITION DATE" shall mean the first date any Person
shall become an Acquiring Person.
(q) "STOCK" shall mean the outstanding shares of Common Stock of
the Company and, for purposes of the Change in Control
provision, any other shares of capital stock of the Company
into which the Common Stock shall be reclassified or changed.
(r) "SUBSIDIARY" of the Company shall mean any corporation of
which the Company owns, directly or indirectly, more than 50%
of the Voting Stock.
(s) "TERMINATED" shall mean:
(i) termination by Polaroid without Cause at any time
within the two (2) years following a Change in
Control;
(ii) Executive's termination due to a Constructive
Termination at any time within the two (2) years
following a Change in Control; or
(iii) termination within three (3) months prior to a Change
of Control at the request of any individual or entity
acquiring ownership and control of Polaroid. If
Executive's employment with Polaroid is terminated
prior to a Change in Control at the request of
Acquiring Person, this Agreement shall become
effective upon the subsequent occurrence of a Change
in Control involving such Acquiring Person. In such
situation the Executive's Termination Date shall be
deemed to have occurred immediately following the
Change in Control, and therefore
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Executive shall be entitled to the benefits provided
in this Agreement.
(t) "TERMINATION DATE" shall mean the date on which Executive is
terminated.
(u) "VOTING STOCK" shall mean capital stock of any class or
classes having general voting power under ordinary
circumstances, in the absence of contingencies, to elect the
directors of a corporation.
2. EFFECTIVE DATE; TERM. This Agreement shall be effective immediately
prior to a Change in Control (the "Effective Date") and shall remain in
effect for two (2) years following such Change in Control, and such
additional time as may be necessary to give effect to the terms of the
Agreement.
3. CHANGE IN CONTROL BENEFITS. If Executive's employment with Polaroid is
Terminated, Executive shall be entitled to the following benefits:
(a) SEVERANCE BENEFITS. Within ten (10) business days after the
Termination Date, Polaroid shall pay Executive a lump sum
amount, in cash, equal to the greater of the severance benefit
Executive would otherwise be entitled to receive under the
Extended Severance Plan or:
(i) two (2) times the sum of:
(A) Executive's Base Salary; and
(B) Executive's Annual Bonus; and
(ii) Executive's Annual Bonus multiplied by a fraction,
the numerator of which shall equal the number of days
Executive was employed by Polaroid in the calendar
year in which the Termination Date occurs and the
denominator of which shall equal 365.
(b) CONTINUED WELFARE BENEFITS. Until the second anniversary of
the Termination Date, Executive shall be entitled to
participate in the Company's medical, dental, and life
insurance plans, at the highest level provided to Executive
during the period beginning immediately prior to the Change in
Control and ending on the Termination Date and at no greater
cost than the cost Executive was paying immediately prior to
Change in Control; PROVIDED, HOWEVER, that if Executive
becomes employed by a new employer, Executive's coverage under
the applicable Polaroid plans shall continue, but Executive's
coverage thereunder shall be
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secondary to (i.e., reduced by) any benefits provided under
like plans of such new employer.
(c) PAYMENT OF ACCRUED BUT UNPAID AMOUNTS. Within ten (10)
business days after the Termination Date, Polaroid shall pay
Executive:
(i) earned but unpaid compensation, including, without
limitation, any unpaid portion of Executive's Bonus
accrued with respect to the full calendar year ended
prior to the Termination Date; and
(ii) all compensation previously deferred by Executive on
a non-qualified basis but not yet paid.
(d) RETIREE-MEDICAL BENEFITS. If Executive is or would become
fifty-five (55) or older and Executive's age and service equal
sixty-five (65) and Executive has at least five (5) years of
service with the Company within two (2) years of Change in
Control, Executive is eligible for retiree medical benefits
(as such are determined immediately prior to Change in
Control). Executive is eligible to commence receiving such
retiree medical benefits based on the terms and conditions of
the applicable plans in effect immediately prior to the Change
in Control.
(e) SUPPLEMENTAL RETIREMENT AND PROFIT SHARING BENEFITS.
(i) On the Termination Date, Executive shall become
vested in the benefits provided under Polaroid's
non-qualified defined benefit pension plans or any
successor plans (the "Supplemental Plans").
(ii) Within ten (10) business days after the Termination
Date, Polaroid shall pay Executive a lump sum cash
amount equal to the present value of Executive's
accrued benefit under the Supplemental Plans. For
purposes of computing the lump sum present value of
Executive's accrued benefit under the Supplemental
Plans,
(A) Polaroid shall credit Executive with two (2)
years of plan participation and service and
two (2) years of age for all purposes
(including additional accruals and
eligibility for early retirement) over
Executive's actual years and fractional
years of plan participation and service and
age credited to Executive on the Termination
Date; and
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(B) Polaroid shall apply the present value (and
any other actuarial adjustments required by
this Agreement) using the applicable
actuarial assumptions set forth in the
Pension Plan. In determining Executive's
benefits under this paragraph (e)(B), the
terms of the Supplemental Plans as in effect
immediately prior to the Change in Control,
except as expressly modified in this
paragraph (e), shall govern.
(f) EFFECT ON EXISTING PLANS. All Change in Control provisions
applicable to Executive and contained in any plan, program,
agreement or arrangement maintained as of the date this
Agreement is signed (including, but not limited to, any stock
option, restricted stock or pension plan) shall remain in
effect through the date of a Change in Control, and for such
period thereafter as is necessary to carry out such provisions
and provide the benefits payable thereunder, and may not be
altered in a manner which adversely affects Executive without
Executive's prior written approval. This means that all awards
of options, performance shares or such other awards as may be
granted shall upon Change in Control be fully vested
consistent with the terms of these Agreements. Notwithstanding
the foregoing, no benefits shall be paid to Executive,
however, under the Polaroid Extended Severance Plan or any
other severance plan maintained generally for the employees of
Polaroid if Executive is eligible to receive severance
benefits under this Agreement.
(g) OUTPLACEMENT COUNSELING. Outplacement services will be
provided consistent with Polaroid's outplacement practices in
effect prior to the Change in Control.
4. MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking
other employment or otherwise, and compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable
under this Agreement. No amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Polaroid
(or any other person or entity) may have against Executive unless
specifically referenced herein.
5. GROSS-UP.
(a) In the event it shall be determined that any payment, benefit
or distribution (or combination thereof) by Polaroid, or one
or more trusts established by Polaroid for the benefit of its
employees, to or for the benefit of Executive (whether paid or
payable or distributed or
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<PAGE>
distributable pursuant to the terms of this Agreement, or
otherwise) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, hereinafter collectively referred to as the
"Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and the
Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether
and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Polaroid and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as is requested by Polaroid. In the event that
the Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of
the Code), Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Polaroid. Any
Gross-Up Payment, as determined pursuant to this Section 5,
shall be paid by Polaroid to Executive within five (5)
business days after the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall so indicate to
Executive in writing. Any determination by the Accounting Firm
shall be binding upon Polaroid and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by Polaroid should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the
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<PAGE>
event that Polaroid exhausts its remedies pursuant to Section
5(c) and Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Polaroid to or for the
benefit of Executive.
