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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2015
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
to
Commission File Number: 1-14310
IMATION CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
41-1838504
(I.R.S. Employer
Identification No.)
1 Imation Way
Oakdale, Minnesota
(Address of principal executive offices)
55128
(Zip Code)
(651) 704-4000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated
filer
Accelerated
filer
Non-accelerated filer(Do not check if a smaller
reporting company)
Smaller reporting
company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
37,095,668 shares of Common Stock, par value $0.01 per share, were outstanding as of October 31, 2015.
Table of Contents
IMATION CORP.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014
Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2015 and
2014
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
SIGNATURE
EXHIBIT INDEX
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-31.1
EX-31.2
EX-32.1
EX-32.2
2
3
3
4
5
6
7
25
35
35
36
36
36
39
39
39
39
40
41
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Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Net revenue
$
Cost of goods sold
Three Months Ended
September 30,
Nine Months Ended
September 30,
2015
2015
2014
129.2
$
175.0
$
2014
435.2
$
532.5
115.8
143.8
358.8
433.7
13.4
31.2
76.4
98.8
43.4
42.5
123.0
130.2
4.8
4.9
14.4
13.7
Intangible impairment
37.6
—
37.6
—
Goodwill impairment
36.1
35.4
36.1
35.4
Restructuring and other
40.2
4.2
42.9
11.5
162.1
(148.7)
87.0
(55.8)
254.0
(177.6)
190.8
(92.0)
(0.1)
(0.1)
(0.3)
(0.3)
0.6
0.7
1.8
1.9
(0.5)
1.6
1.1
2.6
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Total
Operating loss from continuing operations
Other (income) expense:
Interest income
Interest expense
Other, net expense (income)
Total
Loss from continuing operations before income taxes
—
(148.7)
2.2
(58.0)
2.6
(180.2)
4.2
(96.2)
Income tax provision
Loss from continuing operations
Discontinued operations:
3.6
(152.3)
3.4
(61.4)
3.9
(184.1)
1.8
(98.0)
Loss on sale of discontinued businesses, net of income taxes
Loss from operations of discontinued businesses, net of
income taxes
—
—
—
(1.7)
—
—
—
(0.6)
Loss from discontinued operations, net of income taxes
—
—
—
(2.3)
Net loss
$
(152.3)
$
(61.4)
$
(184.1)
$
(100.3)
Loss per common share — basic:
Continuing operations
$
(3.70)
$
(1.49)
$
(4.48)
$
(2.39)
Discontinued operations
Net loss
Loss per common share — diluted:
—
(3.70)
—
(1.49)
—
(4.48)
(0.06)
(2.45)
Continuing operations
$
(3.70)
$
(1.49)
$
(4.48)
$
(2.39)
—
(3.70)
—
(1.49)
—
(4.48)
(0.06)
(2.45)
Weighted average shares outstanding — basic:
41.2
41.2
41.1
41.0
Weighted average shares outstanding — diluted:
41.2
41.2
41.1
41.0
Discontinued operations
Net loss
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2015
Net loss
$
2014
(152.3)
$
2015
(61.4) $
2014
(184.1)
$
(100.3)
Other comprehensive (loss) income, net of tax:
Net unrealized gains (losses) on derivative financial instruments:
Net holding gains (losses) arising during the period
Reclassification adjustment for net realized gains recorded in
net loss
(2.2)
2.2
0.9
0.7
(3.1)
(0.7)
(6.7)
(1.2)
(5.3)
1.5
(5.8)
(0.5)
(4.4)
(1.6)
(4.4)
(0.8)
1.5
0.4
1.8
1.1
(2.9)
(1.2)
(2.6)
0.3
Unrealized foreign currency translation gains (losses)
(3.1)
(8.5)
(6.6)
(9.7)
Total other comprehensive income (loss), net of tax
(11.3)
(8.2)
(15.0)
(9.9)
Total net unrealized gains (losses) on derivative financial
instruments
Net pension adjustments:
Liability adjustments for defined benefit plans
Reclassification adjustment for defined benefit plans recorded in
net loss
Total net pension adjustments
Comprehensive loss
$
(163.6)
$
(69.6) $
(199.1)
$
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
4
(110.2)
Table of Contents
IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
September 30,
2015
December 31,
2014
Assets
Current assets:
Cash and cash equivalents
$
94.3
$
114.6
Accounts receivable, net
64.0
134.4
Inventories
42.0
57.7
Other current assets
34.2
32.7
234.5
339.4
5.3
45.0
10.7
57.9
—
36.1
16.8
20.8
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
$
267.3
$
499.2
$
75.5
$
95.5
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Short-term debt
18.0
18.9
Other current liabilities
89.0
98.2
182.5
212.6
43.6
45.8
226.1
258.4
—
—
0.4
0.4
Total current liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 15)
Shareholders’ equity:
Preferred stock, $.01 par value, authorized 25 million shares, none issued and
outstanding
Common stock, $.01 par value, authorized 100 million shares, 42.9 million issued
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Treasury stock, at cost
1,040.1
(883.7)
(99.8)
(15.8)
Total shareholders' equity
Total liabilities and shareholders’ equity
1,034.6
(699.9)
(84.8)
(9.5)
41.2
$
267.3
240.8
$
499.2
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
5
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IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
September 30,
2015
Cash Flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
$
2014
(184.1)
$
(100.3)
Depreciation and amortization
15.7
16.4
Goodwill impairment
36.1
35.4
Intangible impairment
37.6
—
Other, net
32.8
11.6
Changes in operating assets and liabilities
47.2
23.7
Net cash used in operating activities
Cash Flows from Investing Activities:
Capital expenditures
(14.7)
(13.2)
(2.8)
(5.3)
Proceeds from sale of disposal group
1.5
2.8
Proceeds from sale of assets
1.2
—
(0.1)
(2.5)
(1.7)
(2.5)
—
(17.4)
0.4
(29.7)
16.4
(2.7)
(2.8)
28.9
(2.9)
(3.3)
Net change in cash and cash equivalents
(20.3)
(21.9)
Cash and cash equivalents — beginning of period
114.6
132.6
Net cash used in investing activities
Cash Flows from Financing Activities:
Purchase of treasury stock
Exercise of stock options
Short-term debt repayment
Short-term borrowings
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents — end of period
$
94.3
$
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
6
110.7
Table of Contents
IMATION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Basis of Presentation
The interim Condensed Consolidated Financial Statements of Imation Corp. (Imation, the Company, we, us or our) are unaudited
but, in the opinion of management, reflect all adjustments necessary for a fair statement of financial position, results of operations,
comprehensive loss and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of
normal, recurring items. The results of operations for any interim period are not necessarily indicative of full year results. The
Condensed Consolidated Financial Statements and Notes are presented in accordance with the requirements for Quarterly Reports on
Form 10-Q and do not contain certain information included in our annual Consolidated Financial Statements and Notes.
The preparation of the interim Condensed Consolidated Financial Statements in conformity with accounting principles generally
accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim Condensed
Consolidated Financial Statements and the reported amounts of revenue and expenses for the reporting periods. Despite our intention
to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.
The December 31, 2014 Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Financial
Statements but does not include all disclosures required by U.S. GAAP. This Form 10-Q should be read in conjunction with our
Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.
The operating results of our former XtremeMac TM and MemorexTM consumer electronics businesses are presented in our
Condensed Consolidated Statements of Operations as discontinued operations for all periods presented. See Note 4 - Discontinued
Operations for further information on these divestitures.
On September 24, 2015, the Company adopted a restructuring plan that will significantly change the business and operations of
the Company. See Note 7 - Restructuring and Other Expense for further information on the restructuring plan.
Note 2 — Recently Issued or Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued new accounting guidance related to revenue recognition. This
new guidance will replace all current U.S. GAAP guidance on revenue recognition and eliminate all industry-specific guidance. The
new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The underlying
principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity
expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to
determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration
of time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies
are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In July 2015, the guidance was revised to be
effective for interim and annual periods beginning on or after December 15, 2017. The guidance permits the use of either a
retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the
impact of this new guidance on our financial position and results of operations.
In April 2015, the Financial Accounting Standards Board issued new accounting guidance related to debt issuance costs. Under
this new standard, debt issuance costs reported on the consolidated balance sheet would be reflected as a direct deduction from the
related debt liability rather than as an asset. For Imation, this is effective January 1, 2016, with early adoption permitted. Retroactive
application to prior periods is required. As this standard impacts only the classification of certain amounts within the consolidated
balance sheet, Imation does not expect this new standard to have a material impact on our financial position and results of operations.
In May 2015, the Financial Accounting Standards Board issued new accounting guidance related to the disclosures for
investments in certain entities that calculate net asset value per share (or its equivalent). This standard modifies existing disclosure
requirements such that investments for which the practical expedient is used to measure their fair value at net asset value (NAV)
would be removed from the fair value hierarchy disclosures. Instead, an entity would be required to include those investments as a
reconciling item such that the total fair value amount of investments in the fair value hierarchy disclosure is consistent with the
amount on the balance sheet. Changes were also made to the requirements in a sponsor’s employee benefit plan asset disclosures. For
Imation, this standard is effective January 1, 2016, with retrospective application required. Early
7
Table of Contents
adoption is permitted. As this standard only impacts certain disclosures, it will not impact the Company’s consolidated results of
operations and financial condition.
In July 2015, the Financial Accounting Standards Board issued Accounting Standards Updated (ASU) No. 2015-11, Simplifying
the Measurement of Inventory, which modifies existing requirements regarding measuring inventory at the lower of cost or market.
Under existing standards, the market amount requires consideration of replacement cost, net realizable value (NRV), and NRV less an
approximately normal profit margin. The new ASU replaces market with NRV, defined as estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine
and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. For Imation, this
standard is effective prospectively beginning January 1, 2017, with early adoption permitted. The Company is currently assessing the
impact of this new ASU on Imation’s consolidated results of operations and financial condition.
Note 3 — (Loss) Earnings per Common Share
Basic (loss) earnings per common share is calculated using the weighted average number of shares outstanding for the period.
Diluted (loss) earnings per common share is computed on the basis of the weighted average shares outstanding plus the dilutive effect
of our stock-based compensation plans using the “treasury stock” method. Unvested restricted stock and treasury shares are excluded
from the calculation of basic weighted average number of common shares outstanding. Once restricted stock vests, it is included in our
common shares outstanding.
Potential common shares are excluded from the computation of diluted (loss) earnings per common share when the effect would
be anti-dilutive. Stock options are anti-dilutive when the exercise price of these instruments is greater than the average market price of
the Company's common stock for the period. All potential common shares are anti-dilutive in periods of net loss available to common
shareholders.
The following table sets forth the computation of the weighted average basic and diluted (loss) earnings per share:
Three Months Ended
Nine Months Ended
September 30,
2015
(In millions, except for per share amounts)
Numerator:
Loss from continuing operations
$
Net loss
$
Denominator:
Weighted average number of common shares outstanding
during the period - basic
Dilutive effect of stock-based compensation plans
Weighted average number of diluted shares outstanding
during the period - diluted
Loss per common share — basic:
Continuing operations
Discontinued operations
Net loss
Loss per common share — diluted:
Continuing operations
Discontinued operations
Net loss
Anti-dilutive shares excluded from calculation
(152.3)
$
—
Loss from discontinued operations
$
(152.3)
2015
(61.4) $
—
$
(61.4) $
2014
(184.1)
$
—
(184.1)
(98.0)
(2.3)
$
(100.3)
41.2
41.2
41.1
41.0
—
—
—
—
41.2
41.2
41.1
41.0
(3.70)
$
(1.49) $
(4.48)
—
(1.49)
—
(4.48)
(1.49) $
(4.48)
—
(3.70)
—
(1.49)
—
(4.48)
(0.06)
(2.45)
3.5
4.4
3.5
4.5
—
(3.70)
$
September 30,
2014
(3.70)
$
$
(2.39)
(0.06)
(2.45)
$
(2.39)
8
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Note 4 — Discontinued Operations
On February 13, 2013, we announced our plans to divest our XtremeMac and Memorex consumer electronics businesses.
On January 31, 2014, we completed the sale of our XtremeMac consumer electronics business. Total cash consideration was
originally estimated at $3.1 million which consisted of $0.3 million of cash consideration, an interest-bearing note receivable of $0.3
million (maturing in December 2015) and $2.5 million to be received based on the proceeds the purchaser was able to achieve from
selling the acquired inventory. The sale of this business resulted in a loss of $0.5 million which was recorded in discontinued
operations during the first quarter of 2014. During the second quarter of 2014, we revised downward our estimate of the consideration
we expected to receive by $1.2 million based on the purchaser's proceeds from selling the acquired inventory and, accordingly,
recognized a loss of $1.2 million as a component of discontinued operations for the nine months ended September 30, 2014. The $1.3
million of remaining proceeds due Imation from the purchaser's disposition of acquired inventory were received during the second and
third quarters of 2014. There were no results for discontinued operations for XtremeMac for the three and nine months ended
September 30, 2015.
On October 15, 2013, we completed the sale of the Memorex consumer electronics business for $9.3 million of total
consideration. We received payments of $1.5 million during the nine months ended September 30, 2015, $1.9 million during 2014 and
$0.9 million during 2013. The remaining receivable balance associated with the disposition of this business is recorded at an estimated
fair value of $4.4 million as of September 30, 2015. Based on all the evidence available to us, including the payments received to date,
we believe the remaining receivable to be collectible and have not provided an allowance. However, the collectability of this amount
is not certain and it is reasonably possible that an allowance for a portion of this amount may be provided for in a future period. There
were no results for discontinued operations for the Memorex consumer electronics business for the three and nine months ended
September 30, 2015.
The operating results for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued
operations for all periods presented and reflect revenues and expenses that are directly attributable to these businesses that were
eliminated from our ongoing operations.
The key components of the results of discontinued operations were as follows:
Nine Months Ended
September 30,
September 30,
2015
(In millions)
Net revenue
Three Months Ended
2014
—
$
$
2015
—
$
2014
—
$
0.5
Loss on sale of discontinued businesses, before income taxes
Loss from operations of discontinued businesses, before
income taxes
—
—
—
(1.7)
—
—
—
(0.6)
Income tax provision (benefit)
—
—
—
—
Loss from discontinued operations, net of income taxes
—
$
9
$
—
$
—
$
(2.3)
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Note 5 — Supplemental Balance Sheet Information
Additional supplemental balance sheet information is provided as follows:
September 30,
December 31,
2015
2014
(In millions)
Accounts Receivable:
Accounts receivable
Less reserves and allowances(1)
Accounts receivable, net
$
78.7
(14.7)
$
143.5
(9.1)
$
64.0
$
134.4
$
33.2
$
51.1
Inventories:
Finished goods
Work in process
0.7
0.7
Raw materials and supplies
8.1
5.9
Total inventories
$
42.0
$
57.7
$
14.9
(9.6)
$
184.0
(139.0)
$
5.3
$
45.0
Property, Plant and Equipment:
Property, plant and equipment
Less accumulated depreciation
Property, plant and equipment, net(2)
(1)Accounts receivable reserves and allowances include estimated amounts for customer returns, discounts on payment terms and
uncollectible accounts.
(2)
During the third quarter of 2015, we classified our corporate headquarters facility as an asset held for sale. The amounts
transferred out of property, plant and equipment and accumulated depreciation as of September 30, 2015, was $125.5 million and
$93.5 million, respectively. The carrying value of $32.0 million was subsequently written down to $10.4 million, which is its
estimated fair value based on negotiations with a third party with interest in purchasing our corporate headquarters and is reported in
other current assets on our Condensed Consolidated Balance Sheet as of September 30, 2015. See Note 7 - Restructuring and Other
Expense for further information on the facility write down.
Other current liabilities (included as a separate line in our Condensed Consolidated Balance Sheets) includes rebates payable of
$20.4 million and $26.9 million and accrued payroll of $13.0 million and $18.4 million as of September 30, 2015 and December 31,
2014, respectively.
Other liabilities (included as a separate line in our Condensed Consolidated Balance Sheets) includes pension liabilities of $24.3
million and $22.5 million as of September 30, 2015 and December 31, 2014, respectively.
Note 6 — Intangible Assets and Goodwill
Intangible Assets
Intangible assets consist of the following:
Trade Names
(In millions)
Customer
Relationships
Software
Other
Total
September 30, 2015
Cost
Accumulated amortization
$
14.9
(4.2)
$
2.0
(2.0)
$
—
—
$
2.3
(2.3)
$
19.2
(8.5)
Intangible assets, net
$
10.7
$
Cost
Accumulated amortization
$
34.2
(14.0)
$
Intangible assets, net
$
20.2
$
—
$
—
$
—
$
10.7
60.1
(55.3)
$
20.0
(3.7)
$
26.2
(9.6)
$
140.5
(82.6)
4.8
$
16.3
$
16.6
$
57.9
December 31, 2014
10
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Amortization expense for intangible assets consisted of the following:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2015
(In millions)
Amortization expense
$
2014
3.0
$
2015
3.2
$
2014
9.4
$
9.6
Estimated amortization expense for the remainder of 2015 and each of the next four years is as follows:
2015
(Remainder)
(In millions)
Amortization expense(1)
$
0.2
2016
$
2017
0.9
$
2018
0.9
$
2019
0.9
$
0.9
(1)
The estimated amortization expense excludes amortization on intellectual property for license agreements with TDK
Corporation (TDK) as the license agreements will terminate during the fourth quarter of 2015. See Note 17 - Subsequent Events for
further information on the TDK agreement.
During the third quarter of 2015, management and the Board of Directors have engaged in a detailed strategic and financial
assessment of the Company. As a result of this assessment, we significantly revised our previous business strategy by adjusting our
product portfolio to a smaller product offering as well as changing our investment philosophy such that the investment in operating
expenses will be significantly reduced. Because of our strategy change, smaller product portfolio and reduced future investment, we
revised our forecasts, which we determined to be a triggering event for impairment testing. This required the assessment of the
recoverability of the long-lived assets (including definite-lived intangible assets).
We compared the carrying value of our asset groups with their estimated undiscounted future cash flows and determined that the
carrying value of certain asset groups exceeded the undiscounted cash flows expected to be generated by the asset group. For those
asset groups, we then compared the carrying value of the asset group to its estimated fair value to determine the amount by which our
long-lived assets (primarily intangible assets) with the asset group were impaired. As a result of these analyses, we recorded an
impairment charge of $37.6 million in the Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2015.
In determining the estimated fair value of the asset groups, we used the income approach, a valuation technique under which we
estimate future cash flows using the asset group's financial forecasts. Our expected cash flows are affected by various significant
assumptions, including the discount rate, revenue, gross margin and EBITA (earnings before interest, taxes and amortization)
expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 years period with an
estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows.
The assumptions included utilized discount rates ranging from 15.5 to 16.5 percent and terminal growth rates ranging from zero to 3.0
percent.
Goodwill
2015
The goodwill balance was $36.1 million as of December 31, 2014. The goodwill is solely contained within our Storage and
Security Solutions reporting units. We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during
the fourth quarter of each year and during an interim period if an event occurs or circumstances change that would warrant impairment
testing. During the third quarter of 2015, management and the Board of Directors have engaged in an assessment of the Storage and
Security Solutions businesses of the Company. As a result of this assessment, we significantly revised our previous business strategy
by adjusting our product portfolio to a smaller product offering as well as changing our investment philosophy associated with these
businesses such that the investment in operating expenses will be significantly reduced. Because of our strategy change, smaller
product portfolio and reduced future investment, we revised our forecasts, which we determined to be a triggering event requiring us
to review our goodwill related to Storage and Security Solutions for impairment.
In determining the estimated fair value of the reporting units, we used the income approach, a valuation technique under which
we estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant
assumptions, including the discount rate, revenue, gross margin and EBITA (earnings before interest, taxes and amortization)
expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 years period with an
estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows.
The assumptions included utilized discount rates ranging from 15.5 to 16.5 percent and terminal growth rates ranging from zero to 3.0
percent.
11
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As a result of this assessment, it was determined that the carrying value of our Storage and Security Solutions reporting units
exceeded its estimated fair value. Accordingly, we performed a Step 2 goodwill impairment test which compared the implied value of
the goodwill associated with Storage and Security Solutions to the carrying value of such goodwill. Based on this analysis, the
carrying value of the Storage and Security Solutions goodwill exceeded its implied value by $36.1 million and, consequently, we
recorded an impairment charge of that amount in the Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2015. After the impairment charge, we do not have any remaining goodwill on our balance sheet as of
September 30, 2015.
2014
For our Storage Solutions reporting unit, our actual results for the three months ended September 30, 2014 were lower than
planned. Because of our lower than anticipated results for Storage Solutions, we revised our forecast, which we determined to be a
triggering event requiring us to review our goodwill related to Storage Solutions for impairment.
In determining the estimated fair value of the reporting unit, we used the income approach, a valuation technique under which we
estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant
assumptions, including the discount rate, revenue, gross margin and EBITA (earnings before interest, taxes and amortization)
expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 years period with an
estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows.
The assumptions included utilized a discount rate of 16.5 percent and a terminal growth rate of 3.0 percent. Because our Storage
Solutions business had not yet been able to achieve its anticipated results, we increased our discount rate by 2.0 percent over the
estimated market discount rate of 14.5 percent.
As a result of this assessment, it was determined that the carrying value of our Storage Solutions reporting unit exceeded its
estimated fair value. Accordingly, we performed a Step 2 goodwill impairment test which compared the implied value of the goodwill
associated with Storage Solutions to the carrying value of such goodwill. Based on this analysis, the carrying value of the Storage
Solutions goodwill exceeded its implied value by $35.4 million and, consequently, we recorded an impairment charge of that amount
in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014.
Note 7 — Restructuring and Other Expense
The components of our restructuring and other expense included in the Condensed Consolidated Statements of Operations were as
follows:
Three Months Ended
Nine Months Ended
September 30,
2015
(In millions)
September 30,
2014
2015
2014
Restructuring Expense:
Severance and related
$
17.5
$
0.8
$
18.4
$
3.6
Lease termination costs
—
0.2
—
0.3
Other
0.2
0.3
0.6
1.2
Total restructuring
Other Expense:
$
17.7
$
1.3
$
19.0
$
5.1
Pension settlement/curtailment (Note 9)
1.0
0.2
1.0
0.1
Settlement of UK pension plan
—
0.5
—
0.5
Asset disposals / write down(1)
25.1
—
25.1
—
Other(2)
(3.6)
2.2
(2.2)
5.8
Total
$
40.2
$
4.2
$
42.9
$
11.5
(1)The $25.1 million of asset disposals / asset write down primarily consists of a write down of our corporate headquarters facility.
During the third quarter of 2015, based on the Board of Director's and management's decision to sell this facility in light of the other
restructuring activities that were approved in September 2015, we classified our corporate headquarters facility as an asset held for
sale. The carrying value of our corporate headquarters facility of $32.0 million was subsequently written down to $10.4 million which
is its estimated fair value based on negotiations with a third party with interest in purchasing our corporate headquarters. The $21.6
million write down was charged to restructuring and other expense in the Condensed Consolidated Statement of Operations.
12
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(2)
For the three and nine months ended September 30, 2015, other consists of a gain on the sale of our RDX TM Storage product
line which was partially offset by direct third-party costs associated with our proxy contest and strategic review process. On August
13, 2015, the Company sold its RDX Storage business and recognized a $4.8 million gain in restructuring and other expense in the
Condensed Consolidated Statement of Operations. For the three and nine months ended September 30, 2014, other consists of
consulting fees and certain employee costs. See Note 12 - Fair Value Measurements for further information on the RDX
transaction.
Restructuring Plan
On September 27, 2015, the Company adopted a restructuring plan pursuant to which it will terminate certain sales and
operations of its worldwide Storage Media (magnetic tape) business, terminate certain sales and operations of its worldwide Consumer
Storage and Accessories (CSA) business, and further reduce and rationalize its corporate overhead (the Restructuring Plan). As of
September 30, 2015, the Company and its Board of Directors had not yet determined that it will restructure its Storage Media and
CSA operations in Europe. The Company is currently in the process of negotiations with the European works councils to determine if
such a restructuring in Europe would be approved by various European labor laws. Accordingly, no employee severance charges have
been incurred associated with the Company's European operations, but it is reasonably possible that severance charges, which could be
material, will be incurred in the future pending the outcome of the negotiations. The Company will continue its Nexsan TM and
Mobile Security businesses.
The Company is entering into the Restructuring Plan as a result of continued losses due to secular declines in its legacy Storage
Media and CSA businesses and to reduce the cost structure and streamline the organization in light of these changes. The Company
expects that it will incur approximately $140 to $160 million in total charges for the Restructuring Plan and will substantially
complete the plan during the first quarter of 2016 with most charges incurred in the third and fourth quarters of 2015. Approximately
$30 to $40 million of the total charges will require cash expenditures.
In October 2012, the Board of Directors approved our Global Process Improvement (GPI) Program in order to realign our
business structure and significantly reduce operating expense over time. This restructuring program addressed product line
rationalization and infrastructure and included a planned reduction in our global workforce. The GPI restructuring program is closed
and current and future related charges will be reported as part of the Restructuring Plan.
During the third quarter of 2015, we incurred $113.9 million of costs under the Restructuring Plan. These costs included $73.7 of
impairments and $40.2 million of restructuring and other. See Note 6 - Intangible Assets and Goodwill for further information on
the impairments.
Activity related to the new and existing restructuring accruals was as follows:
(In millions)
Accrued balance at December 31, 2014
Severance and
Related
Lease Termination
Costs
Other
Total
0.8
0.3
0.2
1.3
0.5
(0.7)
—
(0.1)
0.3
(0.2)
0.8
(1.0)
0.6
0.2
0.3
1.1
0.4
(0.4)
—
(0.2)
0.1
(0.1)
0.5
(0.7)
0.6
—
0.3
0.9
Charges
17.5
—
0.2
17.7
Usage and payments
(4.7)
—
(0.2)
(4.9)
Accrued balance at September 30, 2015
13.4
—
0.3
13.7
Charges
Usage and payments
Accrued balance at March 31, 2015
Charges
Usage and payments
Accrued balance at June 30, 2015
Note 8 — Stock-Based Compensation
Stock-based compensation consisted of the following:
Three Months Ended
Nine Months Ended
September 30,
2015
(In millions)
Stock-based compensation expense
$
13
September 30,
2014
0.3
$
2015
1.1
$
2014
1.7
$
4.1
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We have stock-based compensation awards consisting of stock options, restricted stock and stock appreciation rights under four
plans (collectively, the Stock Plans) which are described in detail in our 2014 Annual Report on Form 10-K. As of September 30,
2015, there were 2,063,929 shares available for grant under the 2011 Incentive Plan. No further shares were available for grant under
any other stock incentive plan.
Stock Options
The following table summarizes our stock option activity:
Stock Options
Outstanding December 31, 2014
Granted
3,897,986
Weighted Average
Exercise Price
$
13.07
24,547
3.94
Exercised
(20,000)
3.84
Canceled
(341,498)
24.84
Forfeited
(47,307)
7.08
Outstanding September 30, 2015
3,513,728
$
12.00
Exercisable as of September 30, 2015
3,323,969
$
12.46
The outstanding options are non-qualified and generally have a term of ten years. The following table summarizes our weighted
average assumptions used in the valuation of stock options:
Nine Months Ended
September 30,
2015
2014
Volatility
Risk-free interest rate
46.2%
1.9%
46.2%
1.9%
Expected life (months)
73
73
Dividend yield
—
—
As of September 30, 2015, there was $0.1 million of total unrecognized compensation expense related to non-vested stock
options granted under our Stock Plans. That expense is expected to be recognized over a weighted average period of 1.2 years.
Restricted Stock
The following table summarizes our restricted stock activity:
Restricted Stock
Nonvested as of December 31, 2014
1,348,917
Weighted Average
Grant Date Fair
Value Per Share
$
3.81
Granted
862,706
3.97
Vested
(850,077)
3.91
Forfeited
(931,962)
3.82
Nonvested as of September 30, 2015
429,584
$
3.90
The cost of the awards is determined using the fair value of the Company’s common stock on the date of the grant, and
compensation is recognized on a straight-line basis over the requisite vesting period.
Effective May 22, 2015, a “Change of Control” occurred under the terms of the Company’s Amended and Restated Severance
and Change in Control Agreements and certain incentive award agreements with its executives as a result of the election of three new
directors to the Company’s Board of Directors by shareholders at the shareholder meeting on May 20, 2015 (the "May 2015 Change
of Control Event"). Upon a change of control, under the terms of the agreements with these executives, the performance-based
restricted shares are converted into a right to receive cash, and a portion of such awards vest immediately and are settled in cash. As a
result, 225,347 restricted shares covered by such at the time of the May 2015 Change
14
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of Control Event vested immediately, and a cash payment of $1.0 million was made to settle such awards. The remaining portion of
such awards will only vest and be settled in cash if the executive is involuntarily terminated other than for Cause (as defined in the
Agreement) or resigns for Good Reason (as defined in the agreement) within one year of the May 2015 Change of Control Event. The
866,820 restricted shares that were converted into the right to receive cash upon the May 2015 Change of Control Event were treated
as forfeited and recorded as treasury shares. The only situation in which the performance-based restricted shares can be settled in cash
is pursuant to a change of control.
As of September 30, 2015, there was $0.9 million of total unrecognized compensation expense related to non-vested restricted
stock granted under our Stock Plans. That expense is expected to be recognized over a weighted average period of 1.5 years.
Stock Appreciation Rights
During the nine months ended September 30, 2015, we granted 2.7 million Stock Appreciation Rights (SARs) to certain
employees associated with our Storage Solutions and Mobile Security operations. These awards were issued to incentivize employees
to grow revenues. These awards expire on December 31, 2017 and only vest when both stock price and revenue performance
conditions specified by the terms of the SARs are met. Additionally, under the terms of the 2015 SARs, any cash payments to an
individual under a 2015 vested SAR would reduce any cash payment received under any earlier SAR grant pertaining to that
individual, if and when such earlier SAR vests. For the stock price condition, based on the terms of the awards, 50 percent of the
SARs could vest if the 30-day average Imation stock price reaches $8 per share or more by December 31, 2017 and the remaining 50
percent of the SARs could vest if the 30-day average Imation stock price reaches $12 per share or more by December 31, 2017.
Additionally, for the revenue performance condition, as a condition necessary for vesting, the net revenue of Storage Solutions or
Mobile Security (depending on the award) must reach certain specified stretch targets by December 31, 2017. If exercised, the SARs
require a cash payment to the holder in an amount based on the Imation stock price at the date of exercise as compared to the stock
price at the date of grant. As of September 30, 2015, we had 4.7 million SARs outstanding for which we have not recorded any related
compensation expense based on the applicable accounting rules. We will continue to assess these SARs each quarter to determine if
any expense should be recorded.
Note 9 — Retirement Plans
Pension Plans
During the three and nine months ended September 30, 2015, we contributed $0.6 million and $1.2 million to our worldwide
pension plans, respectively. We presently anticipate contributing up to $0.1 million to fund our worldwide pension plans during the
remainder of 2015.
In connection with actions taken under our announced restructuring programs, the number of employees accumulating benefits
under our pension plan in the United States continues to decline. Participants in our U.S. defined benefit pension plan have the option
of receiving cash lump sum payments when exiting the plan, which a number of participants exiting the plan have elected to receive.
Lump sum payments for the nine months ended September 30, 2015 have exceeded our expected 2015 interest costs. As a result, a
partial settlement event occurred during the three and nine months ended September 30, 2015 and we recognized a settlement loss of
$1.0 million. A settlement loss of $0.2 million and $0.8 million were recognized for the three and nine months ended September 30,
2014, respectively. These settlement losses are included in restructuring and other in our Condensed Consolidated Statements of
Operations. Additionally, in connection with the settlement and as required by pension accounting, we remeasured the funded status of
our U.S. defined benefit pension plan as of September 30, 2015 and have adjusted the funded status on our Condensed Consolidated
Balance Sheets as of September 30, 2015 accordingly.
During the nine months ended September 30, 2014, we recorded a curtailment gain in the amount of $0.7 million relating to our
pension plan in Japan. This amount was recorded to restructuring and other in our Condensed Consolidated Statements of Operations.
We had a defined benefit pension plan located in the United Kingdom (UK Plan) for former employees with no current
employees in the plan. On September 17, 2013, we settled our obligations under the UK Plan by way of a transaction with Pension
Insurance Corporation (PIC) whereby PIC fully assumed the projected benefit obligation and underlying plan assets. It is a standard
practice in the United Kingdom for a government review process to occur, entailing a review of the plan obligations and participant
data, upon a transaction such as this one involving a transfer of a pension plan. During the third quarter of 2014, we had an additional
obligation of $0.5 million associated with a true-up of the transaction that we have recorded in restructuring and other in the
Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2014.
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Components of net periodic pension (credit) cost included the following:
United States
International
United States
Three Months Ended September 30,
2015
(In millions)
Service cost
$
Interest cost
Expected return on plan
assets
Amortization of net
actuarial loss
Amortization of prior
service credit
Net periodic pension
(credit) cost
$
—
2014
$
—
2015
$
0.1
Nine Months Ended September 30,
2014
$
International
0.1
2015
$
—
2014
$
—
2015
$
0.3
2014
$
0.3
0.8
0.8
0.2
0.4
2.2
2.4
0.4
0.8
(1.1)
(1.2)
(0.2)
(0.3)
(3.1)
(3.6)
(0.6)
(0.7)
0.3
0.3
—
0.1
0.9
0.9
0.2
0.2
—
—
—
—
—
—
—
(0.1)
—
$
(0.1) $
0.1
$
0.3
$
—
$
(0.3) $
0.3
$
0.5
Settlement loss
1.0
0.2
—
—
1.0
0.8
—
—
Curtailment gain
—
—
—
—
—
—
—
(0.7)
Total pension (credit) cost
$
1.0
$
0.1
$
0.1
$
0.3
$
1.0
$
0.5
$
0.3
$
(0.2)
Note 10 — Income Taxes
For interim income tax reporting, we are required to estimate our annual effective tax rate and apply it to year-to-date pre-tax
income/loss excluding unusual or infrequently occurring discrete items. Tax jurisdictions with losses for which tax benefits cannot be
realized are excluded.
For the three and nine months ended September 30, 2015, we recorded income tax expense of $3.6 million and $3.9 million,
respectively. For the three and nine months ended September 30, 2014, we recorded income tax expense of $3.4 million and $1.8
million, respectively. The change in the income tax expense for the three months ended September 30, 2015 compared to the same
period last year is primarily related to lower foreign income tax expense compared to last year, offset by a $3.7 million valuation
allowance established during the current quarter as a result of the announced Restructuring Plan, which has changed our ability to
generate sufficient future taxable income in certain foreign jurisdictions to recover our net deferred tax assets in such locations. The
effective income tax rate for the three and nine months ended September 30, 2015 differs from the U.S. federal statutory rate of 35
percent primarily due to a valuation allowance on various deferred tax assets and the effects of foreign tax rate differential. As
disclosed previously, as of September 30, 2015 the Company had not yet determined that it will be restructuring its European
operations, pending the outcome of negotiations with European works councils and, accordingly, we have not provided valuation
allowances associated with tax jurisdictions within Europe. However, it is reasonably possible that valuation allowances may be
necessary in future periods if we reach agreement to restructure our European operations. The total net deferred tax assets as of
September 30, 2015 associated with European jurisdictions is approximately $6.0 million.
We conduct business globally. As a result, we file income tax returns in multiple jurisdictions and are subject to review by
various U.S and foreign taxing authorities. Our U.S. federal income tax returns for 2011 through 2013 are subject to examination by
the Internal Revenue Service. With few exceptions, we are no longer subject to examination by foreign tax jurisdictions or state and
local tax jurisdictions for years before 2008. In the event that we have determined not to file tax returns with a particular state or city,
all years remain subject to examination by the tax jurisdiction.
We accrue for the effects of uncertain tax positions and the related potential penalties and interest. Our liability related to
uncertain tax positions, which is presented in other liabilities on our Condensed Consolidated Balance Sheets and which includes
interest and penalties and excludes certain unrecognized tax benefits that have been netted against deferred tax assets, was $1.6
million and $1.9 million as of September 30, 2015 and December 31, 2014, respectively. It is reasonably possible that the amount of
the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next twelve
months; however it is not possible to reasonably estimate the effect at this time.
Note 11 — Debt
As of September 30, 2015, we had short-term borrowings of $18.0 million with interest rates ranging from 0.9 percent to 2.7
percent. The borrowings were primarily from our credit agreements with various banks in the United States, Europe and Japan. As of
September 30, 2015, our remaining borrowing capacity under all credit agreements, after consideration of amounts outstanding, was
$12.6 million. We are in compliance with our covenant requirements as of September 30, 2015 except for covenants related to our
Japan Credit Agreement. See Note 17 - Subsequent Events for further information on our Japan Credit Agreement.
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As of September 30, 2015, we maintained a credit agreement entered into in 2006 as amended (the Credit Agreement) and a
credit agreement entered into in 2013 with a lender in Japan (the Japan Credit Agreement). Both credit agreements are described in
Note 11 - Debt of our Annual Report on Form 10-K for the year ended December 31, 2014. In order to reduce borrowing costs, the
maximum amount of borrowings under the Credit Agreement was reduced at the Company's request from $170 million to $100
million on May 28, 2015. The new limit does not impact our borrowing capacity as our borrowing availability under the Credit
Agreement is under $100 million. The new sublimits are $80 million in the United States and $20 million in Europe.
Note 12 — Fair Value Measurements
Trading Securities
On August 13, 2015 the Company entered into an agreement to sell its RDX™ Storage product line, including $1.5 million of
associated inventory, to Sphere 3D for approximately $6 million of value. Under terms of the agreement, Imation received
approximately 1.5 million shares of Sphere 3D common stock which resulted in a gain of $4.8 million for the three and nine months
ended September 30, 2015. The consideration received is subject to certain adjustments if the market value of the Sphere 3D shares
change in value. For the three and nine months ended September 30, 2015 the Company recorded a $0.3 million loss on the value of
the 1.5 million Sphere 3D shares held. The loss was recorded in other (income) expense in the Condensed Consolidated Statement of
Operations as the investments are classified as trading securities under applicable accounting criteria. The estimated fair value of the
shares held is $3.3 million and is included in other current assets in our Condensed Consolidated Balance Sheet as of September 30,
2015.
Derivative Financial Instruments
Cash Flow Hedges
We attempt to substantially mitigate the risk that forecasted cash flows denominated in foreign currencies may be adversely affected
by changes in the currency exchange rates through the use of option, forward and combination option contracts. Gains and losses
related to cash flow hedges are deferred in accumulated other comprehensive loss with a corresponding asset or liability. When the
hedged transaction occurs, the gains and losses in accumulated other comprehensive loss are reclassified into the Condensed
Consolidated Statements of Operations in the same line as the item being hedged. The following table sets forth our cash flow hedges
which are measured at fair value on a recurring basis.
September 30, 2015
(In millions)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Derivative assets:
Foreign currency
forward contracts
Derivative liabilities:
Foreign currency
forward contracts
Total net derivative
(liabilities) assets
$
Significant
Other
Observable
Inputs
(Level 2)
December 31, 2014
Unobservable
Inputs
(Level 3)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
—
0.1
—
—
7.3
—
—
(0.8)
—
—
—
—
—
$
(0.7)
$
—
$
—
$
7.3
$
—
Other Derivative Instruments
We use foreign currency forward contracts to manage the foreign currency exposure related to our monetary assets and liabilities
denominated in foreign currencies. We record the estimated fair value of these forward contracts in other current assets or other
current liabilities on our Condensed Consolidated Balance Sheets and, because we do not receive hedge accounting for these
derivatives, changes in their value are recognized every reporting period in the Condensed Consolidated Statements of Operations.
For the three months ended September 30, 2015 and 2014, we recorded net foreign currency gains of $0.9 million and losses of
$1.5 million, respectively, in other (income) expense in the Condensed Consolidated Statements of Operations. These results reflect
changes in foreign exchange rates on foreign denominated assets and liabilities and are net of losses of $0.5 million and $0.7 million
from the related foreign currency forward contracts for the three months ended September 30, 2015 and 2014, respectively.
For the nine months ended September 30, 2015 and 2014, we recorded net foreign currency losses of $0.3 million and $1.9
million, respectively, in other (income) expense in the Condensed Consolidated Statements of Operations. These net losses
17
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reflect changes in foreign exchange rates on foreign denominated assets and liabilities and are net of losses of $0.3 million and $1.1
million from the related foreign currency forward contracts for the nine months ended September 30, 2015 and 2014, respectively.
The notional amounts and fair values of our derivative instruments recorded in other current assets and other current liabilities in
the Condensed Consolidated Balance Sheets were as follows:
September 30, 2015
December 31, 2014
Fair Value
Notional
Amount
(In millions)
Cash flow hedges
designated as hedging
instruments
$
Other hedges not receiving
hedge accounting
Total
24.0
Other Current
Assets
$
25.1
Other Current
Liabilities
$
—
1.1
$
0.1
$
Fair Value
Notional
Amount
(0.8)
$
—
0.1
$
86.7
Other Current
Assets
$
$
110.1
—
$
—
23.4
(0.8)
7.3
Other Current
Liabilities
$
7.3
—
—
$
Note 13 — Shareholders' Equity
Treasury Stock
On May 2, 2012, our Board of Directors authorized a share repurchase program that allowed for the repurchase of 5.0 million
shares of common stock, replacing our previous authorization. We did not repurchase any shares during the three months ended
September 30, 2015. For the nine months ended September 30, 2015, we repurchased 0.4 million shares of common stock for $1.7
million. Since the authorization of this program, we have repurchased 3.0 million shares of common stock for $13.3 million and, as of
September 30, 2015, we had remaining authorization to repurchase up to 2.0 million additional shares. The treasury stock held as of
September 30, 2015 was acquired at an average price of $12.74 per share.
Following is a summary of treasury share activity:
Treasury Shares
Balance as of December 31, 2014
627,796
Purchases
Exercise of stock options
Restricted stock grants
382,448
(12,656)
(690,662)
Forfeitures and other
931,058
Balance as of September 30, 2015
1,237,984
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss and related activity consisted of the following:
(In millions)
Balance as of December 31, 2014
Other comprehensive income (loss) before
reclassifications, net of tax (1)
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive (loss) income
Gains (Losses) on
Derivative Financial
Instruments
$
5.1
Defined Benefit
Plans
$
(20.6)
Foreign Currency
Translation
$
(69.3)
Total
$
(84.8)
0.9
(4.4)
(6.6)
(10.1)
(6.7)
1.8
—
(4.9)
(5.8)
(2.6)
(6.6)
(15.0)
Balance as of September 30, 2015
$
(0.7)
(1)
$
(23.2)
$
(75.9)
$
(99.8)
Income tax benefit of $0.9 million was recorded for unrealized gains on derivative financial instruments for the nine months
ended September 30, 2015.
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The Company's Restructuring Plan will terminate certain sales and operations of its worldwide Storage Media and CSA
businesses. See Note 7 - Restructuring and Other Expense for further information on the Company's Restructuring Plan. U.S.
GAAP requires accumulated foreign currency translation balances to be reclassified into the Consolidated Statement of Operations
once the liquidation of the net assets of a foreign entity is substantially complete. As of September 30, 2015, the Company had $75.9
million of accumulated foreign currency translation losses in other comprehensive loss for which significant balances could be
reclassified into the Consolidated Statement of Operations in the future.
Details of amounts reclassified from accumulated other comprehensive loss and the line item in the Condensed Consolidated
Statement of Operations are as follows:
Amounts Reclassified from Accumulated Other Comprehensive Loss
Three Months Ended September 30,
(In millions)
2015
2014
Nine Months Ended September
30,
2015
2014
Affected Line Item in the
Consolidated Statement
of Operations Where
(Gain) Loss is Presented
Gains on cash flow hedges
(0.8)
(1.2)
(6.1)
(2.0)
Cost of goods sold
Income tax expense
(2.3)
(3.1)
0.5
(0.7)
(0.6)
(6.7)
0.8
(1.2)
Income tax provision
Amortization of net actuarial loss
Net pension curtailment/settlement
loss
0.3
0.3
0.7
0.7
Selling, general and
administrative
1.0
0.2
1.0
0.2
Restructuring and other
Income tax benefit
0.2
—
0.1
0.2
Income tax provision
1.5
0.5
1.8
1.1
(1.6)
(0.2)
(4.9)
(0.1)
Total reclassifications for the period
382 Rights Agreement
On August 6, 2015, the Board of Directors adopted a rights plan intended to avoid an “ownership change” within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended (the Code), and thereby preserve the current ability of the Company to
utilize certain net operating loss carryovers and other tax benefits of the Company and its subsidiaries (the Tax Benefits). If the
Company experiences an “ownership change,” as defined in Section 382 of Code, the Company’s ability to fully utilize the Tax
Benefits on an annual basis will be substantially limited, and the timing of the usage of the Tax Benefits and such other benefits could
be substantially delayed, which could therefore significantly impair the value of those assets. The rights plan is intended to act as a
deterrent to any person or group acquiring “beneficial ownership” of 4.9% or more of the Company’s outstanding shares of common
stock, without the approval of the Board. The description and terms of the Rights (as defined below) applicable to the rights plan are
set forth in the 382 Rights Agreement, dated as of August 7, 2015 (the Rights Agreement), by and between the Company and Wells
Fargo Bank, N.A., as Rights Agent.
As part of the Rights Agreement, the Board authorized and declared a dividend distribution of one right (a Right) for each
outstanding share of the Company’s common stock, to stockholders of record at the close of business on September 10, 2015. Each
Right entitles the holder to purchase from the Company a unit consisting of one one-hundredth of a share (a Unit) of Series A
Participating Preferred Stock, par value $0.01 per share, of the Company (the Preferred Stock) at a purchase price of $15.00 per Unit,
subject to adjustment (the Purchase Price). Until a Right is exercised, the holder thereof, as such, will have no separate rights as a
stockholder of the Company, including the right to vote or to receive dividends in respect of Rights.