(c) The Executive shall notify the Company in writing of any
written claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid (but the
Executive's failure to comply with this notice obligation
shall not eliminate his rights under this Section except to
the extent Polaroid's defense against the imposition of the
Excise Tax is actually prejudiced by any such failure). The
Executive shall not pay such claim prior to the expiration of
the thirty (30) day period following the date on which he
gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give Polaroid any information reasonably requested by
Polaroid relating to such claim;
(ii) take such action in connection with contesting such
claim as Polaroid shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by Polaroid;
(iii) cooperate with Polaroid in good faith in order to
effectively contest such claim; and
(iv) permit Polaroid to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that Polaroid shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c),
Polaroid
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<PAGE>
shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct Executive to pay
the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more
appellate courts, as Polaroid shall determine; PROVIDED,
HOWEVER, that if Polaroid directs Executive to pay such claim
and sue for a refund, Polaroid shall advance the amount of
such payment to Executive, on an interest-free basis, and
shall indemnify and hold Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and PROVIDED, FURTHER, that if
Executive is required to extend the statute of limitations to
enable Polaroid to contest such claim, Executive may limit
this extension solely to such contested amount. Polaroid's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by
Polaroid pursuant to Section 5(c), Executive receives any
refund with respect to such claim, Executive shall (subject to
Polaroid's complying with the requirements of Section 5(c))
promptly pay to Polaroid the amount of such refund (together
with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an
amount advanced by Polaroid pursuant to Section 5(c), a
determination is made that Executive shall not be entitled to
any refund with respect to such claim and Polaroid does not
notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent Polaroid from terminating Executive's employment for Cause. If
Executive is terminated for Cause, Polaroid shall have no obligation to
make any payments under this Agreement, except for payments that may
otherwise be
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payable under then existing employee benefit plans, programs and
arrangements of Polaroid.
7. INDEMNIFICATION; DIRECTOR'S AND OFFICER'S LIABILITY INSURANCE.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Polaroid Certificate of
Incorporation or the Polaroid By-Laws, as they may be amended or
restated from time to time. In addition, Polaroid shall maintain
Director's and Officer's liability insurance on behalf of Executive at
the better of the level in effect immediately prior to the Change in
Control or the Executive's Termination Date, for the two (2) year
period following the Termination Date, and throughout the period of any
applicable statute of limitations.
8. CONFIDENTIALITY. Without the prior written consent of the Company,
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency,
the Executive shall comply with the Confidentiality Agreement he
executed when hired, and shall not disclose any trade secrets, customer
lists, drawings, designs, information regarding product development,
marketing plans, sales plans, manufacturing plans, management
organization information (including data and other information relating
to members of the Board and management), operating policies or manuals,
business plans, financial records or other financial, commercial,
business or technical information relating to the Company or any of its
subsidiaries or information designated as confidential or proprietary
that the Company or any of its Subsidiaries may receive belonging to
suppliers, customers or others who do business with the Company or any
of its subsidiaries (collectively, "Confidential Information") to any
third person unless such Confidential Information has been previously
disclosed to the public by the Company or is in the public domain
(other than by reason of Executive's breach of this Section 8).
9. DISPUTES. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect. Judgment may be
entered on an arbitrator's award relating to this Agreement in any
court having jurisdiction.
10. COSTS OF PROCEEDINGS. Polaroid shall pay all costs and expenses,
including attorneys' fees and disbursements, at least monthly, of
Executive in connection with any legal proceeding (including
arbitration), whether or not instituted by Polaroid or Executive,
relating to the interpretation or enforcement of any provision of this
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Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including attorneys'
fees and disbursements, of Executive. Polaroid shall pay pre-judgment
interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of The Chase Manhattan
Bank (or its successors), as in effect from time to time, from the date
that payment should have been made to Executive under this Agreement.
11. ASSIGNMENT. Except as otherwise provided herein, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by Polaroid
and Executive and their respective heirs, legal representatives,
successors and assigns. If Polaroid shall be merged into or
consolidated with another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. Polaroid will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
or assets of Polaroid, by agreement in form and substance satisfactory
to Executive, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Polaroid would be
required to perform it if no such succession had taken place. The
provisions of this Section 11 shall continue to apply to each
subsequent employer of Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such
subsequent employer.
12. PAYMENTS IN EVENT OF DEATH. Should the Executive become eligible to
receive payments and benefits under this Agreement and die prior to
receipt of all such payments and benefits, the residual payments shall
be made to the beneficiaries identified on the Executive's beneficiary
form for the Executive Deferral Compensation Plan. Any residual family
medical and dental benefits which the Executive was receiving on the
Executive's date of death shall continue to the family members the
Executive had covered in such medical and dental plans on such date.
13. WITHHOLDING. Polaroid may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any
payments due to Executive hereunder.
14. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
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Massachusetts applicable to contracts made and to be performed therein.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and, except as expressly provided herein,
supersedes all other prior agreements concerning the effect of a Change
in Control on the relationship between Polaroid and Executive. This
Agreement may be changed only by a written agreement executed by
Polaroid and Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 25th day of April, 1997.
POLAROID CORPORATION
By GARY T. DICAMILLO
------------------------------
Gary T. DiCamillo
PAUL E. LAMBERT
- -----------------------------
Paul E. Lambert
Executive
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EXHIBIT 10.3
CHANGE IN CONTROL SEVERANCE AGREEMENT
AGREEMENT made as of April 7, 1999 between Polaroid
Corporation ("Polaroid" or "Company") and NEAL D. GOLDMAN (the "Executive").
Executive is a skilled and dedicated employee who has
important management responsibilities and talents which benefit Polaroid.
Polaroid believes that its best interests will be served if Executive is
encouraged to remain with Polaroid. Polaroid has determined that Executive's
ability to perform Executive's responsibilities and utilize Executive's talents
for the benefit of Polaroid, and Polaroid's ability to retain Executive as an
employee, will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or control of
Polaroid. Accordingly, Polaroid and Executive agree as follows:
1. DEFINED TERMS.
(a) "ANNUAL BONUS" shall mean the Executive's annual bonus paid
pursuant to the Company's annual bonus plan in effect at the
time (currently the Polaroid Incentive Plan for Executives).
Unless otherwise specifically provided, the Annual Bonus shall
be calculated assuming the Corporate target is reached and no
additional factors are considered to decrease the Executive's
award under the Plan.
(b) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, is
the Beneficial Owner of 20% or more of the Stock then
outstanding, but does not include any Subsidiary of the
Company, any employee benefit plan of the Company or of any of
its Subsidiaries or any Person holding Stock for or pursuant
to the terms of any such employee benefit plan.
(c) "AFFILIATE" and "ASSOCIATE" when used with reference to any
Person, shall have the meaning given to such terms in Rule
12b-2 of the General Rules and Regulations under the Exchange
Act.
(d) "BASE SALARY" shall mean the annual rate of base salary
(disregarding any reduction in such rate that constitutes
Constructive Termination) as increased by the Board from time
to time.
(e) "BENEFICIAL OWNER" shall be a Person deemed to "beneficially
own," any securities:
<PAGE>
(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or
indirectly; or
(ii) which such Person or any of such Person's Affiliates
or Associates has:
(A) the right to acquire (whether such right is
exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement or understanding (written or
oral), or upon the exercise of conversion
rights, exchange rights, warrants or
options, or otherwise; provided, however,
that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or
exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or
Associates until such tendered securities
are accepted for purchase or exchange
thereunder; or
(B) the right to vote pursuant to any agreement,
arrangement or understanding (written or
oral); provided however, that a Person shall
not be deemed the Beneficial Owner of, or to
beneficially own, any security if the
agreement, arrangement or understanding
(written or oral) to vote such security (1)
arises solely from a revocable proxy given
to such Person in response to a public proxy
or consent solicitation made pursuant to,
and in accordance with, the applicable rules
and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule
13D (or any comparable or successor report)
under the Exchange Act; or,
(C) which are beneficially owned, directly or
indirectly, by any Person with which such
Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or
understanding (written or oral), for the
purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as
described above) or disposing of any
securities of the Company.
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(f) "BOARD" shall mean the Board of Directors of the Company.
(g) "BONUS" means the amount payable to the Executive under any
plan, or agreement offered by Polaroid.
(h) "CAUSE" means either of the following:
(i) Executive's willful malfeasance having a material
adverse effect on Polaroid; or
(ii) Executive's conviction of a felony;
PROVIDED, that any action or refusal by Executive shall not
constitute Cause if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Polaroid, or if Executive shall be entitled,
under applicable law or under an applicable Polaroid
Certificate of Incorporation or the Polaroid By-Laws, as they
may be amended or restated from time to time, to be
indemnified with respect to such action or refusal.
(i) "CHANGE IN CONTROL" shall mean:
(i) the date on which a change in control of the Company
occurs of a nature that would be required to be
reported (assuming that the Company's Stock was
registered under the Exchange Act) in response to an
item (currently item 6(e)) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act or
an item (currently Item l(a)) of Form 8-K under the
Exchange Act;
(ii) the date on which there is an Acquiring Person and a
change in the composition of the Board of the Company
within two years after the Share Acquisition Date
such that the individuals who constitute the Board
prior to the Share Acquisition Date shall cease for
any reason to constitute at least a majority of the
Board;
(iii) any day on or after the Share Acquisition Date when
directly or indirectly, any of the transactions
specified in the following clauses occurs:
(A) the Company shall consolidate with, or merge
with and into, any other Person;
(B) any Person shall merge with and into the
Company; or
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(C) the Company shall sell, lease, exchange or
otherwise transfer or dispose of (or one or
more of its Subsidiaries shall sell, lease,
exchange or otherwise transfer or dispose
of), in one or more transactions, the major
part of the assets of the Company and its
Subsidiaries (taken as a whole) to any other
Person or Persons;
(iv) the date when a Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan
of the Company or any of its Subsidiaries or any
Person holding Stock for or pursuant to the terms of
any such employee benefit plan) alone or together
with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 30% or more of the
Stock then outstanding;
(v) the date on which the stockholders of the Company
approve a merger or consolidation of the Company with
any other corporation other than:
(A) a merger or consolidation which would result
in voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into
voting securities of the surviving or parent
entity) 50% or more of the combined voting
power of the voting securities of the
Company or such surviving or parent entity
outstanding immediately after such merger or
consolidation, or
(B) a merger or consolidation effected to
implement a recapitalization of the Company
(or similar transaction) in which no Person
acquires 50% or more of the combined voting
power of the Company's then outstanding
securities; or
(vi) the date stockholders of the Company approve a plan
of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets
(or any transaction having a similar effect).
(j) "CODE" means the Internal Revenue Code of 1986, as amended.
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(k) "CONFIDENTIAL INFORMATION" means non-public information
relating to the business plans, marketing plans, customers or
employees of Polaroid other than information the disclosure of
which cannot reasonably be expected to adversely affect the
business of Polaroid.
(l) "CONSTRUCTIVE TERMINATION" shall occur when the Executive
voluntarily terminates his employment with the Company or
retires after the occurrence of one or more of the following
events on or after the Change in Control:
(i) a reduction in Base Salary from the amount of Base
Salary on the day immediately preceding the Change in
Control;
(ii) the elimination of or reduction of any benefit under
any bonus, incentive or other employee benefit plan
in effect on the day immediately preceding the Change
in Control, without an economically equivalent
replacement, if Executive was a participant or member
of such plan on the day immediately preceding the
Change in Control;
(iii) the discontinuation of or any reduction in
Executive's participation or membership in any bonus,
incentive or other benefit plan in which Executive
was a participant or member on the day immediately
preceding the Change in Control, without an
economically equivalent replacement;
(iv) the reassignment of Executive without Executive's
consent from Executive's regular shift or regular
duties as they existed on the day immediately
preceding the Change in Control;
(v) the reassignment of Executive without Executive's
consent to a location more than thirty (30) miles
from Executive's regular workplace on the day
immediately preceding the Change in Control;
(vi) the reduction in Executive's job title or level in
effect on the day immediately preceding the Change in
Control;
(vii) the provision of significantly less favorable working
conditions than those provided on the day immediately
preceding the Change in Control; or
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(viii) a significant diminution in duties or
responsibilities or the reassignment of Executive to
duties which represent a position of lesser
responsibility than Executive's duties as they
existed on the day immediately preceding the Change
in Control.
(m) "DISABILITY" shall mean the Executive's disability within the
meaning of the Polaroid Long Term Disability Plan.
(n) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as in effect on the date in question.
(o) "PERSON" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization
or other entity.
(p) "SHARE ACQUISITION DATE" shall mean the first date any Person
shall become an Acquiring Person.
(q) "STOCK" shall mean the outstanding shares of Common Stock of
the Company and, for purposes of the Change in Control
provision, any other shares of capital stock of the Company
into which the Common Stock shall be reclassified or changed.
(r) "SUBSIDIARY" of the Company shall mean any corporation of
which the Company owns, directly or indirectly, more than 50%
of the Voting Stock.
(s) "TERMINATED" shall mean:
(i) termination by Polaroid without Cause at any time
within the two (2) years following a Change in
Control;
(ii) Executive's termination due to a Constructive
Termination at any time within the two (2) years
following a Change in Control; or
(iii) termination within three (3) months prior to a Change
of Control at the request of any individual or entity
acquiring ownership and control of Polaroid. If
Executive's employment with Polaroid is terminated
prior to a Change in Control at the request of
Acquiring Person, this Agreement shall become
effective upon the subsequent occurrence of a Change
in Control involving such Acquiring Person. In such
situation the Executive's Termination Date shall be
deemed to have occurred immediately following the
Change in Control, and therefore
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Executive shall be entitled to the benefits provided
in this Agreement.
(t) "TERMINATION DATE" shall mean the date on which Executive is
terminated.
(u) "VOTING STOCK" shall mean capital stock of any class or
classes having general voting power under ordinary
circumstances, in the absence of contingencies, to elect the
directors of a corporation.