Under the Rights Agreement, an Acquiring Person is any person or group of affiliated or associated persons (a Person) who is or
becomes the beneficial owner of 4.9% or more of the outstanding shares of the Company’s common stock other than as a result of
repurchases of stock by the Company, dividends or distribution by the Company, stock issued under certain benefit plans or certain
inadvertent actions by stockholders. For purposes of calculating percentage ownership under the Rights Agreement, outstanding
shares of the Company’s common stock include all of the shares of common stock actually issued and outstanding. Beneficial
ownership is determined as provided in the Rights Agreement and generally includes, without limitation, any ownership of securities a
Person would be deemed to actually or constructively own for purposes of Section 382 of the Code or the Treasury Regulations
promulgated thereunder. The Rights Agreement provides that the following shall not be deemed an Acquiring Person for purposes of
the Rights Agreement: (i) the Company or any subsidiary of the Company and any employee benefit plan of the Company, or of any
subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of
any such plan or (ii) any Person that, as of August 7, 2015, is the beneficial owner of 4.9% or more of the shares of Common Stock
outstanding (such Person, an Existing Holder) unless and
19
Table of Contents
until such Existing Holder acquires beneficial ownership of additional shares of common stock (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding shares of common stock or pursuant to a split or subdivision of the
outstanding shares of common stock) in an amount in excess of 0.5% of the outstanding shares of common stock.
The Rights Agreement provides that a Person shall not become an Acquiring Person for purpose of the Rights Agreement in a
transaction that the Board determines is exempt from the Rights Agreement, which determination shall be made in the sole and
absolute discretion of the Board, upon request by any Person prior to the date upon which such Person would otherwise become an
Acquiring Person, including, without limitation, if the Board determines that (i) neither the beneficial ownership of shares of common
stock by such Person, directly or indirectly, as a result of such transaction nor any other aspect of such transaction would jeopardize or
endanger the availability to the Company of the Tax Benefits or (ii) such transaction is otherwise in the best interests of the Company.
Initially, the Rights will not be exercisable and will be attached to all common stock representing shares then outstanding, and no
separate Rights certificates will be distributed. Subject to certain exceptions specified in the Rights Agreement, the Rights will
separate from the common stock and become exercisable and a distribution date (a Distribution Date) will occur upon the earlier of (i)
10 business days (or such later date as the Board shall determine) following a public announcement that a Person has become an
Acquiring Person or (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender
offer, exchange offer or other transaction that, upon consummation thereof, would result in a Person becoming an Acquiring Person.
Until the Distribution Date, common stock held in book-entry form, or in the case of certificated shares, common stock
certificates, will evidence the Rights and will contain a notation to that effect. Any transfer of shares of common stock prior to the
Distribution Date will constitute a transfer of the associated Rights. After the Distribution Date, the Rights may be transferred on the
books and records of the Rights Agent as provided in the Rights Agreement.
If on or after the Distribution Date, a Person is or becomes an Acquiring Person, each holder of a Right, other than certain Rights
including those beneficially owned by the Acquiring Person (which will have become void), will have the right to receive upon
exercise common stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two
times the Purchase Price.
In the event that, at any time following the first date of a public announcement that a Person has become an Acquiring Person or
that discloses information which reveals the existence of an Acquiring Person or such earlier date as a majority of the Board becomes
aware of the existence of an Acquiring Person (any such date, the Stock Acquisition Date), (i) the Company engages in a merger or
other business combination transaction in which the Company is not the surviving corporation, (ii) the Company engages in a merger
or other business combination transaction in which the Company is the surviving corporation and the common stock of the Company
is changed or exchanged or (iii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder
of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two times the Purchase Price.
At any time following the Stock Acquisition Date and prior to the acquisition by the Acquiring Person of 50% or more of the
outstanding common stock, the Board may exchange the Rights (other than Rights owned by such Person which have become void),
in whole or in part, for common stock or Preferred Stock at an exchange ratio of one share of common stock, or one one-hundredth of
a share of Preferred Stock (or of a share of a class or series of the Company’s preferred stock having equivalent rights, preferences and
privileges), per Right, subject to adjustment.
The Rights and the Rights Agreement will expire on the earliest of (i) 5:00 P.M. New York City time on August 7, 2018, (ii) the
time at which the Rights are redeemed or exchanged pursuant to the Rights Agreement, (iii) the date on which the Board determines
that the Rights Agreement is no longer necessary for the preservation of material valuable Tax Benefits or is no longer in the best
interest of the Company and its stockholders, (iv) the beginning of a taxable year to which the Board determines that no Tax Benefits
may be carried forward and (v) the first anniversary of the adoption of the Agreement if stockholder approval has not been received by
or on such date.
At any time until the earlier of the Distribution Date or the expiration date of the Rights, the Company may redeem the Rights in
whole, but not in part, at a price of $0.001 per Right. Immediately upon the action of the Board ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price.
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Table of Contents
Note 14 — Segment Information
We manage our business through two reporting segments, Consumer Storage and Accessories (CSA) and Tiered Storage and
Security Solutions (TSS). Our reporting segments are generally aligned with our key consumer and commercial channels. On
September 27, 2015, the Company adopted a restructuring plan that will significantly change the business and operations of our
segments. See Note 7 - Restructuring and Other Expense for further information.
We have two major product categories under our CSA segment: Consumer Storage Media and Audio and Accessories. Consumer
Storage Media products include primarily optical products such as DVDs, CDs and Blu-ray TM disc recordable media as well as flash
media. Audio and Accessories includes primarily headphones, audio electronics and accessories. Consumer storage media and audio
products and accessories are sold under the Imation TM , Memorex TM , TREK TM and TDK Life on Record brands. We have two major
product categories under our TSS segment: Commercial Storage Media and Storage and Security Solutions. Commercial Storage
Media products consist mainly of magnetic data storage tape media and RDX ® media. Storage and Security Solutions includes storage
hardware products, services and software for backup and archiving as well as primary storage; encrypted and biometric flash drives
and hard disk drives; secure portable desktop solutions; and software solutions, including products which contain various security
features such as password authentication, encryption and remote manageability. Imation’s storage and security solutions portfolio
includes Nexsan TM hybrid storage solutions and IronKey TM mobile security solutions that address the needs of professionals for
storage and archiving, secure data transport and mobile workspaces.
We evaluate segment performance based on revenue and operating income (loss). The operating income (loss) reported in our
segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results,
they are included in reported consolidated results. Corporate and unallocated amounts may include depreciation and amortization,
litigation settlement expense, goodwill impairment, intangible impairments, corporate expense, inventory write-offs related to our
restructuring programs and restructuring and other expenses which are not allocated to the segments.
The operating results of our former XtremeMac and Memorex consumer electronics businesses are presented in our Condensed
Consolidated Statements of Operations as discontinued operations and are not included in segment results for all periods presented.
See Note 4 - Discontinued Operations for further information on these divestitures.
Net revenue and operating income (loss) from continuing operations by segment were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2015
(In millions)
2014
2015
2014
Net revenue
Consumer Storage and Accessories:
Consumer Storage Media
$
Audio and Accessories
59.0
$
79.4
$
191.6
$
253.4
8.8
12.6
27.7
33.7
67.8
92.0
219.3
287.1
Commercial Storage Media
36.6
54.3
129.8
159.7
Storage and Security Solutions
24.8
28.7
86.1
85.7
61.4
83.0
215.9
245.4
Total Consumer Storage and Accessories
Tiered Storage and Security Solutions:
Total Tiered Storage and Security Solutions
Total net revenue
$
21
129.2
$
175.0
$
435.2
$
532.5
Table of Contents
Three Months Ended
Nine Months Ended
September 30,
September 30,
2015
(In millions)
2014
2015
2014
Operating income (loss) from continuing operations
Consumer Storage and Accessories
Tiered Storage and Security Solutions
Total segment operating loss
Corporate and unallocated
$
(15.8)
(10.1)
(25.9)
(122.8)
Total operating loss
Interest income
(148.7)
(0.1)
Interest expense
Other, net expense
Loss from continuing operations before income taxes
$
$
5.4 $
(8.1)
(2.7)
(53.1)
(11.2)
(22.8)
(34.0)
(143.6)
(55.8)
(0.1)
(177.6)
(0.3)
$
12.7
(25.4)
(12.7)
(79.3)
(92.0)
(0.3)
0.6
0.7
1.8
1.9
(0.5)
1.6
1.1
2.6
(148.7)
$
(58.0) $
(180.2)
$
(96.2)
Note 15 — Litigation, Commitments and Contingencies
Litigation
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are
subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our businesses are subject to
allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent
trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers, including the One-Blue litigation
described below. Consequently, as of September 30, 2015, we are unable to reasonably estimate the ultimate aggregate amount of any
monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate
resolution of these matters could materially affect our financial condition, results of operations and cash flows.
On May 22, 2013, Imation was sued in U.S. District Court for the District of Delaware by five entities: One-Blue, LLC
(One-Blue), which is an entity with licensing authority for a pool of patents relating to Blu-ray discs, and four members of One-Blue,
Koninklijke Philips N.V., Panasonic Corporation, Pioneer Corporation and Sony Corporation. The plaintiffs allege that Imation's sales
of certain Blu-ray discs infringe six patents and seek unspecified damages, treble damages and attorney's fees. On June 13, 2013,
Imation filed an Answer, Affirmative Defenses, and Counterclaims, naming various defenses including that plaintiffs are barred, in
whole or in part, from any recovery or relief by their refusal to license the patents-in-suit under fair, reasonable and nondiscriminatory
terms. Imation intends to vigorously defend the case. Proceedings in the case have been bifurcated, and a trial limited to the issues
presented by Imation’s Counterclaim is scheduled to begin on November 16, 2015. Imation has notified its manufacturers of their
indemnity obligations that it believes cover a portion of its liability, if any, to One-Blue and the other plaintiffs. In addition, Imation
has a dispute with One-Blue regarding One-Blue's refusal to license its Japanese Blu-ray patents under fair, reasonable and
nondiscriminatory terms in Japan, where Imation's sales of Blu-ray discs are substantially greater than in the U.S. Imation Corporation
Japan, Imation's Japanese subsidiary, sued One-Blue in Japan regarding its unlawful interference with certain of our customer
relationships. On February 18, 2015, the Tokyo District Court rendered a decision in favor of Imation that held One-Blue's sending of
warning letters to Imation customers that threatened those customers with certain patent-related actions constituted an illegal "unfair
competition practice" and issued a permanent injunction prohibiting One-Blue from sending any such warning letters in the future.
One-Blue did not appeal that decision.
SpearPoint Capital Fund LP et al. v. Mark E. Lucas, et al. This shareholder derivative action was filed in Delaware Chancery
Court on February 9, 2015. It names as defendants the Company and the members of its Board of Directors. Plaintiffs contend that the
defendants paid excessive compensation to the directors. They seek damages for breaches of fiduciary duties, waste of corporate assets
and unjust enrichment. They also seek corporate governance reforms related to the Company’s compensation practices. The Directors
have responded to the complaint denying all the allegations; the Company, as the nominal defendant, has responded denying the
allegations as well. The parties are now engaged in discovery. Trial, should it be necessary, has been scheduled for June 2016.
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Copyright Levies
Background and historical developments associated with our copyright levies are discussed in Note 15 - Litigation, Commitments
and Contingencies in our Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended
December 31, 2014. As of September 30, 2015 and December 31, 2014, we had accrued liabilities of $5.8 million and $9.3 million,
respectively, associated with levies for which we are withholding payment. In the first quarter of 2015, we reversed a $2.8 million
accrual for copyright levies on optical products as the result of a favorable German court decision retroactively setting levy rates at a
level much lower than the rates sought by the German collecting society.
We are subject to several pending or threatened legal actions by the individual European national levy collecting societies in
relation to private copyright levies under the Directive. Those actions generally seek payment of the commercial and consumer optical
levies withheld by Imation. For example, in the first quarter of 2015, the French levy society, Copie France, filed a new summary
proceeding, seeking $8.7 million in withheld levies. Imation believed this claim was without merit, and Copie France voluntarily
dismissed the claim in the second quarter of 2015. Imation has corresponding claims in those actions seeking reimbursement of levies
improperly collected by those collecting societies. A hearing has been scheduled on December 8, 2016, in the High Court of Justice
(Tribunal de Grande Instance de Paris) on Imation’s claim against Copie France for reimbursement of commercial optical levies
previously paid by Imation, and Copie France’s counterclaim against Imation seeking payment of withheld levy payments; a decision
in that case is not expected until several months after that hearing is completed. We are subject to threatened actions by certain
customers of Imation seeking reimbursement of funds they allege relate to commercial levies that they claim they should not have
paid. Although these actions are subject to the uncertainties inherent in the litigation process, based on the information presently
available to us, management does not expect that the ultimate resolution of these actions will have a material adverse effect on our
financial condition, results of operations or cash flows. Additional court decisions may be rendered in 2015 that may directly or
indirectly impact our levy exposure in specific European countries which could trigger a review of our levy exposure in those
countries.
Note 16 — Related Party Transactions
Clinton Relational Opportunity Master Fund, L.P. (the "Clinton Group") nominated 3 persons for election to Imation’s Board of
Directors (the “Board”) at the Company's Annual Meeting of Shareholders on May 20, 2015. Shareholders elected Clinton Group’s
three nominees, Joseph A. De Perio, Robert B. Fernander and Barry L. Kasoff, replacing three incumbent directors who were standing
for reelection.
Mr. De Perio currently serves as Senior Portfolio Manager of the Clinton Group. During the third quarter of 2015, the Board
authorized reimbursement to the Clinton Group for its documented expenses related to proxy contest fees for 2015 for $0.6
million. The fees are recorded in restructuring and other charges for the three months ended September 30, 2015 and are accrued in
other current liabilities on our Condensed Consolidated Balance Sheet as of September 30, 2015.
On August 17, 2015, Imation entered into a consulting agreement with Mr. Fernander to perform certain services including
assisting the Company with a review and assessment of the Nexsan and Mobile Security businesses of the Company, for which he
received consulting fees of $25,000 per week, subject to termination by the Company on a one week's notice. For the three months
ended September 30, 2015, the Company paid $0.2 million to Mr. Fernander for these services, which is recorded in restructuring and
other charges.
On September 27, 2015, the Board of Directors appointed Mr. Fernander to serve as Interim Group President, Tiered Storage and
Security Solutions, effective September 28, 2015, and terminated the consulting agreement with Mr. Fernander. For his service as
Interim Group President, Tiered Storage and Security Solutions, Mr. Fernander received $35,000 per week in salary. Effective
October 14, 2015, the Board appointed Mr. Fernander to serve as the Interim Chief Executive Officer of the Company. Pursuant to an
employment agreement, Mr. Fernander will serve an initial 1-year term, receive base compensation of $600,000 and a
performance-based restricted stock award of 574,000 shares and receive up to one year's base salary if his employment agreement with
the Company is terminated other than for Cause (as define in the employment agreement), or by reason of his death or disability.
On August 17, 2015, the Board appointed Mr. Kasoff to serve as Interim President of the Company effective August 19, 2015.
Mr. Kasoff received compensation of $35,000 per week for his services as Interim President. Effective October 14, 2015, in
connection with the appointment of Mr. Fernander to the position of Interim Chief Executive Officer, the Board appointed Mr. Kasoff
as Chief Restructuring Officer at the same level of compensation he received as Interim President.
Mr. Kasoff also serves as president of Realization Services, Inc. (RSI), a management consulting firm specializing in assisting
companies and capital stakeholders in troubled business environments. Pursuant to a consulting agreement between the Company and
RSI dated August 17, 2015 and subsequent amendment, RSI is performing consulting services for the Company for the period from
August 8, 2015 up to February 29, 2016, unless terminated earlier by the Company, including assisting the Company with a review
and assessment of the Company’s business and the formulation of a business plan to enhance shareholder value going forward. Prior
to being appointed as Interim President of the Company, RSI received
23
Table of Contents
consulting fees of $85,000 per week from the Company under the terms of the Agreement plus up to an additional $225,000 for
enhanced services for the period from August 26, 2015 through September 18, 2015. Effective September 19, 2015, RSI will receive
consulting fees up to $125,000 per week for the remaining term of the agreement. For the three months ended September 30, 2015, the
Company paid $0.8 million to RSI which is recorded in restructuring and other charges.
On August 31, 2015, Imation entered into a consulting agreement with Geoff Barrall, a member of the Board pursuant to which
Mr. Barrall will perform certain services including formulating a business plan and budget for the Company which is subject to
termination by the Company on a one week's notice. For the three months ended September 30, 2015, the Company paid $0.2 million
to Mr. Barrall which is recorded in restructuring and other charges.
On October 14, 2015, Imation acquired substantially all of the equity of Connected Data, Inc. (CD) for approximately $7.5
million in cash (subject to adjustment), shares of Imation common stock and repayment of debt. Mr. Barrall is the founder and Chief
Executive Officer of CD. In consideration for his CD common shares and options to purchase CD common shares, Mr. Barrall
received approximately $184,000 at the time of the acquisition and he will be eligible to receive up to an additional $260,000 to the
extent certain CD revenue targets are achieved for the 3 consecutive six-month periods commencing January 1, 2016. The accounting
for the CD acquisition will be recorded in the fourth quarter of 2015. See Note 17 - Subsequent Events for further information on the
CD acquisition.
In connection with the CD acquisition, Imation appointed Mr. Barrall as Imation’s Chief Technology Officer on October 14,
2015 and entered into a related employment agreement on October 27, 2015. The employment agreement provides that Mr. Barrall
will receive (i) a base salary of $600,000 per year, (ii) if he remains employed with the Company through December 31, 2015, a
retention bonus of $116,732 in cash (which will be forfeited on a pro rata basis if he does not remain employed with the Company
through December 31, 2016), and restricted stock units valued at $116,732 (which will vest pro rata on a monthly basis through
December 31, 2016), (iii) subject to approval of the Board or the Compensation Committee of the Board, an option to purchase
300,000 shares of Imation common stock, which will vest in equal monthly installments over 36 months of continued employment
with the Company and (iv) if his employment with the Company is terminated other than for Cause or by Mr. Barrall for Good Reason
(as such terms are defined in the employment agreement), one year’s base salary and, if such termination occurs either thirty days
before or one year following a change of control (as defined in the employment agreement) the retention bonus described in clause (ii)
above and in the stock options described in clause (iii) above will immediately vest in full. The consulting agreement with Mr. Barrall
was terminated on October 12, 2015.
TDK owned approximately 18 percent of the Company’s common stock as of September 30, 2015. On September 28, 2015, the
Company entered into an agreement with TDK providing for the transfer of 6,675,764 shares of Imation common stock, subject to
adjustment, from TDK to Imation, the termination of the Company's license agreement with TDK and the termination of certain rights
of TDK under its Investor Rights Agreement with the Company. The TDK shares will be transferred back to the Company during the
fourth quarter of 2015 and the corresponding accounting entries will be recorded at that time. See Note 17 - Subsequent Events for
further information on the TDK agreement.
Note 17 — Subsequent Events
On October 30, 2015, Imation terminated its Japan Credit Agreement entered into on July 16, 2013. At the time of termination,
the Company paid down its short-term borrowings of $7.6 million. Additionally, during the fourth quarter of 2015, capitalized costs
for the credit facility of $0.1 million will be charged to interest expense.
On October 14, 2015, Imation acquired substantially all of the equity of Connected Data, an emerging enterprise-class, private
cloud sync and share company, in a transaction valued at $7.5 million at closing. The acquisition of CD augments Imation’s vision in
delivering a comprehensive and secure storage, backup and collaboration ecosystem. The Company intends to complete the
acquisition of Connected Data through a short-form merger as soon as practicable. The purchase price consists of approximately $0.9
million in cash, 1,511,151 shares of Imation common stock valued at approximately $4.0 million and approximately $2.6 million in
repayment of debt. Up to $5.0 million in cash and shares in earn outs are possible based upon Connected Data’s performance through
2016 and the first half of 2017. The accounting for the CD acquisition will take place during the fourth quarter of 2015. See Note 16 Related Party Transactions for additional information on the CD acquisition.
On September 28, 2015, Imation entered into an agreement with TDK providing for the transfer of 6,675,764 shares of Imation
common stock, subject to adjustment, from TDK to Imation, the termination of the Company's license agreements with TDK and the
termination of certain rights of TDK under its Investor Rights Agreement with the Company. After termination of the rights
agreement, Imation will no longer have the right to use the licensed intellectual property except as required through December 31,
2015 to fulfill already existing obligations. TDK will no longer have rights to designate one employee or director of TDK as a
nominee to stand for election as a director of the Company, information rights, preemptive rights, and demand registration rights. The
Imation shares will be transferred back to the Company during the fourth quarter of 2015 and the corresponding accounting will be
recorded at that time.
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
As used in this document, the terms "Imation", "the Company", "we", "us" and "our" mean Imation Corp. and its subsidiaries and
consolidated entities unless the context indicates otherwise.
Imation Corp. is a global data storage and security company. With a 60-year history of technology leadership, the Company's
mission is to help organizations store, protect and connect their digital world. The Company operates in two focused business
segments: Tiered Storage and Security Solutions (TSS) and Consumer Storage and Accessories (CSA). We have four major product
categories: Storage and Security Solutions and Commercial Storage Media in our TSS segment and Consumer Storage Media and
Audio and Accessories in our CSA segment.
In August 2015, Imation formed a Strategic Alternatives Committee of its Board to work with management and make
recommendations to the Board regarding the Company’s use of its excess capital, and on October 19, 2015, the Company announced
that it will actively explore new alternative uses for its excess capital. Interim Chief Executive Officer, Robert B. Fernander, will lead
the evaluation and deployment of capital in conjunction with the Strategic Alternatives Committee. The Strategic Alternatives
Committee has been tasked with examining opportunities to deploy Imation’s excess cash and developing initiatives for strategic
value creation. The scope of the acquisition opportunities to be considered may be outside of industries that have comprised Imation’s
historical focus, and may be sourced in the private and public markets. The Company generally expects to evaluate opportunities
where it can acquire businesses that it can actively manage and oversee, but may make investments in opportunities that it will not
control.
On September 27, 2015, the Company adopted a restructuring plan pursuant to which it will terminate certain sales and
operations of its worldwide Storage Media (magnetic tape) business, terminate certain sales and operations of its worldwide CSA
business, and further reduce and rationalize its corporate overhead (the Restructuring Plan). As of September 30, 2015, the Company
and its Board of Directors had not yet determined that it will restructure its Storage Media and CSA operations in Europe. The
Company is currently in the process of negotiations with the European works counsels to determine if such a restructuring in Europe
would be approved by various European labor laws. Accordingly, no employee severance charges have been incurred associated with
the Company's European operations, but it is reasonably possible that severance charges, which could be material, will be incurred in
the future pending the outcome of the negotiations. The Company will continue its Nexsan TM and Mobile Security businesses.
The Company is entering into the Restructuring Plan as a result of continued losses due to secular declines in its legacy Storage
Media and CSA businesses and to reduce the cost structure and streamline the organization in light of these changes. The Company
expects that it will incur approximately $140 to $160 million in total charges for the Restructuring Plan and will substantially
complete the Restructuring Plan during the first quarter of 2016, with most of its charges incurred in the third and fourth quarter of
2015.
As part of the restructuring and wind down process, the Company is aggressively liquidating its legacy business asset and
liability balances. This will cause working capital balances to change significantly as working capital is converted into cash. During
the three and nine months ended September 30, 3015 we recorded $9.7 million and $7.3 million of inventory and accounts receivable
write-offs, respectively. Based on the information available to us, we believe the remaining inventory to be valued at the lower of cost
or market and remaining accounts receivable balances to be collectible. However, these amounts are not certain and it is reasonably
possible additional charges may be provided for in a future period.
On October 14, 2015, Imation acquired substantially all of the equity of Connected Data, Inc. (CD), an emerging enterprise-class,
private cloud sync and share company, in a transaction valued at $7.5 million at closing. The acquisition of CD augments Imation’s
vision in delivering a comprehensive and secure storage, backup and collaboration ecosystem. See Note 17 - Subsequent Events for
further information on the CD acquisition.
Executive Summary
Consolidated Results of Operations for the Three Months Ended September 30, 2015
•
Net revenue from continuing operations of $129.2 million for the three months ended September 30, 2015 was down 26.2
percent compared with $175.0 million in the same period last year. The decrease was due to declines in all businesses and
currency impacts. Foreign currency exchange rates negatively impacted revenue for the three months ended September 30,
2015 by 7.2 percent compared to the same period last year.
•
Operating loss from continuing operations was $148.7 million for the three months ended September 30, 2015 compared with
an operating loss of $55.8 million in the same period last year. The operating loss for the three months ended September 30,
2015 includes charges of $40.2 million for restructuring and other, $37.6 million for intangible impairments and $36.1
million for goodwill impairments. The increase of $92.9 million from the prior year period is due to the intangible
impairments, higher restructuring and other charges and lower gross profit in the current period.
25
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• Diluted loss per share from continuing operations was $3.70 for the three months ended September 30, 2015 compared with a
diluted loss per share of $1.49 for the same period last year.
Consolidated Results of Operations for the Nine Months Ended September 30, 2015
•
Net revenue from continuing operations of $435.2 million for the nine months ended September 30, 2015 was down 18.3
percent compared with $532.5 million in the same period last year. The decrease was due to secular declines in our legacy
businesses and currency impacts. Foreign currency exchange rates negatively impacted revenue for the nine months ended
September 30, 2015 by 7.3 percent compared to the same period last year.
•
Operating loss from continuing operations was $177.6 million for the nine months ended September 30, 2015 compared with
an operating loss of $92.0 million in the same period last year. The operating loss for the nine months ended September 30,
2015 includes charges of $42.9 million for restructuring and other, $37.6 million for intangible impairments and $36.1
million for goodwill impairments. The increase of $85.6 million from the same period last year is due to the intangible
impairments, higher restructuring and other charges and lower gross profit in the current period.
•
Diluted loss per share from continuing operations was $4.48 for the nine months ended September 30, 2015 compared with a
diluted loss per share of $2.39 for the same period last year.
Cash Flow/Financial Condition for the Nine Months Ended September 30, 2015
•
Cash and cash equivalents totaled $94.3 million at September 30, 2015 compared with $114.6 million at December 31, 2014.
The decline in the cash balance reflects the ongoing investment in Storage and Security Solutions growth initiatives and
seasonal working capital changes and payments, as well as currency impacts.
•
Cash used in operating activities was $14.7 million for the nine months ended September 30, 2015 compared with $13.2
million in the same period last year. The increase was primarily due to negative earnings and our ongoing investment in
Storage and Security Solutions growth initiatives.
Results of Operations
The operating results of our former XtremeMac TM and MemorexTM consumer electronics businesses are presented in our
Condensed Consolidated Statements of Operations as discontinued operations and are not included in segment results for all periods
presented. See Note 4 - Discontinued Operations in our Notes to Condensed Consolidated Financial Statements for further
information on these divestitures. The following discussion relates to continuing operations unless indicated otherwise. Our legacy
businesses as referred to in the following discussion consist of our Consumer and Commercial Storage Media businesses.
Net Revenue
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Net revenue
Three Months Ended
$
129.2
2014
$
175.0
Percent Change
(26.2)%
2015
$
435.2
Percent Change
2014
$
532.5
(18.3)%
Net revenue for the three months ended September 30, 2015 decreased 26.2 percent compared with the same period last year due
to declines in the CSA and TSS business segments of 26.3 percent and 26.0 percent, respectively. Within the CSA segment, revenue
decreased due to the ongoing declines in optical media products along with negative foreign currency impacts. Within the TSS
segment, Commercial Storage Media revenue decreased 32.6 percent due to the expected secular declines of our legacy magnetic tape
business. Storage and Security Solutions revenue declined by 13.6 percent due to softer sales and negative foreign currency impacts.
Foreign currency exchange rates negatively impacted total Company net revenue for the three months ended September 30, 2015 by
7.2 percent compared to the same period last year.
Net revenue for the nine months ended September 30, 2015 decreased 18.3 percent compared with the same period last year due
to declines in the CSA and TSS business segments of 23.6 percent and 12.0 percent, respectively. Within the CSA segment, revenue
decreased due to the ongoing declines in optical media products along with negative foreign currency impacts. Within the TSS
segment, Storage and Security Solutions revenue grew by 0.5 percent. The growth was due to both our Nexsan hybrid storage
solutions and IronKey mobile security businesses. Commercial Storage Media revenue decreased 18.7 percent due to the expected
secular declines of our legacy magnetic tape business. Foreign currency exchange rates negatively impacted total Company net
revenue for the nine months ended September 30, 2015 by 7.3 percent compared to the same period last year.
See Segment Results for further discussion of our reporting segments and products.
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Gross Profit
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Gross profit
Gross margin
Three Months Ended
$
2014
13.4
$
10.4%
Percent Change
31.2
17.8%
(57.1)%
2015
$
2014
76.4
$
17.6%
98.8
18.6%
Percent Change
(22.7)%
Gross profit for the three and nine months ended September 30, 2015 decreased 57.1 and 22.7 percent, respectively, compared
with the same periods last year due to lower net revenues and $9.7 million of inventory write-offs taken during the third quarter of
2015 as a result of our actions to end certain sales and operations in the CSA and Commercial Storage Media businesses.
Gross margin for the three months ended September 30, 2015 decreased 7.4 percentage points compared with the same period
last year due to lower margins in both the CSA and TSS segments. Gross margin in CSA decreased due to inventory write-offs
associated with our actions to end certain sales and operations. Gross margin in TSS decreased due to inventory write-offs taken as a
result of our actions to end certain sales and operations in our Commercial Storage Media business which was partially offset by
improved margins in the Storage and Security Solutions business. The increase in gross margin in Storage and Security Solutions is
due to improved sourcing costs, lower discounts and our product mix moving towards higher margin products.
Gross margin for the nine months ended September 30, 2015 decreased 1.0 percentage points compared with the same period last
year due to lower margins in our CSA segment which was partially offset by increases in our TSS segment. Gross margin in CSA
decreased due to inventory write-offs taken as a result of our actions to end certain sales and operations. The decrease in margin in
CSA was partially offset by a reversal of a $2.8 million accrual for copyright levies as a result of a favorable court ruling in Germany.
Gross margin in TSS increased due to improved sourcing costs, lower discounts and our product mix moving towards the higher
margins of our Storage and Security Solutions products which was partially offset by inventory write-offs taken as a result of our
actions to end certain sales and operations in our Commercial Storage Media business.
Selling, General and Administrative (SG&A)
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Selling, general and
administrative
As a percent of revenue
Three Months Ended
$
43.4
$
33.6%
2014
Percent Change
42.5
24.3%
2.1%
2015
$
123.0
$
28.3%
Percent Change
2014
130.2
24.5%
(5.5)%
SG&A expense increased for the three months ended September 30, 2015 compared with the same period last year due to
increased charges for accounts receivable write-offs which was partially offset by lower spending and currency impacts. During the
three months ended September 30, 2015, the Company incurred charges of $7.3 million for accounts receivable write-offs associated
with our actions to end certain sales and operations in the CSA and Commercial Storage Media businesses. The increase was partially
offset by reductions of legacy and administrative operating costs of $4.1 million in the three months ended September 30, 2015 in
order to operate as a smaller company with more focused product lines and streamlined core operational processes.
SG&A expense decreased for the nine months ended September 30, 2015 compared with the same period last year due to lower
spending and currency impacts which were partially offset by increased charges for accounts receivable write-offs. We reduced legacy
and administrative operating costs by $11.7 million in the nine months ended September 30, 2015 in order to operate as a smaller
company with more focused product lines and streamlined core operational processes. During the nine months ended September 30,
2015, the Company incurred charges of $7.3 million for accounts receivable write-offs associated with our actions to end certain sales
and operations in the CSA and Commercial Storage Media businesses.
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Research and Development (R&D)
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Research and development
As a percent of revenue
Three Months Ended
$
2014
4.8
$
3.7%
4.9
2.8%
Percent Change
(2.0)%
2015
$
Percent Change
2014
14.4
$
3.3%
13.7
2.6%
5.1%
R&D expense decreased for the three months ended September 30, 2015 compared with the same period last year due to
reductions in our investments in our legacy Commercial Storage Media business.
R&D expense increased for the nine months ended September 30, 2015 compared with the same period last year which reflects
the Company's increased investment in higher-margin projects in Storage and Security Solutions, partially offset by reductions in our
investments in our legacy Commercial Storage Media business.
Intangible Impairment
During the third quarter of 2015, management and the Board of Directors have engaged in a detailed strategic and financial
assessment of the Company. As a result of this assessment, we significantly revised our previous business strategy by adjusting our
product portfolio to a smaller product offering as well as changing our investment philosophy such that the investment in operating
expenses will be significantly reduced. Because of our strategy change, smaller product portfolio and reduced future investment, we
revised our forecasts, which we determined to be a triggering event for impairment testing. This required the assessment of the
recoverability of the long-lived assets (including definite-lived intangible assets).
We compared the carrying value of our asset groups with their estimated undiscounted future cash flows and determined that the
carrying value of certain asset groups exceeded the undiscounted cash flows expected to be generated by the asset group. For those
asset groups, we then compared the carrying value of the asset group to its estimated fair value to determine the amount by which our
long-lived assets (primarily intangible assets) with the asset group were impaired. As a result of these analyses, we recorded an
impairment charge of $37.6 million in the Consolidated Statements of Operations for the three and nine months ended September 30,
2015. See Note 6 - Intangible Assets and Goodwill for further information on this impairment charge.
Goodwill Impairment
We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each
year and during an interim period if an event occurs or circumstances change that would warrant impairment testing.
During the third quarter of 2015, management and the Board of Directors have engaged in an assessment of the Storage and
Security Solutions businesses of the Company. As a result of this assessment, we significantly revised our previous business strategy
by adjusting our product portfolio to a smaller product offering as well as changing our investment philosophy associated with these
businesses such that the investment in operating expenses will be significantly reduced. Because of our strategy change, smaller
product portfolio and reduced future investment, we revised our forecasts, which we determined to be a triggering event requiring us
to review our goodwill related to Storage and Security Solutions for impairment. Based on the review, we determined that the carrying
value of the Storage and Security Solutions goodwill exceeded its implied value by $36.1 million and, consequently, we recorded an
impairment charge of that amount in the Consolidated Statements of Operations for the three and nine months ending September 30,
2015.
For the three months ended September 30, 2014, actual results for our Storage Solutions reporting unit were lower than planned.
Because of the lower than anticipated results for Storage Solutions, we revised our forecast, which we determined to be a triggering
event requiring us to review our goodwill related to Storage Solutions for impairment. Based on the review, we determined that the
carrying value of the Storage Solutions goodwill exceeded its implied value by $35.4 million and, consequently, we recorded an
impairment charge of that amount in the Consolidated Statements of Operations for the three and nine months ending September 30,
2014.
See Note 6 - Intangible Assets and Goodwill for further information on the impairment charges.
Restructuring and Other
Three Months Ended
September 30,
Nine Months Ended
Percent Change
September 30,
Percent Change
2015
(Dollars in millions)
Restructuring and other
$
40.2
2014
$
2015
4.2
857.1%
28
$
42.9
2014
$
11.5
273.0%
Table of Contents
For the three months ended September 30, 2015, the $40.2 million of restructuring and other expense relates to restructuring costs
of $17.7 million and other costs of $22.5 million. The $17.7 million of restructuring costs consists primarily of severance and related
charges from our actions to end certain sales and operations in the CSA and Commercial Storage Media businesses. The $22.5 million
of other costs includes $25.1 million of asset write downs and disposals and $1.0 million of pension settlement charges which were
partially offset by $3.6 million of other income. The other income consists of a gain on the sale of our RDX TM Storage product line
which was partially offset by direct third party costs associated with our proxy contest and strategic review process. For the three
months ended September 30, 2014, the $4.2 million of restructuring and other expense related to restructuring costs of $1.3 million,
other costs of $2.2 million and pension related losses of $0.7 million. The $1.3 million of restructuring costs consisted of severance
and related charges. The $2.2 million of other costs primarily consisted of employee costs and professional fees. We also recorded an
additional obligation of $0.5 million associated with a true-up of the settlement of our United Kingdom pension plan which was
settled in the third quarter of 2013 and we recorded a $0.2 million settlement loss related to our U.S. pension plan.
For the nine months ended September 30, 2015, the $42.9 million of restructuring and other expense relates to restructuring costs
of $19.0 million and other costs of $23.9 million. The $19.0 million of restructuring costs consist primarily of severance and related
charges from our actions to end certain sales and operations in the CSA and Commercial Storage Media businesses. The $23.9 million
of other costs includes $25.1 million of asset write downs and disposals and $1.0 million of pension settlement charges which were
partially offset by $2.2 million of other income. The other income consists of a gain on the sale of our RDX TM Storage product line
which was partially offset by direct third party costs associated with our proxy contest and strategic review process. For the nine
months ended September 30, 2014, the $11.5 million of restructuring and other expense related to restructuring costs of $5.1 million,
other costs of $5.8 million and pension related losses of $0.6 million. The $5.1 million of restructuring costs consisted of severance
and related charges. The $5.8 million of other costs primarily consisted of employee costs and professional fees. The pension losses
included $0.5 million of an additional obligation associated with a true-up of the settlement of our United Kingdom pension plan and a
$0.8 million settlement loss related our U.S. pension plan which was partially offset by a $0.7 million curtailment gain related to our
Japan pension plan.
See Note 7 - Restructuring and Other Expense in our Notes to Condensed Consolidated Financial Statements for further details
on our restructuring and other expense.
Operating Loss from Continuing Operations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Operating loss from continuing
operations
$
As a percent of revenue
2014
(148.7)
)
(115.1%
$
(55.8)
)
(31.9%
Percent Change
166.5%
2015
$
(177.6)
)
(40.8%
2014
$
(92.0)
)
(17.3%
Percent Change
93.0%
Operating loss from continuing operations increased for the three and nine months ended September 30, 2015 compared with the
same periods last year due to the items discussed above.
Other (Income) Expense
$
Interest expense
Other, net expense (income)
Total other expense
As a percent of revenue
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Interest income
Three Months Ended
$
2014
(0.1)
$
(0.1)
Percent Change
—%
2015
$
(0.3)
2014
$
Percent Change
(0.3)
—%
0.6
0.7
(14.3)%
1.8
1.9
(5.3)%
(0.5)
1.6
(131.3)%
1.1
2.6
(57.7)%
2.2
(100.0)%
4.2
(38.1)%
—
—%
$
1.3%
$
2.6
0.6%
$
0.8%
Other expense for the three and nine months ended September 30, 2015 decreased compared with the same period last year. The
decrease is due to gains recorded as a result of exchange rate changes on transactions in foreign currencies.
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Income Tax Provision (Benefit)
Three Months Ended
Nine Months Ended
September 30,
2015
(Dollars in millions)
Income tax provision (benefit)
$
2014
3.6
)
(2.4%
Effective tax rate
$
September 30,
Percent
Change
3.4
)
(5.9%
2015
NM $
2014
3.9
)
(2.2%
$
1.8
Percent Change
116.7%
(1.9)%
NM - Not meaningful
The change in the income tax provision for the three and nine months ended September 30, 2015 compared to the same periods
last year is primarily related to lower foreign income tax expense compared to last year, offset by a $3.7 million valuation allowance
established during the current quarter as a result of the announced Restructuring Plan, which has changed our ability to generate
sufficient future taxable income in certain foreign jurisdictions to recover our net deferred tax assets in such locations. The effective
income tax rate for the three and nine months ended September 30, 2015 differs from the U.S. federal statutory rate of 35 percent
primarily due to a valuation allowance on various deferred tax assets and the effects of foreign tax rate differential. As disclosed
previously, the Company has not yet determined that it will be restructuring its European operations, pending the outcome of
negotiations with European works councils and, accordingly, we have not provided valuation allowances associated with tax
jurisdictions within Europe. However, it is reasonably possible that valuation allowances may be necessary in future periods if we
reach agreement to restructure our European operations. The total net deferred tax assets as of September 30, 2015 associated with
European jurisdictions is approximately $6.0 million.
Loss from Discontinued Operations
Three Months Ended
Nine Months Ended
September 30,
(Dollars in millions)
Loss on sale of discontinued
businesses, net of income taxes
2015
$
Loss from operations of
discontinued businesses, net of
income taxes
Loss from discontinued operations
—
$
—
$
Percent
Change
2014
—
$
September 30,
2015
2014
—
NM $
—
—
NM
—
—
NM $
—
$
$
Percent Change
(1.7)
(100.0)%
(0.6)
(100.0)%
(2.3)
(100.0)%
NM - Not meaningful
Loss from discontinued operations represents operations from our former XtremeMac and Memorex consumer electronics
businesses. The loss for the nine months ended September 30, 2014 includes a $1.2 million adjustment to the expected proceeds on the
sale of the XtremeMac business and a $0.5 million loss recorded for the sale of the XtremeMac business which closed on January 31,
2014. See Note 4 - Discontinued Operations in our Notes to Condensed Consolidated Financial Statements for more information on
our discontinued operations.
Segment Results
We operate our business through two focused business segments: Consumer Storage and Accessories (CSA) and Tiered Storage
and Security Solutions (TSS). Our business segments are generally aligned with our key consumer and commercial channels.
We have two major product categories under our CSA reporting segment: Consumer Storage Media and Audio and Accessories.
Consumer Storage Media products include optical products, USB flash drives, flash cards and external hard disk drives. Optical
products consist of DVDs, CDs, and Blu-ray recordable media. Audio and Accessories include speakers, headphones and accessories.
We have two major product categories under our TSS reporting segment: Commercial Storage Media and Storage and Security
Solutions. Commercial Storage Media products consist mainly of magnetic data storage tape media and RDX media. Storage and
Security Solutions includes Nexsan products as well as Mobile Security, under the IronKey brand.
We evaluate segment performance based on revenue and operating income (loss). The operating income (loss) reported in our
segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results,
they are included in reported consolidated results. Corporate and unallocated amounts may include depreciation and amortization,
litigation settlement expense, goodwill impairment, intangible impairments, corporate expense,
30
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inventory write-offs related to our restructuring programs and restructuring and other expenses which are not allocated to the
segments.
Information related to our segments is as follows:
Consumer Storage and Accessories
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Net revenue
Three Months Ended
$
Operating income (loss)
2014
67.8
$
92.0
(26.3)%
5.4
(392.6)%
(15.8)
)
(23.3%
As a percent of revenue
Percent Change
2015
$
219.3
2014
$
(11.2)
)
(5.1%
5.9%
Percent Change
287.1
(23.6)%
12.7
(188.2)%
4.4%
The decrease in CSA net revenue for the three and nine months ended September 30, 2015 compared with the same periods last
year was driven by declines in Consumer Storage Media and Audio and Accessories products and negative foreign currency impacts
as we derive the majority of our CSA revenue outside of the United States. CSA revenue declined 26.3 percent and 23.6 percent for
the three and nine months ended September 30, 2015, respectively. Consumer Storage Media declined $20.4 million, or 25.7 percent,
and $61.8 million, or 24.4 percent, for the three and nine months ended September 30, 2015, respectively. These decreases were
driven by expected secular declines in optical media products and negative foreign currency impacts. Audio and Accessories
decreased $3.8 million, or 30.2 percent, and $6.0 million, or 17.8 percent, for the three and nine months ended September 30, 2015,
respectively, primarily due to negative foreign currency impacts.
The increase in operating loss for the three and nine months ended September 30, 2015, respectively, compared with the same
periods last year was primarily due to inventory and accounts receivable write-offs taken as a result of our actions to end certain sales
and operations in CSA.
Tiered Storage and Security Solutions
As a percent of revenue
Nine Months Ended
September 30,
September 30,
2015
(Dollars in millions)
Net revenue
Operating loss
Three Months Ended
$
2014
61.4
(10.1)
)
(16.4%
$
83.0
(8.1)
)
(9.8%
Percent Change
(26.0)%
24.7 %
2015
$
2014
215.9
(22.8)
)
(10.6%
$
245.4
(25.4)
)
(10.4%
Percent Change
(12.0)%
(10.2)%
The decrease in TSS net revenue of 26.0 percent for the three months ended September 30, 2015 compared with the same period
last year was due to a 32.6 percent decrease in our Commercial Storage Media business due to the secular decline of our legacy
magnetic tape business and 13.6 percent decrease in our Storage and Security Solutions business primarily due to softer sales and
currency impacts. The 12.0 percent decrease in TSS net revenue for the nine months ended September 30, 2015 compared to the same
period last year was due to an 18.7 percent decrease in our Commercial Storage Media business partially offset by a 0.5 percent
increase in our Storage and Security Solutions business. The year to date revenue decline in Commercial Storage Media is due to the
expected secular decline of our legacy magnetic tape business. The year to date growth in Storage and Security Solutions revenue was
due to both our Nexsan hybrid storage solutions and IronKey mobile security businesses.
The increase in the operating loss for the three and nine months ended September 30, 2015 was driven primarily by inventory and
accounts receivable write-offs taken as a result of our actions to end certain sales and operations in the Commercial Storage Media
business.
Corporate and Unallocated
Three Months Ended
September 30,
Nine Months Ended
Percent Change
September 30,
Percent Change
2015
(Dollars in millions)
Operating loss
$
(122.8)
2014
$
2015
(53.1)
131.3%
$
(143.6)
2014
$
(79.3)
81.1%
The Corporate and Unallocated operating loss increased for the three and nine months ended September 30, 2015 compared with
the same period last year due to impairments and increased restructuring and other expense related to our actions to end certain sales
and operations in our CSA and Commercial Storage Media businesses. The operating loss for the three months ended September 30,
2015 includes charges of $40.2 million for restructuring and other, $37.6 million for
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intangible impairments and $36.1 million for goodwill impairments. The operating loss for the nine months ended September 30, 2015
includes charges of $42.9 million for restructuring and other, $37.6 million for intangible impairments and $36.1 million for goodwill
impairments.
Impact of Changes in Foreign Currency Rates
We have a market presence in more than 100 countries and we sell products on a local currency basis through a variety of
distribution channels. We source optical, flash and other finished goods from manufacturers located primarily in Asia, although much
of this sourcing is on a U.S. dollar basis. Additionally, comparisons of revenue and gross profit from foreign countries are subject to
various fluctuations due to the impact of translating results at differing exchange rates in different periods.
Changes in foreign currency exchange rates negatively impacted worldwide revenue by 7.2 percent and 7.3 percent for the three
and nine months ended September 30, 2015, respectively. Changes in foreign currency exchange rates did not impact worldwide
revenue for the three months ended September 30, 2014 but negatively impacted worldwide revenue by 4.0 percent for the nine
months ended September 30, 2014.
Our foreign currency hedging program attempts to manage some of the foreign currency risks over near term periods, however,
the program cannot ensure that the adverse financial impact resulting from unfavorable movements in foreign exchange rates will be
entirely offset. It is difficult to predict the longer term effects of exchange rates on revenue and profit (see Part I, Item 3. Quantitative
and Qualitative Disclosures about Market Risk in this Form 10-Q).
Financial Position
Our cash and cash equivalents balance as of September 30, 2015 was $94.3 million compared to $114.6 million as of
December 31, 2014. The decline in cash reflects negative earnings, the ongoing investment in Storage and Security Solutions growth
initiatives and currency effects.
As part of the restructuring and wind down process, the Company is aggressively liquidating its legacy business asset and
liability balances. This will cause working capital balances to change significantly as working capital is converted into cash.
Our accounts receivable balance as of September 30, 2015 was $64.0 million, a decrease of $70.4 million from $134.4 million as
of December 31, 2014 as a result of accounts receivable write-offs, seasonally strong sales in the fourth quarter of 2014 and revenue
declines. Days sales outstanding (DSO) was 44 days as of September 30, 2015, down 11 days from December 31, 2014 which was
benefited by seasonally high revenues. DSO is calculated using the count-back method, which calculates the number of days of most
recent revenue that is reflected in the net accounts receivable balance.
Our inventory balance as of September 30, 2015 was $42.0 million, a decrease of $15.7 million from $57.7 million as of
December 31, 2014 as a result of inventory write-offs. Days of inventory supply was 50 days as of September 30, 2015, up 6 days
from December 31, 2014. Days of inventory supply is calculated using the current period inventory balance divided by an estimate of
the inventoriable portion of cost of goods sold expressed in days.
Our accounts payable balance as of September 30, 2015 was $75.5 million, a decrease of $20 million from $95.5 million as of
December 31, 2014. The decrease in accounts payable was mainly due to the seasonal timing of payments.
Our other current liabilities balance as of September 30, 2015 was $89.0 million compared to $98.2 million as of December 31,
2014. The decrease of $9.2 million was mainly due to seasonal variable compensation and rebate payments.
Liquidity and Capital Resources
Cash Flows Used in Operating Activities:
Nine Months Ended
September 30,
2015
(Dollars in millions)
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
$
(184.1)
122.2
2014
$
(100.3)
63.4
Changes in operating assets and liabilities
47.2
Net cash used in operating activities
$
(14.7)
23.7
$
(13.2)
Cash used in operating activities was $14.7 million for the nine months ended September 30, 2015 reflecting negative earnings
and our ongoing investment in Storage and Security Solutions growth initiatives. Cash used in operating activities was $13.2 million
for the nine months ended September 30, 2014 reflecting negative earnings and seasonal variable compensation and rebate payments
in the first quarter of 2014 as well as restructuring payments in the first half of 2014, partially offset by improvements in working
capital.
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Cash Flows Used in Investing Activities:
Nine Months Ended
September 30,
(Dollars in millions)
Capital expenditures
2015
$
2014
(2.8) $
(5.3)
Proceeds from sale of disposal group
1.5
2.8
Proceeds from sale of assets
1.2
—
Net cash used in investing activities
$
(0.1) $
(2.5)
Cash used in investing activities for the nine months ended September 30, 2015 included capital expenditures of $2.8 million
partially offset by $1.2 million received from the sale of our Weatherford, Oklahoma facility and $1.5 million of proceeds from the
sale of our discontinued businesses. Cash used in investing activities for the nine months ended September 30, 2014 included capital
expenditures of $5.3 million, partially offset by proceeds from the sale of our discontinued businesses.
Cash Flows Used in Financing Activities:
Nine Months Ended
September 30,
2015
(Dollars in millions)
Purchase of treasury shares
$
Exercise of stock options
Short-term debt repayment
Short-term borrowings
Net cash used in financing activities
$
2014
(1.7)
$
(2.5)
—
(17.4)
0.4
(29.7)
16.4
28.9
(2.7)
$
(2.9)
On May 2, 2012, our Board of Directors authorized a share repurchase program that allowed for the repurchase of 5.0 million
shares of common stock, replacing our previous authorization. For the nine months ended September 30, 2015, we repurchased 0.4
million shares of common stock for $1.7 million at an average price of $4.44. Since the authorization of this program, we have
repurchased 3.0 million shares of common stock for $13.3 million at an average price of $4.43 per share. As of September 30, 2015,
we had remaining authorization to repurchase up to 2.0 million additional shares.
As of September 30, 2015, we maintained a credit agreement entered into in 2006 as amended (the Credit Agreement) and a
credit agreement entered into in 2013 with a lender in Japan (the Japan Credit Agreement). Both credit agreements are described in
Note 11 - Debt of our Annual Report on Form 10-K for the year ended December 31, 2014. In order to reduce borrowing costs, the
maximum amount of borrowings under the Credit Agreement was reduced at the Company's request from $170 million to $100
million on May 28, 2015. The new limit did not impact our borrowing capacity as our borrowing availability under the Credit
Agreement is under $100 million. The new sublimits were $80 million in the United States and $20 million in Europe. As of
September 30, 2015, our remaining borrowing capacity under both credit agreements, after consideration of amounts outstanding, was
$12.6 million.
As of September 30, 2015, we had $18.0 million of borrowings outstanding under our credit agreements with interest rates
ranging from 0.9 percent to 2.7 percent. We are in compliance with our covenant requirements as of September 30, 2015 except for
covenants related to our Japan Credit Agreement. In October 2015, we terminated our Japan Credit Agreement and paid all borrowing
thereunder. See Note 17 - Subsequent Events for further information on the termination of our Japan Credit Agreement.
Our liquidity needs for the remaining three months of 2015 include the following: restructuring payments of approximately $30
million to $40 million, credit facility repayments of $18 million, capital expenditures of approximately $1 million to $2 million,
operating lease payments of approximately $2 million, any amounts associated with investment opportunities and any amounts
associated with the repurchase of common stock under the authorization discussed above. We expect that cash and cash equivalents,
together with cash flow from operations and availability of borrowings under our current sources of financing, will provide liquidity
sufficient to meet these needs and for our operations.
We also expect to use cash and cash equivalents in connection with acquisition opportunities that we may undertake as part of our
strategic plan to use excess capital. We may also raise additional capital through the issuance of equity, debt or both, to fund such
acquisitions. There is no assurance, however, that such capital will be available when needed, in the amounts necessary or on terms
satisfactory to us.
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Contractual Obligations
As of September 30, 2015, there have been no material changes to our contractual obligations as presented in our Annual Report
on Form 10-K for the year ended December 31, 2014. However, we have initiated a restructuring program to terminate certain sales
and operations of our worldwide Storage Media business, terminate certain sales and operations of our worldwide CSA business, and
further reduce and rationalize corporate overhead. Therefore, our contractual obligations are expected to change.
Copyright Levies
See Note 15 - Litigation, Commitments and Contingencies in our Notes to Condensed Consolidated Financial Statements in
Part I, Item 1 herein for further information.
Fair Value Measurements
See Note 12 - Fair Value Measurements in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein for
further information.
Critical Accounting Policies and Estimates
A discussion of the Company’s critical accounting policies was provided in Item 7 in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2014. There were no significant changes to these accounting policies for the first nine months of 2015.
Recent Accounting Pronouncements
See Note 2 - Recently Issued or Adopted Accounting Pronouncements in our Notes to Condensed Consolidated Financial
Statements in Part I, Item 1 herein for further information.
Forward-Looking Statements and Risk Factors
We may from time to time make written or oral forward-looking statements with respect to our future goals, including statements
contained in this Form 10-Q, in our other filings with the Securities and Exchange Commission (SEC) and in our reports to
shareholders.
Certain information which does not relate to historical financial information may be deemed to constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include
information concerning strategic initiatives and potential acquisitions, the results of operations of our existing business lines and our
ability to implement our restructuring plans, as well as other actions, strategies and expectations, and are identifiable by use of the
words “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,” “projects,” “may,” “will,” “could,” “might,” or
“continues” or similar expressions. Such statements are subject to a wide range of risks and uncertainties that could cause our actual
results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution
investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the
date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances
arising after such date. Risk factors include various factors set forth from time to time in our filings with the Securities and Exchange
Commission including the following: our ability to successfully implement our strategy for our existing business as well as other lines
of business that we may pursue; our ability to grow our business in new products with profitable margins and the rate of revenue
decline for certain existing products; our ability to successfully identify suitable acquisition targets to implement our new strategy and
to compete for these opportunities with others who may have greater resources; our ability to conduct due diligence on businesses we
acquire to ensure that we have identified and addressed key aspects of liability and risk; the impact of expending significant resources
in considering acquisition targets or business opportunities that are not consummated; the possible need to raise additional debt or
equity financing for acquisitions in addition to the use of our excess cash; the impact of additional material charges and expenses
associated with our oversight of acquired or target businesses and the integration of acquired businesses into our systems for financial
reporting; our ability to successfully integrate current and future acquired businesses into our existing operations and achieve the
expected economic benefits; our ability to effectively increase the size of our organization, if needed, and manage our growth; our
ability to meet future revenue growth, gross margin and earnings targets; the ability to quickly develop, source, introduce and deliver
differentiated and innovative products; our potential dependence on third parties for new product introductions or technologies in
order to introduce our own new products; our ability to successfully implement restructuring plans; foreign currency fluctuations; the
ready availability and price of energy and key raw materials or critical components including the effects of natural disasters and our
ability to pass along raw materials price increases to our customers; continuing uncertainty in global and regional economic
conditions; our ability to identify, value, integrate and realize the expected benefits from any acquisition which has occurred or may
occur in connection with our strategy; the possibility that our goodwill and intangible assets or any goodwill or intangible assets that
we acquire may become impaired; the ability of our security products to withstand cyber-attacks; the loss of a major customer, partner
or reseller; changes in European law or practice related to the
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imposition or collectability of optical levies; the seasonality and volatility of the markets in which we operate; significant changes in
discount rates and other assumptions used in the valuation of our pension plans; changes in tax laws, regulations and results of
inspections by various tax authorities; tax consequences associated with our acquisition, holding and disposition of target companies
and assets; our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide
adequate protection against third party intellectual property or product liability claims; the outcome of any pending or future litigation
and patent disputes; our ability to access financing to achieve strategic objectives and growth due to changes in the capital and credit
markets; limitations in our operations that could arise from compliance with the debt covenants in our credit facilities; our ability to
retain and attract key employees to manage our existing businesses and the businesses we may acquire; increased compliance with
changing laws and regulations potentially affecting our operating results; failure to adequately protect our information systems from
cyber-attacks; the effect of the announcement of our review of strategic alternatives; the effect of the transition of our Board of
Directors; and the volatility of our stock price due to our results or market trends, as well as various factors set forth in Item 1A of our
Annual Report on Form 10-K for the year ended December 31, 2014, in Part II Item 1A of this Quarterly Report on Form 10-Q and
from time to time in our filings with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Except for the paragraph noted below, there has been no material change since our Annual Report on Form 10-K for the year
ended December 31, 2014. For further information, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk
included in our Annual Report on Form 10-K for the year ended December 31, 2014.
As of September 30, 2015, we had $25.1 million notional amount of foreign currency forward and option contracts of which $1.1
million hedged recorded balance sheet exposures. This compares to $110.1 million notional amount of foreign currency forward and
option contracts as of December 31, 2014 of which $23.4 million hedged recorded balance sheet exposures. An immediate adverse
change of 10 percent in quarter-end foreign currency exchange rates with all other variables (including interest rates) held constant
would reduce the fair value of foreign currency contracts outstanding as of September 30, 2015 by $2.6 million.
Item 4. Controls and Procedures.
Based on an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (Exchange Act)) as of September 30, 2015, the end of the period covered by this report, the Interim Chief
Executive Officer, Robert B. Fernander, and the Vice President and Chief Financial Officer, Scott J. Robinson, have concluded that
the disclosure controls and procedures were effective.
During the quarter ended September 30, 2015, there was no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, we periodically enter into agreements that incorporate general indemnification language.
Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. There
have historically been no material losses related to such indemnifications. In accordance with accounting principles generally accepted
in the United States of America, we record a liability in our Condensed Consolidated Financial Statements for these actions when a
loss is known or considered probable and the amount can be reasonably estimated.
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are
subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our businesses are subject to
allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent
trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers, including the One-Blue litigation
described below. Consequently, as of September 30, 2015, we are unable to reasonably estimate the ultimate aggregate amount of any
monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate
resolution of these matters could materially affect our financial condition, results of operations and cash flows.
On May 22, 2013, Imation was sued in U.S. District Court for the District of Delaware by five entities: One-Blue, LLC
(One-Blue), which is an entity with licensing authority for a pool of patents relating to Blu-ray discs, and four members of One-Blue,
Koninklijke Philips N.V., Panasonic Corporation, Pioneer Corporation and Sony Corporation. The plaintiffs allege that Imation's sales
of certain Blu-ray discs infringe six patents and seek unspecified damages, treble damages and attorney's fees. On June 13, 2013,
Imation filed an Answer, Affirmative Defenses, and Counterclaims, naming various defenses including that plaintiffs are barred, in
whole or in part, from any recovery or relief by their refusal to license the patents-in-suit under fair, reasonable and nondiscriminatory
terms. Imation intends to vigorously defend the case. Proceedings in the case have been bifurcated, and a trial limited to the issues
presented by Imation's Counterclaim is scheduled to begin on November 16, 2015. Imation has notified its manufacturers of their
indemnity obligations that it believes cover a portion of its liability, if any, to One-Blue and the other plaintiffs. In addition, Imation
has a dispute with One-Blue regarding One-Blue's refusal to license its Japanese Blu-ray patents under fair, reasonable and
nondiscriminatory terms in Japan, where Imation's sales of Blu-ray discs are substantially greater than in the U.S. Imation Corporation
Japan, Imation's Japanese subsidiary, sued One-Blue in Japan regarding its unlawful interference with certain of our customer
relationships. On February 18, 2015, the Tokyo District Court rendered a decision in favor of Imation that held One-Blue's sending of
warning letters to Imation customers that threatened those customers with certain patent-related actions constituted an illegal "unfair
competition practice" and issued a permanent injunction prohibiting One-Blue from sending any such warning letters in the future.
One-Blue did not appeal that decision.
SpearPoint Capital Fund LP et al. v. Mark E. Lucas, et al. This shareholder derivative action was filed in Delaware Chancery
Court on February 9, 2015. It names as defendants the Company and the members of its Board of Directors. Plaintiffs contend that the
defendants paid excessive compensation to the directors. They seek damages for breaches of fiduciary duties, waste of corporate assets
and unjust enrichment. They also seek corporate governance reforms related to the Company’s compensation practices. The Directors
have responded to the complaint denying all the allegations; the Company, as the nominal defendant, has responded denying the
allegations as well. The parties are now engaged in discovery. Trial, should it be necessary, has been scheduled for June 2016.
See Note 15 - Litigation, Commitments and Contingencies in our Notes to Condensed Consolidated Financial Statements in
Part I, Item 1 herein for information on Copyright Levies.
Item 1A. Risk Factors.
As a result of subsequent developments, the Company has updated and expanded its discussion of risk factors to include the
following:
The Company may face risks associated with the transition of its Board of Directors.Shareholders elected three new
directors to the Company's Board of Directors at the Annual Meeting of Shareholders on May 20, 2015, replacing three incumbent
directors who had been nominated by the Company for reelection. Thereafter, two of the remaining directors resigned and three new
individuals were appointed to the Board of Directors. Following this change, many aspects of the Company's strategies, structure and
operating practices have been and will continue to be under review by the Board of Directors and will be subject to change. There can
be no assurance that any changes on strategies, structure or operating practices resulting from this review will be successfully
implemented or result in an increase in the Company's stock price.
We must make strategic decisions from time to time as to the products, technologies and businesses in which we invest and if
we focus on products, technologies or business that do not perform in line with our strategic expectations or if market conditions
change, our financial results could be adversely impacted. In February 2011 we announced our transformation
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strategy, which includes improving gross margins, exiting low margin products, introducing new products in secure and scalable
storage, and organic and inorganic growth. In October 2012, we announced the acceleration of our transformation by reorganizing our
businesses into two channel-focused business segments, and increasing our focus on data storage and data security. In August 2015,
we formed a Strategic Alternatives Committee of our Board and, in October 2015, announced that the Strategic Alternatives
Committee would work with management to make recommendations to the Board regarding our use of excess capital. Specifically, the
Strategic Alternatives Committee will examine acquisition opportunities and develop initiatives for strategic value creation which may
include opportunities outside of industries that comprised the Company's historical focus. If we are not successful in implementing
these strategies or if market conditions change adversely for our chosen products or technologies, our financial results could be
negatively impacted.
Changes in the capital and credit markets may negatively affect our ability to access financing. Without such financing we
may be unable to achieve our objectives for strategic acquisitions and internal growth. Disruption of the global financial and credit
markets may have an effect on our long-term liquidity and financial condition. While we have been able to achieve our past
acquisitions through operating cash flows and without permanently borrowing on our outstanding credit facilities, the need may arise
to obtain additional funding, in particular as we focus on exploring acquisition opportunities as part of our strategic plan to use excess
capital. Based on our current plan of operations we believe our cash will be sufficient to meet our anticipated operating expenses,
capital expenditures and debt service obligations for at least the next twelve months; however there is no assurance that circumstances
will not change, or that we may require additional capital to fund acquisitions or the operating expenses of acquired businesses.
The announcement of our review of strategic alternatives and our strategic plan to explore acquisition opportunities could
adversely affect our business, financial results and operations, and there can be no assurance that any transaction will result from this
review or plan. On February 10, 2015, we announced that we have been working with Houlihan Lokey as our financial adviser to
review and explore strategic alternatives to maximize shareholder value and the value of each of our business units. In August 2015,
we formed a Strategic Alternatives Committee of our Board and, in October 2015, announced that the Strategic Alternatives
Committee would work with management to make recommendations to the Board regarding our use of excess capital. Specifically, the
Strategic Alternatives Committee will examine acquisition opportunities and develop initiatives for strategic value creation which may
include opportunities outside of industries that comprise the Company's historical focus. There can be no assurance that our strategic
plan will result in any transaction or any change to our overall structure or our business model, or that any transaction or change will
enhance shareholder value or the value of any of our business units. Any transaction that is identified and pursued would be dependent
on factors that may be beyond our control, including, among others, global economic conditions, the market environment, the possible
requirement for shareholder approval of the transaction, the interest of third parties in the Company or our businesses and the
availability of financing on reasonable terms or at all. We do not intend to provide updates or make any comments regarding the
evaluation of strategic alternatives unless our Board of Directors has approved a specific transaction or management otherwise deems
disclosure appropriate. We expect to incur expenses associated with identifying and evaluating strategic alternatives. In addition, the
process of reviewing strategic alternatives and implementing any course of action ultimately selected may be disruptive to the
Company’s business operations, may distract the Company’s management team from their day-to-day responsibilities and could make
it more difficult to retain customers, vendors and employees. Any of these risks or uncertainties could adversely affect the Company’s
business, financial condition, results of operations or cash flows.
Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect
our financial condition. As part of our strategic plan to use excess capital, including through acquisitions, we may acquire interests in
a number of different businesses, some of which may be outside of industries that have comprised our historical focus. We have in the
past, and may in the future, acquire businesses or make acquisitions, directly or indirectly through our subsidiaries, that involve
unknown risks, some of which will be particular to the industry in which the business or acquisition targets operate, including risks in
industries with which we are not familiar or experienced. Although we intend to conduct extensive business, financial and legal due
diligence in connection with the evaluation of future business or acquisition opportunities, there can be no assurance our due diligence
investigations will identify every matter that could have a material adverse effect on us. We may be unable to adequately address the
financial, legal and operational risks raised by such businesses or acquisitions, especially if we are unfamiliar with the relevant
industry. The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from
realizing the projected benefits of the businesses or acquisitions, which could adversely affect our financial condition and liquidity. In
addition, our financial condition and results of operations may be adversely impacted depending on the specific risks applicable to any
business or company we acquire and our ability to address those risks.
Any potential acquisition or investment in a foreign business or a company with significant foreign operations may subject
us to additional risks. Acquisitions or investments by us in a foreign business or other companies with significant foreign operations
subject us to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations,
complex foreign regulatory regimes, punitive tariffs, unstable local tax policies, trade embargoes, risks related to shipment of raw
materials and finished goods across national borders, restrictions on the movement
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of funds across national borders and cultural and language differences. If realized, some of these risks may have a material adverse
effect on our business, results of operations and liquidity.
Our participation in any future joint investment could be adversely affected by our lack of sole decision-making authority,
our reliance on a partner’s financial condition and disputes between us and our partners. We may in the future make acquisitions of
partial ownership interests in businesses or otherwise acquire businesses jointly or establish joint ventures with third parties. In such
circumstances, we may not be in a position to exercise significant decision-making authority regarding a target business, partnership
or other entity if we do not own a substantial majority of the equity interests of the target. These investments may involve risks not
present were a third party not involved, including the possibility that partners might become insolvent or fail to fund their shares of
required capital contributions. In addition, partners may have economic or other business interests or goals that are inconsistent with
our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such partners, some of
which may possess more industry or technical knowledge or have better access to capital and other resources, may also seek similar
acquisition targets as us and we may be in competition with them for such business combination targets. Disputes between us and
partners may result in litigation or arbitration that would increase our costs and expenses and divert a substantial amount of our
management’s time and effort away from our business. Consequently, actions by, or disputes with, partners might result in subjecting
assets owned by the partnership to additional risk. We may also, in certain circumstances, be liable for the actions of our third-party
partners. For example, in the future, we may agree to guarantee indebtedness incurred by a partnership or other entity. Such a
guarantee may be on a joint and several basis with our partner, in which case, we may be liable in the event such partner defaults on its
guarantee obligation.
We could consume resources in researching acquisitions, business opportunities or financings and capital market
transactions that are not ultimately consummated, which could materially adversely affect our financial condition and subsequent
attempts to locate and acquire or invest in another business. We anticipate that the investigation of each specific acquisition or
business opportunity and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments
with respect to such transaction will require substantial management time and attention and substantial costs for financial advisors,
accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business opportunity or
financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be
recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may
fail to consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could
consume significant management time and result in a loss to us of the related costs incurred, which could adversely affect our financial
position and our ability to consummate other acquisitions and investments.
Future acquisitions and dispositions may not require a stockholder vote and may be material to us.Any future acquisitions
could be material in size and scope, and our stockholders and potential investors may have virtually no substantive information about
any new business upon which to base a decision whether to invest in our common stock. In addition, depending upon the size and
structure of any acquisitions, stockholders are generally expected to not have the opportunity to vote on the transaction, and may not
have access to any information about any new business until the transaction is completed and we file a report with the SEC disclosing
the nature of such transaction and/or business. Similarly, we may effect material dispositions in the future. If a stockholder vote is
required for any of our future acquisitions, our restated certificate of incorporation and our amended and restated bylaws prohibit our
stockholders from approving such transactions by written consent, which requires that any action to approve such transaction must be
taken at a meeting of the stockholders.
For further information on other risk factors, see Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2014.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) - (b)
Not applicable
(c) Issuer Purchases of Equity Securities
Period
(a)
Total Number of
Shares Purchased
(b)
Average Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(c)
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan or
Programs
July 1, 2015 - July 31, 2015
—
—
—
2,004,542
August 1, 2015 - August 31, 2015
88
3.64
—
2,004,542
September 1, 2015 - September 30, 2015
—
—
—
2,004,542
Total
88
3.64
—
2,004,542
$
(a) The purchases in this column include shares repurchased as a part of our publicly announced program and include 88 shares that
were surrendered to Imation by participants in our stock-based compensation plans (the Plans) to satisfy the tax obligations related to
the vesting of restricted stock awards.
(b) The average price paid in this column relates to shares that were surrendered to Imation by participants in the Plans to satisfy the
tax obligations related to the vesting of restricted stock awards and the purchase of shares as a part of our publicly announced
program.
(c) On May 3, 2012, the Company announced that on May 2, 2012 our Board of Directors authorized a share repurchase program that
allowed for the repurchase of 5.0 million shares of common stock. The authorization has no expiration date.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information.
Not Applicable
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Item 6. Exhibits.
The following documents are filed as part of, or incorporated by reference into, this report:
Exhibit
Number
3.1
4.1
10.1*
10.2*
10.3*
10.4
10.5**
10.6*
10.7*
10.8*
10.9*
31.1
31.2
32.1
32.2
101
Description of Exhibit
Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock of Imation Corp.
(incorporated by reference to Exhibit 3.1 on Imation's Current Report on Form 8-K filed August 11, 2015).
Rights Agreement, dated as of August 7, 2015, by and between Imation Corp. and Wells Fargo Bank, N.A., as Rights
Agent (incorporated by reference to Exhibit 4.1 on Imation's Current Report on Form 8-K filed August 11, 2015).
Separation Agreement dated as of August 19, 2015, between the Company and Mark E. Lucas (incorporated by reference
to Exhibit 10.1 on Imation's Current Report on Form 8-K filed August 19, 2015).
Separation Agreement, dated as of September 28, 2015, by and between the Company and R. Ian Williams (incorporated
by reference to Exhibit 10.1 on Imation's Current Report on Form 8-K filed September 29, 2015).
Employment Agreement dated October 14, 2015 between the Company and Robert. B. Fernander (incorporated by
reference to Imation’s Current Report on Form 8-K filed October 20, 2015).
Stock Purchase and Merger Agreement, dated October 14, 2015, by and among Imation Corp., Imation Transporter Co.,
Connected Data, Inc., and certain other parties named therein (incorporated by reference to Imation's Current Report on
Form 8-K filed October 20, 2015).
Imation Corp. TDK Corporation agreement dated September 28, 2015
Barrall Consulting Agreement dated August 31, 2015
Fernander Consulting Agreement dated August 17, 2015
Realization Services Inc. (RSI) Consulting Agreement dated August 17, 2015
Amendment to Realization Services Inc. Consulting Agreement dated September 16, 2015
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from Imation Corp.’s Quarterly Report on Form 10-Q for the period ended
September 30, 2015, filed with the SEC on November 9, 2015, formatted in Extensible Business Reporting Language
(XBRL): (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
2015 and 2014, (ii) the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended
September 30, 2015 and 2014, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2015 and December
31, 2014, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and
2014, and (v) the Notes to Condensed Consolidated Financial Statements.
* Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 6 of
Form 10-Q.
**Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted
and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Imation Corp.
/s/ Scott J. Robinson
Scott J. Robinson
Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)
Date: November 9, 2015
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EXHIBIT INDEX
The following exhibits are filed as part of this report:
Exhibit
Number
10.4
10.5**
10.6*
10.7*
10.8*
10.9*
31.1
31.2
32.1
32.2
101
Description of Exhibit
Stock Purchase and Merger Agreement, dated October 14, 2015, by and among Imation Corp., Imation Transporter Co.,
Connected Data, Inc., and certain other parties named therein (incorporated by reference to Imation's Current Report on
Form 8-K filed October 20, 2015).
Imation Corp. TDK Corporation agreement dated September 28, 2015
Barrall Consulting Agreement dated August 31, 2015
Fernander Consulting Agreement dated August 17, 2015
Realization Services Inc. (RSI) Consulting Agreement dated August 17, 2015
Amendment to Realization Services Inc. Consulting Agreement dated September 16, 2015
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from Imation Corp.’s Quarterly Report on Form 10-Q for the period ended
September 30, 2015, filed with the SEC on November 9, 2015, formatted in Extensible Business Reporting Language
(XBRL): (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
2015 and 2014, (ii) the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended
September 30, 2015 and 2014, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2015 and December
31, 2014, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and
2014, and (v) the Notes to Condensed Consolidated Financial Statements.
* Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 6 of
Form 10-Q.
**Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted
and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
42
Execution Version
STOCK PURCHASE AND MERGER AGREEMENT
by and among
CONNECTED DATA, INC.,
THE SHAREHOLDERS OF CONNECTED DATA, INC. PARTIES HERETO,
SHAREHOLDER REPRESENTATIVE SERVICES LLC,
IMATION TRANSPORTER CO.,
and
IMATION CORP.
Dated October 14, 2015
TABLE OF CONTENTS
ARTICLE 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
1.15
1.16
1.17
1.18
1.19
1.20
PURCHASE AND SALE OF SELLER SECURITIES; MERGER
Purchase and Sale of Seller Securities
Consideration
Payment and Delivery of Consideration
Adjustment Determination
Calculation of Earnout
Determination of Earnout
Calculations
Lockup
Closing
Effective Date of Merger
Terms and Conditions of Merger
Surrender and Exchange of Certificates
Dissenting Shares
No Further Transfers
Termination of Rights
No Liability
Optionholders
Warrantholders
Consideration Spreadsheet
Post-Closing Purchase
2
2
2
2
5
6
7
8
8
8
8
9
10
11
11
12
12
12
13
13
14
ARTICLE 2
2.1
2.2
REPRESENTATIONS AND WARRANTIES CONCERNING TRANSACTION
Representations and Warranties of Sellers
Representations and Warranties of Buyer and Merger Sub
16
16
17
ARTICLE 3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
Organization, Qualification, and Power
Authorization of Transaction
Capitalization and Subsidiaries
Non-contravention
Brokers’ Fees
Assets
Financial Statements; Interim Conduct
Undisclosed Liabilities
Legal Compliance
Tax Matters
Real Property
Intellectual Property
Contracts
Insurance
20
20
20
21
22
22
22
22
25
25
25
27
28
29
31
i
TABLE OF CONTENTS
(continued)
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
3.25
3.26
Litigation
Employees
Employee Benefits
Debt
Environmental, Health, and Safety Matters
Business Continuity
Certain Business Relationships with the Company
Customers and Suppliers
Restrictions on Business Activities
Product Warranty
Product Liability
Disclosure
32
32
33
34
34
35
35
36
37
37
37
37
ARTICLE 4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
POST-CLOSING COVENANTS
General
Litigation Support
Transition
Confidentiality
Covenant Not to Compete
Covenant Not to Solicit
Enforcement
Accrued Bonus Payment
Registration Rights Agreement
Release
38
38
38
38
38
39
39
39
40
40
40
ARTICLE 5
5.1
5.2
CLOSING DELIVERIES
Closing Deliveries of the Company
Closing Deliveries of Buyer and Merger Sub
41
41
42
ARTICLE 6
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
REMEDIES FOR BREACHES OF THIS AGREEMENT
Indemnification by Seller Parties
Indemnification by Buyer
Limitations on Indemnification by Seller Parties
Limitations on Indemnification by Buyer
Other Indemnification Matters
Release of Indemnity Escrow Funds and Indemnity Escrow Shares from Escrow
Setoff
Exclusive Remedies
42
43
43
44
44
45
46
46
47
ARTICLE 7
7.1
7.2
TAX MATTERS
Tax Indemnification
Tax Periods Ending on or Before the Closing Date
47
47
48
ii
TABLE OF CONTENTS
(continued)
7.3
7.4
7.5
Tax Periods Beginning Before and Ending After the Closing Date
Cooperation on Tax Matters
Certain Taxes
48
49
49
ARTICLE 8
DEFINITIONS
49
ARTICLE 9
9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10
9.11
9.12
9.13
9.14
9.15
9.16
9.17
9.18
9.19
MISCELLANEOUS
Press Releases and Public Announcements
No Third-Party Beneficiaries
Entire Agreement
Succession and Assignment
Counterparts
Headings
Notices
Governing Law
Amendments and Waivers
Injunctive Relief
Severability
Expenses
Construction
Incorporation of Exhibits and Disclosure Schedule
Confidentiality
Representative
Schedules
Waiver of Jury Trial
Exclusive Venue
62
62
62
63
63
63
63
63
64
65
65
65
65
65
65
65
66
67
67
68
iii
EXHIBITS AND SCHEDULES
Exhibit A
—
Employment Offer Letter
Exhibit B
—
Escrow Agreement
Exhibit C
—
Lockup Agreement
Disclosure Schedule
—
Exceptions to Representations and Warranties
Schedule 1.1
—
Company Securities
Schedule 5.1(d)
—
Individuals Executing Offer Letters at Closing
Schedule 5.1(e)
—
Resignations at Closing
Schedule 5.1(g)
—
Indebtedness Paid at Closing
Schedule 5.1(j)
—
Related Party Agreements Terminated at Closing
1
ARTICLE 1
PURCHASE AND SALE OF SELLER SECURITIES; MERGER
1.1 Purchase and Sale of Seller Securities. In accordance with the terms and upon the conditions of
this Agreement, effective as of the Closing, each Seller hereby sells, transfers, assigns, conveys and delivers to
Buyer all right, title and interest in and to all of such Seller’s Seller Securities set forth next to such Seller’s
name in Schedule 1.1 , free and clear of all Liens (such transactions, the “ Securities Sale ”).
1.2 Consideration. The aggregate consideration paid or payable by Buyer pursuant to this Agreement
(the “ Consideration ”) shall consist of the following, and it is acknowledged and agreed that such
consideration is in consideration for, among other things, Buyer’s expectations that the obligations of the Seller
Parties contained herein shall be enforceable:
(a) the Debt Amount, subject to adjustment as provided in this Article 1; plus
(b) the Transaction Expenses Amount;
(c) the Buyer Shares, which will be allocated among the Sellers as set forth on Schedule 1.1 ;
plus
(d) the Cash Consideration, which will be allocated among the Company Shareholders (other
than the Sellers) as set forth on Schedule 1.1 ; plus
(e) the Option Consideration, which will be allocated among the In-Money Optionholders as
set forth on Schedule 1.1 , plus ;
(f) the Warrant Shares, which will be allocated among the Warrantholders as set forth on
Schedule 1.1 , plus ;
(g) the Escrow Shares and the Escrow Funds, to the extent disbursed to the Seller Parties in
accordance with the Escrow Agreement; plus
(h) the Adjustment Shares and the Adjustment Funds (if any), to the extent delivered, in
accordance with Section 1.3(g)(i) ; plus
(i) the Earnout Shares and the Earnout Funds (if any), to the extent delivered, in accordance
with Section 1.3(h) .
1.3 Payment and Delivery of Consideration.
(a) Closing Payments. At the Closing, Buyer shall pay, or cause to be paid:
(i) the Debt Amount pursuant to the payoff letters delivered by the Company to Buyer and
Merger Sub pursuant to Section 5.1(g) ; and
2
(ii) the Transaction Expenses Amount pursuant to the direction of the Company.
(b) Buyer Shares. At or immediately prior to the Closing, Buyer shall deposit, or cause to be
deposited, with Wells Fargo Bank, National Association or such other bank or trust company that may be
designated by Buyer (the “ Transfer Agent ”), for the benefit of the Sellers, sufficient shares of Buyer Common
Stock in an aggregate amount necessary for the payment of the Buyer Shares. Such shares provided to the
Transfer Agent and such shares provided to the Transfer Agent pursuant to Section 1.3(e) below are referred to
collectively as the “ Share Exchange Fund .” The Transfer Agent shall, pursuant to irrevocable instructions,
deliver the Buyer Shares contemplated to be issued pursuant to Section 1.2(b) out of the Share Exchange
Fund. The Share Exchange Fund shall not be used for any other purpose except as set forth in Section 1.3(e)
below.
(c) Cash Consideration. At or immediately prior to the Effective Time, Buyer shall deposit, or
cause to be deposited, with Continental Stock Transfer & Trust Company (the “ Exchange Agent ”) for the
benefit of the Company Shareholders (other than the Sellers) as of immediately prior to the Closing,
immediately available funds in an amount equal to the Cash Consideration. Such cash provided to the Exchange
Agent is referred to as the “ Cash Exchange Fund .” The Exchange Agent shall, pursuant to irrevocable
instructions, pay the Cash Consideration contemplated to be paid pursuant to Section 1.2(c) out of the Cash
Exchange Fund. The Cash Exchange Fund shall not be used for any other purpose.
(d) Option Consideration. At the Effective Time, Buyer shall provide to the Surviving
Corporation immediately available funds in an amount equal to the Option Consideration in exchange for
cancellation of In-Money Options held by the Optionholders. Each holder of In-Money Options as of the
Closing (after compliance with Section 1.17 ) shall, upon execution and delivery of the Option Cancellation
Agreement, receive payment from the Surviving Corporation out of the Option Consideration of an amount
equal to (i) the Per Share Purchase Price, multiplied by the number of shares of Company Common Stock
into which such Options are exercisable as of the Closing, minus (ii) the aggregate exercise price of such
Options, minus (iii) the amount of any applicable withholdings or payroll taxes with respect thereto. The
aggregate amount payable to the Optionholders pursuant to the preceding sentence is referred to herein as the “
Option Consideration .” Following the Closing Date, Buyer shall cause the Surviving Corporation to deposit
such applicable withholding or payroll tax amount with the appropriate Governmental Bodies in accordance
with applicable Law.
(e) Warrant Shares. At or immediately prior to the Closing, Buyer shall deposit, or cause to be
deposited, with the Transfer Agent, for the benefit of the Warrantholders (other than the Sellers who are
Warrantholders), sufficient shares of Buyer Common Stock in an aggregate amount necessary for the payment
of the Warrant Shares in exchange for cancellation of the Warrants held by such Warrantholders. Each such
Warrantholder (after compliance with Section 1.18 ) shall, upon execution and delivery of the Warrant
Cancellation Agreement, receive payment from the Transfer Agent out of the Share Exchange Fund of the
Warrant Shares.
(f) Escrow. At the Closing, Buyer shall deposit, or cause to be deposited, in the respective
Escrow Accounts the Indemnity Escrow Shares, the Indemnity Escrow Funds, the
3
Adjustment Escrow Shares and the Adjustment Escrow Funds, which such Escrow Shares, Escrow Funds,
Adjustment Escrow Shares and Adjustment Escrow Funds shall be held and disbursed in accordance with the
terms and conditions of this Agreement and the Escrow Agreement. On the first anniversary of the Closing
Date, Buyer and the Representative shall issue joint written instructions to the Escrow Agent to release from the
respective Escrow Account the Indemnity Escrow Shares and the Indemnity Escrow Funds then remaining in
such Escrow Account to the Seller Parties, less the number of Indemnity Escrow Shares and the portion of the
Indemnity Escrow Funds equal to the aggregate value of any unresolved indemnification claim with respect to
such Adverse Consequence made pursuant to Section 6.2(a) , as applicable in accordance with their Pro Rata
Percentage, and thereafter, any portion of the Indemnity Escrow Shares or the Indemnity Escrow Funds not
required to pay any such Adverse Consequences following the full and final resolution of such indemnification
claim.
(g) Adjustment. Within five (5) Business Days afterthe Adjustment Amount becomes final
and binding in accordance with Section 1.4 :
(i) if the Adjustment Amount is a positive number, then Buyer shall:
(A) issue and deliver, or cause to be delivered, to the Sellers in accordance
with their pro rata percentage (the “ Pro Rata Percentage ”) set forth on Schedule 1.1 , such
number of shares of Buyer Common Stock equal to the portion of the Adjustment Amount
payable to the Sellers divided by 2.75, rounded down to the nearest whole share (the “
Adjustment Shares ”); and
(B) pay, or cause to be paid, to the Seller Parties (other than the Sellers) in
accordance with their Pro Rata Percentage, such funds equal to the portion of the Adjustment
Amount that is payable to the Seller Parties (other than the Sellers) (the “ Adjustment Funds ”);
or
(ii) if the Adjustment Amount is a negative number, then the Representative and Buyer shall
issue joint written instructions to the Escrow Agent to release to Buyer:
(A)
such number of the Adjustment Escrow Shares (and to the extent such
Adjustment Escrow Shares are insufficient, from the Escrow Shares) equal to the absolute
value of the Adjustment Amount that is payable by the Sellers in accordance with their Pro
Rata Percentage, divided by 2.75, rounded down to the nearest whole share, and Buyer will
cancel and extinguish such Adjustment Escrow Shares transferred to Buyer pursuant to this
Section 1.3(g)(ii)(A) ; and
(B) such portion of Adjustment Escrow Funds (and to the extent such Adjustment
Escrow Shares are insufficient, from the Escrow Shares) equal to the absolute value of the
Adjustment Amount that is payable by the Seller Parties (other than the Sellers) in accordance
with their Pro Rata Percentage.
4
(h) Earnout. Within five (5) Business Days after each calculation of Revenue becomes final
and binding in accordance with Section 1.6 , Buyer shall:
(i) deliver or cause to be delivered to the Sellers in accordance with their Pro Rata Percentage,
certificates representing the applicable Earnout Shares (if the Earnout Shares are certificated), if any; and
(ii) pay or cause to be paid to the Seller Parties (other than the Sellers) in accordance with
their Pro Rata Percentage, the applicable Earnout Funds, if any.
(i) Fractional Shares. No certificates evidencing fractional shares of Buyer Common Stock
shall be issued pursuant to this Section 1.3 , and in lieu thereof, Buyer may make such rounding adjustments to
the next higher or lower number of whole Buyer Shares or Earnout Shares, as the case may be, by lot or other
manner as it deems advisable in its sole discretion, so that in no event shall more or less shares of Buyer
Common Stock be issued than the Buyer Shares and the Earnout Shares in the aggregate.
(j) Withholding. The Parties, the Escrow Agent and any other applicable withholding agent
will be entitled to deduct and withhold from any consideration payable pursuant to or as contemplated by this
Agreement or the Escrow Agreement any Taxes or other amounts required under the Code or any applicable
Law to be deducted and withheld, and, to the extent that any amounts are so deducted or withheld, such
amounts will be treated for all purposes of this Agreement and the Escrow Agreement as having been paid to
the Person in respect of which such deduction and withholding was made. Notwithstanding anything to the
contrary herein, any compensatory consideration subject to payroll reporting and withholding that are payable
pursuant to or as contemplated by this Agreement or the Escrow Agreement shall be payable in accordance with
the applicable payroll procedures of the Company.
1.4 Adjustment Determination. Within sixty (60) days after the Closing Date, Buyer shall prepare and
deliver to the Representative a statement setting forth Buyer’s calculation of the Debt Amount, Debt Surplus, if
any, or Debt Deficit, if any, Transaction Expenses Amount, Working Capital, Working Capital Surplus, if any,
and Working Capital Deficit, if any, in each case as of September 30, 2015 and, based on such calculations, the
Adjustment Amount (the “ Closing Statement ”). If the Representative has any objections to the Closing
Statement prepared by Buyer, then the Representative will deliver a detailed written statement (the “
Objections Statement ”) describing (a) which items on the Closing Statement have not been prepared in
accordance with this Agreement, (b) the basis for the Representative’s disagreement with the calculation of
such items and (c) the Representative’s proposed dollar amount for each item in dispute, to Buyer within thirty
(30) days after delivery of the Closing Statement. If the Representative fails to deliver an Objections Statement
within such thirty (30) day period, then the Closing Statement shall become final and binding on all Parties.
The Representative shall be deemed to have agreed with all amounts and items contained or reflected in the
Closing Statement to the extent such amounts or items are not disputed in the Objections Statement. If the
Representative delivers an Objections Statement within such thirty (30) day period, then the Representative
and Buyer will use commercially reasonable efforts to resolve any such disputes, but if a final resolution is not
obtained within thirty (30) days after the Representative has submitted any Objections Statements, any
5
remaining matters which are in dispute will be resolved by the office of an impartial nationally recognized firm
of independent certified public accountants, appointed by mutual agreement of Buyer and the Representative
(the “ Accountants ”). The Accountants will prepare and deliver a written report to Buyer and the
Representative and will submit a proposed resolution of such unresolved disputes promptly, but in any event
within thirty (30) days after the dispute is submitted to the Accountants. The Accountants’ determination of
such unresolved disputes will be final and binding upon all Parties; provided , however , that no such
determination shall be any more favorable to Buyer than is set forth in the Closing Statement or any more
favorable to the Representative than is proposed in the Objections Statement. The costs, expenses and fees of
the Accountants shall be borne by the Party whose calculation of the Adjustment Amount has the greatest
difference from the final Adjustment Amount as determined by the Accountants under this Section 1.4 ;
otherwise, such costs, fees and expenses shall be borne equally by Buyer, on the one hand, and the
Representative (on behalf of the Sellers), on the other hand. The final Closing Statement, however determined
pursuant to this Section 1.4 , will produce the Working Capital Surplus, if any, the Working Capital Deficit, if
any, the Debt Amount, the Debt Surplus, if any, the Debt Deficit, if any, and the Transaction Expenses Amount
to be used to determine the final Adjustment Amount (the “ Final Adjustment Amount ”).
1.5 Calculation of Earnout. The Earnout Shares and the Earnout Funds shall be calculated as follows:
(a) If the Company and its Subsidiaries generate Revenue during the Initial Earnout
Measurement Period equal to or greater than the Initial Target Revenue, then Buyer shall:
(i) issue and deliver, or cause to be delivered, to Sellers in accordance with their Pro Rata
Percentage, the Initial Earnout Shares; and
(ii) pay, or cause to be paid, to the Seller Parties (other than the Sellers) in accordance with
their Pro Rata Percentage, the Initial Earnout Funds.
(b) If the Company and its Subsidiaries generate Revenue during the Second Earnout
Measurement Period equal to or greater than the Second Target Revenue, then Buyer shall:
(i) issue and deliver, or cause to be delivered, to the Sellers in accordance with their Pro Rata
Percentage, the Second Earnout Shares; and
(ii) pay, or cause to be paid, to the Seller Parties (other than the Sellers) in accordance with
their Pro Rata Percentage, the Second Earnout Funds.
(c) If the Company and its Subsidiaries generate Revenue during the Final Earnout
Measurement Period equal to or greater than the Final Target Revenue, then Buyer shall:
(i) issue and deliver, or cause to be delivered, to the Sellers in accordance with their Pro Rata
Percentage, the Final Earnout Shares; and
6
(ii) pay, or cause to be paid, to the Seller Parties (other than the Sellers) in accordance with
their Pro Rata Percentage, the Final Earnout Funds.
(d) If the Company and its Subsidiaries generate Revenue during any Earnout Measurement
Period less than the Target Revenue for such Earnout Measurement Period, then the Earnout Shares and the
Earnout Funds for such Earnout Measurement Period will equal zero.