2. EFFECTIVE DATE; TERM. This Agreement shall be effective immediately
prior to a Change in Control (the "Effective Date") and shall remain in
effect for two (2) years following such Change in Control, and such
additional time as may be necessary to give effect to the terms of the
Agreement.
3. CHANGE IN CONTROL BENEFITS. If Executive's employment with Polaroid is
Terminated, Executive shall be entitled to the following benefits:
(a) SEVERANCE BENEFITS. Within ten (10) business days after the
Termination Date, Polaroid shall pay Executive a lump sum
amount, in cash, equal to the greater of the severance benefit
Executive would otherwise be entitled to receive under the
Extended Severance Plan or:
(i) two (2) times the sum of:
(A) Executive's Base Salary; and
(B) Executive's Annual Bonus; and
(ii) Executive's Annual Bonus multiplied by a fraction,
the numerator of which shall equal the number of days
Executive was employed by Polaroid in the calendar
year in which the Termination Date occurs and the
denominator of which shall equal 365.
(b) CONTINUED WELFARE BENEFITS. Until the second anniversary of
the Termination Date, Executive shall be entitled to
participate in the Company's medical, dental, and life
insurance plans, at the highest level provided to Executive
during the period beginning immediately prior to the Change in
Control and ending on the Termination Date and at no greater
cost than the cost Executive was paying immediately prior to
Change in Control; PROVIDED, HOWEVER, that if Executive
becomes employed by a new employer, Executive's coverage under
the applicable Polaroid plans shall continue, but Executive's
coverage thereunder shall be
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secondary to (i.e., reduced by) any benefits provided under
like plans of such new employer.
(c) PAYMENT OF ACCRUED BUT UNPAID AMOUNTS. Within ten (10)
business days after the Termination Date, Polaroid shall pay
Executive:
(i) earned but unpaid compensation, including, without
limitation, any unpaid portion of Executive's Bonus
accrued with respect to the full calendar year ended
prior to the Termination Date; and
(ii) all compensation previously deferred by Executive on
a non-qualified basis but not yet paid.
(d) RETIREE-MEDICAL BENEFITS. If Executive is or would become
fifty-five (55) or older and Executive's age and service equal
sixty-five (65) and Executive has at least five (5) years of
service with the Company within two (2) years of Change in
Control, Executive is eligible for retiree medical benefits
(as such are determined immediately prior to Change in
Control). Executive is eligible to commence receiving such
retiree medical benefits based on the terms and conditions of
the applicable plans in effect immediately prior to the Change
in Control.
(e) SUPPLEMENTAL RETIREMENT AND PROFIT SHARING BENEFITS.
(i) On the Termination Date, Executive shall become
vested in the benefits provided under Polaroid's
non-qualified defined benefit pension plans or any
successor plans (the "Supplemental Plans").
(ii) Within ten (10) business days after the Termination
Date, Polaroid shall pay Executive a lump sum cash
amount equal to the present value of Executive's
accrued benefit under the Supplemental Plans. For
purposes of computing the lump sum present value of
Executive's accrued benefit under the Supplemental
Plans,
(A) Polaroid shall credit Executive with two (2)
years of plan participation and service and
two (2) years of age for all purposes
(including additional accruals and
eligibility for early retirement) over
Executive's actual years and fractional
years of plan participation and service and
age credited to Executive on the Termination
Date; and
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(B) Polaroid shall apply the present value (and
any other actuarial adjustments required by
this Agreement) using the applicable
actuarial assumptions set forth in the
Pension Plan. In determining Executive's
benefits under this paragraph (e)(B), the
terms of the Supplemental Plans as in effect
immediately prior to the Change in Control,
except as expressly modified in this
paragraph (e), shall govern.
(f) EFFECT ON EXISTING PLANS. All Change in Control provisions
applicable to Executive and contained in any plan, program,
agreement or arrangement maintained as of the date this
Agreement is signed (including, but not limited to, any stock
option, restricted stock or pension plan) shall remain in
effect through the date of a Change in Control, and for such
period thereafter as is necessary to carry out such provisions
and provide the benefits payable thereunder, and may not be
altered in a manner which adversely affects Executive without
Executive's prior written approval. This means that all awards
of options, performance shares or such other awards as may be
granted shall upon Change in Control be fully vested
consistent with the terms of these Agreements. Notwithstanding
the foregoing, no benefits shall be paid to Executive,
however, under the Polaroid Extended Severance Plan or any
other severance plan maintained generally for the employees of
Polaroid if Executive is eligible to receive severance
benefits under this Agreement.
(g) OUTPLACEMENT COUNSELING. Outplacement services will be
provided consistent with Polaroid's outplacement practices in
effect prior to the Change in Control..
4. MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking
other employment or otherwise, and compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable
under this Agreement. No amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Polaroid
(or any other person or entity) may have against Executive unless
specifically referenced herein.
5. GROSS-UP.
(a) In the event it shall be determined that any payment, benefit
or distribution (or combination thereof) by Polaroid, or one
or more trusts established by Polaroid for the benefit of its
employees, to or for the benefit of Executive (whether paid or
payable or distributed or
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<PAGE>
distributable pursuant to the terms of this Agreement, or
otherwise) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, hereinafter collectively referred to as the
"Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and the
Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether
and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Polaroid and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as is requested by Polaroid. In the event that
the Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of
the Code), Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Polaroid. Any
Gross-Up Payment, as determined pursuant to this Section 5,
shall be paid by Polaroid to Executive within five (5)
business days after the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall so indicate to
Executive in writing. Any determination by the Accounting Firm
shall be binding upon Polaroid and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by Polaroid should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the
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event that Polaroid exhausts its remedies pursuant to Section
5(c) and Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Polaroid to or for the
benefit of Executive.
(c) The Executive shall notify the Company in writing of any
written claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid (but the
Executive's failure to comply with this notice obligation
shall not eliminate his rights under this Section except to
the extent Polaroid's defense against the imposition of the
Excise Tax is actually prejudiced by any such failure). The
Executive shall not pay such claim prior to the expiration of
the thirty (30) day period following the date on which he
gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give Polaroid any information reasonably requested by
Polaroid relating to such claim;
(ii) take such action in connection with contesting such
claim as Polaroid shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by Polaroid;
(iii) cooperate with Polaroid in good faith in order to
effectively contest such claim; and
(iv) permit Polaroid to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that Polaroid shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this
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Section 5(c), Polaroid shall control all proceedings taken in
connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as Polaroid shall determine; PROVIDED, HOWEVER, that if
Polaroid directs Executive to pay such claim and sue for a
refund, Polaroid shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and
hold Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and PROVIDED, FURTHER, that if Executive is required to extend
the statute of limitations to enable Polaroid to contest such
claim, Executive may limit this extension solely to such
contested amount. Polaroid's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by
Polaroid pursuant to Section 5(c), Executive receives any
refund with respect to such claim, Executive shall (subject to
Polaroid's complying with the requirements of Section 5(c))
promptly pay to Polaroid the amount of such refund (together
with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an
amount advanced by Polaroid pursuant to Section 5(c), a
determination is made that Executive shall not be entitled to
any refund with respect to such claim and Polaroid does not
notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent Polaroid from terminating Executive's employment for Cause. If
Executive is terminated for Cause, Polaroid shall have no obligation to
make any payments under this Agreement, except for payments that may
otherwise be
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payable under then existing employee benefit plans, programs and
arrangements of Polaroid.