(e) Upon the earlier to occur of (i) the cessation by Buyer of its best efforts to provide
resources and otherwise assist in the achievement of the Target Revenues or (ii) the cessation by Buyer of
operations in its Nexsan division or in the Business, each Seller Party (subject, in the case of each Seller Party
that is not a Seller, to the prior execution and delivery of the Required Documentation by such Seller Party)
shall be entitled to its Pro Rata Percentage of the Earnout Shares or the Earnout Funds, as applicable, for any
Earnout Measurement Periods (other than the Final Earnout Measurement Period) which have not expired prior
to such cessation.
(f) Upon a Change in Control Event, each Seller Party (subject, in the case of each Seller
Party that is not a Seller, to the prior execution and delivery of the Required Documentation by such Seller
Party) shall be entitled to its Pro Rata Percentage of the Earnout Shares or the Earnout Funds, as applicable, for
the Final Earnout Measurement Period if the enterprise valuation of the Company in the Change in Control
Event was equal to or greater than $15,000,000.
1.6 Determination of Earnout. Within forty-five (45) days after the end of each Earnout Measurement
Period, Buyer shall prepare and deliver to the Representative a report (the “ Earnout Report ”) setting forth
Buyer’s calculation of Revenue and the resulting Earnout Shares and Earnout Funds. If the Representative has
any objections to the calculation of Revenue and the resulting Earnout Shares and Earnout Funds prepared by
Buyer, then the Representative will deliver a detailed written statement (the “ Earnout Objections Statement ”)
describing its objections to Buyer within thirty (30) days after delivery of the Earnout Report. If the
Representative fails to deliver an Earnout Objections Statement within such thirty (30) day period, then the
calculation of Revenue and the resulting Earnout Shares and Earnout Funds set forth in the Earnout Report shall
become final and binding on all Parties. If the Representative delivers an Earnout Objections Statement within
such thirty (30) day period, then the Representative and Buyer will use commercially reasonable efforts to
resolve any such disputes, but if a final resolution is not obtained within thirty (30) days after the Representative
has submitted the Earnout Objections Statement, any remaining matters which are in dispute will be resolved by
the Accountants. The Accountants will prepare and deliver a written report to Buyer and the Representative and
will submit a resolution of such unresolved disputes promptly, but in any event within thirty (30) days after the
dispute is submitted to the Accountants. The Accountants’ determination of such unresolved disputes will be
final and binding upon all Parties; provided , however , that no such determination shall be any more
favorable to Buyer than is set forth in the Earnout Report or any more favorable to the Representative than is
proposed in the Earnout Objections Statement. The costs, expenses and fees of the Accountants shall be borne
by the Party whose calculation of the Earnout Shares and the Earnout Funds has the greatest difference from the
final Earnout Shares and final Earnout Funds as determined by the
7
Accountants under this Section 1.6; otherwise, such costs, fees and expenses shall be borne equally by Buyer,
on the one hand, and the Representative (on behalf of the Seller Parties), on the other hand. Upon any Earnout
Shares and Earnout Funds becoming final and binding in accordance with this Section 1.6 , Buyer shall pay
such Earnout Shares and Earnout Funds to the applicable Seller Parties in accordance with Section 1.3(h) .
1.7 Calculations. All calculations of Working Capital, Debt Amount and Revenue under this
Agreement, whether estimates or otherwise, shall be determined in accordance with GAAP, consistently
applied and to the extent consistent with GAAP, the Company’s historical GAAP practice.
1.8 Lockup. The Parties acknowledge and agree that (a) fifty percent (50%) of the Shares shall be
released from the restrictions set forth in the Lockup Agreement upon the earlier to occur of (i) the first
anniversary of the Closing Date, (ii) the cessation by Buyer of operations in its Nexsan division or (iii) the
cessation by Buyer of operations in the Business; and (b) fifty percent (50%) of the Shares shall be released
from the restrictions set forth in the Lockup Agreement upon the earlier to occur of (i) the second anniversary
of the Closing Date, (ii) the cessation by Buyer of operations in its Nexsan division or (iii) the cessation by
Buyer of operations in the Business. For the avoidance of doubt, the holders of the Shares shall retain all of
their rights as stockholders of Buyer during the period that the Shares remain subject to the restrictions set
forth in the Lockup Agreement, including, without limitation, the right to vote such Shares, and shall have the
right to receive dividends payable in cash with respect to such Shares.
1.9 Closing. The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall
take place electronically by the mutual exchange of facsimile or portable document format (.PDF) signatures
on the date of this Agreement (the “ Closing Date ”). All transactions contemplated herein to occur on and as
of the Closing Date shall be deemed to have occurred simultaneously and to be effective as of 12:01 a.m. local
time on such date.
1.10 Effective Date of Merger.Subject to completion in all respects of the Securities Sale, on or after
the Closing Date, Merger Sub shall cause to be duly prepared and executed and delivered to the Company a
certificate of ownership (the “ Certificate of Ownership ”) conforming to the requirements of Section 1110(e)
of the CCC, and the Company and Merger Sub shall (a) cause the Certificate of Ownership to be filed with the
Secretary of State of the State of California in order to cause the Merger to become effective under, and in
accordance with, the Laws of the State of California and this Agreement, (b) make all other filings or
recordings required under the Laws of the State of California and (c) provide notice to the shareholders of the
Company as required under Section 1110(h) of the CCC. The Merger shall become effective on the date and at
the time of filing of the Certificate of Ownership with the Secretary of State of the State of California, or at
such later date or time as may be determined by Merger Sub in writing and set forth in the Certificate of
Ownership (the effective time of the Merger being hereinafter referred to as the “ Effective Time ”). The date
on which the Effective Time occurs shall be referred to herein as the “ Effective Date .” For all purposes, all of
the document deliveries and other actions to occur at the Closing will be conclusively presumed to have
occurred at the same time, before the Effective Time.
8
1.11 Terms and Conditions of Merger. At the Effective Time, pursuant to this Agreement, the
Certificate of Ownership and Section 1110 of the CCC, automatically and without further action:
(a) Merger Sub shall be merged with and into the Company and the separate existence of
Merger Sub shall cease.
(b) The Company shall continue as the Surviving Corporation in the Merger.
(c) The effect of the Merger will be as provided in Section 1107 of the CCC.
(d) All of the estate, properties, rights, privileges, powers and franchises of the Company and
Merger Sub and all of their property, real, personal and mixed, and all debts due on whatever account to either
of the Company or Merger Sub shall vest in the Surviving Corporation, without further act or deed, except as
contemplated by this Agreement.
(e) The Surviving Corporation shall be responsible for all of the liabilities and obligations of
each of the Company and Merger Sub and the liabilities of the Company and Merger Sub shall not be affected
nor shall the rights of creditors thereof or of any Persons dealing with the Company or Merger Sub be impaired.
(f) (i) The articles of incorporation of the Company as in effect immediately prior to the
Effective Time shall be the articles of incorporation of the Surviving Corporation until thereafter amended as
provided in the Surviving Corporation’s Organizational Documents and in accordance with the CCC, and (ii)
the bylaws of the Company as in effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation until thereafter amended as provided in Surviving Corporation’s Organizational
Documents and in accordance with the CCC.
(g) The directors and officers of Merger Sub, in each case, immediately prior to the Effective
Time shall, from and after Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the articles of incorporation and bylaws of the Surviving
Corporation.
(h) Each share of common stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be automatically converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation, whereupon Buyer shall own all of the issued and outstanding
capital stock of the Surviving Corporation.
(i) Each share of Company Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than (x) shares of Company Preferred Stock held by Buyer or Merger Sub, including all
shares of Company Preferred Stock purchased by Merger Sub pursuant to the Securities Sale, which shall be
cancelled, (y) shares to be cancelled in accordance with Section 1.11(k) and (z) Dissenting Shares (as defined
below)) shall become, and be converted into, the right to receive an amount in cash equal to, and each holder
thereof shall be entitled to receive, subject to the execution and delivery of the Shareholder Required
Documentation (as defined below) by
9
such holder, the Per Share Purchase Price. Notwithstanding the foregoing, each share of Company Preferred
Stock owned by any direct or indirect Subsidiary of the Company shall remain outstanding as shares in the
Surviving Corporation, and no payment shall be made with respect thereto.
(j) Each share of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than (x) shares of Company Common Stock held by Buyer or Merger Sub, including all
shares of Company Common Stock purchased by Merger Sub pursuant to the Securities Sale, which shall be
cancelled, (y) shares to be cancelled in accordance with Section 1.11(k) and (z) Dissenting Shares (as defined
below)) shall become, and be converted into, the right to receive an amount in cash equal to, and each holder
thereof shall be entitled to receive, subject to the execution and delivery of the Shareholder Required
Documentation (as defined below) by such holder, the Per Share Purchase Price. Notwithstanding the
foregoing, each share of Company Common Stock owned by any direct or indirect Subsidiary of the Company
shall remain outstanding as shares in the Surviving Corporation, and no payment shall be made with respect
thereto.
(k) Each share of Company Common Stock and each share of Company Preferred Stock held
as treasury stock by the Company immediately prior to the Effective Time shall be cancelled and retired, and
shall cease to exist, and no payment shall be made with respect thereto.
1.12 Surrender and Exchange of Certificates.
(a) Exchange Procedures. Promptly after the filing of the Certificate of Ownership with the
Secretary of State of the State of California but in any event within ten (10) Business Days after the Closing
Date, Buyer shall cause to be mailed or delivered to each holder of record of book-entry shares, or a certificate
or certificates (the “ Certificates ”) that represented as of the Effective Time outstanding shares, of Company
Preferred Stock or Company Common Stock to be exchanged pursuant to Section 1.11(i) or Section 1.11(j) ,
respectively, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent (to the extent such
shares are certificated) and shall be in such form and have such other provisions as Buyer may reasonably
specify) and instructions for use in effecting the surrender of the Certificates that represented such shares (to the
extent such shares are certificated) in exchange for payment of the consideration therefor. Upon surrender of a
Certificate to the Exchange Agent (to the extent such shares are certificated), together with such letter of
transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions (collectively, the “ Shareholder Required
Documentation ”), the holder of such shares shall be entitled to receive in exchange therefor payment of the Per
Share Purchase Price which such holder has the right to receive pursuant to Section 1.11(i) or Section
1.11(j) , as applicable, after giving effect to any required withholdings and without interest, and the Certificate
so surrendered shall forthwith be canceled.
(b) Required Withholding. Each of the Exchange Agent, Buyer, Merger Sub and the
Surviving Corporation shall be entitled to deduct and withhold from any amounts payable pursuant to this
Agreement to any holder or former holder of shares of Company Preferred Stock or Company Common Stock
such amounts as the Exchange Agent, Buyer, Merger Sub or the
10
Surviving Corporation reasonably determines that are required to be deducted or withheld therefrom under
United States federal or state, local or foreign Law. To the extent that such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person
to whom such amounts would otherwise have been paid.
(c) Lost, Stolen or Destroyed Certificates. In the event any Certificates representing Company
Preferred Stock or Company Common Stock shall have been lost, stolen or destroyed, the Exchange Agent shall
pay in exchange for such lost, stolen or destroyed Certificates, upon the making of an acceptable affidavit of
that fact by the holder thereof and the delivery of such other documents reasonably requested by the Exchange
Agent, the applicable cash amount pursuant to Section 1.11(i) or Section 1.11(j) , as applicable; provided ,
however , that Buyer may, in its discretion and as a condition precedent to the payment thereof, require the
owner of such lost, stolen or destroyed Certificates (i) to execute an indemnity agreement with respect to such
Certificate in the form reasonably specified by Buyer, and that is reasonably acceptable to the Company, prior
to the Effective Time and (ii) in the case of any such Certificate representing more than $10,000 of Company
Preferred Stock or Company Common Stock, as applicable, to post a bond in such reasonable amount and on
such customary terms as Buyer may direct as indemnity against any claim that may be made against Buyer or
the Exchange Agent with respect to such Certificate.
1.13 Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, with respect
to any shares of Company Preferred Stock or Company Common Stock held by shareholders of the Company
who have not elected to receive payment pursuant to Section 1.12 and who are entitled to demand and who
have properly exercised and perfected and/or reserved their appraisal or dissenters’ rights (the “ Dissenting
Shares ”) in accordance with the CCC, such Dissenting Shares shall not be converted into or represent the right
to receive the consideration payable pursuant to this Agreement upon consummation of the Merger, but, instead,
the holders of Dissenting Shares shall be entitled to payment of the appraised value of such Dissenting Shares in
accordance with the applicable provisions of the CCC, unless and to the extent that any such holder of
Dissenting Shares shall have irrevocably forfeited its right to appraisal under the applicable provisions of the
CCC or irrevocably withdrawn its demand for appraisal. If any such holder of Dissenting Shares has so
irrevocably forfeited or withdrawn its right to appraisal of Dissenting Shares, then, as of the occurrence of such
event, such holder’s Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and
represent the right to receive the consideration payable in respect of such shares pursuant to this Agreement,
without interest, which payments shall be made pursuant to the terms of this Agreement, and Buyer and Merger
Sub shall set aside such amounts as needed to make such payments.
1.14 No Further Transfers. Following the Closing, there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of any shares of Company Preferred Stock or Company
Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any
Certificate is presented (for transfer or otherwise) to the Surviving Corporation or the Exchange Agent, such
Certificate shall be canceled and, subject to Section 1.11(i) or Section 1.11(j) , as applicable, and the
procedures provided for in Section 1.12 , payment shall be made of the consideration provided for in this
Agreement in respect of the number
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of shares of Company Preferred Stock or Company Common Stock, as the case may be, represented by such
Certificate.
1.15 Termination of Rights. All consideration paid upon surrender of shares of Company Preferred
Stock or Company Common Stock in accordance with the provisions of this Article 1 , including the rights to
additional payments under Sections 1.3(g) and 1.3(h) , shall be deemed to have been paid in full satisfaction
of all rights pertaining to such shares of Company Preferred Stock or Company Common Stock. After the
Effective Time, holders of Company Preferred Stock and Company Common Stock will cease to be, and will
have no rights as, stockholders of the Company, and such holders’ rights will consist only of (i) in the case of
shares other than Dissenting Shares, the right to receive the consideration provided for in this Agreement in
respect of such shares, and (ii) in the case of Dissenting Shares, the rights afforded to the holders thereof under
the applicable provisions of the CCC. Until surrendered for cancellation in accordance with the provisions of
this Article 1 , each share of Company Preferred Stock or Company Common Stock, or the right to receive
shares of Company Preferred Stock or Company Common Stock, shall, from and after the Effective Time,
represent (A) in the case of shares other than Dissenting Shares, the right to receive the consideration provided
for in this Agreement in respect of such shares, without interest thereon, and (B) in the case of Dissenting
Shares, the rights afforded to the holders thereof under the applicable provisions of the CCC. If any shares of
Company Preferred Stock or Company Common Stock have not been surrendered prior to five (5) years after
the Effective Time (or immediately prior to such earlier date on which the applicable Consideration in respect
of such shares would otherwise escheat to or become the property of any Governmental Body), any cash,
dividends, distributions or other things of value in respect of such shares shall, to the extent permitted by
applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interests of
any Person, whether previously entitled thereto or not.
1.16 No Liability. Notwithstanding anything to the contrary in this Agreement, none of the Exchange
Agent, the Surviving Corporation or any party hereto shall be liable to a holder of Company Securities for any
amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar
Law.
1.17 Optionholders. The Company has caused to be delivered to each In-Money Optionholder a
cancellation agreement (the “ Option Cancellation Agreement ”) which provides that upon receipt and deposit
of the Option Consideration, all Options (whether vested or unvested) held by the In-Money Optionholder will
be cancelled and be of no further force and effect. Within two (2) Business Days following the later of the
Effective Time and delivery of the Option Cancellation Agreement, duly completed and properly executed, the
In-Money Optionholder shall be entitled to receive the applicable amounts payable pursuant to Section 1.3 .
Upon each In-Money Optionholder’s delivery of the Option Cancellation Agreement and receipt of the Option
Consideration, all Options shall be automatically canceled and retired and cease to exist, and no holder of any
Option (whether vested or unvested, or exercised or unexercised) will have any rights to, or as a holder of,
Options to purchase shares of Company Common Stock issuable thereunder. The Company has delivered or
caused to be delivered to all Optionholders (other than In-Money Optionholders) the written notice required to
be delivered to such Optionholders pursuant to Section 11(C) of the Stock Option Plan in connection with the
transactions contemplated by this Agreement.
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1.18 Warrantholders. The Company has caused to be delivered to each Warrantholder a cancellation
agreement (the “ Warrant Cancellation Agreement ”) which provides that upon receipt of the Warrant Shares, if
applicable, all Warrants held by the Warrantholder will be cancelled and be of no further force and effect.
Within two (2) Business Days following the later of the Effective Time and delivery of the Warrant
Cancellation Agreement, duly completed and properly executed, the Warrantholder shall be entitled to receive
in exchange therefore from the Share Exchange Fund the applicable amounts payable pursuant to Section 1.3 .
Upon each such Warrantholder’s delivery of the Warrant Cancellation Agreement and receipt of the Warrant
Shares, if applicable, all Warrants shall be automatically canceled and retired and cease to exist, and no holder
of any Warrant (whether exercised or unexercised) will have any rights to, or as a holder of, Warrants to
purchase shares of Company Preferred Stock or Company Common Stock issuable thereunder.
1.19 Consideration Spreadsheet.
(a) Concurrently with the execution and delivery of this Agreement, the Company has
prepared and delivered to Buyer a spreadsheet (the “ Consideration Spreadsheet ), which is attached hereto as
Schedule 1.1 and sets forth, as of the Closing Date, the following:
(i) the names and addresses of all Company Shareholders and the number of shares of
Company Preferred Stock and Company Common Stock held by such Persons;
(ii) the names, and addresses to the extent reasonably available of all Optionholders, together
with the number of shares of Company Common Stock subject to Options held by such Optionholders, the grant
date, exercise price and vesting schedule for such Options;
(iii) the names, and addresses to the extent reasonably available of all Warrantholders,
together with the number of shares of Company Common Stock subject to Warrants held by such
Warrantholders and the exercise price for such Warrants;
(iv) detailed calculations of the Consideration;
(v) each Seller Party’s Pro Rata Percentage (as a percentage interest and the interest in dollar
or stock terms, as applicable) of the Consideration;
(vi) each Seller Party’s Pro Rata Percentage (as a percentage interest and the interest in dollar
or stock terms, as applicable) of the amount to be contributed to the Escrow Funds and the shares of Buyer
Common Stock to be contributed to the Escrow Shares;
(vii) each Seller Party’s Pro Rata Percentage (as a percentage interest and the interest in dollar
or stock terms, as applicable) of the Earnout Funds and the Earnout Shares; and
(viii) each Seller Party’s Pro Rata Percentage (as a percentage interest and the interest in
dollar or stock terms, as applicable) of the amount to be contributed to the Adjustment Funds and the shares of
Buyer Common Stock to be contributed to the Adjustment Shares.
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(b) The Parties agree that Buyer and Merger Sub shall be entitled to rely on Schedule 1.1 in
making payments under Article 1 and Buyer and Merger Sub shall not be responsible for the calculations or
the determinations regarding such calculations in the Consideration Spreadsheet.
1.20 Post-Closing Purchase.
(a) Any Person listed as a Seller on the signature pages hereto (a “Potential Seller ”) who has
delivered an executed signature page to this Agreement and to each of the applicable Ancillary Agreements to
Buyer on or prior to the date that is two (2) Business Days prior to the Effective Time shall be considered a
Seller for purposes of this Agreement. Buyer agrees that it shall acquire from any Potential Seller that delivers
an executed signature page to this Agreement after the Closing but on or prior to the date that is two (2)
Business Days prior to the Effective Time the Seller Securities set forth next to such Potential Seller’s name in
Schedule 1.1 . In addition, each of the Parties hereto acknowledges and agrees that, following the Closing,
Buyer may purchase the Seller Securities set forth on Schedule 1.1 from any of the other Potential Sellers that
subsequently deliver an executed signature an executed signature page to the Agreement. All such purchases
shall be at a price per Seller Security equal to the price per share of Seller Security paid to the Sellers at the
Closing (each, a “ Post-Closing Purchase ”). Any Post-Closing Purchase will be effected by Buyer accepting
counterparty signature pages to this Agreement and to each of the applicable Ancillary Agreements indicating
such equityholder is to be a Seller hereunder, which signature pages were delivered by such equityholder to the
Company pursuant to the instructions included in the Shareholder Required Documentation. Without limitation
Buyer’s ability to effect any Post-Closing Purchase or other acquisition of Seller Securities, upon delivery and
acceptance of any such equityholder’s counterpart signature pages to this Agreement and the applicable
Ancillary Agreements, such equityholder shall be deemed to be a Seller for all purposes of this Agreement, such
equityholder’s Seller Securities shall be deemed to be Seller Securities sold, transferred, assigned, conveyed and
delivered hereunder, and such equityholder shall be deemed to make all of the representations, warranties,
covenants and agreements of a Seller contained herein, including (i) making the representations and warranties
made by a Seller in Section 2.1 effective as of the date of such Post-Closing Purchase and making the
representations and warranties made by a Seller in Article 3 effective as of the Closing, (ii) agreeing to the
terms of this Article 1 with respect to adjustments to the Consideration, Article 6 (Remedies for Breaches
of this Agreement), Section 7.1 (Tax Indemnification) and Section 9.16 (Representative), and (iii)
delivering a portion of the consideration payable to such equityholder into escrow. Any Potential Seller who
delivers a counterpart signature page to this Agreement and to each of the applicable Ancillary Agreements
after the date that is two (2) Business Days prior to the Effective Time which Buyer does not accept as a Seller
hereunder shall be deemed to be a Seller Party other than a Seller, and such equityholder’s Seller Securities
shall not be included in the Seller Securities sold, transferred, assigned, conveyed and delivered hereunder. Any
equityholder of the Company who delivers a counterpart signature page to this Agreement and to each of the
applicable Ancillary Agreements indicating that such equityholder is a Seller Party other than a Seller shall be
deemed to be a Seller Party other than a Seller for all purposes hereunder.
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(b) If less than all of the Potential Sellers have delivered executed signature pages to this
Agreement and to the applicable Ancillary Agreements when the Closing occurs, then (i) when determining the
number of shares of Buyer Common Stock to be paid to each Seller at the Closing, the number of shares of
Buyer Common Stock in the definitions of Buyer Shares, Initial Earnout Shares, Second Earnout Shares and
Final Earnout Shares shall automatically be deemed to be proportionately decreased (based on the number of
Seller Securities to be sold by the Potential Sellers that have executed signature pages as compared to the total
number of Seller Securities that would have been sold if all Potential Sellers had executed signature pages), and
then automatically be deemed to be proportionately increased following Closing only in the event that
Post-Closing Purchase are made hereunder, (ii) when determining the amount in cash to be deposited with the
Exchange Agent at or immediately prior to the Effective Time, the amount in cash in the definition of Cash
Consideration shall automatically be deemed to be proportionately increased (based on the number of Seller
Securities to be sold by Potential Sellers that have executed signature pages as compared to the total number of
Seller Securities that would have been sold if all Potential Sellers had executed signature pages), and then
automatically be deemed to be proportionately decreased following Closing only in the event that Post-Closing
Purchase are made hereunder, (iii) the number of shares of Buyer Common Stock in the definitions of
Adjustment Escrow Shares and Indemnity Shares shall automatically be deemed to be proportionately
decreased at Closing (based on the number of Seller Securities to be sold by Potential Sellers that have executed
signature pages as compared to the total number of Seller Securities that would have been sold if all Potential
Sellers had executed signature pages), and then automatically be deemed to be proportionately increased
following Closing only in the event that Post-Closing Purchase are made hereunder, and (iv) the amount in cash
in the definitions of Adjustment Escrow Funds and Indemnity Funds shall automatically be deemed to be
proportionately increased at Closing (based on the number of Seller Securities to be sold by Potential Sellers
that have executed signature pages as compared to the total number of Seller Securities that would have been
sold if all Potential Sellers had executed signature pages), and then automatically be deemed to be
proportionately decreased following Closing only in the event that Post-Closing Purchase are made hereunder.
(c) In the event that a Potential Seller has delivered executed counterpart signature pages to
this Agreement and the applicable Ancillary Agreements in accordance with Section 1.20(a) , Buyer and the
Representative shall issue joint written instructions to the Escrow Agent to release from the Escrow Accounts
the portion of the Indemnity Escrow Funds and the Adjustment Escrow Funds having an aggregate value on the
date thereof equal to the value of the Indemnity Escrow Shares and Adjustment Escrow Shares that would have
been attributable to such Potential Seller had such Potential Seller been a Seller at the Closing. Upon receipt of
such amount, Buyer shall deposit or cause to be deposited in the Escrow Accounts the number of Indemnity
Escrow Shares and Adjustment Escrow Shares attributable to such Potential Seller as a Seller hereunder.
(d) Without limiting Section 9.9, each of the Parties hereto acknowledges and agrees that
Buyer and Representative may revise, modify or amend this Agreement and any Ancillary Agreement
(including Schedule 1.1 ) to reflect any matter contemplated by this Section 1.20 .
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES CONCERNING TRANSACTION
2.1 Representations and Warranties of Sellers. Each Seller, severally and not jointly, represents and
warrants to Buyer and Merger Sub that the statements contained in this Section 2.1 are correct and complete
as of the Closing Date, except as set forth in the corresponding section of the Disclosure Schedule.
(j) Authorization of Transaction. Such Seller, if an entity, is a corporation, limited liability
company or limited partnership duly formed, validly existing and in good standing under the Laws of the State
of its formation. Such Seller has full power, authority and legal capacity to execute and deliver this Agreement
and the Ancillary Agreements to which such Seller is a party and to perform such Seller’s obligations hereunder
and thereunder. If such Seller is an entity, then the execution and delivery by such Seller of this Agreement and
the Ancillary Agreements to which such Seller is a party and the performance by such Seller of the transactions
contemplated hereby and thereby have been duly approved by all requisite corporate, limited liability company
or partnership action of such Seller. Assuming the due authorization, execution and delivery of this Agreement
and the Ancillary Agreements by the other parties thereto, this Agreement and each Ancillary Agreement to
which such Seller is a party constitute the valid and legally binding obligation of such Seller, enforceable
against such Seller in accordance with their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors generally and by the availability of
equitable remedies. Such Seller is not required to give any notice to, make any filing with, or obtain any
Consent of any Governmental Body or any other Person in order to consummate the transactions contemplated
by this Agreement or the Ancillary Agreements to which such Seller is a party.
(k) Non-contravention. Neither the execution and the delivery of this Agreement nor the
Ancillary Agreements to which such Seller is a party, nor the consummation of the transactions contemplated
hereby and thereby, will (i) violate or conflict with any Law or Order to which such Seller is subject, (ii)
conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any notice under any Contract to which such Seller is
a party or by which such Seller is bound or to which any of such Seller’s assets is subject, (iii) result in the
imposition or creation of a Lien upon or with respect to the Company Securities or (iv) violate any provision of
the Organizational Documents of such Seller, if an entity.
(l) Brokers’ Fees. Such Seller has no liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by this Agreement or any Ancillary
Agreement.
(m) Company Securities. Such Seller holds of record and owns beneficially the number of
Seller Securities set forth next to such Seller’s name in Schedule 1.1 , free and clear of any Liens. Such Seller
is not a party to, and such Seller’s Seller Securities are not subject to, any option, warrant, purchase right or
other Contract that could require such Seller to sell, transfer, or otherwise dispose of any Seller Securities (other
than this Agreement). Such Seller is not a party
16
to any voting trust, proxy or other Contract with respect to the voting of any Seller Securities. Such Seller’s
Seller Securities have been issued in uncertificated, book-entry form and no certificates representing, or other
instruments evidencing an interest in, such Seller’s Seller Securities have been issued or are currently
outstanding.
(n) Litigation. Such Seller is not engaged in or a party to or, to the Knowledge of such Seller,
threatened with any complaint, charge, Proceeding, Order or other process or procedure for settling disputes or
disagreements with respect to the Company or any of its Subsidiaries or the transactions contemplated by this
Agreement, and such Seller has not received written or, to the Knowledge of such Seller, oral notice of a claim
or dispute that is reasonably likely to result in any such complaint, charge, Proceeding, Order or other process
or procedure for settling disputes or disagreements with respect to the Company or any of its Subsidiaries or the
transactions contemplated by this Agreement.
(o) Accredited Investor. Such Seller (i) is an “accredited investor” within the meaning of Rule
501 of Regulation D promulgated under the Securities Act; (ii) is aware that the Buyer Shares have not been
registered under the Securities Act and that issuance of Buyer Shares to such Seller in the Securities Sale is
being made in reliance on a private placement exemption from registration under the Securities Act; (iii) is
acquiring the Buyer Shares for investment for such Seller’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof; (iv) is an informed, sophisticated Person with
sufficient knowledge and experience in investment and financial matters so as to be capable of evaluating the
risks and merits of its or his purchase of the Buyer Shares; (v) has determined that the acquisition of the Buyer
Shares is consistent with its or his general business and investment objectives; (vi) has no present intention of
selling, granting any participation in, or otherwise distributing the Buyer Shares; (vii) does not presently have
any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to
such Person or to any third Person, with respect to any of the Buyer Shares; and (viii) if such Seller is not a
natural person, has not been formed for the specific purpose of acquiring the Buyer Shares.
(p) No General Solicitation. Neither such Seller, nor any of its officers, directors, employees,
agents, stockholders or partners, if applicable, has either directly or indirectly, including, through a broker or
finder (i) engaged in any general solicitation, or (ii) published any advertisement in connection with the offer
and sale of the Buyer Shares.
(q) No Related Party. Such Seller is not, and upon the Closing will not be, (i) a director,
officer or substantial security holder of Buyer (each, a “ Related Party ”), (ii) a Subsidiary, Affiliate or other
closely-related person of a Related Party; or (iii) any company or entity in which a Related Party has a
substantial direct or indirect interest.
2.2 Representations and Warranties of Buyer and Merger Sub. Buyer and Merger Sub represent and
warrant to the Company and the Sellers that the statements contained in this Section 2.2 are correct and
complete as of the Closing Date.
(k) Organization of Buyer and Merger Sub. Buyer is a corporation duly formed, validly
existing and in good standing under the Laws of the State of Delaware. Merger Sub is a
17
corporation duly formed, validly existing and in good standing under the Laws of the State of California.
(l) Authorization of Transaction. Each of Buyer and Merger Sub has full corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to
perform its obligations hereunder and thereunder. The execution and delivery by each of Buyer and Merger Sub
of this Agreement and the Ancillary Agreements to which it is a party and the performance by it of the
transactions contemplated hereby and thereby have been duly approved by all requisite corporate action of
Buyer and Merger Sub, respectively. Assuming the due authorization, execution and delivery of this Agreement
and the Ancillary Agreements by the other parties thereto, this Agreement and each Ancillary Agreement to
which Buyer and Merger Sub is a party constitute the valid and legally binding obligation of Buyer and Merger
Sub, respectively, enforceable against Buyer and Merger Sub, respectively, in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors generally and by the availability of equitable remedies. Except as required to comply
with applicable federal and state securities Laws, each of Buyer and Merger Sub is not required to give any
notice to, make any filing with, or obtain any Consent of any Governmental Body or any other Person in order
to consummate the transactions contemplated by this Agreement or the Ancillary Agreements to which Buyer
or Merger Sub, respectively, is a party.
(m) Non-contravention. Neither the execution and the delivery of this Agreement nor the
Ancillary Agreements to which Buyer or Merger Sub is a party, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate or conflict with any Law or Order to which Buyer or Merger
Sub, respectively, is subject, (ii) violate any provision of the Organizational Documents of Buyer or Merger
Sub, respectively, or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any
Contract to which Buyer or Merger Sub, respectively, is a party or by which it is bound or to which any of its
assets is subject.
(n) Brokers’ Fees. Each of Buyer and Merger Sub does not have any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this
Agreement for which any Seller could become liable or obligated.
(o) Investment. Buyer is not acquiring the Company Securities with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities Act.
(p) Capitalization. The authorized capital stock of Buyer consists of 100,000,000 shares of
common stock, $0.01 par value per share (“ Buyer Common Stock ”), and 25,000,000 shares of “blank check”
preferred stock, of which no shares have been designated by Buyer’s board of directors. All issued and
outstanding shares of capital stock of Buyer have been duly authorized and validly issued, are fully paid and
non-assessable and have been issued without violation of any preemptive right or other right to purchase. All
shares of Buyer Common Stock deliverable pursuant to this Agreement have been reserved for issuance, duly
authorized and, when issued as contemplated by this Agreement, will be validly issued, fully paid,
non-assessable and free of preemptive rights, and issued in compliance with applicable securities Laws
(assuming the accuracy of all
18
representations and warranties made by the Seller Parties and the Company in this Agreement and in any of the
certificates, instruments or documents contemplated by this Agreement). As of October 13, 2015, 41,689,643
shares of Buyer Common Stock were issued and outstanding, and no shares of preferred stock were issued and
outstanding. There are no other stock or other ownership interests in Buyer or outstanding securities convertible
or exchangeable into stock or other ownership interests of Buyer.
(q) SEC Reports.
(ix) Buyer has filed with the SEC all forms, reports and documents required to be filed by
Buyer since January 1, 2013 (collectively, the “ Buyer SEC Reports ”). As of their respective dates, the Buyer
SEC Reports (i) were prepared in all material respects in accordance with the requirements of the Securities Act
or the Securities Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Buyer SEC Reports and (ii) did not at the time they were filed (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading. Except to the
extent set forth in the preceding sentence, Buyer makes no representation or warranty whatsoever concerning
any Buyer SEC Report as of any time other than the date or period with respect to which it was filed. None of
Buyer’s subsidiaries is required to file any forms, reports or other documents with the SEC. The chief executive
officer and the chief financial officer of Buyer have signed, and Buyer has filed with the SEC, all certifications
required by Section 906 of the Sarbanes-Oxley Act of 2002 and such certifications contain no qualifications or
exceptions to the matters certified therein and have not been modified or withdrawn, and neither Buyer nor any
of its officers has received notice from any Governmental Body questioning or challenging the accuracy,
completeness, form or manner of filing of such certifications. As used in this Section 2.2(g) , the term “file”
shall be broadly construed to include any manner in which a document or information is filed with the SEC.
(x) At the time they were filed with the SEC, the consolidated financial statements of Buyer
included in most recent quarterly report on Form 10-Q under the Securities Exchange Act complied as to form
in all material respects with applicable accounting requirements and the published rules and regulations of the
SEC with respect thereto as then in effect, had been prepared in accordance with GAAP, applied on a consistent
basis during the periods involved (except as may be indicated in the notes thereto or, in the case of interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly presented in all material respects the
consolidated financial position of Buyer and its subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the case of the interim financial
statements to normal year-end adjustments and the absence of notes).
(r) Litigation. Buyer is not engaged in or a party to or, to the Knowledge of Buyer, threatened
with any complaint, charge, Proceeding, Order or other process or procedure for settling disputes or
disagreements with respect to the transactions contemplated by this Agreement, and Buyer has not received
written or, to the Knowledge of Buyer, oral notice of a claim or dispute that is reasonably likely to result in any
such complaint, charge, Proceeding, Order or other process
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or procedure for settling disputes or disagreements with respect to the transactions contemplated by this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company represents and warrants to Buyer and Merger Sub that the statements contained in this
Article 3 are correct and complete as of the Closing Date, except as set forth in the corresponding section of
the Disclosure Schedule.
3.1 Organization, Qualification, and Power. Section 3.1(a) of the Disclosure Schedule sets forth the
jurisdiction of incorporation or formation of the Company and each of its Subsidiaries and each state or other
jurisdiction in which the Company and each of its Subsidiaries is licensed or qualified to do business. The
Company and each of its Subsidiaries are duly organized, validly existing and in good standing under the Laws
of their respective jurisdiction of incorporation or formation. The Company and each of its Subsidiaries are
duly authorized to conduct their business and are in good standing under the Laws of each jurisdiction where
such qualification is required. The Company and each of its Subsidiaries have full corporate power and
authority and all Permits necessary to carry on the businesses in which they are engaged and to own, lease and
use the properties owned, leased and used by them. Section 3.1(b) of the Disclosure Schedule lists the board
of directors, managers, management board and officers, as the case may be, of the Company and each of its
Subsidiaries. The Company has delivered to Buyer and Merger Sub correct and complete copies of the
Organizational Documents, the minute book and stock record books for the Company and each of its
Subsidiaries, each of which is correct and complete. Neither the Company nor any of its Subsidiaries is in
default under or in violation of any provision of their Organizational Documents.
3.2 Authorization of Transaction. The Company and each of its Subsidiaries have full corporate
power, authority and legal capacity to execute and deliver the Agreement and the Ancillary Agreements to
which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery by the
Company and its Subsidiaries of the Agreement and the Ancillary Agreements to which it is a party and the
performance by the Company and its Subsidiaries of the transactions contemplated hereby and thereby have
been duly approved by all requisite corporate action of the Company and its Subsidiaries. Assuming the due
authorization, execution and delivery of this Agreement and the Ancillary Agreements by the other parties
thereto, this Agreement and each Ancillary Agreement to which the Company and its Subsidiaries are a party
constitute the valid and legally binding obligation of the Company and such Subsidiaries (as the case may be),
enforceable against the Company and such Subsidiaries (as the case may be) in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors generally and by the availability of equitable remedies. Neither the Company
nor any of its Subsidiaries is required to give any notice to, make any filing with, or obtain any Consent of any
Governmental Body or any other Person in order to consummate the transactions contemplated by this
Agreement or the Ancillary Agreements to which the Company or any of its Subsidiaries is a party.
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3.3 Capitalization and Subsidiaries.
(g) All of the Company Securities are owned beneficially and of record by the Seller Parties.
The Company Securities represent 100% of the outstanding stock or other ownership interests in the Company.
All of the Company Securities have been duly authorized, are validly issued, fully paid, and non-assessable and
have been issued without violation of any preemptive right or other right to purchase. Section 3.3(a) of the
Disclosure Schedule lists the Company’s authorized stock and the record and beneficial owner of such stock,
and each such owner has good and indefeasible title to all of the stock listed next to such holder’s name on
Schedule 1.1 free and clear of all Liens. Except as set forth on Section 3.3(a) of the Disclosure Schedule ,
there are no other stock or other ownership interests in the Company or outstanding securities convertible or
exchangeable into stock or other ownership interests of the Company, and there are no options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, calls, puts, rights of first refusal or other
Contracts that could require the Company to issue, sell or otherwise cause to become outstanding or to acquire,
repurchase or redeem stock or other ownership interests in the Company. There are no outstanding or
authorized equity appreciation, phantom equity, profit participation or similar rights with respect to the
Company. There are no voting trusts, proxies or other Contracts with respect to the voting of the stock or other
ownership interests of the Company. Upon the Closing, the Seller Securities will be delivered to Buyer free and
clear of all Liens (other than any Liens which may result from any actions taken by Buyer), and Buyer will have
good and marketable title to the Seller Securities.
(h) All of the Subsidiaries, direct and indirect, of the Company are listed in Section 3.3(b)(i)
of the Disclosure Schedule . Section 3.3(b)(i) of the Disclosure Schedule lists the entire authorized stock or
other ownership interests of each such Subsidiary and the record and beneficial owner of such stock or other
ownership interests, all of which have been duly authorized, are validly issued, fully paid and non-assessable
and have been issued without violation of any preemptive right or other right to purchase. Except as set forth on
Section 3.3(b)(ii) of the Disclosure Schedule , the Company owns, directly or indirectly, all of the stock or other
ownership interests of the Subsidiaries listed in Section 3.3(b)(i) of the Disclosure Schedule , free and clear of
all Liens. There are no other stock or other ownership interests in any Subsidiary required to be listed on
Section 3.3(b)(i) of the Disclosure Schedule or outstanding securities convertible or exchangeable into stock or
other ownership interests of any such Subsidiary, and there are no options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, calls, puts, rights of first refusal or other Contracts that
could require any such Subsidiary to issue, sell or otherwise cause to become outstanding or to acquire,
repurchase or redeem stock or other ownership interests in any such Subsidiary. There are no outstanding or
authorized equity appreciation, phantom appreciation, profit participation or similar rights with respect to any
Subsidiary listed on Section 3.3(b)(i) of the Disclosure Schedule . There are no voting trusts, proxies or other
Contracts with respect to the voting of the stock or other ownership interests of any such Subsidiary.
(i) All shares of Company Preferred Stock and Company Common Stock held by any Person
have been issued in uncertificated, book-entry form and no certificates representing, or other instruments
evidencing an interest in, any shares of Company Preferred Stock or Company Common Stock have been issued
or are currently outstanding.
21
3.4 Non-contravention. Neither the execution and the delivery of this Agreement nor the Ancillary
Agreements to which the Company or any of its Subsidiaries is a party, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate or conflict with any Law or Order to which the
Company or any of its Subsidiaries is subject, (ii) violate or conflict with any provision of the Organizational
Documents of the Company or any of its Subsidiaries, or (iii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice or payment under any Contract or Permit to which the Company or any of its
Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition
of any Lien upon any of its assets).
3.5 Brokers’ Fees. Except as set forth on Section 3.5 of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement.
3.6 Assets.
(a) The Company and its Subsidiaries have good and marketable title to, or a valid leasehold
interest or license in, the properties and assets (tangible and intangible) used by them, located on their premises
or shown on the Most Recent Balance Sheet or acquired after the date thereof (other than inventory sold in the
Ordinary Course of Business), free and clear of all Liens, except for Permitted Liens. The assets, properties and
rights owned by the Company and its Subsidiaries are all the assets, properties and rights used by the Company
and its Subsidiaries in the operation of the Business or necessary to operate the businesses of the Company and
its Subsidiaries, consistent with past practice.
(b) The buildings, machinery, equipment and other tangible assets that the Company and its
Subsidiaries own and lease are free from material defects (patent and latent), have been maintained in
accordance with normal industry practice, are in good operating condition and repair (subject to normal wear
and tear) and are suitable for the purposes for which they are presently used.
3.7 Financial Statements; Interim Conduct.
(a) Attached to Section 3.7(a)-1 of the Disclosure Schedule are correct and complete copies of
the following financial statements of the Company and its Subsidiaries (collectively, the “ Financial Statements
”): (i) unaudited consolidated balance sheets, statements of income and cash flows as of and for the fiscal year
ended December 31, 2014 (the “ Most Recent Fiscal Year End ”); and (ii) unaudited consolidated balance
sheets, statements of income and cash flows (the “ Most Recent Financial Statements ”) as of and for the six (6)
month period ended June 30, 2015 (the “ Most Recent Fiscal Month End ”). The Financial Statements are
correct and complete and consistent with the books and records of the Company and its Subsidiaries (which are
in turn correct and complete), present fairly in all material respects the financial condition, results of operation,
changes in equity and cash flow of the Company and its Subsidiaries as of and for their respective dates and for
the periods then ending and, except as set forth on Section 3.7(a)-2 of the
22
Disclosure Schedule, have been prepared in accordance with GAAP, consistently applied; provided, however ,
that the Most Recent Financial Statements are subject to normal, recurring year-end adjustments and lack notes
(none of which will be material individually or in the aggregate).
(b) Since the Most Recent Fiscal Year End, the business of the Company and its Subsidiaries
has been conducted in the Ordinary Course of Business, and there has not been any Material Adverse Change
and no event has occurred which could reasonably be expected to result in a Material Adverse Change. Without
limiting the generality of the foregoing, except as set forth on Section 3.7(b) of the Disclosure Schedule , since
the Most Recent Fiscal Year End the Company and its Subsidiaries have not:
(iii) sold, leased, transferred or assigned any assets or property (tangible or intangible) with a
value in excess of $50,000, other than sales of inventory in the Ordinary Course of Business;
(iv) experienced any damage, destruction or loss (whether or not covered by insurance) to its
assets or property (tangible or intangible) in excess of $50,000;
(v) received notice from any Person regarding the acceleration, termination, modification or
cancelation a Contract, which, if in existence on the date hereof, would be required to be listed on Section 3.13
of the Disclosure Schedule ;
(vi) issued, created, incurred or assumed any Debt involving more than $50,000;
(vii) forgave, canceled, compromised, waived or released any Debt owed to it or any right or
claim involving more than $50,000;
(viii) issued, sold or otherwise disposed of any of its stock or other ownership interests, or
granted any options, warrants or other rights to acquire (including upon conversion, exchange or exercise) any
of its stock or other ownership interests or declared, set aside, made or paid any dividend or distribution with
respect to its stock or other ownership interests or redeemed, purchased or otherwise acquired any stock or other
ownership interest or amended or made any change to any of its Organizational Documents or made any other
payment to its members or stockholders (or any Affiliates of such members or stockholders);
(ix) granted any increase in salary or bonus or otherwise increased the compensation or
benefits payable or provided to any director, officer, employee, consultant, advisor or agent in excess of
$50,000, except wage or salary increases set forth on Section 3.7(b)(vii) of the Disclosure Schedule required
by existing Contracts;
(x) engaged in any promotional, sales or discount or other activity that has or could
reasonably be expected to have the effect of accelerating sales prior to the Closing that would otherwise be
expected to occur subsequent to the Closing, other than in its ordinary course of business;
23
(xi) made any commitment outside of the Ordinary Course of Business or in excess of
$50,000 in the aggregate for capital expenditures to be paid after the Closing or failed to incur capital
expenditures in accordance with its capital expense budget;
(xii) instituted any material change in the conduct of its business or any material change in its
accounting practices or methods, cash management practices or method of purchase, sale, lease, management,
marketing, or operation;
(xiii) taken or omitted to take any action which could be reasonably anticipated to have a
Material Adverse Change;
(xiv) made, changed or rescinded any Tax election, settled or compromised any Tax liability,
amended any Tax Return or took any position on any Tax Return, took any action, omitted to take any action or
entered into any other transaction that would have the effect of materially increasing the Tax liability or
materially reducing any Tax assets of Buyer or Merger Sub in respect of any taxable period ending after the
Closing Date;
(xv) collected its accounts receivable or paid any accrued liabilities or accounts payable or
prepaid any expenses or other items, in each case other than in the Ordinary Course of Business;
(xvi) entered into any transaction with any Affiliate; and
(xvii) agreed or committed to do any of the foregoing.
(c) All notes and accounts receivable reflected on the Most Recent Financial Statements, and
all accounts receivable of the Company and its Subsidiaries generated since the Most Recent Fiscal Month End
(the “ Receivables ”), constitute bona fide receivables resulting from the sale of inventory, services or other
obligations in favor of the Company and its Subsidiaries as to which full performance has been fully rendered,
and are valid and enforceable claims. To the Knowledge of the Company, the Receivables are not subject to any
pending or threatened defense, counterclaim, right of offset, returns, allowances or credits, except to the extent
reserved against the accounts receivable. The reserves against the accounts receivable for returns, allowances,
chargebacks and bad debts are commercially reasonable and, except as set forth on Section 3.7(c) of the
Disclosure Schedule , have been determined in accordance with GAAP, consistently applied in accordance with
past custom and practice.
(d) The accounts payable of the Company and its Subsidiaries reflected on the Most Recent
Financial Statements arose from bona fide transactions in the Ordinary Course of Business, and all such
accounts payable have either been paid, are not yet due and payable in the Ordinary Course of Business, or are
being contested by the Company and its Subsidiaries in good faith.
(e) The inventory of the Company and its Subsidiaries (i) does not include any items that are
obsolete or of a quantity or quality not usable or salable in the Ordinary Course of Business and (ii) includes
only items sold by the Company and its Subsidiaries in the Ordinary
24
Course of Business. The inventory disposed of subsequent to the date of the Most Recent Fiscal Month End has
been disposed of only in the Ordinary Course of Business. No inventory of the Company and its Subsidiaries is
held on a consignment basis. The quantities of each item of inventory of the Company and its Subsidiaries
(whether raw materials, work-in-process or finished goods) are not excessive, but are reasonable in the present
circumstances of the Company and its Subsidiaries.
3.8 Undisclosed Liabilities. The Company and its Subsidiaries do not have any liability (whether
asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), except for liabilities that (a) are accrued or reserved against
in the Most Recent Financial Statements, (b) were incurred subsequent to the Most Recent Fiscal Month End in
the Ordinary Course of Business, (c) result from the obligations of the Company under this Agreement or the
Ancillary Agreements or (d) liabilities and obligations pursuant to any Contract listed on Section 3.13 of the
Disclosure Schedule or not required by the terms of Section 3.13 to be listed on Section 3.13 of the
Disclosure Schedule , in either case which arose in the Ordinary Course of Business and did not result from
any default, tort, breach of contract or breach of warranty.
3.9 Legal Compliance.
(l) The Company and its Subsidiaries, and their respective predecessors and Affiliates, have
complied and are in material compliance with all applicable Laws and Orders, and no Proceeding has been filed
or commenced or, to the Knowledge of the Company, threatened alleging any failure so to comply. Since
January 1, 2013, the Company and its Subsidiaries have not received any notice or communication alleging any
non-compliance of the foregoing.
(m) Section 3.9(b) of the Disclosure Schedule sets forth a correct and complete list all
material Permits held by the Company and its Subsidiaries. Such Permits (i) constitute all Permits necessary for
the operation of the business of the Company and its Subsidiaries and (ii) are in full force and effect. No
Proceeding is pending or, to the Knowledge of the Company, threatened to revoke or limit any Permit.
(n) Neither the Company, nor any of its Subsidiaries, nor any of their officers, managers,
members, directors, agents, employees or any other Persons acting on their behalf has, to the Knowledge of the
Company, (i) made any illegal payment or provided any unlawful compensation or gifts to any officer or
employee of any Governmental Body, or any employee, customer or supplier of the Company and its
Subsidiaries, or (ii) accepted or received any unlawful contributions, payments, expenditures or gifts; and no
Proceeding has been filed or commenced alleging any such payments, contributions or gifts.
3.10 Tax Matters.
(d) The Company and its Subsidiaries have filed with the appropriate taxing authorities all
Tax Returns that they were required to file. All such Tax Returns are correct and complete in all material
respects. All Taxes due and owing by the Company and its Subsidiaries (whether or not shown on any Tax
Return) have been paid or are reflected as reserves on the Most
25
Recent Financial Statements. The Company and its Subsidiaries are not currently the beneficiary of any
extension of time within which to file any Tax Return or pay any Tax. There are no Liens for Taxes (other than
Taxes not yet due and payable) upon the Company Securities or any of the assets of the Company or any of its
Subsidiaries.
(e) Adequate reserves and accruals have been established to provide for the payment of all
Taxes which are not yet due and payable with respect to the Company and its Subsidiaries.
(f) No deficiency or proposed adjustment for any amount of Tax has been proposed, asserted
or assessed by any taxing authority against the Company and its Subsidiaries that has not been paid, settled or
otherwise resolved. There is no Proceeding or audit now pending, proposed or, to the Knowledge of the
Company, threatened against the Company or any of its Subsidiaries or concerning the Company or any of its
Subsidiaries with respect to any Taxes. The Company and its Subsidiaries have not been notified by any taxing
authority that any issues have been raised with respect to any Tax Return. There has not been, within the past
three (3) calendar years, an examination or written notice of potential examination of the Tax Returns filed with
respect to the Company or any of its Subsidiaries by any taxing authority.
(g) All Taxes that are required to be withheld or collected by the Company and its
Subsidiaries, including, but not limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign persons or to employees, agents, contractors or stockholders of the Company or any of its Subsidiaries,
have been duly withheld and collected and, to the extent required, have been properly paid or deposited as
required by applicable Laws.
(h) No claim has been made by any taxing authority in a jurisdiction where the Company or
any of its Subsidiaries do not file Tax Returns that they are or may be subject to taxation by that jurisdiction
within the past three (3) calendar years.
(i) The Company and its Subsidiaries are not a party to any Tax allocation, sharing,
indemnity, or reimbursement agreement or arrangement, and are not liable for the Taxes of any other Person as
a transferee or successor, by Contract or otherwise.
(j) Neither the Company nor any of its Subsidiaries will be required as a result of (i) a change
in method of accounting for a taxable period ending on or prior to the Closing Date, (ii) any “closing
agreement,” as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign
Law), (iii) any installment sale or open transaction disposition, or (iv) the receipt of any prepaid revenue, to
include any item of income or exclude any item of deduction for any taxable period (or portion thereof)
beginning after the Closing Date that would not have otherwise so been included or excluded as the case may
be.
(k) Neither the Company nor any of its Subsidiaries is a “United States real property holding
corporation” within the meaning of Section 897(c)(2) of the Code.
(l) Section 3.10(i) of the Disclosure Schedule lists all Tax Returns filed by the Company and
its Subsidiaries for Tax periods ended on or after December 31, 2012, indicates those
26
Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit.
Neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to the payment of any Tax or any Tax assessment or deficiency.
(m) There is no Contract to which the Company or any of its Subsidiaries is a party that will,
individually or collectively, result in the payment of any amount that would reasonably be expected to be
characterized as a “parachute payment” within the meaning of Section 280G of the Code.
(n) Neither the Company nor any of its Subsidiaries is or has been a party to any “reportable
transaction,” as defined in Section 6707A(c)(1) of the Code and Reg. §1.6011-4(b).
(o) Neither the Company nor any of its Subsidiaries has distributed stock of another Person,
or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed
in whole or in part by Section 355 or Section 361 of the Code.
3.11 Real Property.
(a) Section 3.11(a) of the Disclosure Schedule lists the address and legal description of all
Owned Properties. Section 3.11(a) of the Disclosure Schedule contains a correct description (including,
without limitation, a legal description) of each Owned Property. With respect to each Owned Property:
(i) the Company or its Subsidiary set forth on Section 3.11(a) of the Disclosure
Schedule is the sole titleholder of record and owns good and marketable indefeasible fee simple absolute title
and all equitable interest therein to the land, land improvements and buildings legally described as set forth in
Section 3.11(a) of the Disclosure Schedule , together with all privileges, rights, easements, hereditaments, and
appurtenances thereunto belonging, free and clear of all Liens, except as set forth in Section 3.11(a)(i) of the
Disclosure Schedule ; and
(ii) except as set forth in Section 3.11(a)(ii) of the Disclosure Schedule, the Company
and its Subsidiaries have not leased, licensed or otherwise granted to any Person the right to use or occupy such
Owned Properties or any portion thereof.
(b) Section 3.11 of the Disclosure Schedule sets forth the address of each parcel of Leased
Real Property, and a true and complete list of all Leases for each parcel of Leased Real Property. The Company
has made available to Buyer and Merger Sub a true and complete copy of each Lease, and in the case of any
oral Lease, a written summary of the material terms of such Lease.
(c) Subject to the respective terms and conditions in the Leases, the Company or one of its
Subsidiaries is the sole legal and equitable owner of the leasehold interest in the Leased Real Property and
possesses good and marketable, indefeasible title thereto, free and clear of all Liens (other than Permitted
Liens).
27
(d) With respect to each parcel of Real Property: (i) there are no pending or, to the Knowledge
of the Company, threatened condemnation Proceedings, suits or administrative actions relating to any such
parcel or other matters affecting adversely the current use, occupancy or value thereof; (ii) the ownership and
operation of the Real Property in the manner in which it is now owned and operated comply with all zoning,
building, use, safety or other similar Laws; (iii) all Improvements on any such parcel are in good operating
condition, ordinary wear and tear excepted, are supplied with utilities and other services necessary for the
operation of the business as currently conducted at such facilities and safe for their current occupancy and use;
(iv) neither the Company, nor any of its Subsidiaries nor any Seller has received any notice of any special Tax,
levy or assessment for benefits or betterments that affect any parcel of Real Property and, to the Knowledge of
the Company, no such special Taxes, levies or assessments are pending or contemplated; (v) there are no
Contracts granting to any third party or parties the right of use or occupancy of any such parcel, and there are no
third parties (other than the Company and its Subsidiaries) in possession of any such parcel; and (vi) each such
parcel abuts on and has adequate direct vehicular access to a public road and there is no pending or, to the
Knowledge of the Company, threatened termination of such access. The Real Property comprises all of the real
property used or intended to be used in the business of the Company and its Subsidiaries, and neither the
Company nor any of its Subsidiaries is a party to any Contract or option to purchase any real property or any
portion thereof or interest therein.
3.12 Intellectual Property.
(a) To the Knowledge of the Company, the Company and its Subsidiaries own and possess or
have the right to use all Intellectual Property necessary for the operation of the business of the Company and its
Subsidiaries.
(b) To the Knowledge of the Company, the Company and its Subsidiaries have not interfered
with, infringed upon, misappropriated, or violated any Intellectual Property rights of third parties in any respect,
and neither the Company, nor any of its Subsidiaries, nor any of their directors and officers, nor any Seller has
received any charge, complaint, claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company or one of its Subsidiaries must license or
refrain from using any Intellectual Property rights of any third party). To the Knowledge of the Company, no
third party has interfered with, challenged, infringed upon, misappropriated, or violated any Intellectual
Property rights of the Company or its Subsidiaries.
(c) Section 3.12(c)(i) of the Disclosure Schedule identifies each patent, trademark, service
mark, Internet domain name, and copyright that is registered, filed, or issued with any Governmental Entity and
is owned by the Company or any of its Subsidiaries, identifies each pending patent application or application for
trademark, service mark, Internet domain name, and copyright registration which the Company or any of its
Subsidiaries owns, and identifies each license, sublicense, agreement, or other permission pursuant to which the
Company or any of its Subsidiaries has granted any rights to any third party with respect to any of its
Intellectual Property (together with any exceptions). The Company has delivered to Buyer and Merger Sub
correct and complete copies of all Intellectual Property licenses, sublicenses, agreements, and permissions (as
28
amended to date). Section 3.12(c)(ii) of the Disclosure Schedule identifies each trade name or unregistered
trademark, service mark, corporate name, copyrighted work and material Software item used by the Company
or any of its Subsidiaries in connection with its Business. To the Knowledge of the Company, the Company or
one of its Subsidiaries has all right, title and interest in and to, free and clear of any Lien, license, or other
restriction or limitation regarding use, except for non-exclusive licenses granted by the Company or Subsidiary
in the Ordinary Course of Business, and has the sole and exclusive right to use (and the Seller Parties and their
Affiliates do not have and do not claim to have any individual right to use) all the Intellectual Property required
to be disclosed on Sections 3.12(c)(i) and 3.12(c)(ii) of the Disclosure Schedule (subject to the applicable
license agreements listed in Sections 3.12(c)(i) and 3.12(c)(ii) of the Disclosure Schedule ), and such
Intellectual Property is not subject to any outstanding Order restricting the use or licensing thereof by the
Company or such Subsidiary, as the case may be, and neither the Company nor any of its Subsidiaries has
received any written claim challenging the validity or effectiveness of such Intellectual Property other than
office actions and similar examination procedures in the ordinary course of prosecuting applications for such
Intellectual Property, and such Intellectual Property is valid and enforceable. Each item of Intellectual Property
owned or used by the Company and its Subsidiaries immediately prior to the Closing will be owned or available
for use, respectively, by the Company and its Subsidiaries immediately subsequent to the Closing on identical
terms and conditions as owned or used by the Company and its Subsidiaries immediately prior to the Closing.
(d) To the Knowledge of the Company, the Company and its Subsidiaries own and possess or
have the right to use all Software used by the Company and its Subsidiaries in the operation of its business.
(e) The Company and its Subsidiaries have materially complied with all of their
confidentiality obligations under each Contract to which the Company or any of its Subsidiaries is a party.
(f) Section 3.12(f) of the Disclosure Schedule identifies all licenses entered into by the
Company or any of its Subsidiaries with regard to any third party computer source code (including all open
source software).
3.13 Contracts.
(a) Section 3.13(a) of the Disclosure Schedule lists the following Contracts to which the
Company or any of its Subsidiaries is a party:
(i) each Contract with any customer or supplier that is required to be listed on Section 3.22 of
the Disclosure Schedule ;
(ii) each lease, rental or occupancy agreement, license, installment and conditional sale
agreement, and other Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases and installment and conditional sales
agreements having aggregate payments of less than $20,000 and with terms of less than one year);
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(iii) each joint venture, partnership or Contract involving a sharing of profits, losses, costs or
liabilities with any other Person;
(iv) each Contract containing any covenant that purports to restrict the business activity of the
Company or any of its Subsidiaries or limit the freedom of the Company or any of its Subsidiaries to engage in
any line of business or to compete with any Person;
(v) each power of attorney;
(vi) each Contract for Debt in excess of $50,000;
(vii) each Contract providing for the payment of any cash or other compensation or benefits to
an employee, consultant, or director upon the consummation of the transactions contemplated by this
Agreement if such payments would not become due or payable under such Contracts but for the transactions
contemplated by this Agreement;
(viii) each Contract with any labor union or any bonus, pension, profit sharing, retirement or
deferred compensation plan, whether formal or informal, or any severance agreement or arrangement;
(ix) each Contract under which the Company or any of its Subsidiaries has advanced or
loaned to any other Person amounts in the aggregate exceeding $10,000;
(x) each franchise, dealership, vendor, manufacturing or service center agreements;
(xi) each Contract with any Affiliate of the Company or any of its Subsidiaries;
(xii) any settlement agreement;
(xiii) each employment or consulting Contract or other Contract with any of their officers,
managers, partners, directors or employees;
(xiv) each material Contract concerning Intellectual Property or IT Assets, including each (A)
material Intellectual Property License, (B) material Contract between any Person and the Company relating to
the transfer, development, maintenance or use of Intellectual Property or IT Assets or the development or
transmission of data, or the use, modification, framing, linking, advertisement or other practices with respect to
Internet websites and (C) consent or settlement Contracts governing the use, validity or enforceability of
Intellectual Property or IT Assets, in each case except for Contracts with Company customers and end users for
the license and use of Company products and services entered into in the Ordinary Course of Business;
(xv) each confidentiality agreement and non-disclosure agreement still in effect, except not
such agreements on the Company’s standard forms of such agreements made available to the Buyer; and;
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(xvi) any other agreement material to the Company or any of its Subsidiaries not entered into
in the Ordinary Course of Business.
(b) The Company has delivered to Buyer and Merger Sub a correct and complete copy of each
written Material Contract, together with all amendments, exhibits, attachments, waivers or other changes
thereto. Section 3.13(b) of the Disclosure Schedule contains an accurate and complete description of all
material terms of all oral Material Contracts (if any).
(c) Each Material Contract is legal, valid, binding, enforceable, in full force and effect and
will continue to be legal, valid, binding and enforceable on identical terms following the Closing Date. Except
as specifically disclosed and described in Section 3.13(c) of the Disclosure Schedule , (i) no Material Contract
has been materially breached or canceled by the Company, any of its Subsidiaries or, to the Knowledge of the
Company, any other party thereto, (ii) the Company or each of its Subsidiaries has performed all material
obligations under such Material Contracts required to be performed by the Company or such Subsidiary, (iii) to
the Knowledge of the Company, there is no event which, upon giving of notice or lapse of time or both, would
constitute a breach or default under any such Material Contract or would permit the termination, modification or
acceleration of such Material Contract, and (iv) neither the Company nor any of its Subsidiaries has assigned,
delegated or otherwise transferred to any Person any of its rights, title or interest under any such Material
Contract.
3.14 Insurance. Section 3.14(a) of the Disclosure Schedule sets forth the following information with
respect to each insurance policy (including policies providing property, casualty, liability, director & officer,
and workers’ compensation coverage and bond and surety arrangements) with respect to which the Company
or any of its Subsidiaries is a party, a named insured, or otherwise the beneficiary of coverage (collectively, the
“ Company Insurance Agreements ”):
(a) the name of the insurer, the name of the policyholder, and the name of each covered
insured;
(b) the policy number and the period of coverage; and
(c) a description of any retroactive premium adjustments or other material loss-sharing
arrangements.
There is no claim by the Company or any of its Subsidiaries or any other Person pending under any such
policies and bonds as to which coverage has been questioned, denied or disputed. All premiums payable under
all such policies and bonds have been paid. There are no threatened terminations of, or, to the Knowledge of the
Company, material premium increases with respect to, any of such policies or bonds. Section 3.14(b) of the
Disclosure Schedule sets forth a list of all claims made under the Company Insurance Agreements, or under
any other insurance policy, bond or agreement covering the Company or any of its Subsidiaries or their
operations during the prior twelve (12) months. During the prior twelve (12) months, the Company and its
Subsidiaries have maintained insurance policies with coverage and policy limits that are substantially similar to
the coverage and policy limits provided by the Company Insurance Agreements.
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3.15 Litigation. Except as set forth in Section 3.15 of the Disclosure Schedule, there are no (and
during the last two years, there have not been any) claims, charges, Proceedings, Orders, or investigations
pending or, to the Knowledge of the Company, threatened or anticipated relating to or affecting the Company
or any of its Subsidiaries. There is no outstanding Order to which the Company or any of its Subsidiaries is
subject.
3.16 Employees.
(a) The Company has made available to Buyer a complete and correct list of all current
salaried employees of the Company and its Subsidiaries having total annual compensation in excess of
$100,000, showing for each: (i) name, (ii) hire date, (iii) current job title, (iv) the aggregate by such employee of
all actual base salary, bonus, commission or other remuneration paid during 2014, (v) 2015 base salary level
and 2015 target bonus and (v) indicating whether there has been any increase in compensation, bonus,
incentive, or service award or any grant of any severance or termination pay or any other increase in benefits or
any commitment to do any of the foregoing in an amount greater than $20,000 since January 1, 2015.
(b) The Company has made available to Buyer complete and correct copies of (i) all existing
severance, accrued vacation or other leave agreement, policies or retiree benefits of any such officer, employee
or consultant, (ii) all the Company’s standard forms of employee trade secret, non-compete, non-disclosure and
invention assignment agreements and all such agreements not on the Company’s standard forms and (iii) all
manuals and handbooks relating to employment policies applicable to any current director, manager, officer,
employee or consultant of the Company or any of its Subsidiaries. The employment or consulting arrangement
of each officer, employee or consultant of the Company and its Subsidiaries is, subject to applicable Laws
involving the wrongful termination of employees, terminable at will (without the imposition of penalties or
damages) by the Company or its Subsidiaries as the case may be. To the Knowledge of the Company, no
executive or Key Employee of the Company or any of its Subsidiaries or any group of employees of the
Company or any of its Subsidiaries has any plans to terminate employment with the Company or any of its
Subsidiaries.
(c) Neither the Company nor any of its Subsidiaries has experienced (nor, to the Knowledge
of the Company, has it been threatened with) any strike, slow down, work stoppage or material grievance, claim
of unfair labor practices, or other collective bargaining dispute within the past three years. Neither the Company
nor any of its Subsidiaries has committed any material unfair labor practice. The Company has no Knowledge
of any organizational effort presently being made or threatened by or on behalf of any labor union with respect
to employees of the Company or its Subsidiaries. The Company and each of its Subsidiaries have paid in full to
all of its employees all wages, salaries, commissions and bonuses due and payable to such employees.
(d) To the Knowledge of the Company, all individuals who have performed services for the
Company or any of its Subsidiaries have been classified as an employee or an independent contractor pursuant
to all applicable Laws, including, but not limited to, the Code and ERISA.
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3.17 Employee Benefits.
(c) Section 3.17 of the Disclosure Schedule lists each Employee Benefit Plan that the
Company or any of its Subsidiaries maintains or to which the Company or any of its Subsidiaries contributes or
has any obligation to contribute or with respect to which the Company and its Subsidiaries have any liabilities.
(i) Each such Employee Benefit Plan (and each related trust, insurance Contract, or fund) has
been maintained, funded and administered in all material respects in accordance with the terms of such
Employee Benefit Plan and materially complies in form and in operation in all material respects with the
applicable requirements of ERISA, the Code, and applicable Laws.
(ii) All required reports and descriptions (including Form 5500 annual reports, summary
annual reports, and summary plan descriptions) have been timely filed and/or distributed in accordance with the
applicable requirements of ERISA and the Code with respect to each such Employee Benefit Plan. The
requirements of COBRA have been met in all material respects with respect to each such Employee Benefit
Plan and each Employee Benefit Plan maintained by an ERISA Affiliate that is an Employee Welfare Benefit
Plan subject to COBRA.
(iii) All contributions (including all employer contributions and employee salary reduction
contributions) that are due have been made within the time periods prescribed by ERISA and the Code to each
such Employee Benefit Plan that is an Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date which are not yet due have been made to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the Company and its Subsidiaries.
All premiums for periods ending on or before the Closing Date have been paid with respect to each such
Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(iv) Each Employee Benefit Plan that is intended to meet the requirements of a “qualified
plan” under Code §401(a) is, to the Knowledge of the Company, so qualified and has received a determination
or opinion letter from the Internal Revenue Service that such Employee Benefit Plan is so qualified, and, to the
Knowledge of the Company, nothing has occurred since the date of such determination that could adversely
affect the qualified status of any such Employee Benefit Plan.
(v) There have been no nonexempt Prohibited Transactions with respect to any such
Employee Benefit Plan or any Employee Benefit Plan maintained by an ERISA Affiliate. To the Knowledge of
the Company, no Fiduciary has any liability for material breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any such Employee Benefit Plan.
No Proceeding with respect to the administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Company and the Sellers,
reasonably threatened.
(d) Neither the Company nor any ERISA Affiliate contributes to, has any obligation to
contribute to, or has any material liability under or with respect to any Employee
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Pension Benefit Plan that is a “defined benefit plan” (as defined in ERISA §3(35)) or a Multiemployer Plan (as
defined in ERISA §3(37).
(e) Section 3.17(d) of the Disclosure Schedule lists each written agreement, contract, or other
arrangement, whether or not an Employee Benefit Plan (collectively a “ Plan ”), to which the Company or any
of its Subsidiaries is a party that is a “nonqualified deferred compensation plan” subject to Code Section 409A.
Each such Plan complies in all material respects with the requirements of Code Section 409A(a)(2), (3), and (4)
and any Internal Revenue Service guidance issued thereunder.
3.18 Debt. Except as set forth on Section 3.18 of the Disclosure Schedule, the Company and its
Subsidiaries do not have any Debt and are not liable for any Debt of any other Person in an amount greater
than $50,000.
3.19 Environmental, Health, and Safety Matters.
(a) The Company and its Subsidiaries have complied and are in compliance, in each case in
all material respects, with all Environmental, Health, and Safety Requirements.
(b) Without limiting the generality of the foregoing, the Company and its Subsidiaries have
obtained, have complied, and are in compliance with all material Permits and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the occupation of the facilities of the
Company and its Subsidiaries and the operation of the business of the Company and its Subsidiaries. A list of
all such Permits and other authorizations is set forth on Section 3.19(b) of the Disclosure Schedule .
(c) Neither the Company nor any of its Subsidiaries has received any written or oral notice,
report or other information regarding any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations, relating to any of them, their current
or former facilities or the Real Property arising under Environmental, Health, and Safety Requirements.
(d) Except as set forth on Section 3.19(d) of the Disclosure Schedule, no property or facility
owned, leased or operated by Company or its Subsidiaries contains any underground storage tanks currently,
nor, to the Knowledge of the Company and the Sellers, has contained any underground storage tanks in the past.
(e) Neither the Company nor any of its Subsidiaries has treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled, or released any substance, including without limitation
any Hazardous Substance, or owned or operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give rise to material liabilities,
including any material liability for investigation costs, response costs, remedial costs, corrective action costs,
personal injury, property damage, natural resources damages or attorney and consultant fees and costs, pursuant
to CERCLA or the Solid Waste Disposal Act, as amended, or any other Environmental, Health, and Safety
Requirements.
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(f) There are no environmental conditions or circumstances on the Real Property that pose an
unreasonable risk to the environment or the health or safety of Persons or Hazardous Substances present at, on
or under the Real Property in violation of Environmental, Health, and Safety Requirements.
(g) Neither this Agreement nor the consummation of the transaction that is the subject of this
Agreement will result in any obligations for site investigation or cleanup, or notification to or Consent of
Governmental Bodies or third parties, pursuant to any of the Environmental, Health, and Safety Requirements.
(h) Section 3.19(h) of the Disclosure Schedule lists each written environmental audit, health
and safety audit, Phase I environmental site assessment, Phase II environmental site assessment or investigation,
soil and/or groundwater report, environmental compliance assessment prepared within the past five years by the
Company or any of its Subsidiaries or, to the Knowledge of the Sellers, the Company or any of its Subsidiaries,
any governmental authority under the Environmental, Health, and Safety Requirements relating to any property
currently or formerly owned or operated by the Company or any of its Subsidiaries or their Affiliates.
3.20 Business Continuity. None of the Software, computer hardware (whether general or special
purpose), telecommunications capabilities (including all voice, data and video networks) and other similar or
related items of automated, computerized, and/or software systems and any other networks or systems and
related services that are used by or relied on by the Company and its Subsidiaries in the conduct of their
businesses (collectively, the “ Systems ”) have experienced bugs, failures, breakdowns, or continued
substandard performance in the past twelve (12) months that has caused or reasonably could be expected to
cause any substantial disruption or interruption in or to the use of any such Systems by the Company or its
Subsidiaries.
3.21 Certain Business Relationships with the Company.
(a) Except as set forth on Section 3.21 of the Disclosure Schedule, no officer, partner or
director of the Company or any of its Subsidiaries nor any of the Affiliates of any of the foregoing (other than
the Company and its Subsidiaries):
(i) has any claim against or owes any amount to, or is owed any amount by, the Company or
any of its Subsidiaries;
(ii) has any interest in or owns any assets, properties or rights used in the conduct of the
business of the Company or any of its Subsidiaries;
(iii) is a party to any Contract to which the Company or any of its Subsidiaries is a party or
which otherwise benefits the business of the Company or any of its Subsidiaries; or
(iv) has received from or furnished to the Company or any of its Subsidiaries any goods or
services since the Most Recent Fiscal Year End, or is involved in any business relationship with the Company
or any of its Subsidiaries.
35
(b) No employee listed in Section 3.16(a) of the Disclosure Schedule
or any of his or her Affiliates owns, directly or indirectly, any stock or other ownership interest
or investment in any Person that is engaged in the Business or is a competitor, supplier, customer, lessor or
lessee of the Company or any of its Subsidiaries; provided , however , that the foregoing representation shall
be deemed not to be made as to the ownership of not more than 5% of the capital stock of any such Person that
has securities registered pursuant to Section 13 or Section 15 of the Securities Exchange Act.
3.22 Customers and Suppliers.
(a) Section 3.22 of the Disclosure Schedule sets forth a correct and complete list of the ten
(10) largest suppliers (by dollar volume) of products or services to the Company and its Subsidiaries, and the
ten (10) largest customers (by dollar volume) of the Company and its Subsidiaries each during the four (4)
months ended September 30, 2015. Section 3.22 of the Disclosure Schedule also sets forth, for each such
supplier and customer, the aggregate payments from and to such Person by the Company and its Subsidiaries
during such periods. There are no outstanding disputes with any of such suppliers or customers.
(b) Since June 1, 2015, none of the suppliers listed on Section 3.22 of the Disclosure Schedule
has indicated that it shall stop, or materially decrease the rate of, supplying materials, products or services to the
Company or its Subsidiaries, or otherwise materially change the terms of its relationship with the Company or
its Subsidiaries. Neither the Company, nor any of its Subsidiaries, nor any of the Seller Parties has any reason to
believe that any supplier listed on Section 3.22 of the Disclosure Schedule will stop, or materially decrease
the rate of, supplying products or services to the Company or its Subsidiaries or otherwise materially change the
terms of its relationship with the Company or its Subsidiaries after, or as a result of, the consummation of any
transactions contemplated by this Agreement or that any such supplier is threatened with bankruptcy or
insolvency. Neither the Company, nor any of its Subsidiaries, nor any of the Seller Parties know of any fact,
condition or event which would adversely affect the relationship of the Company or its Subsidiaries with any
such supplier.
(c) Since June 1, 2015, none of the customers listed on Section 3.22 of the Disclosure
Schedule has indicated that it shall stop, or materially decrease the rate of, buying products or services from
the Company or its Subsidiaries or otherwise materially change the terms of its relationship with the Company
or its Subsidiaries. Neither the Company, nor any of its Subsidiaries, has any reason to believe that any
customer listed on Section 3.22 of the Disclosure Schedule will stop, or materially decrease the rate of,
buying products or services from the Company or its Subsidiaries or otherwise materially change the terms of
its relationship with the Company or its Subsidiaries after, or as a result of, the consummation of any
transactions contemplated by this Agreement or that any such customer is threatened with bankruptcy or
insolvency. Neither the Company, nor any of its Subsidiaries, nor any of the Seller Parties know of any fact,
condition or event which would adversely affect the relationship of the Company or its Subsidiaries with any
such customer.
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3.23 Restrictions on Business Activities. There is no Contract, Order, or other instrument binding
upon the Company or any of its Subsidiaries which restricts or prohibits the Company or any of its Subsidiaries
from competing with any other Person, from engaging in any business or from conducting activities in any
geographic area, or which otherwise restricts or prohibits the conduct of the business of the Company and its
Subsidiaries other than standard restrictions on the scope of any licenses granted by third parties to the
Company or its Subsidiaries in any Intellectual Property Licenses.
3.24 Product Warranty. Each product or service, manufactured, sold, leased, or delivered by the
Company and its Subsidiaries is and has been manufactured, sold, leased, or delivered in conformity with all
applicable material contractual commitments and all express and implied warranties, and to the Knowledge of
the Company, neither the Company nor any of its Subsidiaries has any liability (and to the Knowledge of the
Company, there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any liability) for replacement or repair thereof
or other damages, liability or obligations in connection therewith, in excess of the reserve for warranty claims
set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and practice of the Company and
its Subsidiaries. Section 3.24 of the Disclosure Schedule includes copies of the standard terms and
conditions of service, sale or lease for the Company and its Subsidiaries (containing applicable guaranty,
warranty, and indemnity provisions). No product or service sold, leased, or delivered by the Company or any
of its Subsidiaries is subject to any material guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease set forth in Section 3.24 of the Disclosure Schedule , except for
any guaranty, warranty or other indemnity that is imposed by law.
3.25 Product Liability. Section 3.25 of the Disclosure Schedule sets forth an accurate, correct and
complete list and summary description of all existing claims, duties, responsibilities, Liabilities or obligations
arising from or alleged to arise from any injury to person or property as a result of the ownership, possession or
use of any product manufactured, distributed or sold by the Company, its Subsidiaries or their predecessors
during the prior two years. To the Knowledge of the Company, neither the Company nor any Subsidiary has
any liability (and there is no reasonable basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company or any subsidiary giving rise to any
liability) arising out of any injury to individuals or property as a result of the ownership, possession, or use of
any product manufactured, processed, sold, distributed, or delivered by the Company, its Subsidiaries or any of
their predecessors.
3.26 Disclosure. Neither this Agreement nor any agreement, attachment, schedule, exhibit, certificate
or other statement delivered pursuant to this Agreement or in connection with the transactions contemplated
hereby omits to state a material fact necessary in order to make the statements and information contained
herein or therein, not misleading. The Company is not aware of any information necessary to enable a
prospective purchaser of the Company Securities or the business of the Company and its Subsidiaries to make
an informed decision with respect to the purchase of such Company Securities or business that has not been
expressly disclosed herein.
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Buyer and Merger Sub have been provided full and complete copies of all documents referred to on the
Disclosure Schedule.
ARTICLE 4
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the Closing.
4.1 General. In case at any time after the Closing any further action is necessary to carry out the
purposes of this Agreement, each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole
cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor
under Article 6 below). Sellers acknowledge and agree that, from and after the Closing, Buyer will be
entitled to possession of all documents, books, records (including Tax records), agreements and financial data
of any sort relating to the Company and its Subsidiaries.
4.2 Litigation Support. In the event and for so long as Buyer or the Surviving Corporation actively is
contesting or defending against any Proceeding in connection with any fact, situation, circumstance, action,
failure to act, or transaction on or prior to the Closing Date involving the Company or any of its Subsidiaries,
each of the Sellers will cooperate with it and its counsel in the contest or defense and provide such testimony
and access to such Seller’s books and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of Buyer and the Surviving Corporation (unless Buyer and the Surviving
Corporation are entitled to indemnification therefor under Article 6 below).
4.3 Transition. None of Sellers shall take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business associate of the Company and its
Subsidiaries from maintaining the same business relationships with the Company or its Subsidiaries after the
Closing as it maintained with the Company and its Subsidiaries prior to the Closing.
4.4 Confidentiality. Each Seller and each other Seller Party executing the Required Documentation
agrees not to disclose or use any Confidential Information, except that, if and as long as a Seller Party is an
employee of the Surviving Corporation or any of the Subsidiaries after the Closing, then such Seller Party may
use the Confidential Information in the ordinary course of his or her employment on behalf of the Surviving
Corporation or such Subsidiary so long as such use is in compliance with all policies and agreements
applicable to such Seller Party. Upon termination of such employment, each Seller and each other Seller Party
executing the Required Documentation will deliver promptly to Buyer or destroy, at the request and option of
Buyer, all tangible embodiments (and all copies) of the Confidential Information that are in his or her
possession. If any Seller or other Seller Party executing the Required Documentation is requested or required
pursuant to written or oral question or request for information or documents in any Proceeding, interrogatory,
subpoena, civil investigation demand or similar process to disclose any Confidential Information, then such
Seller Party will notify Buyer promptly of the request or
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requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of
this Section 4.4. If, in the absence of a protective order or the receipt of a waiver hereunder, any Seller
Party is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else
stand liable for contempt, then such Seller Party may disclose the Confidential Information to the tribunal;
provided , however , that the disclosing Seller Party shall use its, his or her best efforts to obtain, at the
request of Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as Buyer shall designate. The foregoing provisions shall not
apply to any Confidential Information that is generally available to the public immediately prior to the time of
disclosure unless such Confidential Information is so available due to the actions of a Seller Party.
4.5 Covenant Not to Compete. During the Restricted Period, each Seller and each employee listed in
Section 3.16(a) of the Disclosure Schedule will not, directly or indirectly, in any manner (whether on its, his
or her own account, or as an owner, operator, manager, consultant, officer, director, employee, investor, agent
or otherwise), anywhere in the Applicable Area, engage in the Business or any business that competes with the
Business, or own any interest in, manage, control, provide financing to, participate in (whether as an owner,
operator, manager, consultant, officer, director, employee, investor, agent, representative or otherwise), or
consult with or render services for any Person that is engaged in the Business or in any activity that competes
with the Business; provided, however, that no owner of less than 1% of the outstanding stock of any publicly
traded corporation shall be deemed to engage solely by reason thereof in its business.
4.6 Covenant Not to Solicit. During the Restricted Period, each Seller and each Key Employee will
not, directly or indirectly, in any manner (whether on its, his or her own account, or as an owner, operator,
manager, consultant, officer, director, employee, investor, agent or otherwise), hire or engage, or recruit, solicit
or otherwise attempt to employ or engage, or enter into any business relationship with, any Person currently or
formerly employed by, or providing consulting services to, the Surviving Corporation or any of its Affiliates,
or induce or attempt to induce any Person to leave such employment or consulting arrangement; provided ,
however , that the restrictions set forth in this Section 4.6(a) shall not preclude any Seller or any Key
Employee from soliciting for employment or hiring any such employees who respond to a general solicitation
that is not targeted at any such employees.
4.7 Enforcement. If the final judgment of a court of competent jurisdiction declares that any term or
provision of Sections 4.5 or 4.6 is invalid or unenforceable, then the Parties agree that the court making
the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of
the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes closer to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so
modified after the expiration of the time within which the judgment may be appealed. In the event of litigation
involving Sections 4.4 , 4.5 or 4.6 , the non-prevailing party shall reimburse the prevailing party for all
costs and expenses, including reasonable attorneys’ fees and expenses, incurred in connection with any such
litigation, including any appeal therefrom. The existence of any claim or cause of action by any Seller against
Buyer, the Surviving Corporation or any of their respective Affiliates, whether predicated on this
39
Agreement or otherwise, will not constitute a defense to the enforcement by Buyer of the provisions of
Section 4.4 , 4.5 or 4.6 , which Sections will be enforceable notwithstanding the existence of any breach by
Buyer or the Surviving Corporation. Notwithstanding the foregoing, no Seller will be prohibited from pursuing
such claims or causes of action against Buyer or the Surviving Corporation.
4.8 Accrued Bonus Payment. The Accrued Bonuses in an aggregate amount not to exceed $200,000
shall be paid by Buyer within five (5) Business Days of the Closing.
4.9 Registration Rights Agreement. If at any time following the first anniversary of the Closing Date,
to the extent that any Seller’s Shares that are not then-subject to the Lockup Agreement are not eligible to be
sold under Rule 144 solely due to (a) Buyer’s failure to comply with the periodic reporting requirements of the
Securities Exchange Act or (b) a decrease in the total number of outstanding shares of Buyer Common Stock to
less than 30,000,000 (other than a result of a stock dividend, stock split, reorganization, recapitalization or
similar transaction), then Buyer shall use commercially reasonable efforts to grant such Seller customary
registration rights in respect of such Shares pursuant to a mutually agreeable registration rights agreement.
4.10 Release. Each Seller and each other Seller Party executing the Required Documentation for
itself, himself or herself, and its, his or her heirs, personal representatives, successors and assigns (collectively,
the “ Releasors ”), hereby (a) forever fully and irrevocably releases and discharges Buyer, the Surviving
Corporation, each of its respective Subsidiaries, and each of their respective predecessors, successors, direct or
indirect subsidiaries and past and present stockholders, members, managers, directors, officers, employees,
agents, and other representatives (collectively, the “ Released Parties ”) from any and all actions, suits, claims,
demands, debts, agreements, obligations, promises, judgments, or liabilities of any kind whatsoever in law or
equity and causes of action of every kind and nature, or otherwise (including, claims for damages, costs,
expense, and attorneys’, brokers’ and accountants fees and expenses) arising out of or related to events, facts,
conditions or circumstances existing or arising prior to the Closing Date, which the Releasors can, shall or may
have against the Released Parties, whether known or unknown, suspected or unsuspected, unanticipated as well
as anticipated (collectively, the “ Released Claims ”), and (b) irrevocably agree to refrain from directly or
indirectly asserting any claim or demand or commencing (or causing to be commenced) any Proceeding
against any Released Party based upon any Released Claim. Notwithstanding the preceding sentence of this
Section 4.8 , “ Released Claims ” does not include, and the provisions of this Section 4.8 shall not release or
otherwise diminish, (i) the obligations of any Party set forth in or arising under any provisions of this
Agreement or the Ancillary Agreements, and (ii) if such Seller Party is an employee of the Company or any of
its Subsidiaries, in respect of (i) the current year’s accrued but unpaid compensation and (ii) such employee’s
outstanding benefits under the Employee Benefit Plans of the Company as of the Closing Date.
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ARTICLE 5
CLOSING DELIVERIES
5.1 Closing Deliveries of the Company. At or prior to the Closing, the Company, on behalf of the
Sellers and the Company, shall deliver to Buyer and Merger Sub:
(j) certificates representing at least ninety percent (90%) of the Seller Securities (to the extent
such Seller Securities are certificated), together with other appropriate instruments of transfer to convey the
same to Buyer;
(k) a certificate of the Secretary of the Company and each of its Subsidiaries, dated as of the
Closing Date, attaching and certifying (i) the Organizational Documents of the Company and each of its
Subsidiaries, (ii) the authorizing resolutions of the Company and each of its Subsidiaries and (iii) the
incumbency and signatures of the Persons signing this Agreement and the other Ancillary Agreements to which
the Company or any of its Subsidiaries is a party;
(l) good standing certificates for the Company and each of its Subsidiaries from the
jurisdiction of each such Person’s organization and each jurisdiction in which the Company or any Subsidiary is
qualified to do business;
(m) counterpart signature pages to the Employment Offer Letters signed by the individuals set
forth on Schedule 5.1(d) ;
(n) resignation letters from each member of the board of directors and each officer of the
Company and its Subsidiaries set forth on Schedule 5.1(e) ;
(o) all documentation necessary to obtain releases of all Liens (other than the Permitted
Liens), including appropriate UCC termination statements;
(p) payoff and release letters from the holders of the Debt set forth on Schedule 5.1(g) that (i)
reflect the amounts required in order to pay in full such Debt and (ii) provide that, upon payment in full of the
amounts indicated, all Liens with respect to the assets of the Company or any of its Subsidiaries shall be
terminated and of no further force and effect, together with UCC-3 termination statements with respect to the
financing statements filed against the assets or equity interests of the Company or any of its Subsidiaries by the
holders of such Liens;
(q) a counterpart signature page to the Escrow Agreement signed by the Representative;
(r) a counterpart signature page to the Lockup Agreement signed by the Sellers;
(s) a termination agreement from each party to the related party Contracts identified on
Schedule 5.1(j);
(t) an affidavit, certified under penalties of perjury by the Company, stating that the Company
is not and has not been a “United States real property holding corporation” within
41
the meaning of Section 897(c) of the Code, dated as of the Closing Date and in form and substance required
under Treasury Regulation Section 1.897-2(h);
(u) the Option Cancellation Agreements signed and delivered by the In-Money Optionholders
as of the Closing Date;
(v) the Warrant Cancellation Agreements signed and delivered by the Warrantholders as of
the Closing Date;
(w) a certificate of the Chief Executive Officer of the Company, dated as of the Closing Date,
attaching and certifying the Consideration Spreadsheet; and
(x) all other instruments and documents required by this Agreement to be delivered by the
Company, its Subsidiaries, the Sellers or the Representative to Buyer or Merger Sub, and such other instruments
and documents which Buyer, Merger Sub or its counsel may reasonably request to effectuate the transactions
contemplated hereby.
All such agreements, documents and other items shall be in form and substance satisfactory to Buyer
and Merger Sub.
5.2 Closing Deliveries of Buyer and Merger Sub. At or prior to the Closing, Buyer and Merger Sub
shall deliver to the Company, on behalf of the Company and the Sellers:
(a) a certificate from the Secretary of Buyer and Merger Sub, dated as of the Closing Date,
attaching and certifying (i) the Organizational Documents of Buyer and Merger Sub, (ii) the authorizing
resolutions of Buyer and Merger Sub and (iii) the incumbency and signatures of the Persons signing this
Agreement and the other Ancillary Agreements to which Buyer or Merger Sub is a party;
(b) counterpart signature pages to the Escrow Agreement, Employment Offer Letters and
Lockup Agreement signed by Buyer; and
(c) all other instruments and documents required by this Agreement to be delivered by Buyer
or Merger Sub to the Company, the Sellers or the Representative, and such other instruments and documents
which the Company or its counsel may reasonably request to effectuate the transactions contemplated hereby.
All such agreements, documents and other items shall be in form and substance satisfactory to the
Company.
ARTICLE 6
REMEDIES FOR BREACHES OF THIS AGREEMENT
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6.1 Indemnification by Seller Parties.
(d) Subject to the terms and conditions of this Article 6, the Seller Parties, severally and not
jointly, will indemnify and hold harmless Buyer, the Surviving Corporation, each of their respective
Subsidiaries, each of their respective Affiliates, and their respective successors and assigns (the “ Buyer
Indemnitees ”) from and against the entirety of any Adverse Consequences that any Buyer Indemnitee may
suffer or incur (including any Adverse Consequences they may suffer or incur after the end of any applicable
survival period, provided that an indemnification claim with respect to such Adverse Consequence is made
pursuant to this Article 6 prior to the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by (i) any breach or inaccuracy of any representation or warranty made in
this Agreement or in any certificate or instrument delivered pursuant hereto, (ii) any breach of any covenant or
agreement of the Company, any of its Subsidiaries or the Representative in this Agreement or in any certificate
or instrument delivered pursuant hereto, (iii) any claim, including, but not limited to, an appraisal claim, made
by any Seller Party relating to such Person’s rights with respect to the Consideration, or the calculations and
determinations set forth on the Consideration Spreadsheet, and any amounts paid to the holders of Dissenting
Shares, including any interest required to be paid thereon, that are in excess of what such holders would have
received hereunder had such holders not been holders of Dissenting Shares or (iv) any Adverse Consequences
attributable to the failure of any Seller Party (other than any Seller) to deliver the Required Documentation.
(e) Subject to the terms and conditions of this Article 6, each Seller Party, severally and not
jointly, will indemnify and hold harmless the Buyer Indemnitees from and against the entirety of any Adverse
Consequences that any Buyer Indemnitee may suffer or incur (including any Adverse Consequences they may
suffer or incur after the end of any applicable survival period, provided that an indemnification claim with
respect to such Adverse Consequence is made pursuant to this Article 6 prior to the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of, or caused by (i) any breach or
inaccuracy of any representation or warranty made by such Seller Party in this Agreement or in any certificate
or instrument delivered pursuant hereto or (ii) any breach of any covenant or agreement of such Seller Party in
this Agreement or in any certificate or instrument delivered pursuant hereto.