7. INDEMNIFICATION; DIRECTOR'S AND OFFICER'S LIABILITY INSURANCE.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Polaroid Certificate of
Incorporation or the Polaroid By-Laws, as they may be amended or
restated from time to time. In addition, Polaroid shall maintain
Director's and Officer's liability insurance on behalf of Executive at
the better of the level in effect immediately prior to the Change in
Control or the Executive's Termination Date, for the two (2) year
period following the Termination Date, and throughout the period of any
applicable statute of limitations.
8. CONFIDENTIALITY. Without the prior written consent of the Company,
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency,
the Executive shall comply with the Confidentiality Agreement he
executed when hired, and shall not disclose any trade secrets, customer
lists, drawings, designs, information regarding product development,
marketing plans, sales plans, manufacturing plans, management
organization information (including data and other information relating
to members of the Board and management), operating policies or manuals,
business plans, financial records or other financial, commercial,
business or technical information relating to the Company or any of its
subsidiaries or information designated as confidential or proprietary
that the Company or any of its Subsidiaries may receive belonging to
suppliers, customers or others who do business with the Company or any
of its subsidiaries (collectively, "Confidential Information") to any
third person unless such Confidential Information has been previously
disclosed to the public by the Company or is in the public domain
(other than by reason of Executive's breach of this Section 8).
9. DISPUTES. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect. Judgment may be
entered on an arbitrator's award relating to this Agreement in any
court having jurisdiction.
10. COSTS OF PROCEEDINGS. Polaroid shall pay all costs and expenses,
including attorneys' fees and disbursements, at least monthly, of
Executive in connection with any legal proceeding (including
arbitration), whether or not instituted by Polaroid or Executive,
relating to the interpretation or enforcement of any provision of this
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Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including attorneys'
fees and disbursements, of Executive. Polaroid shall pay pre-judgment
interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of The Chase Manhattan
Bank (or its successors), as in effect from time to time, from the date
that payment should have been made to Executive under this Agreement.
11. ASSIGNMENT. Except as otherwise provided herein, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by Polaroid
and Executive and their respective heirs, legal representatives,
successors and assigns. If Polaroid shall be merged into or
consolidated with another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. Polaroid will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
or assets of Polaroid, by agreement in form and substance satisfactory
to Executive, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Polaroid would be
required to perform it if no such succession had taken place. The
provisions of this Section 11 shall continue to apply to each
subsequent employer of Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such
subsequent employer.
12. PAYMENTS IN EVENT OF DEATH. Should the Executive become eligible to
receive payments and benefits under this Agreement and die prior to
receipt of all such payments and benefits, the residual payments shall
be made to the beneficiaries identified on the Executive's beneficiary
form for the Executive Deferral Compensation Plan. Any residual family
medical and dental benefits which the Executive was receiving on the
Executive's date of death shall continue to the family members the
Executive had covered in such medical and dental plans on such date.
13. WITHHOLDING. Polaroid may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any
payments due to Executive hereunder.
14. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
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Massachusetts applicable to contracts made and to be performed therein.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and, except as expressly provided herein,
supersedes all other prior agreements concerning the effect of a Change
in Control on the relationship between Polaroid and Executive. This
Agreement may be changed only by a written agreement executed by
Polaroid and Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 7th day of April, 1999.
POLAROID CORPORATION
By GARY T. DICAMILLO
-----------------------------
Gary T. DiCamillo
NEAL D. GOLDMAN
- -----------------------------
Neal D. Goldman
Executive
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EXHIBIT 10.4
CHANGE IN CONTROL SEVERANCE AGREEMENT
AGREEMENT made as of April 7, 1999 between Polaroid
Corporation ("Polaroid" or "Company") and Harvey M. Greenberg (the "Executive").
Executive is a skilled and dedicated employee who has
important management responsibilities and talents which benefit Polaroid.
Polaroid believes that its best interests will be served if Executive is
encouraged to remain with Polaroid. Polaroid has determined that Executive's
ability to perform Executive's responsibilities and utilize Executive's talents
for the benefit of Polaroid, and Polaroid's ability to retain Executive as an
employee, will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or control of
Polaroid. Accordingly, Polaroid and Executive agree as follows:
1. DEFINED TERMS.
(a) "ANNUAL BONUS" shall mean the Executive's annual bonus paid
pursuant to the Company's annual bonus plan in effect at the
time (currently the Polaroid Incentive Plan for Executives).
Unless otherwise specifically provided, the Annual Bonus shall
be calculated assuming the Corporate target is reached and no
additional factors are considered to decrease the Executive's
award under the Plan.
(b) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, is
the Beneficial Owner of 20% or more of the Stock then
outstanding, but does not include any Subsidiary of the
Company, any employee benefit plan of the Company or of any of
its Subsidiaries or any Person holding Stock for or pursuant
to the terms of any such employee benefit plan.
(c) "AFFILIATE" and "ASSOCIATE" when used with reference to any
Person, shall have the meaning given to such terms in Rule
12b-2 of the General Rules and Regulations under the Exchange
Act.
(d) "BASE SALARY" shall mean the annual rate of base salary
(disregarding any reduction in such rate that constitutes
Constructive Termination) as increased by the Board from time
to time.
(e) "BENEFICIAL OWNER" shall be a Person deemed to "beneficially
own," any securities:
<PAGE>
(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or
indirectly; or
(ii) which such Person or any of such Person's Affiliates
or Associates has:
(A) the right to acquire (whether such right is
exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement or understanding (written or
oral), or upon the exercise of conversion
rights, exchange rights, warrants or
options, or otherwise; provided, however,
that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or
exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or
Associates until such tendered securities
are accepted for purchase or exchange
thereunder; or
(B) the right to vote pursuant to any agreement,
arrangement or understanding (written or
oral); provided however, that a Person shall
not be deemed the Beneficial Owner of, or to
beneficially own, any security if the
agreement, arrangement or understanding
(written or oral) to vote such security (1)
arises solely from a revocable proxy given
to such Person in response to a public proxy
or consent solicitation made pursuant to,
and in accordance with, the applicable rules
and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule
13D (or any comparable or successor report)
under the Exchange Act; or,
(C) which are beneficially owned, directly or
indirectly, by any Person with which such
Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or
understanding (written or oral), for the
purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as
described above) or disposing of any
securities of the Company.
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(f) "BOARD" shall mean the Board of Directors of the Company.
(g) "BONUS" means the amount payable to the Executive under any
plan, or agreement offered by Polaroid.
(h) "CAUSE" means either of the following:
(i) Executive's willful malfeasance having a material
adverse effect on Polaroid; or
(ii) Executive's conviction of a felony;
PROVIDED, that any action or refusal by Executive shall not
constitute Cause if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Polaroid, or if Executive shall be entitled,
under applicable law or under an applicable Polaroid
Certificate of Incorporation or the Polaroid By-Laws, as they
may be amended or restated from time to time, to be
indemnified with respect to such action or refusal.
(i) "CHANGE IN CONTROL" shall mean:
(i) the date on which a change in control of the Company
occurs of a nature that would be required to be
reported (assuming that the Company's Stock was
registered under the Exchange Act) in response to an
item (currently item 6(e)) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act or
an item (currently Item l(a)) of Form 8-K under the
Exchange Act;
(ii) the date on which there is an Acquiring Person and a
change in the composition of the Board of the Company
within two years after the Share Acquisition Date
such that the individuals who constitute the Board
prior to the Share Acquisition Date shall cease for
any reason to constitute at least a majority of the
Board;
(iii) any day on or after the Share Acquisition Date when
directly or indirectly, any of the transactions
specified in the following clauses occurs:
(A) the Company shall consolidate with, or merge
with and into, any other Person;
(B) any Person shall merge with and into the
Company; or
-3-
<PAGE>
(C) the Company shall sell, lease, exchange or
otherwise transfer or dispose of (or one or
more of its Subsidiaries shall sell, lease,
exchange or otherwise transfer or dispose
of), in one or more transactions, the major
part of the assets of the Company and its
Subsidiaries (taken as a whole) to any other
Person or Persons;
(iv) the date when a Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan
of the Company or any of its Subsidiaries or any
Person holding Stock for or pursuant to the terms of
any such employee benefit plan) alone or together
with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 30% or more of the
Stock then outstanding;
(v) the date on which the stockholders of the Company
approve a merger or consolidation of the Company with
any other corporation other than:
(A) a merger or consolidation which would result
in voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into
voting securities of the surviving or parent
entity) 50% or more of the combined voting
power of the voting securities of the
Company or such surviving or parent entity
outstanding immediately after such merger or
consolidation, or
(B) a merger or consolidation effected to
implement a recapitalization of the Company
(or similar transaction) in which no Person
acquires 50% or more of the combined voting
power of the Company's then outstanding
securities; or
(vi) the date stockholders of the Company approve a plan
of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets
(or any transaction having a similar effect).
(j) "CODE" means the Internal Revenue Code of 1986, as amended.
-4-
<PAGE>
(k) "CONFIDENTIAL INFORMATION" means non-public information
relating to the business plans, marketing plans, customers or
employees of Polaroid other than information the disclosure of
which cannot reasonably be expected to adversely affect the
business of Polaroid.
(l) "CONSTRUCTIVE TERMINATION" shall occur when the Executive
voluntarily terminates his employment with the Company or
retires after the occurrence of one or more of the following
events on or after the Change in Control:
(i) a reduction in Base Salary from the amount of Base
Salary on the day immediately preceding the Change in
Control;
(ii) the elimination of or reduction of any benefit under
any bonus, incentive or other employee benefit plan
in effect on the day immediately preceding the Change
in Control, without an economically equivalent
replacement, if Executive was a participant or member
of such plan on the day immediately preceding the
Change in Control;
(iii) the discontinuation of or any reduction in
Executive's participation or membership in any bonus,
incentive or other benefit plan in which Executive
was a participant or member on the day immediately
preceding the Change in Control, without an
economically equivalent replacement;
(iv) the reassignment of Executive without Executive's
consent from Executive's regular shift or regular
duties as they existed on the day immediately
preceding the Change in Control;
(v) the reassignment of Executive without Executive's
consent to a location more than thirty (30) miles
from Executive's regular workplace on the day
immediately preceding the Change in Control;
(vi) the reduction in Executive's job title or level in
effect on the day immediately preceding the Change in
Control;
(vii) the provision of significantly less favorable working
conditions than those provided on the day immediately
preceding the Change in Control; or
-5-
<PAGE>
(viii) a significant diminution in duties or
responsibilities or the reassignment of Executive to
duties which represent a position of lesser
responsibility than Executive's duties as they
existed on the day immediately preceding the Change
in Control.
(m) "DISABILITY" shall mean the Executive's disability within the
meaning of the Polaroid Long Term Disability Plan.
(n) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as in effect on the date in question.
(o) "PERSON" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization
or other entity.
(p) "SHARE ACQUISITION DATE" shall mean the first date any Person
shall become an Acquiring Person.
(q) "STOCK" shall mean the outstanding shares of Common Stock of
the Company and, for purposes of the Change in Control
provision, any other shares of capital stock of the Company
into which the Common Stock shall be reclassified or changed.
(r) "SUBSIDIARY" of the Company shall mean any corporation of
which the Company owns, directly or indirectly, more than 50%
of the Voting Stock.
(s) "TERMINATED" shall mean:
(i) termination by Polaroid without Cause at any time
within the two (2) years following a Change in
Control;
(ii) Executive's termination due to a Constructive
Termination at any time within the two (2) years
following a Change in Control; or
(iii) termination within three (3) months prior to a Change
of Control at the request of any individual or entity
acquiring ownership and control of Polaroid. If
Executive's employment with Polaroid is terminated
prior to a Change in Control at the request of
Acquiring Person, this Agreement shall become
effective upon the subsequent occurrence of a Change
in Control involving such Acquiring Person. In such
situation the Executive's Termination Date shall be
deemed to have occurred immediately following the
Change in Control, and therefore
-6-
<PAGE>
Executive shall be entitled to the benefits provided
in this Agreement.
(t) "TERMINATION DATE" shall mean the date on which Executive is
terminated.
(u) "VOTING STOCK" shall mean capital stock of any class or
classes having general voting power under ordinary
circumstances, in the absence of contingencies, to elect the
directors of a corporation.
2. EFFECTIVE DATE; TERM. This Agreement shall be effective immediately
prior to a Change in Control (the "Effective Date") and shall remain in
effect for two (2) years following such Change in Control, and such
additional time as may be necessary to give effect to the terms of the
Agreement.
3. CHANGE IN CONTROL BENEFITS. If Executive's employment with Polaroid is
Terminated, Executive shall be entitled to the following benefits:
(a) SEVERANCE BENEFITS. Within ten (10) business days after the
Termination Date, Polaroid shall pay Executive a lump sum
amount, in cash, equal to the greater of the severance benefit
Executive would otherwise be entitled to receive under the
Extended Severance Plan or:
(i) two (2) times the sum of:
(A) Executive's Base Salary; and
(B) Executive's Annual Bonus; and
(ii) Executive's Annual Bonus multiplied by a fraction,
the numerator of which shall equal the number of days
Executive was employed by Polaroid in the calendar
year in which the Termination Date occurs and the
denominator of which shall equal 365.
(b) CONTINUED WELFARE BENEFITS. Until the second anniversary of
the Termination Date, Executive shall be entitled to
participate in the Company's medical, dental, and life
insurance plans, at the highest level provided to Executive
during the period beginning immediately prior to the Change in
Control and ending on the Termination Date and at no greater
cost than the cost Executive was paying immediately prior to
Change in Control; PROVIDED, HOWEVER, that if Executive
becomes employed by a new employer, Executive's coverage under
the applicable Polaroid plans shall continue, but Executive's
coverage thereunder shall be
-7-
<PAGE>
secondary to (i.e., reduced by) any benefits provided under
like plans of such new employer.