6.2 Indemnification by Buyer. Subject to the terms and conditions of this Article 6, Buyer will
indemnify and hold harmless the Seller Parties, their respective Affiliates, and their respective successors and
assigns (the “ Seller Party Indemnitees ”) from and against the entirety of any Adverse Consequences they may
suffer or incur (including any Adverse Consequences they may suffer or incur after the end of any applicable
survival period, provided that an indemnification claim with respect to such Adverse Consequence is made
pursuant to this Article 6 prior to the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by (a) any breach or inaccuracy of any representation or warranty made
by Buyer and Merger Sub in this Agreement or in any certificate or instrument delivered pursuant hereto or (b)
any breach of any covenant or agreement of Buyer or Merger Sub in this Agreement or in any certificate or
instrument delivered pursuant hereto. Survival and Time Limitations . All representations, warranties,
covenants and agreements of the Parties in this Agreement or any other certificate or document delivered
pursuant to this Agreement will survive the Closing. The Seller
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Parties will have no liability with respect to any claim under Section 6.1(a)(i) or Section 6.1(b)(i) unless Buyer
notifies the Representative of such a claim on or before the first anniversary of the Closing Date; provided ,
however , that (a) any claim relating to any representation made in Sections 2.1(a) , 2.1(c) , 2.1(d) , 3.2 ,
3.3 , 3.5 , 3.10 and 3.18 may be made at any time until the date that is sixty (60) days after the
expiration of the applicable statute or period of limitations (collectively, the “ Excluded Representations ”) and
(b) any claim related to intentional or fraudulent breaches of the representations and warranties may be made at
any time without limitation. Buyer will have no liability with respect to any claim for any breach or inaccuracy
of any representation or warranty in this Agreement unless the Representative notifies Buyer of such a claim
on or before the first anniversary of the Closing Date; provided , however , that any claim relating to any
representation made in Sections 2.2(b) and 2.2(d) may be made at any time without any time limitation. If
Buyer or the Representative, as applicable, provides proper notice of a claim within the applicable time period
set forth above, then liability for such claim will continue until such claim is resolved.
6.3 Limitations on Indemnification by Seller Parties.
(c) With respect to the matters described in Section 6.1(a)(i), the Seller Parties will have no
liability with respect to such matters until Buyer Indemnitees have suffered aggregate Adverse Consequences
by reason of all such breaches in excess of $100,000 (the “ Threshold ”), after which point the Seller Parties will
be obligated to indemnify Buyer Indemnitees from and against all Adverse Consequences from dollar one;
provided , that the foregoing limitations shall not apply in respect of any Adverse Consequences relating to (i)
breaches of the Excluded Representations or (ii) any intentional or fraudulent breach of a representation or
warranty.
(d) With respect to the matters described in Section 6.1(a)(i), the aggregate maximum liability
of all Seller Parties shall be the sum of the Indemnity Escrow Funds and the cash value of the Indemnity Escrow
Shares deposited into the respective Escrow Account by Buyer (the “ Cap ”); provided , that the foregoing
limitations shall not apply in respect of any Adverse Consequences relating to (i) breaches of the Excluded
Representations or (ii) any intentional or fraudulent breach of representation or warranty.
(e) With respect to (i) the matters described in Section 6.1(a)(i) relating to breach of any
Excluded Representation or (ii) any intentional or fraudulent breach of a representation or warranty, the
aggregate maximum liability of all Seller Parties shall be the Consideration paid to such Seller Parties pursuant
to the transactions contemplated by this Agreement.
(f) With respect to the matters described in Section 6.1, the aggregate maximum liability of all
Optionholders shall be the Consideration paid to such Optionholders pursuant to the transactions contemplated
by this Agreement.
6.4 Limitations on Indemnification by Buyer.With respect to the matters described in Section 6.2(a) ,
Buyer will have no liability with respect to such matters until Seller Party Indemnitees have suffered Adverse
Consequences by reason of all such breaches in excess of the Threshold, after which point Buyer will be
obligated to indemnify Seller Party Indemnitees from and against all Adverse Consequences from dollar one;
provided , that the foregoing limitations shall not apply in respect of any Adverse Consequences relating to (a)
breaches of any representation
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made in Sections 2.2(b) and 2.2(d) or (b) any intentional or fraudulent breach of a representation or warranty.
(f) Upon receipt of the notice described in Section 6.6(a), the Indemnifying Party will have
the right to defend the Indemnified Party against the Third-Party Claim with counsel reasonably satisfactory to
the Indemnified Party, provided, that (i) the Indemnifying Party notifies the Indemnified Party in writing within
thirty (30) days after the Indemnified Party has given notice of the Third-Party Claim that the Indemnifying
Party will indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the
Third-Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend
against the Third-Party Claim and fulfill its indemnification obligations hereunder, (iii) the Third-Party Claim
involves only money damages and does not seek an injunction or other equitable relief, (iv) settlement of, or an
adverse judgment with respect to, the Third-Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice adverse to the continuing business interests or the
reputation of the Indemnified Party, and (v) the Indemnifying Party conducts the defense of the Third-Party
Claim actively and diligently. The Indemnifying Party will keep the Indemnified Party apprised of all material
developments, including settlement offers, with respect to the Third-Party Claim and permit the Indemnified
Party to participate in the defense of the Third-Party Claim. So long as the Indemnifying Party is conducting the
defense of the Third-Party Claim in accordance with Section 6.6(b) , the Indemnifying Party will not be
responsible for any attorneys’ fees or other expenses incurred by the Indemnified Party regarding the defense of
the Third-Party Claim.
(g) In the event that any of the conditions under Section 6.6(b) is or becomes unsatisfied,
however, (i) the Indemnified Party may defend against, and consent to the entry of any judgment on or enter
into any settlement with respect to, the Third-Party Claim in any manner it may reasonably deem appropriate,
(ii) the Indemnifying Parties will reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third-Party Claim (including reasonable attorneys’ fees and expenses), and (iii) the
Indemnifying Parties will remain responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim to the fullest
extent provided in this Article 6 .
(h) Except in circumstances described in Section 6.6(c), neither the Indemnified Party nor the
Indemnifying Party will consent to the entry of any judgment or enter into any settlement with respect to the
Third-Party Claim without the prior written consent of the other party, which consent will not be unreasonably
withheld or delayed.
6.5 Other Indemnification Matters. All indemnification payments under this Article 6 will be deemed
adjustments to the Consideration. For purposes of determining whether there has been any misrepresentation or
breach of a representation or warranty, and for purposes of determining the amount of Adverse Consequences
resulting therefrom, all qualifications or exceptions in any representation or warranty relating to or referring to
the terms “material”,
45
“materiality”, “in all material respects”, “Material Adverse Change” or any similar term or phrase shall be
disregarded, it being the understanding of the Parties that for purposes of determining liability under this
Article 6 , the representations and warranties of the Parties contained in this Agreement shall be read as if such
terms and phrases were not included in them. Each Seller Party agrees that (a) such Seller Party will not make
any claim for indemnification against Buyer Indemnitee by virtue of the fact that any of the Seller Parties or
such Seller Party’s equityholders, directors, managers, partners, officers, employees, representatives or other
Affiliates was an equityholder, partner, trustee, director, manager, officer, employee or agent of the Company
or any of its Subsidiaries or was serving as an equityholder, partner, trustee, director, manager, officer,
employee or agent of any Person, regardless of the nature of the Adverse Consequences claimed, with respect
to any Proceeding brought by any Buyer Indemnitee against any Seller Party or any claim of any Buyer
Indemnitee against any Seller Party in connection with this Agreement or the transactions contemplated
hereby, and (b) such Seller Party has no claims or rights to contribution or indemnity from the Company or any
of its Subsidiaries with respect to any amounts paid by any Seller Party pursuant to this Article 6 .
6.6 Release of Indemnity Escrow Funds and Indemnity Escrow Shares from Escrow.Subject to the
terms of the Escrow Agreement, in the event that the Buyer Indemnitees are entitled to indemnification from
the Seller Parties pursuant to this Article 6 , the Escrow Agent shall, upon the receipt of a joint written
instruction from Buyer and the Representative, or written instruction from Buyer attaching a final
non-appealable court order from a court of competent jurisdiction setting forth the amount of the Adverse
Consequences, release and transfer to the Buyer Indemnitees pursuant to this Article 6 the number of
Indemnity Escrow Shares and the portion of the Indemnity Escrow Funds having an aggregate value on the
date thereof equal to the amount owed to such Buyer Indemnitee pursuant to this Article 6 in accordance
with their Pro Rata Percentage and in satisfaction of the Seller Parties’ indemnity obligations hereunder.
Concurrently with such transfer, the applicable Sellers shall take all actions reasonably requested by Buyer to
effect such transfer, including delivering such certificates (if the Indemnity Escrow Shares are certificated) and
related transfer powers and indemnities by the Sellers to the Buyer Indemnitees and providing customary
representations as to organization, existence and good standing of the Sellers, the legal right and requisite
power and authority of the Sellers to execute and deliver such instruments of transfer, the ownership and title
to the Indemnity Escrow Shares so transferred, that each Seller has the sole right to transfer such Indemnity
Escrow Shares and has not granted any rights to purchase or interests of any kind in such Indemnity Escrow
Shares to any other Person, and that upon the closing of such transfer, the Buyer Indemnitees shall receive
record, legal and beneficial ownership of and good title to such Indemnity Escrow Shares, free and clear of any
Liens. Each such Seller hereby grants a power of attorney and proxy in favor of Buyer to take any action to
consummate any of the actions contemplated by this Section 6.8 , which power of attorney and proxy is
irrevocable, coupled with an interest and shall survive indefinitely.
6.7 Setoff. Buyer shall be entitled, but not obligated, to recover any amounts due from the Seller
Parties under this Agreement by setting off such amounts against other amounts owed to the Seller Parties (or
their Affiliates) under this Agreement, including, without limitation, the Earnout Funds or the Earnout Shares.
The exercise of such right of set off by Buyer, whether or not ultimately determined to be justified, will not
constitute a breach of this Agreement. Neither the exercise nor
46
the failure to exercise such right of set off will constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it. If it is ultimately determined that such
amounts were not due to Buyer, then any amount to which Buyer exercised its right of set-off under this
Section 6.9 shall bear interest from (a) the date such amount is payable pursuant to this Section 6. 9 until (b)
the date on which such amount is paid by Buyer to the Seller Parties, at a rate equal to the lesser of 8% per
annum or the maximum rate permitted by applicable Law. Such interest shall be payable in immediately
available funds upon demand.
6.8 Exclusive Remedies. Subject to Sections 4.5, 4.6, 4.7 and 9.10, and except as set forth in Section
9.16 with respect to the Representative, the Parties acknowledge and agree that their sole and exclusive
remedy with respect to any and all claims (other than claims arising from fraud) for any breach of any
representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject
matter of this Agreement, shall be pursuant to the indemnification provisions set forth in Article 7 and this
Article 6 . In furtherance of the foregoing, each Party (other than the Representative with respect to the
indemnities in favor of the Representative set forth in Section 9.16 ) hereby waives, to the fullest extent
permitted under Law, any and all rights, claims and causes of action for any breach of any representation,
warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this
Agreement it may have against the other Parties and their Affiliates and each of their respective representatives
arising under or based upon any Law, except pursuant to the indemnification provisions set forth in Article 7
and this Article 6. Nothing in this Section 6.10 shall limit any Person’s right to seek and obtain any
equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraud.
ARTICLE 7
TAX MATTERS
The following provisions will govern the allocation of responsibility as between Buyer and the Seller
Parties for certain tax matters following the Closing Date:
7.1 Tax Indemnification. In addition to the indemnification provisions of Article 6, except to the
extent such Taxes are reflected as a liability for purposes of finally calculating Working Capital pursuant to
Article 1 , the Seller Parties shall be liable for, and shall severally and not jointly indemnify and hold Buyer
Indemnitees harmless from, (a) all Taxes of the Seller Parties, (b) all Taxes imposed on or incurred by the
Company and its Subsidiaries with respect to all Tax periods ending on or prior to the Closing Date, (c) all
Taxes incurred by the Company and its Subsidiaries caused by or resulting from the sale or exchange of the
Company Securities, (d) for any Tax period that begins before the Closing Date and ends after the Closing
Date, all Taxes of the Company and its Subsidiaries that relate to the portion of such Tax period ending on the
Closing Date, and (e) all Taxes of any Person imposed on any of the Company or any Subsidiary as a
transferee or successor, by contract or otherwise, which Taxes relate to an event or transaction occurring before
the Closing. With respect to the matters described in the preceding clauses (b) through (e), the aggregate
maximum liability of all Optionholders shall be the Consideration paid to such Optionholders pursuant to the
transactions contemplated by this Agreement.
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7.2 Tax Periods Ending on or Before the Closing Date.Buyer will prepare, or cause to be prepared,
and file, or cause to be filed, all Tax Returns for the Company and its Subsidiaries for all Tax periods ending
on or prior to the Closing Date that are filed after the Closing Date. Buyer will provide the Representative with
copies of any such Tax Returns for the Representative’s reasonable review and comment at least sixty (60)
days prior to the due date thereof (giving effect to any extensions thereto). The Seller Parties, will pay all
Taxes due with respect to such Tax Returns, but only to the extent such Taxes are not reflected as a liability for
purposes of finally calculating Working Capital pursuant to Article 1 .
7.3 Tax Periods Beginning Before and Ending After the Closing Date. Buyer will timely prepare, or
cause to be prepared, and timely file, or cause to be filed, all Tax Returns for the Company and its Subsidiaries
for Tax periods that begin before the Closing Date and end after the Closing Date (the “ Straddle Period
Returns ”). Buyer will provide the Representative with copies of any Straddle Period Returns at least sixty (60)
days prior to the due date thereof (giving effect to any extensions thereto), accompanied by a statement (the “
Straddle Statement ”) setting forth and calculating in reasonable detail the Taxes that relate to the portion of
such Tax period ending on the Closing Date (the “ Pre-Closing Taxes ”). If the Representative agrees with the
Straddle Period Return and Straddle Statement, the Seller Parties shall pay to Buyer, not later than five (5)
Business Days before the due date for the payment of Taxes with respect to such Straddle Period Return, an
amount equal to the Pre-Closing Taxes as shown on the Straddle Statement, but only to the extent such Taxes
are not reflected as a liability for purposes of finally calculating Working Capital pursuant to Article 1 . If,
within thirty (30) days after the receipt of the Straddle Period Return and Straddle Statement, the
Representative (a) notifies Buyer that it disputes the manner of preparation of the Straddle Period Return or the
Pre-Closing Taxes calculated in the Straddle Statement and (b) provides Buyer with a statement setting forth in
reasonable detail its computation of the Pre-Closing Taxes and its proposed form of the Straddle Period Return
and Straddle Statement, then Buyer and the Representative shall attempt to resolve their disagreement within
five (5) days following the Representative’s notification of Buyer of such disagreement. If Buyer and the
Representative are not able to resolve their disagreement, the dispute shall be submitted to the Accountants.
The Accountants will resolve the disagreement within thirty (30) days after the date on which they are engaged
or as soon as possible thereafter. The determination of the Accountants shall be binding on the Parties. The
cost of the services of the Accountants will be borne by the Party whose calculation of the matter in
disagreement differs the most from the calculation as finally determined by the Accountants. If each of the
Party’s calculation differs equally from the calculation as finally determined by the Accountants, then such
cost will be borne half by the Representative and half by Buyer. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on)
the Closing Date, the portion of such Tax that relates to the portion of such Tax period ending on the Closing
Date (i.e., the Pre-Closing Taxes) will (a) in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to equal the amount of such Tax for the entire Tax period multiplied by a
fraction the numerator of which is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (b) in the case of any Tax based upon
or related to income or receipts, be deemed to equal the amount that would be payable if the relevant Tax
period ended on the Closing Date.
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7.4 Cooperation on Tax Matters. Buyer and the Representative will cooperate, as and to the extent
reasonably requested by the other Party, in connection with the filing and preparation of Tax Returns pursuant
to this Article and any Proceeding related thereto. Such cooperation will include the retention and (upon the
other Party’s request) the provision of records and information that are reasonably relevant to any such
Proceeding and making employees available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder. Buyer and the Representative will retain all books and
records with respect to Tax matters pertinent to the Company and its Subsidiaries relating to any Tax period
beginning before the Closing Date until thirty (30) days after the expiration of the statute or period of
limitations of the respective Tax periods.
7.5 Certain Taxes. All transfer (including real estate transfer), documentary, sales, use, stamp,
registration and other such Taxes (including all Taxes caused by or resulting from the sale or exchange of the
Company Securities) and fees (including any penalties and interest) incurred in connection with this
Agreement or the transactions contemplated hereby will be paid by Buyer, when due, and the Buyer will, at the
expense of Buyer, file all necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable Law, the
Surviving Corporation will join in the execution of any such Tax Returns and other documentation.
ARTICLE 8
DEFINITIONS
“Accountants” has the meaning set forth in Section 1.4 above.
“Accrued Bonuses” means the accrued bonus payments due to Company employees as of the date
hereof.
“Adjustment Amount” means an amount, which may be positive or negative, equal to (a) the Working
Capital Surplus, if any, minus (b) the Working Capital Deficit, if any, minus (c) the Debt Surplus, if any,
plus (d) the Debt Deficit, if any.
“Adverse Consequences” means all losses, damages (other than punitive damages unless specifically
awarded to a third party), actions, suits, proceedings, claims, liabilities, fees, costs and expenses (including
interest, penalties and reasonable attorneys’ fees and expenses in connection with Third Party Claims).
“Adjustment Escrow Funds” means $15,034.60.
“Adjustment Escrow Shares” means 49,078shares of Buyer Common Stock, valued at $2.75 per share.
“Adjustment Funds” has the meaning set forth in Section 1.3(g)(ii).
“Adjustment Shares” has the meaning set forth in Section 1.3(g)(i).
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“Affiliate” means, with respect to the Person to which it refers, (a) a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under common control with, such Person, (b)
any officer, director or shareholder of such Person, (c) any Buyer, sibling, descendant or spouse of such Person
or of any of the Persons referred to in clauses (a) and (b), and (d) any corporation, limited liability company,
general or limited partnership, trust, association or other business or investment entity that directly or indirectly,
through one or more intermediaries controls, is controlled by or is under common control with any of the
foregoing individuals. For purposes of this definition, the term “control” of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the management or policies, whether
through the ownership of voting securities, by contract or otherwise.
“Agreement” has the meaning set forth in the preface above.
“Ancillary Agreements” means all of the agreements being executed and delivered pursuant to this
Agreement.
“Applicable Area” means (a) anywhere in the world, but if such area is determined by judicial action to
be too broad, then it means (b) North America, but if such area is determined by judicial action to be too broad,
then it means (c) any state within the United States of America in which the Company or any of its Subsidiaries
engaged in Business prior to the Closing Date.
“Business” means the business of (a) providingsoftware data storage capability through the Company’s
“Transporter” business line and (b) providing any other products or services that the Company or any of its
Subsidiaries provide at any time during the twelve (12) months prior to the Closing Date.
“Business Day” means any day that is not a Saturday, Sunday or any other day on which banks are
required or authorized by Law to be closed in New York, New York.
“Buyer” has the meaning set forth in the preface above.
“Buyer Common Stock” has the meaning set forth in Section 2.2(f) above.
“Buyer Indemnitee” has the meaning set forth in Section 6.1 above.
“Buyer SEC Reports” has the meaning set forth in Section 2.2(g) above.
“Buyer Shares” means (a) 1,589,479 shares of Buyer Common Stock, valued at $2.75 per share,
minus (b) the Escrow Shares.
“Cap” has the meaning set forth in Section 6.5(b) above.
“Cash” means the aggregate amount of cash and cash equivalents of the Company and its Subsidiaries
on a consolidated basis as determined in accordance with GAAP, consistently applied and, to the extent
consistent with GAAP, the Company’s historical GAAP practices; provided , that if such aggregate amount of
cash and cash equivalents is a negative number, then it shall include the amount of all fees, penalties or interest
related to such negative amount of Cash.
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“Cash Consideration” means $1,284.34.
“Cash Exchange Fund” has the meaning set forth in Section 1.3(c) above.
“CCC” has the meaning set forth in the preliminary statements above.
“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and any applicable rules, regulations, directives, Orders, and guidance promulgated
thereunder, and any successor to such statute, rules, regulations, directives, Orders or guidance.
“Certificate of Ownership” has the meaning set forth in Section 1.10 above.
“Certificates” has the meaning set forth in Section 1.12(a) above.
“Closing” has the meaning set forth in Section 1.9 above.
“Closing Date” has the meaning set forth in Section 1.9 above.
“Closing Statement” has the meaning set forth in Section 1.4 above.
“Change in Control” means any transaction or series of related transactions, whether or not the
Surviving Corporation is a party thereto, (a) in which, after giving effect to such transaction or transactions, the
Surviving Corporation’s equity securities representing in excess of fifty percent (50%) of the voting power of
the Company are owned directly, or indirectly through one or more entities, by any “person” or “group” (as
such terms are used in Section 13(d) of the Securities Exchange Act) of persons other than Buyer or one of its
Affiliates, or (b) in which there is a sale, lease or other disposition of all or substantially all of the assets of the
Surviving Corporation (including securities of the Surviving Corporation’s directly or indirectly owned
Subsidiaries (if any)).
“Change in Control Event” means the consummation of a Change in Control of the Surviving
Corporation prior to the expiration of the Final Earnout Measurement Period.
“COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code §4980B and of
any similar state Law.
“Code” means the Internal Revenue Code of 1986, as amended, and any applicable rules and
regulations thereunder, and any successor to such statute, rules or regulations.
“Company” has the meaning set forth in the preface above.
“Company Insurance Agreements” has the meaning set forth in Section 3.15 above.
“Company Shareholders” means, collectively, the holders of the Company Preferred Stock and the
holders of the Company Common Stock as of immediately prior to the Closing.
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“Company Securities” means all of the outstanding equity of the Company, as set forth on Schedule
1.1 .
“Confidential Information” means any information concerning the business and affairs of the Company
and its Subsidiaries not already generally available to the public.
“Consent” means, with respect to any Person, any consent, approval, authorization, permission or
waiver of, or registration, declaration or other action or filing with or exemption by such Person.
“Consideration” has the meaning set forth in Section 1.2 above.
“Consideration Spreadsheet” has the meaning set forth in Section 1.19(a) above.
“Contract” means any oral or written contract, obligation, understanding, commitment, lease, license,
purchase order, bid or other agreement.
“Debt” means any (a) obligations relating to indebtedness for borrowed money, (b) obligations
evidenced by bonds, notes, debentures or similar instruments, (c) obligations in respect of capitalized leases
(calculated in accordance with GAAP), (d) the principal or face amount of banker’s acceptances, surety bonds,
performance bonds or letters of credit (in each case whether or not drawn), (e) obligations for the deferred
purchase price of property or services, including, without limitation, the maximum potential amount payable
with respect to earnouts, purchase price adjustments or other payments related to acquisitions (other than
current accounts payable to suppliers and similar accrued liabilities incurred in the Ordinary Course of
Business, paid in a manner consistent with industry practice and reflected as a current liability in the final
calculation of Working Capital), (f) obligations under any existing interest rate, commodity or other swap,
hedge or financial derivative agreement entered into by the Company or its Subsidiaries prior to Closing, (g)
Off-Balance Sheet Financing of the Company or its Subsidiaries in existence immediately prior to the Closing,
(h) indebtedness or obligations of the types referred to in the preceding clauses (a) through (g) of any other
Person secured by any Lien on any assets of the Company or any of its Subsidiaries, even though the Company
and its Subsidiaries have not assumed or otherwise become liable for the payment thereof, and (j) obligations in
the nature of guarantees of obligations of the type described in clauses (a) through (g) above of any other
Person, in each case together with all accrued interest thereon and any applicable prepayment, redemption,
breakage, make-whole or other premiums, fees or penalties.
“Debt Amount” means all Debt of the Company and its Subsidiaries (on a consolidated basis) as of the
Closing Date plus, without duplication, any amounts required to fully pay or otherwise satisfy all such Debt
(including, but not limited to, any prepayment premium or penalty, breakage costs, accrued interest and costs
and expenses).
“Debt Deficit” means the amount by which the Debt Amount is less than $2,634,720.
“Debt Surplus” means the amount by which the Debt Amount is greater than $2,634,720.
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“Disclosure Schedule” means the disclosure schedule delivered by the Company to Buyer and Merger
Sub on the date hereof.
“Dissenting Shares” has the meaning set forth in Section 1.13 above.
“Earnout Funds” means the aggregate amount of funds earned by the Seller Parties (other than the
Sellers) pursuant to Section 1.6 above.
“Earnout Measurement Period” means each of the Initial Earnout Measurement Period, Second Earnout
Measurement Period and Final Earnout Measurement Period.
“Earnout Objections Statement” has the meaning specified in Section 1.6 above.
“Earnout Report” has the meaning specified in Section 1.6 above.
“Earnout Shares” means the aggregate number of shares of Buyer Common Stock earned by the Sellers
pursuant to Section 1.6 above.
“Effective Time” has the meaning set forth in Section 1.10 above.
“Employee Benefit Plan” means any (a) qualified or nonqualified Employee Pension Benefit Plan or
deferred compensation or retirement plan, fund, program, or arrangement, (b) Employee Welfare Benefit Plan,
(c) “employee benefit plan” (as such term is defined in ERISA §3(3)), (d) equity-based plan, program, or
arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, phantom stock,
or restricted stock plan) or (e) other retirement, severance, bonus, profit-sharing, incentive, health, medical,
surgical, hospital, indemnity, welfare, sickness, accident, disability, death, apprenticeship, training, day care,
scholarship, tuition reimbursement, education, adoption assistance, prepaid legal services, termination,
unemployment, vacation or other paid time off, change in control, or other similar plan, fund, program, or
arrangement, whether written or unwritten, that is sponsored, maintained, or contributed to, or required to be
maintained or contributed to, by the Company or any ERISA Affiliate for the benefit of any present or former
officers, employees, agents, directors, consultants, or independent contractors of the Company or an ERISA
Affiliate.
“Employee Pension Benefit Plan” has the meaning set forth in ERISA §3(2).
“Employee Welfare Benefit Plan” has the meaning set forth in ERISA §3(1).
“Employment Offer Letters” means those certain employment offer letters dated as of the date hereof
between Buyer and each of the individuals set forth on Schedule 5.1(d) in the form of Exhibit A attached
hereto.
“Environmental, Health, and Safety Requirements” means all Laws and Orders concerning public
health and safety, worker and occupational health and safety, natural resources and pollution or protection of the
environment, including all those relating to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release,
control, or cleanup of any Hazardous Substances,
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materials, or wastes, chemical substances, or mixtures, pesticides, pollutants, contaminants, toxic chemicals,
petroleum products or byproducts, fuel oil products and byproducts, mold, asbestos, polychlorinated biphenyls,
noise, or radiation.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any Person that, together with the Company or any of its Subsidiaries, would
be treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and the regulations
thereunder.
“Escrow Accounts” means the escrow accounts established pursuant to the terms and conditions of the
Escrow Agreement.
“Escrow Agent” means Continental Stock Transfer & Trust Company.
“Escrow Agreement” means that certain Escrow Agreement to be entered into on the Closing Date
among the Escrow Agent, the Representative and Buyer, in the form of Exhibit B attached hereto.
“Escrow Funds” means, collectively, the Indemnity Escrow Funds and the Adjustment Escrow Funds.
“Escrow Shares” means, collectively, the Indemnity Escrow Shares and the Adjustment Escrow Shares.
“Exchange Agent” has the meaning set forth in Section 1.3(c) above.
“Excluded Representations” has the meaning set forth in Section 6.3 above.
“Fiduciary” has the meaning set forth in ERISA §3(21).
“Final Adjustment Amount” has the meaning set forth in Section 1.4 above.
“Final Earnout Funds” means $274,950.75.
“Final Earnout Measurement Period” means the six (6) month period beginning January 1, 2017 and
ending June 30, 2017.
“Final Earnout Shares” means 574,819 shares of Buyer Common Stock.
“Financial Statements” has the meaning set forth in Section 3.7(a) above.
“Final Target Revenue” means $7,000,000.
“GAAP” means generally accepted accounting principles in effect from time to time in the United
States as set forth in pronouncements of the Financial Accounting Standards Board (and its predecessors) and
the American Institute of Certified Public Accountants.
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“Governmental Body” means any foreign or domestic federal, state or local government or
quasi-governmental authority or any department, agency, subdivision, court or other tribunal of any of the
foregoing.
“Hazardous Substances” means (a) petroleum or petroleum products, flammable materials, explosives,
radioactive materials, radon gas, lead-based paint, asbestos in any form, urea formaldehyde foam insulation,
polychlorinated biphenyls (PCBs), transformers or other equipment that contain dielectric fluid containing
PCBs and toxic mold or fungus of any kind or species, (b) any chemicals or other materials or substances which
are defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous
materials,” “toxic substances,” “toxic pollutants,” “contaminants,” “pollutants,” or words of similar import
under any applicable Environmental, Health, and Safety Requirements, and (c) any other chemical, material or
substance exposure to which is prohibited, limited or regulated under any applicable Environmental, Health,
and Safety Requirements.
“Improvements” means all buildings, structures, fixtures, building systems and equipment, and all
components thereof (including the roof, foundation and structural elements), included in the Real Property.
“Indemnified Party” has the meaning set forth in Section 6.6(a) above.
“Indemnifying Party” has the meaning set forth in Section 6.6(a) above.
“Indemnity Escrow Funds” means $50,114.91.
“Indemnity Escrow Shares” means 163,593shares of Buyer Common Stock, valued at $2.75 per share.
“Initial Earnout Funds” means $137,475.38.
“Initial Earnout Measurement Period” means the six (6) month period beginning January 1, 2016 and
ending June 30, 2016.
“Initial Earnout Shares” means 313,538 shares of Buyer Common Stock.
“Initial Target Revenue” means $2,500,000.
“Intellectual Property” means all of the following in any jurisdiction throughout the world: (a) all
inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations,
continuations-in-part, divisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, slogans, trade names, corporate and business names, Internet domain names, and rights in
telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets
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and confidential business information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical data and information, designs,
drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all Software, (g) all material advertising and promotional materials, (h) all other
proprietary rights, and (i) all copies and tangible embodiments thereof (in whatever form or medium).
“Intellectual Property Licenses” means any Contract pursuant to which the Company or any Subsidiary
uses Intellectual Property which is not owned by the Company or one of its Subsidiaries or pursuant to which
the Company or any Subsidiary grants any other Person the right to use any Intellectual Property owned by the
Company or any Subsidiary.
“In-Money Option” means any vested Option with respect to which the applicable exercise price is less
than the Per Share Purchase Price.
“In-Money Optionholder” means a holder of an In-Money Option.
“IT Assets” means Software, systems, servers, computers, hardware, firmware, middleware, networks,
data communications lines, routers, hubs, switches and all other information technology, equipment, and all
associated documentation.
“Key Employee” means Geoff Barrall and Gene Spies.
“Knowledge” means (a) in the case of an individual, the actual knowledge of such individual, upon
reasonable inquiry, (b) in the case of the Company, the actual knowledge of Geoff Barrall and Gene Spies, in
each case upon reasonable inquiry and (c) in the case of Buyer, the actual knowledge of Robert B. Fernander
and Scott J. Robinson, in each case upon reasonable inquiry.
“Law” means any foreign or domestic federal, state or local law, statute, code, ordinance, regulation,
rule, consent agreement, constitution or treaty of any Governmental Body, including common law.
“Leased Real Property” means all leasehold or subleasehold estates and other rights to use or occupy
any land, buildings, structures, improvements, fixtures or other interest in real property held by the Company or
any of its Subsidiaries.
“Leases” means all written or oral leases, subleases, licenses, concessions and other agreements,
including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant
to which the Company or any of its Subsidiaries holds any Leased Real Property.
“Lien” means any lien, mortgage, pledge, encumbrance, charge, security interest, adverse claim,
liability, interest, charge, preference, priority, proxy, transfer restriction (other than restrictions under the
Securities Act and state securities laws), encroachment, Tax, order, community property interest, equitable
interest, option, warrant, right of first refusal, easement, profit, license, servitude, right of way, covenant or
zoning restriction.
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“Lockup Agreement” means that certain Lockup Agreement dated as of the date hereof among the
Sellers and Buyer, in the form of Exhibit C attached hereto.
“Material Adverse Change” means any event, change, development, or effect that, individually or in the
aggregate, will or could reasonably be expected to have a materially adverse effect on the business, operations,
assets (including intangible assets), liabilities, operating results, value, employee, customer or supplier relations,
or financial condition of the Company or any of its Subsidiaries.
“Material Contracts” means, collectively, the Contracts required to be listed in Section 3.13(a) of the
Disclosure Schedule , the Leases, the Intellectual Property Licenses and the Company Insurance Agreements.
“Merger” has the meaning set forth in the preliminary statements above.
“Merger Sub” has the meaning set forth in the preface above.
“Most Recent Balance Sheet” means the balance sheet contained within the Most Recent Financial
Statements.
“Most Recent Financial Statements” has the meaning set forth in Section 3.7(a) above.
“Most Recent Fiscal Month End” has the meaning set forth in Section 3.7(a) above.
“Most Recent Fiscal Year End” has the meaning set forth in Section 3.7(a) above.
“Objections Statement” has the meaning set forth in Section 1.4 above.
“Off-Balance Sheet Financing” means (a) any liability of the Company or its Subsidiaries under any
sale and leaseback transactions which does not create a liability on the consolidated balance sheet of the
Company and (b) any liability of the Company or any of its Subsidiaries under any synthetic lease, Tax
retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where the
transaction is considered indebtedness for borrowed money for federal income Tax purposes but is classified as
an operating lease in accordance with GAAP for financial reporting purposes.
“Option” means any option to purchase Company Common Stock granted under the Stock Option Plan
and still outstanding as of immediately prior to the Closing, which options will be cancelled for the
consideration specified herein and which options are more fully set forth on Schedule 1.1 attached hereto.
“Option Cancellation Agreement” has the meaning set forth in Section 1.17 above.
“Option Consideration” has the meaning set forth in Section 1.3(d) above.
“Optionholder” means a holder of an Option.
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“Order” means any order, award, decision, injunction, judgment, ruling, decree, charge, writ, subpoena
or verdict entered, issued, made or rendered by any Governmental Body or arbitrator.
“Ordinary Course of Business” means the ordinary course of business consistent with past custom and
practice (including with respect to quantity and frequency).
“Organizational Documents” means (a) any certificate or articles of incorporation, bylaws, certificate or
articles of formation, operating agreement or partnership agreement, (b) any documents comparable to those
described in clause (a) as may be applicable pursuant to any Law and (c) any amendment or modification to any
of the foregoing.
“Owned Real Property” means all land, together with all buildings, structures, improvements and
fixtures located thereon, including all electrical, mechanical, plumbing and other building systems, fire
protection, security and surveillance systems, telecommunications, computer, wiring, and cable installations,
utility installations, water distribution systems, and landscaping, together with all easements and other rights
and interests appurtenant thereto (including air, oil, gas, mineral, and water rights), owned by the Company or
any of its Subsidiaries.
“Party” has the meaning set forth in the preface above.
“Per Share Purchase Price” means $0.28665.
“Permit” means any license, import license, export license, franchise, Consent, permit, certificate,
certificate of occupancy or Order issued by any Person.
“Permitted Lien” means any (a) liens for Taxes not yet due or payable or for Taxes that the Company or
its Subsidiaries are contesting in good faith through appropriate proceedings in a timely manner, in each case
for which adequate reserves have been established and shown on the Most Recent Balance Sheet, (b) liens of
landlords, carriers, warehousemen, workmen, repairmen, mechanics, materialmen and similar liens arising in
the Ordinary Course of Business and not incurred in connection with the borrowing of money, (c) restrictions,
easements, covenants, reservations, rights of way or other similar matters of title to the Leased Real Property of
record, (d) zoning ordinances, restrictions, prohibitions and other requirements imposed by any Governmental
Body, all of which do not materially interfere with the conduct of the business of the Company or its
Subsidiaries and (e) standard restrictions on the scope of any licenses granted by third parties to the Company or
its Subsidiaries in any Intellectual Property Licenses.
“Person” means any individual, corporation, partnership, limited liability company, firm, joint venture,
association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.
“Post-Closing Purchase” has the meaning set forth in Section 1.20(a) above.
“Potential Seller” has the meaning set forth in Section 1.20(a) above.
“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and the
portion of any Straddle Period ending on the Closing Date.
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“Pre-Closing Taxes” has the meaning set forth in Section 7.4 above.
“Proceeding” means any action, audit, lawsuit, litigation, investigation or arbitration (in each case,
whether civil, criminal or administrative) pending by or before any Governmental Body or arbitrator.
“Prohibited Transaction” has the meaning set forth in ERISA §406 and Code §4975.
“Pro Rata Percentage” has the meaning set forth in Section 1.3(g)(i) above.
“Real Property” means the Leased Real Property and the Owned Property.
“Receivables” has the meaning set forth in Section 3.7(d) above.
“Related Party” has the meaning set forth in Section 2.1(h) above.
“Released Claims” has the meaning set forth in Section 4.10 above.
“Released Parties” has the meaning set forth in Section 4.10 above.
“Releasors” has the meaning set forth in Section 4.10 above.
“Representative” has the meaning set forth in the preface above.
“Representative Losses” has the meaning set forth in Section 9.16(b) above.
“Required Documentation” means the Shareholder Required Documentation, the Option Cancellation
Agreement or the Warrant Cancellation Agreement, as the case may be.
“Restricted Period” means a period of twelve (12) months following Closing.
“Revenue” means, for the relevant time period, the revenue of the Surviving Corporation and its
Subsidiaries.
“SEC” means the Securities and Exchange Commission.
“Second Earnout Funds” means $275,525.59.
“Second Earnout Measurement Period” means the six (6) month period beginning July 1, 2016 and
ending December 31, 2016.
“Second Earnout Shares” means 574,819 shares of Buyer Common Stock.
“Second Target Revenue” means $5,500,000.
“Securities Act” means the Securities Act of 1933, as amended, and any applicable rules and
regulations thereunder, and any successor to such statute, rules or regulations.
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“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended, and any applicable
rules and regulations thereunder, and any successor to such statute, rules or regulations.
“Seller” or “Sellers” has the meaning set forth in the preface above.
“Seller Disclosure Schedule” means the disclosure schedule delivered by the Sellers to Buyer and
Merger Sub on the date hereof.
“Seller Securities” has the meaning set forth in the preliminary statements above.
“Seller Party Indemnitee” has the meaning set forth in Section 6.2 above.
“Seller Parties” means, collectively, the Company Shareholders, the Optionholders and the
Warrantholders.
“Share Exchange Fund” has the meaning set forth in Section 1.3(b) above.
“Shareholder Required Documentation” has the meaning set forth in Section 1.12(a).
“Shares” means, collectively, the Buyer Shares, the Warrant Shares, the Escrow Shares, the Adjustment
Shares (if any), and the Earnout Shares (if any).
“Stock Option Plan” means the 2012 Stock Option Plan of the Company.
“Straddle Period” means a taxable period beginning on or before but ending after the Closing Date.
“Straddle Period Return” has the meaning set forth in Section 7.3 above.
“Straddle Statement” has the meaning set forth in Section 7.3 above.
“Software” means computer software and computer programs (and all enhancements, versions,
releases, and updates thereto), including software compilations, software tool sets, compilers, higher level or
“proprietary” languages and all related programming and user documentation, whether in source code, object
code or human readable form, or any translation or modification thereof that substantially preserves its original
identity.
“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership,
association, or other business entity of which (a) if a corporation, a majority of the total voting power of shares
of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors,
managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person or a combination thereof or (b) if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of partnership or other
similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one
or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a
majority
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ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be
allocated a majority of such business entity’s gains or losses or shall be or control any manager, management
board, managing director or general partner of such business entity (other than a corporation). The term “
Subsidiary ” shall include all Subsidiaries of such Subsidiary.
“Surviving Corporation” has the meaning set forth in the preliminary statements above.
“Systems” has the meaning set forth in Section 3.21 above.
“Target Revenues” means, collectively, the Initial Target Revenue, the Second Target Revenue and the
Final Target Revenue.
“Tax” or “Taxes” means any federal, state, local and foreign net income, alternative or add-on
minimum, estimated, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise,
capital profits, lease, service, license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, abandoned property or escheat, environmental or windfall profit tax, customs duty or other
tax, governmental fee or other like assessment or charge (and any liability incurred or borne by virtue of the
application of Treasury Regulation Section 1.1502-6 (or any similar or corresponding provision of state, local or
foreign Law), as a transferee or successor, by contract or otherwise), together with all interest, penalties,
additions to tax and additional amounts with respect thereto.
“Tax Return” means any return, declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Third Party Claim” has the meaning set forth in Section 6.6(a) above.
“Threshold” has the meaning set forth in Section 6.4(a) above.
“Transaction Expenses” means any and all (a) legal, accounting, tax, financial advisory, environmental
consultants and other professional or transaction related costs, fees and expenses incurred by the Company or its
Subsidiaries in connection with this Agreement or in investigating, pursuing or completing the transactions
contemplated hereby (including any amounts owed to any consultants, auditors, accountants, attorneys, brokers
or investment bankers), (b) payments, bonuses or severance which become due or are otherwise required to be
made as a result of or in connection with the Closing or as a result of any change of control or other similar
provisions (other than amounts explicitly set forth to be paid pursuant to this Agreement), and (c) payroll,
employment or other Taxes, if any, required to be paid by Buyer (on behalf of the Surviving Corporation or its
Subsidiaries), the Company or its Subsidiaries with respect to the amounts payable pursuant to this Agreement
(other than the withholding amounts related to the payments to the Optionholders pursuant to Section 1.3(d)
herein and related to the bonuses described in Section 4,8 herein), the amounts described in clause (a) and (b),
or the forgiveness of any loans or other obligations owed by the Seller Parties or employees in connection with
the transactions contemplated by this Agreement.
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“Transaction Expenses Amount” means an amount equal to all Transaction Expenses that have not been
paid prior to the Closing Date, whether or not the Company has been billed for such expenses.
“Transfer Agent” has the meaning set forth in Section 1.3(b) above.
“Warrant” means any warrant to purchase Company Preferred Stock or Company Common Stock
issued and outstanding as of immediately prior to the Closing, which warrants will be cancelled for the
consideration specified herein and which warrants are more fully set forth on Schedule 1.1 attached hereto.
“Warrant Cancellation Agreement” has the meaning set forth in Section 1.18 above.
“Warrant Shares” means 3,099 shares of Buyer Common Stock, valued at $2.75 per share.
“Warrantholder” means a holder of a Warrant.
“Working Capital” means an amount equal to (a) the amount of the current assets (including Cash but
excluding income Tax assets) of the Company and its Subsidiaries, minus (b) the amount of the current
liabilities (including Cash but excluding Debt and income Tax liabilities) of the Company and its Subsidiaries,
in each case determined on a consolidated basis. For purposes of clarity, Transaction Expenses shall not be
accrued as a liability but shall be paid by the Seller Parties, and the Working Capital shall be otherwise
calculated as if the transactions contemplated by this Agreement had not occurred.
“Working Capital Deficit” means the amount by which the Working Capital as of the Closing Date is
less than negative $600,000.
“Working Capital Surplus” means the amount by which the Working Capital as of the Closing Date is
greater than negative $600,000.
ARTICLE 9
MISCELLANEOUS
9.1 Press Releases and Public Announcements. Neither the Representative nor any Seller shall issue
any press release or make any public announcement relating to the subject matter of this Agreement without
the prior written approval of Buyer; provided , however , that any Party may make any public disclosure it
believes in good faith is required by applicable Law (in which case the disclosing Party will use its reasonable
best efforts to advise the other Parties prior to making the disclosure).
9.2 No Third-Party Beneficiaries. Except with respect to the Buyer Indemnitees and the Seller Party
Indemnities as provided in Article 6 and the Buyer Indemnitees as provided in Section 7.1 , this Agreement
shall not confer any rights or remedies upon any Person other than the Parties and their respective successors
and permitted assigns.
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9.3 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the
entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by
or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.
9.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of Buyer
and the Representative; provided , however , that Buyer or Merger Sub may (a) assign any or all of its rights
and interests hereunder to one or more of its Affiliates and designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Buyer or Merger Sub, respectively, nonetheless shall
remain responsible for the performance of all of its obligations hereunder), (b) assign its rights under this
Agreement for collateral security purposes to any lenders providing financing to Buyer, Merger Sub, the
Company or any of their respective Subsidiaries or Affiliates or (c) assign its rights under this Agreement to
any Person that acquires the Company or any of its assets.
9.5 Counterparts. This Agreement may be executed in one or more counterparts (including by means
of facsimile), each of which shall be deemed an original but all of which together will constitute one and the
same instrument.
9.6 Headings. The section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other communications hereunder will be in
writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (a)
when delivered personally to the recipient, (b) when sent by electronic mail or facsimile, on the date of
transmission to such recipient, (c) one Business Day after being sent to the recipient by reputable overnight
courier service (charges prepaid), or (d) four Business Days after being mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set
forth below:
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If to Sellers or the Connected Data, Inc.
Company (prior to 2540 Mission College Blvd.
the Closing):
Santa Clara, CA 95054
Attention: Geoff Barrall
Email: [email protected]
Copy to:
Fenwick & West LLP
Silicon Valley Center
801 California Street
Mountain View, CA 94041
Attention: William R. Schreiber
Facsimile: (650) 938-5200
Email: [email protected]
If to Buyer or Merger
Imation Corp.
Sub:
1 Imation Way
Oakdale, MN 55128
Attention: John P. Breedlove
Facsimile: +1 651 704 4412
Email: [email protected]
Copy to:
McDermott Will & Emery LLP
340 Madison Avenue
New York, NY 10173
Attention: Joel L. Rubinstein, Esq.
Facsimile: +1 212 547 5444
Email: [email protected]
If to the
Representative or,
after the Closing, to
the Sellers:
Shareholder Representative Services LLC
1614 15th Street, Suite 200
Denver, CO 80202
Attention: Managing Director
Facsimile: (303) 623-0294
Email: [email protected]
Any Party may change the address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
9.8 Governing Law. This Agreement and any claim, controversy or dispute arising out of or related to
this Agreement, any of the transactions contemplated hereby, the relationship of the parties, and/or the
interpretation and enforcement of the rights and duties of the parties, whether arising in contract, tort, equity or
otherwise, shall be governed by and construed in accordance with the domestic Laws of the State of Delaware
(including in respect of the statute of limitations or other limitations period applicable to any such claim,
controversy or dispute), without giving effect to any choice or conflict of Law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction
other than the State of Delaware.
64
9.9 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Buyer and the Representative. No waiver by any Party of any
provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making
such waiver nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
9.10 Injunctive Relief. Sellers and the Representative hereby agree that, in the event of breach of this
Agreement, damages would be difficult, if not impossible, to ascertain, that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached, and that the character, periods and geographical area and the scope of the
restrictions on Sellers’ activities in Section 5.5 are fair and reasonably required for the protection of Buyer
and its Affiliates. It is accordingly agreed that, in addition to and without limiting any other remedy or right it
may have, Buyer shall be entitled to an injunction or other equitable relief in any court of competent
jurisdiction, without any necessity of proving damages or any requirement for the posting of a bond or other
security, enjoining any such breach (including a breach of Section 5.5 ), and enforcing specifically the terms
and provisions. Sellers and the Representative hereby waive any and all defenses he, she or it may have on the
ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief.
9.11 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in any other situation or in any other
jurisdiction.
9.12 Expenses. Except as otherwise expressly provided in this Agreement, each Party will bear its
own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and
the transactions contemplated hereby.
9.13 Construction. The Parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to
any Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word “including” shall mean including without limitation.
9.14 Incorporation of Exhibits and Disclosure Schedule. The Exhibits, Disclosure Schedule and other
Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.
9.15 Confidentiality. The Representative and each Seller shall treat and hold as confidential all of the
terms and conditions of the transactions contemplated by this Agreement
65
and the other Ancillary Agreements, including, without limitation, the Consideration and each of its
components; provided , however , that the Representative or any Seller may disclose such information to its
legal counsel, accountants, financial planners and/or other advisors (and the Representative may disclose to the
Sellers and Seller Parties) on an as-needed basis so long as any such Person is bound by a confidentiality
obligation with respect thereto.
9.16 Representative.
(d) Each Seller hereby (and each other Seller Party pursuant to the Required Documentation
shall thereby) appoints the Representative for and on behalf of the Seller Parties to give and receive notices and
communications in connection with this Agreement and the transactions contemplated hereby, to authorize and
agree to adjustments to the Buyer Shares, the Cash Consideration, the Option Consideration, the Warrant
Shares, the Earnout Shares and the Earnout Funds under Article 1 and other applicable provisions of this
Agreement, to authorize distribution of the Escrow Shares, the Escrow Funds, the Adjustment Shares and the
Adjustment Funds, to take all actions on behalf of the Seller Parties pursuant to this Agreement and any
Ancillary Agreement to which any Seller Party is a party, and to take all actions necessary or appropriate in the
judgment of the Representative for the accomplishment of the foregoing. More specifically, the Representative
shall have the authority to make all decisions and determinations and to take all actions (including giving
Consents or agreeing to any amendments to this Agreement or any Ancillary Agreement to which it is a party or
to the termination hereof or thereof) required or permitted hereunder on behalf of each such Seller (or such
other Seller Party), and any such action, decision or determination so made or taken shall be deemed the action,
decision or determination of each such Seller (or such other Seller Party), and any notice, communication,
document, certificate or information required (other than any notice required by Law or under the Company’s
Organizational Documents) to be given to any Seller Party hereunder or pursuant to any Ancillary Agreement
shall be deemed so given if given to the Representative. The Representative shall be authorized to take all
actions on behalf of the Seller Parties in connection with any claims made under Articles 6 or 7 of this
Agreement, to defend or settle such claims, and to authorize payments in respect of such claims on behalf of the
Seller Parties. The Representative may resign at any time upon 20 days prior notice. In the event the
Representative has given notice of its intent to resign, the Seller Parties shall promptly (and no later than the
effective date of the Representative’s resignation) appoint a successor Representative, in accordance with the
following sentence. The Seller Parties may remove or replace the Representative by a vote of holders that own a
majority of the Company’s capital stock immediately prior to Closing upon not less than ten (10) Business
Days’ prior written notice to Buyer. No bond will be required of the Representative. Notices or communications
to or from the Representative will constitute notice to or from each of the Seller Parties.
(e) The Representative will not be liable for any act done or omitted hereunder as the
Representative while acting in good faith and not in a manner constituting gross negligence or willful
misconduct, and any act done or omitted pursuant to the advice of counsel will be conclusive evidence of such
good faith. The Seller Parties will indemnify the Representative and hold the Representative harmless against
any and all losses, liabilities, damages, claims, penalties, fines, forfeitures, actions, fees, costs and expenses
(including the fees and expenses of counsel and experts and their staffs and all expense of document location,
duplication and shipment) (collectively,
66
“Representative Losses”) arising out of or in connection with the acceptance or administration of the
Representative’s duties hereunder and under the agreements ancillary hereto, in each case as such
Representative Loss is suffered or incurred; provided, that in the event that any such Representative Loss is
finally adjudicated to have been directly caused by the gross negligence or willful misconduct of the
Representative, the Representative will reimburse the Seller Parties the amount of such indemnified
Representative Loss to the extent attributable to such gross negligence or willful misconduct. If not paid directly
to the Representative by the Seller Parties, any such Representative Losses may be recovered by the
Representative from (i) the amounts in the Escrow Funds at such time as remaining amounts would otherwise
be distributable to the Seller Parties, and (ii) from any Earnout Funds at such time as any such amounts would
otherwise be distributable to the Seller Parties; provided, that while this Section allows the Representative to be
paid from the Escrow Funds and the Earnout Funds, it does not relieve the Seller Parties from their obligation to
promptly pay such Representative Losses as they are suffered or incurred, nor does it prevent the Representative
from seeking any remedies available to it at Law or otherwise. In no event will the Representative be required to
advance its own funds on behalf of the Seller Parties or otherwise. The Seller Parties acknowledge and agree
that the foregoing indemnities will survive the resignation or removal of the Representative or the termination
of this Agreement. For the avoidance of doubt, any restrictions or limitations on indemnities contained
elsewhere in this Agreement are not intended to be applicable to the indemnities provided to the Representative
under this Section 9.16(b).
(f) A decision, act, consent or instruction of the Representative will constitute a decision of all
Seller Parties and will be final, binding and conclusive upon each such Seller Party, and Buyer and Merger Sub
may rely upon any such decision, act, consent or instruction of the Representative as being the decision, act,
consent or instruction of each such Seller Party. Buyer Indemnitees are hereby relieved from any Adverse
Consequences to any Person for any acts done by such Buyer Indemnitees in accordance with such decision,
act, consent or instruction of the Representative.
9.17 Schedules. Nothing in the schedules hereto shall be deemed adequate to disclose an exception to
a representation or warranty made herein unless the schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a representation or warranty made herein (unless the representation or warranty has
to do with the existence of the document or other item itself). The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If any Party has breached any
representation, warranty or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
9.18 Waiver of Jury Trial. EACH OF THE PARTIES WAIVES THEIR RESPECTIVE RIGHTS TO
A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OR
RELATED TO THIS AGREEMENT IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
67
ANY OTHER PARTY OR ANY AFFILIATE OF ANY OTHER SUCH PARTY, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE PARTIES AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY
PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
9.19 Exclusive Venue. THE PARTIES AGREE THAT ALL DISPUTES, LEGAL ACTIONS,
SUITS AND PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MUST BE
BROUGHT EXCLUSIVELY IN A FEDERAL DISTRICT COURT LOCATED IN THE NORTHERN
DISTRICT OF CALIFORNIA OR A CALIFORNIA STATE COURT LOCATED IN THE COUNTY OF
SANTA CLARA, CALIFORNIA (COLLECTIVELY THE “ DESIGNATED COURTS ”). EACH PARTY
HEREBY CONSENTS AND SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE DESIGNATED
COURTS. NO LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
MAY BE BROUGHT IN ANY OTHER FORUM. EACH PARTY HEREBY IRREVOCABLY WAIVES
ALL CLAIMS OF IMMUNITY FROM JURISDICTION AND ANY OBJECTION WHICH SUCH PARTY
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING IN ANY DESIGNATED COURT, INCLUDING ANY RIGHT TO OBJECT ON THE BASIS
THAT ANY DISPUTE, ACTION, SUIT OR PROCEEDING BROUGHT IN THE DESIGNATED COURTS
HAS BEEN BROUGHT IN AN IMPROPER OR INCONVENIENT FORUM OR VENUE. EACH OF THE
PARTIES ALSO AGREES THAT DELIVERY OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT TO A PARTY HEREOF IN COMPLIANCE WITH SECTION 9.7 OF THIS AGREEMENT
SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN A
DESIGNATED COURT WITH RESPECT TO ANY MATTERS TO WHICH THE PARTIES HAVE
SUBMITTED TO JURISDICTION AS SET FORTH ABOVE.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above
written.
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BUYER:
IMATION CORP.
By: /s/ Joseph De Perio
Name: Joseph De Perio
Title: Chairman
MERGER SUB:
IMATION TRANSPORTER CO.
By: /s/ Joseph De Perio
Name: Joseph De Perio
Title: President
COMPANY:
CONNECTED DATA, INC.
By: /s/ Geoff Barrall
Name: Geoff Barrall
Title: Chief Executive Officer
REPRESENTATIVE:
SHAREHOLDER REPRESENTATIVE SERVICES
LLC , solely in its capacity as the Representative
By: /s/ Mark B. Vogel
Name: Mark B. Vogel
Title: Managing Director
69
SELLERS:
By:
Name:
Title:
70
Exhibit A
Employment Offer Letter
71
Connected Data, Inc.
Date
Candidate Name
Candidate Address
Candidate City, State, ZIP
Dear Candidate:
As you know, Imation Corp. (“Imation”) is entering into a Stock Purchase and Merger Agreement
(“Stock Purchase Agreement”) whereby Connected Data, Inc. (the “ Company ”) will become a wholly owned
subsidiary of Imation. In connection with and conditional upon the consummation of such Stock Purchase
Agreement, the Company is pleased to offer you at-will employment with a start date commencing effective as
of the successful closing of the Stock Purchase Agreement (“Start Date”) on the following terms:
1.Position.
(a)Your initial position will be [XXX], and you will initially report to Imation’s
Chief Executive Officer. This is a full-time position. While you render services to the
Company, you will not engage in any other employment, consulting or other business activity
(whether full‑time or part-time) that would create a conflict of interest with the Company. By
signing this letter agreement, you confirm to the Company that you have no contractual
commitments or other legal obligations that would prohibit you from performing your duties
for the Company. You further agree to be bound by and comply with all applicable Company
policies and procedures.
(b)This is an at-will employment position, meaning either you or your
employer may terminate your employment at any time, with or without notice, for any lawful
reason or no reason at all. Continued employment with the Company is for no specified period
of time and the Company makes no guarantee of continued employment. Although your job
duties, title, compensation, and benefits, as well as the Company’s personnel policies may be
72
changed from time to time, the “at-will” nature of your employment may not be changed except
in an express written agreement signed by you and the Chief Executive Officer.
(c)You agree to the best of your ability and experience that you will at all times
loyally and conscientiously perform all of the duties and obligations required of and from you
pursuant to the express and implicit terms hereof, and to the satisfaction of the Company.
During the term of your employment, you further agree that you will devote all of your
business time and attention to the business of the Company, the Company will be entitled to all
of the benefits and profits arising from or incident to all such work services and advice, you
will not render commercial or professional services of any nature to any person or organization,
whether or not for compensation, without the prior written consent of the Company, and you
will not directly or indirectly engage or participate in any business that is competitive in any
manner with the business of the Company. Nothing in this letter agreement will prevent you
from accepting speaking or presentation engagements in exchange for honoraria or from
serving on boards of charitable organizations, or from owning no more than one percent (1%)
of the outstanding equity securities of a corporation whose stock is listed on a national stock
exchange.
2.Proof of Right to Work. For purposes of federal immigration law, you are required to
provide to the Company documentary evidence of your identity and eligibility for employment in the
United States. Such documentation must be provided within three business days of your Start Date, or
your employment may be terminated for Cause.
3.Salary Compensation. The Company will pay you a starting salary at the annualized rate of
$XXX per year, payable in accordance with the Company’s standard payroll schedule and procedures
including applicable withholdings or deductions. This salary will be subject to adjustment pursuant to
the Company’s employee compensation policies in effect from time to time or as otherwise determined
by the Company’s Chief Executive Officer or Board of Directors.
4.Annual Incentive Bonus. In addition, you will be eligible to be considered for a
discretionary incentive bonus for each year with the Company (starting for the 2016 calendar year)
payable following the close of each such year. This discretionary incentive bonus (if any) will be
awarded based on objective or subjective criteria established by the Company’s Chief Executive Officer
and approved by the Company’s Board of Directors, which criteria may or may not be shared with you.
Any such bonus is payable only upon the Board of Directors
73
determining, in its sole discretionary authority, that you have met its objective and subjective criteria
and that it is otherwise in the best interests of the Company to award the discretionary incentive bonus.
For 2016 your target bonus will be $XXX, subject to the Board’s discretion as set forth above. The
determinations of the Company’s Board of Directors with respect to your bonus, if any, will be final,
conclusive, and binding. Additional information regarding plan eligibility and payment may be
provided to you. You must be employed by the Company on the day such discretionary incentive bonus
is paid in order to received such bonus.
5.Retention Bonus. Assuming your timely acceptance of this offer letter and that you remain
employed with the Company through December 31, 2015, you will be eligible for a discretionary
retention bonus of cash and Company restricted stock units (RSUs). The total discretionary retention
bonus is subject to approval by the Company’s Board of Directors in its sole discretionary authority and
subject to the Board’s full satisfaction of your cooperation with the restructuring. The amounts of two
components of the discretionary retention bonus are:
(a)Cash - $XXX
To be paid on December 31, 2015. This amount is subject to repayment if you leave
employment with the Company for any reason other than a termination without Cause, prior to
December 31, 2016. The amount to be repaid to the Company is an amount equal to 1/365 of
the cash retention bonus multiplied by the number of days between your last day of
employment and December 31, 2016. For example purposes only, if the cash portion of the
bonus was $10,000 and you leave the Company for any reason other than a termination without
Cause on November 30, 2016 then you would be required to repay $849.32 ($10,000*1/365*31
days).
(b)Restricted
Stock Units (RSU’s) with a value of $XXX
To be paid as of the grant date which is December 31, 2015, subject to a pro rata monthly
vesting schedule of twelve (12) months beginning January 1, 2016 through December 31, 2016
during the months that you are employed at Imation. If you are employed at Imation for a
partial month, vesting will cease the end of the month that you serve your last day as an
employee.
(c)The
determinations of the Company’s Board of Directors with respect to your bonus, if any,
will be final, conclusive, and binding. Additional information regarding plan eligibility and
payment may be provided to you. You must be
74
employed by the Company on the day such discretionary incentive bonus, or pro rata portion
thereof, is paid in order to be eligible for payment. If you leave employment with the Company
for any reason other than a termination without Cause, to the extent you have received any
advance payment of the retention bonus prior to its full vesting on December 31, 2016, you will
be required to return to the Company any unvested pro rata portion that you may have already
received.
6.Employee Benefits. As a regular employee of the Company, you will be eligible to
participate in a number of Company-sponsored benefit plans, such as medical and 401(k) plans, on the
same terms and conditions as those offered to similarly-situated Company employees and in accordance
with the terms of those plans as may be in existence from time to time. In addition to those employee
benefits, you will be initially entitled to accrue Paid Time Off (“PTO”), pursuant to the Company’s
PTO policy, at the annualized rate of XXX (XX) days per year.
7.Stock Options. Subject to the approval of the Company’s Board of Directors or its
Compensation Committee, you will be granted an incentive stock option to purchase XXX shares of the
Company’s Common Stock, which shall vest in equal monthly installments over the XX months of
continuous service conditioned on your continued employment with the Company. The exercise price
per share of each of the Options will be determined by the Board of Directors or the Compensation
Committee when such Option is granted. Each of the Options will be subject to the terms and
conditions set forth in a separate Stock Option Agreement.
8.Termination of Employment and Severance.
(a)Termination by the Company for Cause or by Your Resignation. In the
event that your employment is terminated for Cause or by you resigning, the Company shall
have no further financial obligations to you under except for payment to you of (i) your
accrued, but unpaid wages or other benefits earned through the date of separation to which you
are otherwise legally entitled, (ii), any accrued but unused paid time off, and (iii) any
unreimbursed expenses in accordance with the Company’s policies (collectively “Accrued
Rights”). For purposes of this Agreement, “Cause” shall mean (i) the willful and continued
failure by you to perform your material duties with respect to the Company or its affiliates; (ii)
the willful or intentional engaging by you in conduct within the scope of your employment that
causes material and demonstrable injury, monetarily or otherwise, to the Company; (iii) your
conviction for, or a plea of nolo contendere to, the commission of a felony or any other crime
involving dishonesty, misappropriation, breach of fiduciary duty, or moral turpitude; (iv)
obtaining any personal profit
75
not thoroughly disclosed to and approved by the Board in connection with any transaction
entered into by, or on behalf of, or in relation to, the Company; (v) a material breach of your
covenants set forth in this letter agreement or violating any of the terms of the Company’s
established rules or policies which, if curable, is not cured to the Board’s reasonable
satisfaction within fifteen (15) days after written notice thereof to Executive; (vi) your death; or
(vii) in the good faith judgment of the Board, you become physically or mentally incapacitated
and is therefore unable for a period of four (4) consecutive months or for an aggregate of six (6)
months in any twelve (12) consecutive month period to perform Executive’s duties (such
incapacity is hereinafter referred to as “Disability”). The Company will also comply with any
applicable federal and state disability and leave laws.
(b)Termination by the Company Without Cause. In the event that your
employment is terminated without Cause the Company shall have no further financial
obligations to you under except for payment to you of the following:
(i)Your Accrued Rights;
(ii)Subject to (A) the obligations and restrictions set forth in
subparagraph (c) below, and (B) your execution and return of a Severance Agreement,
which shall, among other things, release the Company (and its officers, directors,
employees, agents, parents, affiliated entities, and successors and assigns of any of
them) from any and all claims, and which shall be in a form and containing terms in the
sole discretion of the Company (the “Severance Agreement”), within twenty-one (21)
days following the Company’s presenting you with such Severance Agreement; and
(C) your non-revocation of and continued compliance with the Severance Agreement,
you shall be entitled to a Severance Payment to provide you a cushion while you seek
new employment as follows: installment payments of up to a maximum of three (3)
month’s salary, payable in equal installments pursuant to the Company’s normal
payroll process, beginning on the Company’s next normal payroll processing following
five (5) days following the expiration date of any revocation period (if applicable)
under the Severance Agreement, and continuing until such time that you have been
either paid the maximum amount under this paragraph or until one of the events under
subparagraph (c) below.
(c)Continuing Obligations. Notwithstanding the termination of your
employment, you agree that any monies paid pursuant to the Severance Agreement is intended
76
solely to provide a financial cushion while you search for new employment and, therefore, your
continued receipt of such monies expressly conditioned upon and limited by the following:
(i)Non-Disparagement. Following your employment, you
agree not to defame, disparage or criticize the Company, its business plan, procedures,
products, services, development, finances, financial condition, capabilities or other
aspect of its business, or any of its officers, directors, agents or assigns (and their direct
and indirect shareholders, members and partners, and directors and officers) in any
medium (whether oral, written, electronic or otherwise, whether currently existing or
hereafter created), to any person or entity, without limitation in time. Notwithstanding
the foregoing sentence, you may confer in confidence with your advisors and make
truthful statements as required by law or to the Chief Executive Officer of the
Company.
(ii)Non-Solicitation. During the period you are receiving any
money pursuant to the Severance Agreement, without the express written agreement of
the Company’s Chief Executive Officer, you shall not, whether on your own behalf or
on behalf of or in conjunction with any Person, directly or indirectly: (A) solicit or
encourage any employee of the Company or its affiliates to leave the employment of
the Company or its affiliates; (B) hire any such employee who was employed by the
Company or its affiliates as of the date of your termination of employment with the
Company or who left the employment of the Company or its affiliates coincident with,
or within one (1) year prior to the termination of your employment with the Company;
(C) solicit or encourage any person that serves as a contractor or consultant of the
Company or its affiliates to discontinue providing services to the Company or any
affiliate of the Company; (D) call on, solicit or service any customer or client of the
Company or its affiliates with the intent of selling or attempting to sell any service or
product similar to the services or products sold by the Company or its affiliates; or (E)
in any way interfere with the relationship between the Company or its affiliates and
any customer, supplier, licensee or other business relation (or any prospective
customer, supplier, licensee or other business relationship) of the Company or any of
its affiliates (including, without limitation, by making any negative or disparaging
statements or communications regarding the Company, any of its affiliates or any of
their operations, officers, directors or investors).
(iii)Competitive Employment. Any right to receiving
severance monies under the Severance Agreement shall cease if during the period such
payments are made
77
you engage in any activity (without the express written agreement of the Company’s
Chief Executive Officer) that is in any way competitive with the business or
demonstrably anticipated business of Company, or if you otherwise assist any other
person or organization in competing or in preparing to compete with any business or
demonstrably anticipated business of Company.
(iv)Proprietary and Confidential Information. Any right to
receiving severance monies under the Severance Agreement is further conditioned on
your continuing compliance with the Proprietary Information and Inventions
Agreement and not otherwise misusing any Company confidential, proprietary or trade
secret information.
9.Proprietary Information and Inventions Agreement. You will be required, as a condition
of your employment with the Company, to sign the Company’s Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as Exhibit A .
10.Tax Matters. All forms of compensation referred to in this letter agreement are subject to
reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You
are encouraged to obtain your own tax advice regarding your compensation from the Company. You
agree that the Company does not have a duty to design its compensation policies in a manner that
minimizes your tax liabilities, and you will not make any claim against the Company or its Board of
Directors related to tax liabilities arising from your compensation.
11.Amendment. This letter agreement and Exhibit A contains the entire understanding and
agreement between you and Company with respect to the matters referred to herein, and supersedes any
and all other agreements, understandings, negotiations, or discussions, either oral or in writing, express
or implied, between us to the same, including, but not limited to, the terms of employment, any
compensation package, bonus programs, salary, equity grants, profit sharing, distributions, or other
such agreements. No other representations, covenants, undertakings or other prior or contemporaneous
agreements, oral or written, respecting such matters, which are not specifically incorporated herein,
shall be deemed in any way to exist or bind any of us. You acknowledge that each party has not
executed this Agreement in reliance on any such promise, representation or warranty. This letter
agreement may not be amended or modified, except by an express written agreement signed by both
you and a duly authorized officer of the Company
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12.Arbitration of all Disputes. All complaints, causes of action, disputes, claims or
controversies (“claims”) between you and Company, including any past, present, or future claims,
whether or not arising out of your employment (or its termination), that the Company may have against
you or that you may have against any the Company or its officers, directors, employees or agents,
parent, subsidiary affiliated entities, or successors and assigns of any of them, will be resolved through
binding arbitration. The claims covered by this arbitration agreement include all disputes that the
Company or you could otherwise pursue in state or federal court including, but not limited to, claims
based on any state, federal, or local statute, regulation or ordinance (including claims for employment
discrimination, retaliation or harassment, claims for unpaid wages or violation of state or federal wage
and hour laws), as well as common law claims (including claims for breach of contract or breach of the
implied covenant of good faith and fair dealing, wrongful discharge, defamation, misrepresentation,
fraud, and infliction of emotional distress).
The following claims are not subject to arbitration under this Agreement: (1) claims for workers’ compensation
benefits, state disability benefits, state unemployment benefits; (2) administrative charges filed with a federal,
state or local government office or agency, such as the Equal Employment Opportunity Commission (“EEOC”)
or any comparable state anti-discrimination agency, or the National Labor Relations Board (“NLRB”); and (3)
any claims that, as a matter of law, cannot legally be subject to arbitration. Nothing in these provisions shall
preclude either you or the Company from seeking temporary or injunctive relief in a court prior to determining
the claim in arbitration.
To the maximum extent permitted by law, you hereby waive any right to bring on behalf of persons other than
yourself, or to otherwise participate with other persons in, any class, collective or representative action ( i.e., a
type of lawsuit in which one or several persons sue on behalf of a larger group of persons).
The arbitration shall be conducted by a single neutral arbitrator in accordance with the then-current
Employment Arbitration and Mediation Procedures of the American Arbitration Association (“AAA”), which
can be viewed at http://www.adr.org/employment . The Company will provide you with a copy of these rules
upon request. The arbitration shall take place in the
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county of the state in which I am or was last employed by the Company. The Company will pay the arbitrator’s
fee and will bear all administrative charges by AAA. All parties shall be entitled to engage in reasonable
pre-hearing discovery to obtain information to prosecute or defend the asserted claims. Any disputes between
the parties regarding the nature or scope of discovery shall be decided by the arbitrator. The arbitrator shall hear
and issue a written ruling upon any dispositive motions brought by either party, including but not limited to,
motions for summary judgment or summary adjudication of issues.
After the hearing, the arbitrator shall issue a written decision setting forth the award, if any, and explaining the
basis therefore. The arbitrator shall have the power to award any type of relief that would be available in court.
The arbitrator’s award shall be final and binding upon the parties and may be entered as a judgment in any court
of competent jurisdiction. In the event of any conflict in the arbitration procedures set forth in this Agreement
and the AAA rules specified above, the AAA rules shall control.
Notwithstanding the foregoing, and regardless of what is provided by AAA’s rules, to the extent that it is legally
permissible to do so, the arbitrator will not have authority or jurisdiction to consolidate claims of different
employees into one proceeding, nor shall the arbitrator have authority or jurisdiction to hear the arbitration as a
class action. As noted above, you have waived any right to bring any class, collective or representative action.
To the extent that the class, collective or representative action waiver described above is not enforceable, the
issue of whether to certify any alleged or putative class for a class action proceeding must be decided by a court
of competent jurisdiction. The arbitrator will not have authority or jurisdiction to decide class certification,
collective or representative action issues. Until any class certification, collective, or representative action issues
are decide by the court, all arbitration proceedings shall be stayed, and the arbitrator shall take no action with
respect to the matter. However, once any issues regarding class certification, collective, or representative action
have been decided by the court, the arbitrator will have authority to decide the substantive claims.
This Agreement is governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq) and evidences a transaction
involving commerce. If the Federal Arbitration Act is held not to apply, the arbitration law of the state in which
I work or last worked for the Company shall apply. We
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intend that this Agreement be limited to those claims that may legally be subject to a pre-dispute arbitration
agreement under applicable law. A court or arbitrator construing this Agreement may therefore modify or
interpret it to render it enforceable.
13.409A. The parties intend that the payments and benefits provided for in this Agreement to
either be exempt from Section 409A of the Internal Revenue Code, as amended (the “Code”) or be
provided in a manner that complies with Section 409A of the Code. Notwithstanding anything
contained herein to the contrary, all payments and benefits which are payable upon a termination of
employment hereunder shall be paid or provided only upon those terminations of employment that
constitute a ‘separation from service’ from the Company within the meaning of Section 409A of the
Code (determined after applying the presumptions set forth in Treas. Reg. Section 1.409A-1(h)(1)) and
each payment hereunder shall be treated as a separate payment for purposes of Section 409A.
We hope that you will accept our offer to join the Company. You may indicate your agreement with
these terms and accept this offer by signing and dating both the enclosed duplicate original of this letter
agreement and the enclosed Proprietary Information and Inventions Agreement and returning them to me. This
offer, if not accepted, will expire at the close of business on XXX.
Very truly yours,
Connected Data, Inc.
By:
Title:
Chief Executive Officer, Imation on behalf of Connected Data, Inc.
I have read and accept this offer of at-will employment:
Signature of Employee
Dated:
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Exhibit A
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
The following confirms my agreement with Connected Data, Inc. (the “Company”) and I,
________________, that is and has been a material part of the consideration for my employment by Company:
1. I have not entered into, and I agree I will not enter into, any agreement either written or oral in
conflict with this Agreement or my employment with Company. I will not violate any agreement with or rights
of any third party or, except as expressly authorized by Company in writing hereafter, use or disclose my own
or any third party’s confidential information or intellectual property when acting within the scope of my
employment or otherwise on behalf of Company. Further, I have not retained anything containing any
confidential information of a prior employer or other third party, whether or not created by me.
2. Company shall own all right, title and interest (including all intellectual property rights of any sort
throughout the world) relating to any and all inventions, works of authorship, designs, know-how, ideas and
information made or conceived or reduced to practice, in whole or in part, by me in connection with my
employment with Company to and only to the fullest extent allowed by California Labor Code Section 2870
(which is attached as Appendix A ) (collectively “ Inventions ”) and I will promptly disclose all Inventions to
Company. Without disclosing any third party confidential information, I will disclose anything I believe is
excluded by Section 2870 so that the Company can make an independent assessment. I hereby make all
assignments necessary to accomplish the foregoing. I shall assist Company, at Company’s expense, to further
evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights
specified to be so owned or assigned. I irrevocably designate and appoint Company as my agent and
attorney-in-fact, coupled with an interest and with full power of substitution; to act for and in my behalf to
execute and file any document and to do all other lawfully permitted acts to further the purposes of the
foregoing. If I wish to clarify anything created by me prior to my employment that relates to Company’s actual
or proposed business, I have listed it on Appendix B in a manner that does not violate any third party rights
or disclose any confidential information. Without limiting the above or Company’s other rights and remedies, if,
when acting within the scope of my employment or otherwise on behalf of Company, I use or disclose my own
or any third party’s confidential information or intellectual property (or if any Invention cannot be fully made,
used, reproduced, or distributed without using or violating the foregoing), Company will have and I hereby
grant Company a perpetual, irrevocable, worldwide, royalty-free, fully paid-up, non-exclusive, sublicensable
right and license to exploit and exercise all such confidential information and intellectual property rights.
3. To the extent allowed by law, the foregoing paragraph includes all rights of paternity, integrity,
disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights,” “artist’s
rights,” “droit moral,” or the like (collectively “ Moral Rights ”). To the extent I retain any such Moral Rights
under applicable law, I hereby ratify and consent to any action that may be taken with respect to such Moral
Rights by or authorized by Company and agree not
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to assert any Moral Rights with respect thereto. I will confirm any such ratifications, consents and agreements
from time to time as requested by Company.
4. I agree that all Inventions and all other business, technical and financial information (including,
without limitation, the identity of and information relating to customers or employees) I develop, learn or obtain
during the term of my employment that relate to Company or the business or demonstrably anticipated business
of Company or that are received by or for Company in confidence, constitute “ Proprietary Information .” I will
hold in confidence and not disclose or, except within the scope of my employment, use any Proprietary
Information. However, I shall not be obligated under this paragraph with respect to information I can document
is or becomes readily publicly available without restriction through no fault of mine. Upon termination of my
employment, I will promptly return to Company all items containing or embodying Proprietary Information
(including all copies), except that I may keep my personal copies of (i) my compensation records, (ii) materials
distributed to shareholders generally and (iii) this Agreement. I also recognize and agree that I have no
expectation of privacy with respect to Company’s telecommunications, networking or information processing
systems (including, without limitation, stored computer files, email messages and voice messages) and that my
activity and any files or messages on or using any of those systems may be monitored at any time without
notice.
5. I agree that my obligations under this Agreement shall continue in effect after termination of my
employment, regardless whether such termination is voluntary or involuntary on my part, and that Company is
entitled to communicate my obligations under this Agreement to any future employer or potential employer of
mine.
6. This Agreement is fully assignable and transferable by Company, but any purported assignment or
transfer by me is void. I also understand that any breach of this Agreement will cause irreparable harm to
Company for which damages would not be an adequate remedy, and, therefore, Company will be entitled to
injunctive relief with respect thereto in addition to any other remedies and without any requirement to post
bond.
I HAVE READ THIS PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS WHICH IT IMPOSES
UPON ME WITHOUT RESERVATION.
October ___, 2015
Employee:
Signature
Name (printed)
Accepted and Agreed to:
Connected Data, Inc.
By:
Title:
Chief Executive Officer, Imation on behalf of Connected Data, Inc.
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APPENDIX A
California Labor Code Section 2870. Application of provision providing that employee shall assign
or offer to assign rights in invention to employer.
(i)Any provision in an employment agreement which provides that an employee shall
assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply
to an invention that the employee developed entirely on his or her own time without using the
employer’s equipment, supplies, facilities, or trade secret information except for those inventions that
either:
(A)Relate at the time of conception or reduction to practice of the
invention to the employer’s business, or actual or demonstrably anticipated research or
development of the employer; or
(B)Result from any work performed by the employee for his employer.
(ii)To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be assigned under
subdivision (a), the provision is against the public policy of this state and is unenforceable.
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APPENDIX B
Title
Date
___ No inventions or improvements
___ Additional Sheets Attached
Signature of Employee:
Print Name of Employee:
Date:
85
Identifying Number
or Brief Description
Exhibit B
Escrow Agreement
86
ESCROW AGREEMENT
This Escrow Agreement (this “Agreement”) is made and entered into as of October 14, 2015 by and
among Imation Corp., a Delaware corporation located at 1 Imation Way, Oakdale, MN 55128 (“ Buyer ”),
Shareholder Representative Services LLC, a Colorado limited liability company solely in its capacity as the
representative of the Seller Parties (“ Representative ”) under the Purchase Agreement (as defined below), and
Continental Stock Transfer & Trust Company, a New York corporation located at 17 Battery Place, New York,
New York 10004 (the “ Escrow Agent ”). Each capitalized term used but not otherwise defined herein shall
have the meaning ascribed to such term in the Purchase Agreement (as defined below).
Recitals
WHEREAS, Buyer, Connected Data, Inc., a California corporation (“Connected Data”),
Representative, certain shareholders of Connected Data (the “ Sellers ”), and certain other parties named therein
have entered into a Stock Purchase and Merger Agreement dated as of the date hereof (the “ Purchase
Agreement ”), pursuant to which, among other things, (i) Buyer is acquiring substantially all of the issued and
outstanding securities of Connected Data from the Sellers and (ii) promptly following such acquisition, a
subsidiary of Buyer is merging with and into Connected Data; and
WHEREAS, the Purchase Agreement contemplates placing in escrow certain funds to secure certain
rights of Buyer and the other Buyer Indemnitees pursuant to the Purchase Agreement.
Agreement
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
Section 1.Escrow.
1.1Appointment; Cash and Shares Placed in Escrow.Buyer and Representativehereby appoint
the Escrow Agent as their escrow agent for the purposes set forth herein, and the Escrow Agent hereby
accepts such appointment under the terms and conditions set forth herein. Buyer shall deliver or cause
to be delivered to the Escrow Agent cash and shares of Buyer Common Stock in the respective amounts
set forth on Schedule 3 . Schedule 3 shall be updated from time to time to reflect any release or
deposit of cash or shares of Buyer Common Stock from or into the Escrow Fund.
1.2Escrow Fund; Escrow Accounts.
(a)The cash, Indemnity Escrow Shares and Adjustment Escrow Shares being
held in escrow pursuant to this Agreement shall collectively constitute an escrow fund (the “
Escrow Fund ”) securing the indemnification, compensation and reimbursement rights of Buyer
and the other Buyer Indemnitees under the Purchase Agreement.
(b)The Indemnity Escrow Funds and the Indemnity Escrow Shares
(collectively, the “ Escrow Shares ”) shall be deposited and held in a separate account (the “
Indemnity Escrow
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Account”) and the Adjustment Escrow Funds and the Adjustment Escrow Shares shall be
deposited and held in a separate account (the “ Adjustment Escrow Account ” and together with
the Indemnity Escrow Account, the “ Escrow Accounts ”), subject to the terms and conditions
of this Agreement. The separate Escrow Accounts shall not be commingled.
1.3Investments.Unless otherwise instructed by the parties in accordance herewith, the Escrow
Agent shall hold all funds held in the Escrow Accounts in one or more demand deposit accounts.
1.4Interest. Any interest accruing on or income otherwise earned (including any ordinary cash
dividends paid in respect to the Escrow Shares) on any investment of any funds in the Escrow Accounts
shall be held by the Escrow Agent in the respective Escrow Accounts. The aggregate amount of all
interest and other income earned on any investment of any funds in the Escrow Accounts shall be
distributed by the Escrow Agent as set forth in Section 2 of this Agreement.
1.5Dividends, Etc.Buyer and Representative agree that any equity shares of Buyer (“Imation
Shares ”) or other property (including ordinary cash dividends) distributable or issuable (whether by
way of dividend, stock split or otherwise) in respect of or in exchange for any Escrow Shares (including
pursuant to or as a part of a merger, consolidation, acquisition of property or stock, reorganization or
liquidation involving Buyer) shall not be distributed or issued to the beneficial owners of such Escrow
Shares, but rather shall be distributed or issued to and held by the Escrow Agent in the respective
Escrow Accounts as part of the Escrow Fund. Any securities or other property received by the Escrow
Agent in respect of any Escrow Shares held in escrow as a result of any stock split or combination of
Imation Shares, payment of a stock dividend or other stock distribution in or on Imation Shares, or
change of Imation Shares into any other securities pursuant to or as a part of a merger, consolidation,
acquisition of property or stock, reorganization or liquidation involving Imation, or otherwise, shall be
held by the Escrow Agent in the respective Escrow Accounts as part of the Escrow Fund.
1.6TrustFund.The Escrow Fund shall be held in trust and shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of Buyer or Representative. The
Escrow Agent shall hold and safeguard the Escrow Fund until the Termination Date (as defined in
Section 5 ) or earlier distribution in accordance with this Agreement.
Section 2.Release of Escrow Fund.
2.1.Indemnity Escrow.The Escrow Agent shall make disbursements as provided in this
Section 2.1 from the Indemnity Escrow Account to satisfy the Seller Parties’ indemnification
obligations pursuant to Article 6 of the Purchase Agreement.
a.At any time prior to the Indemnity Escrow Distribution Date (as defined
below), as promptly as practicable, but in any event within five (5) Business Days after
receiving (i) joint written instructions from Buyer and Representative (“ Joint Instructions ”) or
(ii) written instruction from Buyer attaching a final non-appealable court order from a court of
competent jurisdiction (a “ Court Order ”) setting forth the amount of the Adverse
Consequences and relating to the release of any cash or Indemnity Escrow Shares from the
Indemnity Escrow Account, the Escrow Agent shall release or cause to be released any such
cash or Indemnity Escrow Shares and any other amounts from the Indemnity Escrow Account
in the amounts, to the Persons, and in the manner set forth in such Joint Instructions or Court
Order.
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b.On October 14, 2016(the “Indemnity Escrow Distribution Date”), the Escrow
Agent shall, upon receipt of Joint Instructions, release from the Indemnity Escrow Account the
cash and Indemnity Escrow Shares then remaining in the Indemnity Escrow Account to the
Exchange Agent for further distribution to the Seller Parties, less the amount in cash and
number of Indemnity Escrow Shares equal to the Pending Claims (as defined below). A “
Pending Claim ” means any (A) claim asserted in good faith by any Buyer Indemnitee for
Adverse Consequences of the kind recognized under Article 6 of the Purchase Agreement that
is pending before a court of competent jurisdiction or otherwise remains unresolved or (B) any
portion of the Escrow Fund due and owing to Buyer or the other Buyer Indemnitees pursuant to
Article 6 of the Purchase Agreement, but not yet paid. Following the Indemnity Escrow
Distribution Date, upon resolution of a Pending Claim, the Escrow Agent shall, within two (2)
Business Days after receiving Joint Instructions or a Court Order release to the Exchange Agent
for further distribution to the Seller Parties from the Escrow Account such cash and number of
Indemnity Escrow Shares equal to the portion of the Pending Claim resolved that is not
required to pay the Adverse Consequences or that is not otherwise due and owing to any Buyer
Indemnitees pursuant to Article 6 of the Purchase Agreement.
2.2.Adjustment Escrow. As promptly as practicable, but in any event within five (5) Business
Days after receiving (a) Joint Instructions or (b) written notice from the Accountants that the final
Closing Statement has been finally determined pursuant to Section 1.4 of the Purchase Agreement
(an “ Accountant Notice ”), in each case setting forth the amount of cash and Adjustment Escrow
Shares in the Adjustment Escrow Account to be allocated to Buyer and/or the Seller Parties,
respectively, the Escrow Agent shall release or cause to be released any such cash and Adjustment
Escrow Shares from the Adjustment Escrow Account in the amounts, to the Persons, and in the manner
set forth in such Joint Instructions or Accountant Notice.
2.3.Distributions.Whenever a distribution of a number of Escrow Shares is to be made pursuant
to the terms of this Agreement, the Escrow Agent shall requisition the appropriate number of shares
from Buyer’s stock transfer agent, delivering to the transfer agent the appropriate stock certificates
accompanied by the respective stock powers that have been Medallion Guaranteed, and any other
information or documents requested by the stock transfer agent together with the specific transfer
instructions, as appropriate. Any distributions to Buyer or the Seller Parties pursuant to the terms of this
Agreement shall be made (i) if to Buyer, to Buyer’s address set forth in Section 8.2 and (ii) if to the
Seller Parties, to the Exchange Agent for further distribution to the Seller Parties .
2.4.Authorized Signer Designations of the Parties. The Escrow Agent shall be protected in
acting upon any written instructions setting forth, claiming, containing, or in any way related to the
transfer or distribution of cash or Escrow Shares from the Escrow Accounts, including Joint
Instructions, not only as to their due execution and the validity and effectiveness of their provisions, but
also as to the truth of any information therein contained, which it in good faith believes to be genuine
and what it purports to be. Concurrently with the execution of this Agreement, each of Buyer and
Representative has delivered to the Escrow Agent Schedule 1 , which contains each party’s respective
authorized signer designations to this Agreement.
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Section 3.Fees and Expenses. The Escrow Agent shall be entitled to receive, from time to
time, fees in accordance with Schedule 2 . In accordance with Schedule 2 , the Escrow Agent will
also be entitled to reimbursement for reasonable and documented out-of-pocket expenses incurred by
the Escrow Agent in the performance of its duties hereunder and the execution and delivery of this
Agreement. All such fees and expenses shall be paid by Buyer.
Section 4.Limitation of Escrow Agent’s Liability.
4.1.The Escrow Agent undertakes to perform such duties as are specifically set forth in this
Agreement only and shall have no duty under any other agreement or document, and no implied
covenants or obligations shall be read into this Agreement against the Escrow Agent. The Escrow
Agent shall incur no liability with respect to any action taken by it or for any inaction on its part in
reliance upon any notice, direction, instruction, consent, statement or other document believed by it in
good faith to be genuine and duly authorized, nor for any other action or inaction except for its own
gross negligence or willful misconduct. In all questions arising under this Agreement and/or its
interpretation hereof in conjunction with the Purchase Agreement, the Escrow Agent may rely on the
advice of counsel, and for anything done, omitted or suffered in good faith by the Escrow Agent based
upon such advice the Escrow Agent shall not be liable to anyone. In no event shall the Escrow Agent be
liable for incidental, punitive or consequential damages.
4.2. Buyer and Representative (solely on behalf of the Seller Parties and in its capacity as the
Seller Parties, not in its individual capacities) hereby agree to jointly and severally indemnify the
Escrow Agent and its officers, directors, employees and agents for, and hold it and them harmless
against, any loss, liability or expense (including attorney fees) incurred without gross negligence or
willful misconduct on the part of the Escrow Agent, arising out of or in connection with the Escrow
Agent’s carrying out its duties hereunder. This right of indemnification shall survive the termination of
this Agreement and the resignation of the Escrow Agent. The indemnification by Representative shall
be paid solely from the assets (i.e., cash and stock) contained in the Escrow Accounts.
Section 5.Termination. This Agreement shall terminate upon the release by the Escrow Agent
of the final amounts held in the Escrow Accounts in accordance with Section 1 (the date of such
release being referred to as the “ Termination Date ”).
Section 6.Successor Escrow Agent. In the event the Escrow Agent becomes unavailable or
unwilling to continue as escrow agent under this Agreement, the Escrow Agent may resign and be
discharged from its duties and obligations hereunder by giving its written resignation to the parties to
this Agreement. Such resignation shall take effect not less than 30 days after it is given to all the other
parties hereto. In such event, Buyer may appoint a successor Escrow Agent (acceptable to
Representative, acting reasonably). If Buyer fails to appoint a successor Escrow Agent within 15 days
after receiving the Escrow Agent’s written resignation, the Escrow Agent shall have the right to apply
to a court of competent jurisdiction for the appointment of a successor Escrow Agent. The successor
Escrow Agent shall execute and deliver to the Escrow Agent an instrument accepting such appointment,
and the successor Escrow Agent shall, without further acts, be vested with all the estates, property
rights, powers and duties of the predecessor Escrow Agent as if originally named as Escrow Agent
herein. The Escrow Agent shall act in accordance with
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written instructions from Buyer and Representative as to the transfer of the Escrow Fund to a successor
Escrow Agent.
Section 7.Representative. Unless and until Buyer and the Escrow Agent shall have received
written notice of the appointment of a successor Representative, each of Buyer and the Escrow Agent
shall be entitled to rely on, and shall be fully protected in relying on, the power and authority of
Representative to act on behalf of the Seller Parties.
Section 8.Miscellaneous.
8.1.Attorneys’ Fees.In any action at law or suit in equity to enforce or interpret this Agreement
or the rights of any of the parties hereunder, the prevailing party in such action or suit shall be entitled
to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and expenses incurred
in such action or suit.
8.2.Notices. All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed
duly given (a) when delivered personally to the recipient, (b) when sent by electronic mail or facsimile,
on the date of transmission to such recipient, (c) one Business Day after being sent to the recipient by
reputable overnight courier service (charges prepaid), or (d) four Business Days after being mailed to
the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed
to the intended recipient as set forth below:
Imation Corp.
1 Imation Way
Oakdale, MN 55128
Attention: John P. Breedlove
Facsimile: +1 651 704 4412
Email: [email protected]
If to Buyer:
With a copy, which shall not constitute
notice, to:
McDermott Will & Emery LLP
340 Madison Avenue
New York, NY 10173
Attention: Joel L. Rubinstein, Esq.