(c) PAYMENT OF ACCRUED BUT UNPAID AMOUNTS. Within ten (10)
business days after the Termination Date, Polaroid shall pay
Executive:
(i) earned but unpaid compensation, including, without
limitation, any unpaid portion of Executive's Bonus
accrued with respect to the full calendar year ended
prior to the Termination Date; and
(ii) all compensation previously deferred by Executive on
a non-qualified basis but not yet paid.
(d) RETIREE-MEDICAL BENEFITS. If Executive is or would become
fifty-five (55) or older and Executive's age and service equal
sixty-five (65) and Executive has at least five (5) years of
service with the Company within two (2) years of Change in
Control, Executive is eligible for retiree medical benefits
(as such are determined immediately prior to Change in
Control). Executive is eligible to commence receiving such
retiree medical benefits based on the terms and conditions of
the applicable plans in effect immediately prior to the Change
in Control.
(e) SUPPLEMENTAL RETIREMENT AND PROFIT SHARING BENEFITS.
(i) On the Termination Date, Executive shall become
vested in the benefits provided under Polaroid's
non-qualified defined benefit pension plans or any
successor plans (the "Supplemental Plans").
(ii) Within ten (10) business days after the Termination
Date, Polaroid shall pay Executive a lump sum cash
amount equal to the present value of Executive's
accrued benefit under the Supplemental Plans. For
purposes of computing the lump sum present value of
Executive's accrued benefit under the Supplemental
Plans,
(A) Polaroid shall credit Executive with two (2)
years of plan participation and service and
two (2) years of age for all purposes
(including additional accruals and
eligibility for early retirement) over
Executive's actual years and fractional
years of plan participation and service and
age credited to Executive on the Termination
Date; and
-8-
<PAGE>
(B) Polaroid shall apply the present value (and
any other actuarial adjustments required by
this Agreement) using the applicable
actuarial assumptions set forth in the
Pension Plan. In determining Executive's
benefits under this paragraph (e)(B), the
terms of the Supplemental Plans as in effect
immediately prior to the Change in Control,
except as expressly modified in this
paragraph (e), shall govern.
(f) EFFECT ON EXISTING PLANS. All Change in Control provisions
applicable to Executive and contained in any plan, program,
agreement or arrangement maintained as of the date this
Agreement is signed (including, but not limited to, any stock
option, restricted stock or pension plan) shall remain in
effect through the date of a Change in Control, and for such
period thereafter as is necessary to carry out such provisions
and provide the benefits payable thereunder, and may not be
altered in a manner which adversely affects Executive without
Executive's prior written approval. This means that all awards
of options, performance shares or such other awards as may be
granted shall upon Change in Control be fully vested
consistent with the terms of these Agreements. Notwithstanding
the foregoing, no benefits shall be paid to Executive,
however, under the Polaroid Extended Severance Plan or any
other severance plan maintained generally for the employees of
Polaroid if Executive is eligible to receive severance
benefits under this Agreement.
(g) OUTPLACEMENT COUNSELING. Outplacement services will be
provided consistent with Polaroid's outplacement practices in
effect prior to the Change in Control..
4. MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking
other employment or otherwise, and compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable
under this Agreement. No amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Polaroid
(or any other person or entity) may have against Executive unless
specifically referenced herein.
5. GROSS-UP.
(a) In the event it shall be determined that any payment, benefit
or distribution (or combination thereof) by Polaroid, or one
or more trusts established by Polaroid for the benefit of its
employees, to or for the benefit of Executive (whether paid or
payable or distributed or
-9-
<PAGE>
distributable pursuant to the terms of this Agreement, or
otherwise) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, hereinafter collectively referred to as the
"Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and the
Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether
and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Polaroid and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as is requested by Polaroid. In the event that
the Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of
the Code), Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Polaroid. Any
Gross-Up Payment, as determined pursuant to this Section 5,
shall be paid by Polaroid to Executive within five (5)
business days after the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall so indicate to
Executive in writing. Any determination by the Accounting Firm
shall be binding upon Polaroid and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by Polaroid should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the
-10-
<PAGE>
event that Polaroid exhausts its remedies pursuant to Section
5(c) and Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Polaroid to or for the
benefit of Executive.
(c) The Executive shall notify the Company in writing of any
written claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid (but the
Executive's failure to comply with this notice obligation
shall not eliminate his rights under this Section except to
the extent Polaroid's defense against the imposition of the
Excise Tax is actually prejudiced by any such failure). The
Executive shall not pay such claim prior to the expiration of
the thirty (30) day period following the date on which he
gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give Polaroid any information reasonably requested by
Polaroid relating to such claim;
(ii) take such action in connection with contesting such
claim as Polaroid shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by Polaroid;
(iii) cooperate with Polaroid in good faith in order to
effectively contest such claim; and
(iv) permit Polaroid to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that Polaroid shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this
-11-
<PAGE>
Section 5(c), Polaroid shall control all proceedings taken in
connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as Polaroid shall determine; PROVIDED, HOWEVER, that if
Polaroid directs Executive to pay such claim and sue for a
refund, Polaroid shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and
hold Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and PROVIDED, FURTHER, that if Executive is required to extend
the statute of limitations to enable Polaroid to contest such
claim, Executive may limit this extension solely to such
contested amount. Polaroid's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by
Polaroid pursuant to Section 5(c), Executive receives any
refund with respect to such claim, Executive shall (subject to
Polaroid's complying with the requirements of Section 5(c))
promptly pay to Polaroid the amount of such refund (together
with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an
amount advanced by Polaroid pursuant to Section 5(c), a
determination is made that Executive shall not be entitled to
any refund with respect to such claim and Polaroid does not
notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent Polaroid from terminating Executive's employment for Cause. If
Executive is terminated for Cause, Polaroid shall have no obligation to
make any payments under this Agreement, except for payments that may
otherwise be
-12-
<PAGE>
payable under then existing employee benefit plans, programs and
arrangements of Polaroid.
7. INDEMNIFICATION; DIRECTOR'S AND OFFICER'S LIABILITY INSURANCE.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Polaroid Certificate of
Incorporation or the Polaroid By-Laws, as they may be amended or
restated from time to time. In addition, Polaroid shall maintain
Director's and Officer's liability insurance on behalf of Executive at
the better of the level in effect immediately prior to the Change in
Control or the Executive's Termination Date, for the two (2) year
period following the Termination Date, and throughout the period of any
applicable statute of limitations.
8. CONFIDENTIALITY. Without the prior written consent of the Company,
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency,
the Executive shall comply with the Confidentiality Agreement he
executed when hired, and shall not disclose any trade secrets, customer
lists, drawings, designs, information regarding product development,
marketing plans, sales plans, manufacturing plans, management
organization information (including data and other information relating
to members of the Board and management), operating policies or manuals,
business plans, financial records or other financial, commercial,
business or technical information relating to the Company or any of its
subsidiaries or information designated as confidential or proprietary
that the Company or any of its Subsidiaries may receive belonging to
suppliers, customers or others who do business with the Company or any
of its subsidiaries (collectively, "Confidential Information") to any
third person unless such Confidential Information has been previously
disclosed to the public by the Company or is in the public domain
(other than by reason of Executive's breach of this Section 8).
9. DISPUTES. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect. Judgment may be
entered on an arbitrator's award relating to this Agreement in any
court having jurisdiction.
10. COSTS OF PROCEEDINGS. Polaroid shall pay all costs and expenses,
including attorneys' fees and disbursements, at least monthly, of
Executive in connection with any legal proceeding (including
arbitration), whether or not instituted by Polaroid or Executive,
relating to the interpretation or enforcement of any provision of this
-13-
<PAGE>
Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including attorneys'
fees and disbursements, of Executive. Polaroid shall pay pre-judgment
interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of The Chase Manhattan
Bank (or its successors), as in effect from time to time, from the date
that payment should have been made to Executive under this Agreement.
11. ASSIGNMENT. Except as otherwise provided herein, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by Polaroid
and Executive and their respective heirs, legal representatives,
successors and assigns. If Polaroid shall be merged into or
consolidated with another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. Polaroid will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
or assets of Polaroid, by agreement in form and substance satisfactory
to Executive, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Polaroid would be
required to perform it if no such succession had taken place. The
provisions of this Section 11 shall continue to apply to each
subsequent employer of Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such
subsequent employer.
12. PAYMENTS IN EVENT OF DEATH. Should the Executive become eligible to
receive payments and benefits under this Agreement and die prior to
receipt of all such payments and benefits, the residual payments shall
be made to the beneficiaries identified on the Executive's beneficiary
form for the Executive Deferral Compensation Plan. Any residual family
medical and dental benefits which the Executive was receiving on the
Executive's date of death shall continue to the family members the
Executive had covered in such medical and dental plans on such date.
13. WITHHOLDING. Polaroid may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any
payments due to Executive hereunder.
14. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
-14-
<PAGE>
Massachusetts applicable to contracts made and to be performed therein.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and, except as expressly provided herein,
supersedes all other prior agreements concerning the effect of a Change
in Control on the relationship between Polaroid and Executive. This
Agreement may be changed only by a written agreement executed by
Polaroid and Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 7th day of April, 1999.
POLAROID CORPORATION
By GARY T. DICAMILLO
----------------------------
Gary T. DiCamillo
HARVEY M. GREENBERG
- ----------------------------
Harvey M. Greenberg
Executive
-15-
<PAGE>
EXHIBIT 12
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions Except Ratios)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December June 27
--------------------------------------------------------------- ---------
1994 1995 1996 1997 1998 1999
----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings/(loss):
Earnings/(loss)before income
tax expense/benefit per
consolidated statement of earnings $160.7 $(201.4) $ 31.2 $(191.9) $(38.9) $ (24.7)
Add:
Interest expense 46.6 52.1 47.4 47.8 57.6 37.2
Portion of rent expense
representative of an interest factor 10.3 11.7 9.3 10.7 10.5 5.2
------ ------- ------ ------- ------ ---
Adjusted earnings/(loss) before
income tax expense/benefit $217.6 $(137.6) $ 87.9 $(133.4) $ 29.2 $17.7
------ ------- ------ ------- ------ ------
------ ------- ------ ------- ------ ------
Fixed charges:
Interest expense $ 46.6 $ 52.1 $ 47.4 $ 47.8 $ 57.6 $ 37.2
Portion of rent expense
representative of an interest factor 10.3 11.7 9.3 10.7 10.5 5.2
Capitalized interest 9.7 4.8 5.1 2.6 2.2 1.2
------ ------- ------ ------- -------- ---
Total fixed charges $ 66.6 $ 68.6 $ 61.8 $ 61.1 $ 70.3 $ 43.6
------ ------- ------ ------- ------- -------
------ ------- ------ ------- ------- -------
Ratio of earnings to fixed charges 3.3 N/A(a) 1.4(b) N/A(c) .4(d) N/A (e)
----- ------- ------ ------- ------ -------
----- ------- ------ ------- ------ -------
</TABLE>
- --------------------------
(a) Earnings were insufficient to cover fixed charges by $206.2 million
after giving effect to the pre-tax expense for restructuring and other
charges of $247.0 million. Excluding the pre-tax restructuring and
other charges, the ratio of earnings to fixed charges was 1.6.
(b) In 1996, the Company recorded a pre-tax expense for restructuring and
other special charges of $150.0 million ($7.0 million of which was
recorded in cost of goods sold). Excluding the pre-tax restructuring
and other special charges, the ratio of earnings to fixed charges was
3.8.
(c) Earnings were insufficient to cover fixed charges by $194.5 million
after giving effect to the pre-tax expense for restructuring and other
charges of $340.0 million ($16.5 million of which was recorded in cost
of goods sold). Excluding the pre-tax restructuring and other charges,
the ratio of earnings to fixed charges was 3.4.
(d) Earnings were insufficient to cover fixed charges by $41.1 million
after giving effect to the pre-tax expense for restructuring of $50.0
million. Excluding the pre-tax restructuring, the ratio of earnings to
fixed charges was 1.1.
(e) Earnings were insufficient to cover fixed charges by $25.9 million.
<PAGE>
EXHIBIT 15
The Board of Directors
Polaroid Corporation
Ladies and Gentlemen:
Re: Registration statements No. 33-36384 on Form S-8, No. 33-44661
on Form S-3, No. 33-51173 on Form S-8, No. 333-0791 on Form
S-3, No. 333-32279 on Form S-8, No. 333-32281 on Form S-8,
No. 333-32283 on Form S-8, No. 333-32285 on Form S-8, and
No. 333-67647 on Form S-3 of Polaroid Corporation.
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 13, 1999, related
to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, (the "Act")
such report is not considered part of a registration statement prepared
or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
KPMG LLP
Boston, Massachusetts
August 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Polaroid
Corporation's Form 10-Q for the six months ended June 27, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-27-1999
<CASH> 68,900
<SECURITIES> 0
<RECEIVABLES> 464,800
<ALLOWANCES> (26,100)
<INVENTORY> 466,500
<CURRENT-ASSETS> 1,198,600
<PP&E> 2,017,400
<DEPRECIATION> 1,423,700
<TOTAL-ASSETS> 2,061,800
<CURRENT-LIABILITIES> 780,100
<BONDS> 572,700
0
0
<COMMON> 75,400
<OTHER-SE> 271,200
<TOTAL-LIABILITY-AND-EQUITY> 2,061,800
<SALES> 865,800
<TOTAL-REVENUES> 865,800
<CGS> 518,200
<TOTAL-COSTS> 831,800
<OTHER-EXPENSES> 21,500
<LOSS-PROVISION> 3,100
<INTEREST-EXPENSE> 37,200
<INCOME-PRETAX> (24,700)
<INCOME-TAX> ( 8,700)
<INCOME-CONTINUING> (16,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,000)
<EPS-BASIC> ( .36)
<EPS-DILUTED> ( .36)
</TABLE>