Facsimile: +1 212 547 5444
Email: [email protected]
Shareholder Representative Services LLC
1614 15th Street, Suite 200
Denver, CO 80202
Facsimile: (303) 623-0294
Email: [email protected]
If to Representative:
Continental Stock Transfer & Trust Company
17 Battery Place
New York, NY 10004
Attention: Accounting Department, Escrow Administration
If to Continental Stock Transfer & Trust Facsimile: +1 212 616 7620
Company in its capacity as Escrow Agent: E-mail: [email protected]
Any party may change the address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other parties notice in the manner herein set forth. Notwithstanding
the foregoing, notices addressed to the Escrow Agent shall be effective only upon receipt. If any notice or other
document is required to be delivered to the Escrow
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Agent and any other Person, the Escrow Agent may assume without inquiry that notice or other document was
received by such other Person on the date on which it was received by the Escrow Agent.
8.3.Headings. The section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of this Agreement.
8.4.Counterparts. This Agreement may be executed in one or more counterparts (including by
means of electronic mail or facsimile), each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
8.5.Governing Law. This Agreement and any claim, controversy or dispute arising out of or
related to this Agreement, any of the transactions contemplated hereby, the relationship of the parties,
and/or the interpretation and enforcement of the rights and duties of the parties, whether arising in
contract, tort, equity or otherwise, shall be governed by and construed in accordance with the domestic
Laws of the State of Delaware (including in respect of the statute of limitations or other limitations
period applicable to any such claim, controversy or dispute), without giving effect to any choice or
conflict of Law provision or rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the Laws of any jurisdiction other than the State of Delaware.
8.6.Waiver of Jury Trial. BUYER AND REPRESENTATIVE EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OR RELATED TO THIS AGREEMENT IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY AFFILIATE OF ANY OTHER SUCH PARTY,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE
PARTIES AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.
8.7.Succession and Assignment.This Agreement shall be binding upon and shall inure to the
benefit of each of the parties hereto and each of their respective permitted successors and assigns, if
any.
8.8.Amendments and Waivers. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by the Escrow Agent, Buyer and Representative.
No waiver by any party hereto of any provision of this Agreement or any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same
shall be in writing and signed by the party making such waiver nor shall such waiver be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
92
8.9.Severability. Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
8.10.No Third-Party Beneficiaries.Except as expressly provided herein, this Agreement shall
not confer any rights or remedies upon any Person other than the parties hereto and their respective
successors and permitted assigns.
8.11.Entire Agreement. This Agreement and the Purchase Agreement set forth the entire
agreement among the parties hereto relating to the subject matter hereof and supersede any prior
understandings, agreements, or representations by or among the parties hereto, written or oral, to the
extent they relate in any way to the subject matter hereof.
8.12.Cooperation.Representative and Buyer agree to cooperate fully with each other and the
Escrow Agent and to execute and deliver such further documents, certificates, agreements, stock
powers and instruments and to take such other actions as may be reasonably requested by Buyer,
Representative or the Escrow Agent to evidence or reflect the transactions contemplated by this
Agreement and to carry out the intent and purposes of this Agreement.
8.13.Construction.
a.For purposes of this Agreement, whenever the context requires: the singular
number shall include the plural, and vice versa; the masculine gender shall include the feminine
and neutral genders; the feminine gender shall include the masculine and neutral genders; and
the neutral gender shall include masculine and feminine genders.
b.The parties hereto agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied in the construction
or interpretation of this Agreement.
c.As used in this Agreement, the words “include” and “including,” and
variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to
be followed by the words “without limitation.”
d.Except as otherwise indicated, all references in this Agreement to “Sections”
and “Schedules” are intended to refer to Sections of this Agreement and Schedules to this
Agreement.
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93
In Witness Whereof, the parties hereto have duly caused this Agreement to be executed as of the day
and year first above written.
Imation Corp., a Delaware corporation
By: ______________________________________
Name:
Title:
Shareholder Representative Services LLC, a Colorado
limited liability company solely in its capacity as the
Representative
By: ______________________________________
Name:
Title:
Continental Stock Transfer & Trust Company,a
New York corporation
By: ______________________________________
Name:
Title:
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Schedule 1
Authorized Signer Designations
For Buyer:
Name
Telephone Number
1. Joseph A. De Perio,
Chairman
212-377-4252
Signature
________________________
2. Robert B. Fernander, Interim CEO 512-576-6788
________________________
For Representative:
Name
Telephone Number
Signature
1. ________________________
2. ________________________
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Schedule 2
Escrow Agent’s Fees
Acceptance fee
Waived
Administration fee, 2 escrow accounts
$7,000.00
The acceptance fee and administration fee covers all account set-up services, the review, negotiation and
execution of the escrow agent agreement, KYC, OFAC and USA Patriot Act due diligence, coordination of
shareholder records, on-going account maintenance for subsequent distributions or additional merger
consideration payments, compliance review, records retention, escheat services The escrow agent acceptance
fee and administration fee is due and payable upon the effective date of appointment. See assumptions for
duration.
Subsequent Distributions (Escrow), each
Included
Out-of-pocket expenses
At cost
Out-of-pocket expenses when applicable will be billed at cost at the sole discretion of Continental Stock
Transfer & Trust Company.
Extraordinary services
Market rate
Fees for services not specifically covered in this schedule will be billed in accordance with our prevailing rates
for such services.
These costs may include, but are not limited to, review of IRS Form W-8IMY for foreign holders, shareholder
presentment status updates, shareholder record adjustments, electronic copies of shareholder presentments and
non-standard shareholder records.
Assumptions
This proposal is based upon the following assumptions with respect to the role of escrow agent. Should any of
the assumptions, duties or responsibilities change, we reserve the right to affirm, modify or rescind this
proposal.
•
Indemnity escrow duration is 12 months; adjustment escrow is 2 months. Beyond these durations, fees of
$500.00/month may be in effect.
•
All funds held by Continental Stock Transfer & Trust Company will be bank deposits and held
un-invested
•
ALL FUNDS WILL BE RECEIVED FROM OR DISTRIBUTED TO A DOMESTIC OR AN
APPROVED FOREIGN ENTITY
Terms and conditions
96
•
Should this transaction fail to close through no fault of Continental Stock Transfer & Trust Company,
our fees as well as out-of-pocket expenses incurred by Continental Stock Transfer & Trust Company,
will be due and payable.
•
Invoices outstanding for over 30 days are subject to a 1.5% per month late payment penalty.
•
Acceptance of the appointment described in this proposal is subject to compliance with the requirements
of the USA Patriot Act of 2001 described below, Continental Stock Transfer & Trust Company
satisfactory review of all governing documents, and the execution of the governing documents by all
parties.
•
This fee proposal may not be modified except in writing and will be deemed accepted upon your
execution of the paying agent agreement.
Important information about opening a new account
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all
financial institutions to obtain, verify, and record information that identifies each person (individual,
corporation, partnership, trust, estate or other entity recognized as a legal person) for whom we open an
account.
What this means for you: Before we open an account, we will ask for your name, address, date of birth (for
individuals), TIN/EIN or other information that will allow us to identify you or your company. For individuals,
this could mean identifying documents such as a driver’s license. For a corporation, partnership, trust, estate
or other entity recognized as a legal person, this could mean identifying documents such as a Certificate of
Formation from the issuing state agency .
Dated: October 13, 2015
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Schedule 3
Escrow Fund
Indemnity Escrow
$73,114.00 in cash
155,229 Indemnity Escrow Shares in book entry form, registered in the name of “Continental Stock Transfer &
Trust Company as Escrow Agent (Indemnity) for the Connected Data Inc. Merger,” to be held in escrow under
this Agreement
Adjustment Escrow
$21,933.19 in cash
46,570 Adjustment Escrow Shares in book entry form, registered in the name of “Continental Stock Transfer &
Trust Company as Escrow Agent (Adjustment) for the Connected Data Inc. Merger,” to be held in escrow under
this Agreement
98
Exhibit C
Lockup Agreement
99
SHAREHOLDER LOCKUP AGREEMENT
THIS SHAREHOLDER LOCKUP AGREEMENT (this “Agreement”) is made and entered into as of
October 14, 2015, by and among Imation Corp., a Delaware corporation (“ Imation ”) and the individuals listed
on Schedule 1 hereto (collectively, the “ Shareholders ”). Each capitalized term used but not otherwise
defined herein shall have the meaning ascribed to such term in that certain Stock Purchase and Merger
Agreement, dated as of October 14, 2015 (the “ Purchase Agreement ”), by and among Imation, Connected
Data, Inc., a California corporation, the Shareholders, and certain other parties named therein.
In connection with the consummation of the transactions contemplated by the Purchase Agreement and
for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed,
Imation and each of the Shareholders hereby agree as follows:
1.The execution and delivery of this Agreement is an inducement to Imation to enter into the
Purchase Agreement and to consummate the transactions to be performed by Imation in connection
with the Closing under the Purchase Agreement, including, without limitation, Imation’s issuance and
delivery of the Shares in accordance with the terms of the Purchase Agreement.
2.The Shareholders hereby acknowledge and agree that during the applicable Lockup Period
(as defined below), each of the Shareholders shall not (a) sell, offer to sell, contract or agree to sell,
hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of,
directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Securities Exchange Act with respect to,
any portion of its or his Shares (as defined below), (b) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of ownership of any of its or
his Shares, whether any such transaction is to be settled by delivery of Shares or such other securities,
in cash or otherwise, or (c) publicly announce any intention to effect any transaction specified in clause
(a) or (b). As used herein, the term “ Lockup Period ” means (i) with respect to fifty percent (50%) of
its or his Shares, the period beginning on the date hereof and ending upon the earlier to occur of (A) the
first anniversary of the Closing Date, (B) the cessation by Imation of operations in its Nexsan division
or (C) the cessation by Imation of operations in the Business; and (ii) with respect to the other fifty
percent (50%) of its or his Shares, the period beginning on the date hereof and ending upon the earlier
to occur of (A) the second anniversary of the Closing Date, (B) the cessation by Imation of operations
in its Nexsan division or (C) the cessation by Imation of operations in the Business.
3.Notwithstanding the provisions of paragraph 2 above, each of the Shareholders may transfer
any of its or his Shares:
(a)to any of its or his Affiliates;
(b)by virtue of the applicable Laws upon dissolution of such Shareholder, if applicable, or by
virtue of the Laws of descent and distribution upon the death of such Shareholder, if applicable;
(c)to Imation pursuant to Section 1.3(g)(ii) of the Purchase Agreement and the Escrow
Agreement; or
(d)to the Buyer Indemnitees pursuant to Section 6.8 of the Purchase Agreement and the
Escrow Agreement;
100
provided, however, that, in the case of clauses (a) and (b), such permitted transferee(s) become(s) bound by the
transfer restrictions contained herein.
4.Each of the Shareholders hereby represents and warrants to Imation that it or he has full
power and authority to enter into this Agreement.
5.Imation will cause each of the certificates evidencing the Shares to be legended with the
applicable transfer restrictions.
6.This Agreement constitutes the entire agreement among the parties hereto and supersedes all
prior understandings, agreements, or representations by or among the parties hereto, written or oral, to
the extent they relate in any way to the subject matter hereof.
7.This Agreement shall be binding upon and inure to the benefit of the parties named herein
and their respective successors and permitted assigns. No party hereto may assign either this Agreement
or any of its rights, interests, or obligations hereunder without the prior written approval of the other
parties.
8.This Agreement and any claim, controversy or dispute arising out of or related to this
Agreement and/or the interpretation and enforcement of the rights and duties of the parties, whether
arising in law or equity, whether in contract, tort, under statute or otherwise, shall be governed by and
construed in accordance with the domestic Laws of the State of Delaware (including in respect of the
statute of limitations or other limitations period applicable to any such claim, controversy or dispute),
without giving effect to any choice or conflict of Law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction
other than the State of Delaware.
9.All notices, requests, demands, claims, and other communications hereunder will be in
writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly
given (a) when delivered personally to the recipient, (b) when sent by electronic mail or facsimile, on
the date of transmission to such recipient, (c) one Business Day after being sent to the recipient by
reputable overnight courier service (charges prepaid), or (d) four Business Days after being mailed to
the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed
to the address or facsimile number indicated on the books and records of Imation or such other address
as a party shall subsequently provide.
10.No amendment of any provision of this Agreement shall be valid unless the same shall be in
writing and signed by the parties hereto. No waiver by any party of any provision of this Agreement or
any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not,
shall be valid unless the same shall be in writing and signed by the party making such waiver nor shall
such waiver be deemed to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
11.Each of the parties hereto hereby acknowledge and agree that, in the event of breach of this
Agreement, damages would be difficult, if not impossible to ascertain, and that irreparable damage
would occur if any of the provisions of this Agreement are not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that, in addition to and without
limitation any other remedy or right to which the non-breaching party may have, it or he shall be
entitled to an injunction or other equitable relief in any court of competent jurisdiction, without any
necessity of proving damages or any requirement for the posting of a bond or other security, enjoining
any such breach, and enforcing specifically the terms and provisions. Each party
101
hereby waives any and all defenses he or it may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
12.Any term or provision of this Agreement that is invalid or unenforceable in any situation in
any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
13.This Agreement may be executed in one or more counterparts (including by means of
electronic mail or facsimile), each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
102
IN WITNESS WHEREOF, the parties hereto have executed this Shareholder Lockup Agreement on the
date first written above.
Imation Corp.
By:
Name:
Joseph A. De Perio
Title:
Chairman
[SHAREHOLDER]
By:
Name:
Title:
103
Confidential treatment has been requested for portions of this exhibit pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as [**]. A complete version of this exhibit has been filed
separately with the Securities and Exchange Commission.
AGREEMENT
This AGREEMENT (this “Agreement”), dated as of September 28, 2015, is by and between Imation
Corp., a Delaware corporation (“Imation USA” and together with its subsidiaries and affiliates, each
individually, an “Imation Entity” and collectively, the “Imation Entities”) and TDK Corporation, a company
organized under the laws of Japan (“TDK”).
W I T N E S S E T H:
WHEREAS, reference is made to (a) the Trademark License Agreement, dated as of July 31, 2007, by
and between Imation USA and TDK (as amended, the “US License Agreement”) and (b) the IMN Trademark
License Agreement, dated as of July 31, 2007, by and between Imation USA (as successor in interest to IMN
Data Storage Holdings CV, a Dutch private limited partnership (“Imation Dutch”) pursuant to the Deed of
Novation, dated July 1, 2013, by and among Imation Dutch, TDK and Imation USA) and TDK (as amended, the
“Global License Agreement” and together with the US License Agreement, each individually a “License
Agreement” and, collectively, the “License Agreements”), pursuant to which Imation USA and certain other
Imation Entities have been granted the right to use the Licensed Trademarks (as defined in the License
Agreements), the domain name “tdk-media.com” and the Additional Licensed Domain Names (as defined in the
License Agreements and, together with “tdk-media.com,” the “Licensed Domain Names”) for the marketing
and sale of Licensed Products (as defined in the License Agreements), and rights under certain patents to
market, distribute and sell Current Magnetic Tape Products and Current Optical Media Products (each as
defined in the License Agreements) (collectively, such patents, the Licensed Trademarks and Licensed Domain
Names to be referred to herein as the “Licensed IP”);
WHEREAS, reference is made to the Investor Rights Agreement, dated as of July 31, 2007, by and
between Imation USA and TDK (as amended, the “Investor Rights Agreement”);
WHEREAS, TDK and certain subsidiaries of TDK own an aggregate 7,590,764 shares of the capital
stock of Imation USA (the “Imation Shares”), and the parties desire that TDK transfer 6,675,764 of such
Imation Shares to Imation USA (the “Transferred Imation Shares”); and
WHEREAS, in connection with Imation USA’s withdrawal from the Business (as defined in the
License Agreements), the parties also desire to terminate the License Agreements and to terminate certain
provisions of the Investor Rights Agreement, in each case, subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained in this
Agreement, the parties hereto agree as follows:
1.Transfer of Imation Shares.
(a) Subject to Sections 1(b) and 4 below, TDK hereby unconditionally covenants and agrees that it
shall irrevocably transfer to Imation USA, on a date (the “Effective Date”) no later than October 31, 2015, all of
its right, title and interest in and to the Transferred Imation Shares, free from all liens, charges and
encumbrances, and not subject set-off or any defense. Subject to Sections 1(b) and 4 below, after giving effect
to such transfer on the Effective Date and the release from escrow of the Transferred Imation Shares (such
release, the “Share Release”, and the date of such release, the “Share Release Date”), Imation USA shall be the
sole owner of the Transferred Imation Shares so released, and TDK agrees and acknowledges that it shall have
no further right, title, interest or claim in or to such released Transferred Imation Shares. TDK shall provide
Imation USA with such instruments and documents which Imation USA shall reasonably require to evidence
such transfer. Prior to the Effective Date, Imation USA shall use commercially reasonable efforts to cooperate
with and assist TDK to effect (i) the transfers of Transferred Imation Shares to TDK from its subsidiaries, and
(ii) the delivery by TDK to Imation USA of Transferred Imation Shares, including without limitation, in each
case, by directing its transfer agent as reasonably requested by TDK or its subsidiaries.
(b) In the event, and solely to the extent, that the transfer of the Transferred Imation Shares to
Imation USA pursuant to Section 1(a) would result in a material violation of, or cause TDK or any its
subsidiaries to suffer any material adverse legal consequence under, any applicable laws or regulations enacted
after the date hereof, TDK shall timely execute and deliver such documents, instruments and agreements to, and
shall take such other actions as are necessary to, confer upon Imation USA all rights, benefits and burdens of
beneficial ownership over the Transferred Imation Shares as of the Effective Date, and shall use commercially
reasonable best efforts to enable TDK to transfer full title to the Transferred Imation Shares to Imation USA in
material compliance with such laws and regulations as expeditiously as reasonably possible after the Effective
Date, in each case subject to Section 4.
2. Termination of License Agreements.
(a) As of the Effective Date, the US License Agreement shall be deemed terminated in accordance
with Section 6.4(b) thereof, the Global License Agreement shall be deemed terminated in accordance with
Section 5.4(a) thereof, and each Imation Entity (including without limitation any other Imation Entity that as of
the Effective Date sells Licensed Products (the “Imation Licensees”)) shall have no further right, title, interest
or claim in or to any Licensed Products or Licensed IP, and shall cease all use of the Licensed IP (including
without limitation the Licensed Trademarks and Licensed Domain Names and any mark or domain name
confusingly similar thereto), except as set forth in Section 7(c) hereof with respect to the Licensed Domain
Names and except , that , the License Agreements shall remain in force and effect to the extent that any
Imation Licensee requires such rights to (i) sell or otherwise dispose of, on a royalty free basis, any existing
Licensed Products consisting of finished goods on or before December 31, 2015, (ii) complete any existing
Licensed Products consisting of goods
2
which are “work-in-process” and to then sell or otherwise dispose of, on a royalty-free basis, such finished
Licensed Products on or before December 31, 2015, (iii) otherwise manufacture, finish and sell or otherwise
dispose of, on a royalty-free basis, Licensed Products in order to honor existing and new purchase orders that
may be accepted by any Imation Licensee on or before December 31, 2015 for shipment on or before December
31, 2015; provided , that , to the extent that any Imation Licensee is currently contractually obligated to sell
Licensed Products to a customer after December 31, 2015 (such later date being referred to herein as an
“Extended Delivery Date”) pursuant to a customer supply agreement executed, and/or a purchase order
accepted, prior to the Effective Date, it is permitted to consummate such sale through the applicable Extended
Delivery Date; provided further , that , no such Extended Delivery Date shall be more than 150 days after the
later of (1) the Effective Date and (2) so long as Imation USA is not in breach of Section 4, the Share Release
Date. To the extent clauses (i), (ii) and/or (iii) above are inconsistent with any provision of either License
Agreement, the terms of clause (i), (ii) or (iii), as the case may be, shall govern. In no event shall any rights
retained by any Imation Licensee pursuant to clause (i), (ii) or (iii) above during the time periods set forth in
such clauses be broader in any respect than the rights granted to such Imation Licensee pursuant to the
applicable License Agreement (or the applicable sublicense to such Imation Licensee, to the extent consistent
with the applicable License Agreement) prior to the Effective Date. Without limitation to the generality of the
foregoing, (x) all uses by any Imation Entity of any Licensed Trademark or any Licensed Domain Name in
accordance with this Agreement shall comply with all requirements and restrictions set forth in the License
Agreements, including, without limitation, compliance with the Quality Guidelines and (y) Imation USA shall
not, and shall ensure each other Imation Entity shall not, at any time during or after the term of this Agreement,
(1) register or seek to register any Licensed Trademark or Licensed Domain Name, or any mark or domain
name containing or confusingly similar to any Licensed Trademark or Licensed Domain Name or (2) challenge
or take any action inconsistent with TDK’s sole ownership of the Licensed Trademarks and Licensed Domain
Names.
(b) It is the intention of the Imation Licensees to purchase inventory of Licensed Products only to
the extent necessary to fulfill purchase orders accepted in accordance with the time periods set forth in Section
2(a) above for shipment in accordance with the time periods set forth in Section 2(a) above. The Imation
Licensees will use their commercially reasonable efforts to sell as much of their inventory as possible by
November 30, 2015 (other than inventory that is scheduled to be shipped in connection with purchase orders
that, in accordance with Section 2(a) above, have shipment dates after November 30, 2015). The Imation
Licensees will sell or destroy all residual inventory of Licensed Product (that is not necessary to fulfill supply
obligations under a customer supply agreement or purchase order that, in accordance with Section 2(a), has an
Extended Delivery Date or needed to fulfill warranty obligations), including returns, remaining goods in stock
and other such items, on or prior to January 31, 2016, and Imation USA will deliver to TDK a certificate, signed
by an officer of Imation USA, certifying that substantially all inventory of Licensed Products (other than such
inventory necessary to fulfill supply obligations under customer supply agreements or purchase orders that, in
accordance with Section 2(a), have Extended Delivery Dates and/or to fulfill warranty obligations) has been
sold or destroyed as of such date. Notwithstanding anything to the contrary set forth herein, if the Share Release
has not occurred by any of the dates specified in
3
Section 2(a) above or this Section 2(b), then, so long as Imation USA is not in breach of Section 4, with respect
to each such date that occurs prior to the Share Release, at the option of Imation USA such date shall be deemed
extended by one calendar month (and such extensions shall continue with respect to each subsequent month
until completion of the Share Release).
(c) Any purchaser (other than an Imation Entity) of any Licensed Products purchased in
accordance with this Agreement shall have the right to use and re-sell such Licensed Products.
(d) Each Imation Licensee retains all of its rights to collect all receivables owing to it arising from
the sale of Licensed Products.
(e) Imation USA shall cause each other Imation Entity to comply with the terms and conditions of
this Agreement with respect to Licensed Products and Licensed IP, and shall be responsible and liable for any
failure of any Imation Entity to comply with such terms and conditions.
3. Termination of Investor Rights Agreement. As of the Effective Date, TDK’s rights pursuant to the
following sections of the Investor Rights Agreement shall terminate, and such sections shall be of no further
force or effect: Sections 1.1-1.4 (board representation), Section 1.5 (information rights), Sections 2.1-2.3
(preemptive rights) and Section 3.1(a) (demand rights); it being understood that the foregoing termination shall
not affect, and TDK shall retain, TDK’s piggyback registration rights pursuant to Section 3.1(b) of the Investor
Rights Agreement.
4. Return of Imation Shares. Imation USA shall hold the Transferred Imation Shares in escrow
pending Imation USA’s filing with the U.S. Securities and Exchange Commission of its Form 10-Q for the
fiscal quarter ended September 30, 2015 (the “10-Q”) and the determination of any adjustment pursuant to the
following formula. Imation USA shall not pledge, repledge, hypothecate, rehypothecate, lend, relend, sell or
otherwise transfer any Transferred Imation Shares in escrow, and shall segregate such Transferred Imation
Shares from any other securities in Imation USA’s possession while in escrow. In the event that the balance
sheet reported in the 10-Q reflects shareholders’ equity of Imation USA greater than $56,000,000, Imation USA
shall transfer back, as soon as commercially practicable and in any event no later than November 30, 2015, to
TDK from escrow all right, title and interest, free from all liens, charges and encumbrances, in a number of
Transferred Imation Shares equal to the result (rounding down) of the following formula: X divided by Y,
multiplied by 6,675,764.
For purposes of this Agreement:
“X” shall mean the amount of the shareholders’ equity of Imation USA reflected in the 10-Q
minus $56,000,000.
“Y” shall mean $148,363,000, which is the result of $204,363,000 (i.e. the value of the
shareholders’ equity of Imation USA on June 30, 2015) minus $56,000,000.
To the extent any Transferred Imation Shares remain in escrow after giving effect to such transfer back to TDK,
if any, all right, title and interest in such Transferred Imation Shares shall be
4
released from escrow to Imation USA. Imation USA and TDK acknowledge and agree that this Agreement shall
be a “securities contract” as such term is defined in Section 741(7) of Title 11 of the United States Code.
5. Transitioning of Business in Worldwide Market by Imation Entities. Attached as Exhibit A hereto
are the Terms and Conditions of Transitioning of Business in the Worldwide Market by Imation Entities, which
contains the understanding of the parties regarding the steps the Imation Entities plan to follow in connection
with the transitioning of the conduct of their business in the worldwide market relating to the Licensed
Products.
6. Transition Services Agreement. Attached hereto as Exhibit B is a form of Transition Services
Agreement, which Imation Japan will present for execution to its top 25 customers, and possibly to additional
customers. As between TDK and Imation USA, TDK will not be responsible and liable for any costs and
expenses with respect to customers of Licensed Products. As between TDK and Imation USA, TDK shall not be
responsible or liable for any costs and expenses incurred with respect to any customer that enters into a
Transition Services Agreement. The contracting Imation Entity will be responsible and liable for any costs and
expenses incurred with respect to contracts entered into with its customers and vendors relating to the Licensed
Products. To the extent that a claim is asserted against TDK, Imation USA will indemnify TDK to the extent set
forth in the License Agreements.
7. Warranty Support; Domain Names.
(a) All customer and consumer warranty claims for Licensed Products will be honored and
supported by Imation USA (directly or via another applicable Imation Entity (in accordance with the Imation
warranty policy currently in place)) through June 30, 2017, as follows: (i) through December 31, 2015, the
customer/consumer warranty service will be performed by Imation USA or such other applicable Imation Entity
consistent with current practices and (ii) from January 1, 2016 through June 30, 2017, the customer/consumer
warranty service will be performed by a third party provider at Imation USA’s sole cost and expense. With
respect to any Extended Delivery Date supply agreements, the foregoing warranty support dates shall be
extended accordingly. As between TDK and Imation USA, Imation USA shall be solely responsible and liable
for any timely customer or consumer warranty claims that are submitted to Imation USA, whether such claim is
made against TDK before or after the dates set forth above.
(b) Technical support will also be provided by Imation USA or such other applicable Imation
Entity, consistent with current practices, through June 30, 2017 (or the equivalent period in the case of Extended
Delivery Date supply agreements). As between TDK and Imation USA, Imation USA shall be solely
responsible and liable for any technical support requests or demands, whether made before or after such date.
(c) Any applicable websites located at Licensed Domain Names in jurisdictions where Licensed
Products are or have been sold or otherwise disposed of by Imation USA or any other Imation Entity, at TDK’s
option, will be maintained as “live” by Imation USA until June 31, 2017 (or such other date as may be agreed
by the parties) at Imation USA’s cost. On or before the later of (1) December 31, 2015 and (2) so long as
Imation USA is not in breach of
5
Section 4, the Share Release Date, each such website will indicate that the Licensed Products have been
discontinued but that warranty and technical support remains available during the time periods set forth in
Section 7(a) and Section 7(b) (as applicable) and will continue to provide consumer warranty claim information,
phone number contact information and access to owner’s manuals. Administration of the site through such date
will be provided by Imation USA (directly or through another applicable Imation Entity), and will be managed
by a third party provider. A “Question/Answer” section will continue to be available for Licensed Products. All
website content will be provided to TDK for approval, which approval shall not be unreasonably withheld,
delayed or conditioned.
(d) No later than the Share Release Date, Imation USA will provide TDK with a list of all domain
names registered by or on behalf of any Imation Entity that include the mark “TDK” or any other Licensed
Trademark or any Licensed Domain Name, or that are, or contain any mark that is, confusing similar to any
Licensed Trademark or Licensed Domain Name. No later than fifteen (15) days after the Share Release Date,
Imation USA will, or will cause an Imation Entity to, provide TDK with control of each listed domain name
that will not be maintained as live by Imation USA in accordance with Section 7(c) and will cause the contact
point designated by TDK to be registered as the technical, administration and billing contact point for each such
domain name. As to domain names that will be maintained as live in accordance with Section 7(c), Imation
USA will, or will cause an Imation Entity to, provide TDK with control of each such domain name as of the
date that such domain name ceases to be maintained as live in accordance with Section 7(c) and will cause the
contact point designated by TDK to be registered as the technical, administration and billing contact point for
each such domain name as of such date.
8. Representations and Warranties.
(a) TDK represents and warrants that, prior to the effectiveness of this Agreement, it is the legal
and beneficial owner of the Transferred Imation Shares and that its interest is free and clear of any security
interest, lien, encumbrance or other adverse claim.
(b) Each party hereto represents and warrants that (i) it is duly organized and existing and it has
the full power and authority to take, and has taken, all action necessary to execute and deliver this Agreement
and (ii) this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding
obligation.
(c) Imation USA represents and warrants that it has provided TDK with all material public and
non-public information requested by TDK for purposes of evaluating the transactions contemplated pursuant to
this Agreement.
(d) Imation USA represents and warrants that it is receiving the Transferred Imation Shares for its
own account, and not with an intent to further distribute any or all of such Transferred Imation Shares.
9. Further Assurances. The parties hereto agree to execute and deliver such other instruments, and take
such other action, as the other party may reasonably request in connection
6
with the implementation of the transactions contemplated by this Agreement, including, without limitation, the
delivery of any notices or other documents or instruments which may be required in connection with the
transfer of shares contemplated by this Agreement, with respect to the termination of the License Agreements
and, to the extent applicable, with respect to the termination or assignment of trademark filings in favor of any
of the Imation Entities which were filed outside of the United States. Any such actions shall be at the cost and
expense of the party requesting the action (other than with respect to the trademark filings, which shall be at
Imation USA’s cost and expense).
10. Notices. All notices, requests and demands hereunder shall be in writing and deemed to have been
given or made: if delivered in person, immediately upon delivery; if by facsimile transmission, immediately
upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with
instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return
receipt requested, five (5) days after mailing. All notices, requests and demands upon the parties are to be given
to the following addresses (or to such other address as any party may designate by notice in accordance with
this Section):
If to Imation USA:
c/o Imation Corp.
1 Imation Way
Oakdale, MN 55128
Attention: Barry L. Kasoff, interim President
Tel: 651-704-3006
Fax: 651-704-7845
with a copy to:
Otterbourg P.C.
230 Park Avenue
New York, NY 10169
Attention: Jonathan N. Helfat, Esq.
Tel: (212) 661-9100
Fax: (212) 682-6104
If to TDK:
TDK Corporation
Shibaura Renasite Tower
3-9-1 Shibaura, Minato-ku
Tokyo, Japan 108-0023
Attention: Ikuo Fukuchi, Head of Legal
Tel: 813-6852-7101
Fax: 813-6852-7110
11. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns.
7
(b) This Agreement may be executed in any number of counterparts and all of such counterparts
taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart
of this Agreement by telefacsimile or other electronic method of transmission shall have the same force and
effect as delivery of an original executed counterpart of this Agreement.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. The parties hereto each irrevocably
submits to the non-exclusive jurisdiction of any State or Federal court sitting in New York County, New York
over any suit, action or proceeding arising out of or relating to this Agreement and irrevocably agrees that all
claims in respect of such action or proceeding may be heard and determined in such New York State or Federal
court. Each party to this Agreement hereby irrevocably waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding.
(d) THE PARTIES HERETO EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS AGREEMENT OR ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their
duly authorized officers as of the date first above written.
IMATION CORP.
By: /s/ Barry L. Kasoff
Name: Barry L. Kasoff
Title: interim President
TDK CORPORATION
By: /s/ Takehiro Kamigama
Name: Takehiro Kamigama
Title: President & CEO
9
EXHIBIT A
Terms and Conditions of Transitioning of Business in Worldwide Market by Imation Japan
[See Attached]
10
Terms and Conditions of Transitioning of TDK Business Worldwide by Imation Corporation
In Japan
I. Key Milestone Timeline Dates
September 29:
1. Public announcement of entering into the Agreement and the arrangements contemplated thereunder
2. Meeting with employees to notify them of the arrangements contemplated by the Agreement and the transitioning
of business in the Japanese market by Imation
3. Contact with key customers (September 29 and October 1, 2015) (via direct contact and letter distribution to all
customers)
October 14:
1. Confirmation that Imation has delivered a draft of the [Transition Services Agreement] to its top 25 customers
2. Confirmation of the receipt by Imation of non-cancellable purchase commitments for October, November and
December, 2015 shipments
October through February 2016: Phased exit of Imation Corporation Japan (“ICJ”) employees as described in Section IV
below
[**]
December 14 to 18: Last week of shipments of Licensed Products to customers although shipments may continue through
December 31
II. Consumers
1. Warranty Support: All customer and consumer warranty claims for Licensed Products will be honored and
supported by Imation (in accordance with the Imation warranty policy currently in place) through June 30, 2017,
as follows: (a) through December 31, 2015, the customer/consumer warranty service will be performed by
Imation and (b) from January 1, 2016 through June 30, 2017, the customer/consumer warranty service will be
performed by a third party provider at Imation’s sole cost and expense. Since flash cards have a 5 year consumer
warranty, Imation will provide warranty replacement via a third party “fulfillment” service for defective flash
cards until June 30, 2021 (in accordance with the Imation warranty policy currently in place) at Imation’s sole
cost and expense.
** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a
confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934
2. Access for the TDK consumer warranty is via tdk-media.jp. Technical support will also be provided by Imation
through June 30, 2017. TDK Website,tdk-media.jp: TDK-media.jp, at TDK’s option, will remain “live” for a
period of 18 months, through June 2017. The site will
11
continue to provide consumer warranty claim information, phone number contact information (0120-81-0544)
and access to owner’s manuals. Administration of the site through such date will be provided by Imation, and
will be managed by Imation or a third party provider. A “Question/Answer” section will continue to be available
for TDK products. All website content will be provided to TDK for approval.
3
Published
Consumer
.
Warranty
Period:
a.
USB Flash Drive and Cards: Subject to the limits to warranty support by Imation described above, USB
Drives are covered under warranty for a period of one year from consumer purchase date and flash cards are
covered under warranty for a period of five years from consumer purchase date
b.
Audio Speakers: Subject to the limits to warranty support by Imation described above, audio speakers are
covered under warranty for a period of one year from consumer purchase date
c.
Headphones: Subject to the limits to warranty support by Imation described above, headphones are covered
under warranty for a period of one year from consumer purchase date
III. Customers
1. Contractual Obligations: All customer contractual obligations with ICJ, including obligations to customers who
accept the Transition Services Agreement, will be honored by ICJ. Most customer contracts provide for supply
agreements from 30 days to a maximum of 150 days. To the extent the terms of a supply agreement extent beyond
December 31, 2015, ICJ will make every effort to reach exit agreements with those customers by December 31,
2015, including providing additional product supply to support customer requirements. (The assumption is that
Askul accepts the Transition Services Agreement)
2. Lead Time: Imation plans to announce the business transition plan at the end of September (September 21 or
September 28), 2015. Imation will make every effort to notify all ICJ customers within 3 days after the public
announcement via direct contact and customer letter and be provided a minimum of 90 days’ notice on the
business exit
[**]
** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a
confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934
[**]
** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a
confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934
12
EXHIBIT B
Form of Transition Services Agreement
[See Attached]
13
TRANSITION SERVICES AGREEMENT
To: [Name of Customer]
As a valued and loyal customer of [Applicable Imation Entity],(1) we wish to make you aware that due to current
market conditions we are making the following one time offer. This offer relates directly to existing confirmed
orders between your firm and [Applicable Imation Entity], as well as to new orders accepted by [Applicable
Imation Entity].
• [Applicable Imation Entity] will continue to honor existing confirmed purchase orders consistent with
their terms for goods which are to be shipped to you on or before December 31, 2015. In this regard,
[Applicable Imation Entity] hereby offers an early payment discount regarding these orders [**] .
•
[Applicable Imation Entity] will provide a [**] discount of [**]. Products sold pursuant to this
incentive discount will not be subject to returns or credits unless the product is defective, in which case
either substitute product or a refund of the discounted purchase price will be provided, at [Applicable
Imation Entity]'s option. Any contemplated returns, with the exception of products that are defective or
have quality issues, under previously shipped orders must occur prior to being able to participate in this
payment incentive program.
•
The incentive purchase discount offer is being made on a first-come, first serve, basis and is subject to
product availability and may be terminated by [Applicable Imation Entity] at its discretion.
In order to obtain the benefits of the incentive discount program, please contact:
[Applicable Imation Entity] Sales Manager
_____________________________
** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied
by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of
the Securities Exchange Act of 1934
(1)
The Applicable Imation Entity shall be Imation Corp. or the name of the Imation foreign subsidiary in the
country where the program will be implemented. The applicable name will be inserted when the TSA is issued
to the local customer.
14
CONSULTING AGREEMENT
Consulting Agreement (this “Agreement”), dated August 31, 2015, by and between Geoff S. Barrall (the
“Consultant”), and Imation Corp. , a Delaware corporation (the “Client”). The Consultant and the Client are
sometimes referred to herein individually as a “Party”, and collectively as the “Parties.”
WHEREAS, the Client desires to retain the Consultant, and the Consultant desires to be retained by the
Client, pursuant to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and for
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties do
hereby agree as follows:
1. Term; Reporting; Supervision of Work; Primary Contact; Etc.
a. This Agreement shall commence as of August 31, 2015 (the “Effective Date”) and end October 12, 2015
(the “Term”). Should the Client wish to extend the term it shall be renewable on a weekly basis by
mutual consent. The Client may cancel this agreement at anytime, with no advance notice of termination
required; any such cancellation shall be effected by written notice to Consultant and shall become
effective upon receipt of such notice by Consultant. Should the Client choose to cancel this agreement
prior to October 12, 2015 then the Client will remit payment for any remaining work planned through
October 12, 2015 at the time of termination.
b. The Consultant shall report to the Board of Directors (the “Board”) of the Client. The Consultant will
coordinate its efforts with Mr. Ian Williams and the other members of Client’s management team
(“Management”) in all respects. The Consultant shall be physically present at the locations of the Client
at such times and frequency as the Consultant may reasonably determine. The Consultant will expend the
time it deems necessary (in his professional judgment) to perform the Services.
c. The Consultant shall be working with the Special Independent Review Committee (the “Committee”) of
Client’s Board. The Consultant will also be a member of that Committee, and his services hereunder are
in addition to his work on the Committee.
2. Services
As directed by the independent members of the Board, the Client hereby engages the Consultant to perform
the following services (collectively with the services described in Section 3 below, the “Services”) during
the Term:
Review and Assessment of Business
a. Assisting the Client to: (i) review and evaluate its overall business and operations and historical, current
and projected financial statements, financial position, budget and operating performance, and business
plans, (ii) identify the critical areas of the Client’s business that need to be addressed, with a focus on
(A) reducing discretionary expenditures and overhead relating to the Client’s
1
business, (B) accounts receivable management, (C) inventory management, (D) accounts payable
management, (E) strategic analysis of locations, and the projected utilization in operations and cost
benefits of owned versus leased facilities, and (F) analysis of profitability by product and geographic
region (to the extent practicable or appropriate), and (iii) assess the Client’s headcount,
organizational and functional personnel structures, staffing and use of human resources.
Formulation of Business Plan and Budget
b. Based on the foregoing review and assessment, assisting the Client (via close consultation with
Management to formulate: (i) a plan (a “Business Plan”) designed to enhance shareholder value and
(ii) an integrated, rolling, computer-based budget (the “Budget”) on a cash basis for the Client’s
operations covering: (A) monthly, the remainder of calendar year 2015 and (B) quarterly, calendar year
2016, such Budget to reflect the overall Business Plan and include explanation of the underlying budget
assumptions, and projections for: (1) income statement, (2) cost of sales, (3) selling, general and
administrative expenses, (4) R&D spending, and (5) specific employees or positions for staffing.
c. As part of the Business Plan, assisting the Client to identify the action steps needed to achieve the
objective for each critical area set forth in the Business Plan for Client’s Nexsan Data Storage and
IronKey businesses) and the timetable(s) for the implementation of such steps. Such objectives will
include for the Client’s operations (other than the Nexsan Data Storage and IronKey businesses): (i)
reducing the workforce and (ii) reducing operating losses.
d. The Parties acknowledge and confirm that the objective of the Business Plan is to assist the Client to
position itself to improve shareholder value.
Time Frame for Approval of Business Plan and Budget
e. The Consultant and the Client will endeavor to present to the Board for its discussion and approval a
preliminary Business Plan and accompanying Budget by September 28 2015. Once feedback is
received from the board a final plan with independent validation of product roadmap and market
viability will be presented to the board October 12, 2015 .
Services Relating to Detailed Development of Business Plan Action Steps
f. As part of the Business Plan, assisting the Client to: (i) focus on each critical area identified in the
Business Plan and related Budget and identify in further detail the action steps that the Client needs to
take in order to achieve the objective for that area and (ii) further develop for each critical area the costs
of and/or savings to be realized from the action steps, and estimated timetables for implementing such
steps. During development of the Business Plan, the Budget and the detailed action steps, the
Consultant will, to the extent needed or appropriate, continue to make recommendations for improving
each critical area, and refine recommendations previously made.
Services Relating to Implementation of Business Plan and Budget; “Roadmap”
2
g. The Consultant will identify appropriate components of the Business Plan that the Client, with the
assistance of the Consultant, may begin to implement immediately.
h. Assisting the Client to present to the Board (on a periodic basis) a “roadmap” outlining the Client’s
progress in implementing the Business Plan and the Budget, and indicating decision-making aspects of
such implementation for the Board’s consideration.
Computer-Based Model
i. To the extent that the exigencies of Consultant’s other agreed tasks permit, the Consultant will
use historical data drawn from information provided by the Client to develop a computer-based
financial model ( i.e. , the Budget) of the Client’s operations. Such model will be formulated in close
consultation with Mr. Lucas, Mr. Williams and other members of Management. Such model is to be: (i)
useful during the Term to help the Parties to analyze the variables that affect the Client’s business (such
as the impact of various levels of SG&A and R&D expense, etc.) and (ii) designed in a user-friendly
manner to enable the Client to use the model after the Term to perform further analyses. The Consultant
will perform some work on the financial model while assisting the Client to formulate the Business
Plan/Budget but most of the work on such model will be done during implementation of the Business
Plan/Budget.
Services Relating to Sales Efforts
j. The Consultant will interview customers and resellers of Client to provide third party validation of
Client’s value to customers and partners.
No Outcome Assured
k. The Parties confirm that the objective of the Business Plan and the Budget is to assist the Client to
achieve the specific objectives to be set forth therein. Notwithstanding such objectives, and the good
faith efforts the Client may expend to achieve them, the Parties acknowledge that future events and
results are caused by multiple factors and cannot be foreseen or guaranteed; and the Parties agree and
acknowledge that Consultant has not guaranteed that any particular results shall be achieved.
Matters
3
Relating to Services; Meetings
.
w
i
t
h
B
o
a
r
d
During the Term, the Client shall: (i) provide the Consultant’s personnel with reasonable access to the
Client’s locations to facilitate the performance of the Services and (ii) furnish promptly such financial
statements, business records and other documents and instruments as the Consultant may reasonably
specify as necessary or desirable for its performance of the Services. The Consultant shall meet with the
Committee and/or the Board from time to time as the Committee or the Board (as the case may be) may
specify.
3
4.
Compensation for Services; Expenses and Disbursements
The Client shall pay to the Consultant the following compensation for performance of the Services:
a. Weekly Fees – Subject to Section 5(b) below, a fee (a “Weekly Fee”) for the work of Consultant per
week, as follows: (a) $20,000 for Consultant’s full-time ( i.e. , not less than 40 hours) performance of
Services during such week. It is understood and agreed that the 40 hours per week commitment shall
also include the time spent by Geoff Barrall as a member of the Committee; provided, that if
Consultant devotes less than forty (40) hours cumulatively towards meeting this agreed cumulative
40-hour commitment during any week of the Term, then the applicable Weekly Fee ( i.e. , $20,000)
shall be proportionately reduced to reflect the lower number of hours, any such reduction to be
calculated pro rata according to the number of hours actually spent cumulatively that week. For
avoidance of doubt, the Weekly Fees do not include any fees paid, or to be paid, to Geoff Barrall in
Barrall’s capacity as a Board Member and/or Committee member for Geoff Barrall’s service on the
Committee or the Board.
b. Limitations on Fees; Reporting of Time – In no event shall the Weekly Fees for any week during the
Term exceed (in the aggregate) $20,000, irrespective of the number of hours cumulatively per week
that the Consultant may devote to performance of the Services. The Consultant will report to the Client
the individual time devoted to performance of the Services during each week. For this purpose, travel
time of the Consultant, including travel time between the Consultant’s home and Client’s office and
facility locations, and between and among Client’s office and facility locations, will be reported and
counted.
c. Expenses/Disbursements – The Client will reimburse the Consultant weekly, in accordance with
Section 6(b) below, for all reasonable, out-of-pocket expenses the Consultant and/or its personnel incur
in performing the Services and traveling to perform the work. Such out-of-pocket expenses will include
air travel costs; hotel, lodging and local travel costs; meals while traveling and working on-site; and
incidental expenses (such as overnight mail charges, office supplies, laundry services etc.). For
purposes of the foregoing, all air travel will be pre-booked, or charged to the Client, in coach (to reduce
airfare costs).
d. Any fees or expenses not paid to Consultant within thirty (30) days after their due date shall bear
interest from the 31 st day after they become due until fully paid, at the lesser of: (i) the rate of ten
per cent (10%) per annum; or (ii) the maximum rate permitted under Texas law.
5. Invoices; Payments; Certain Remedies
a. Invoices On Monday of each week (commencing Monday, September 7, 2015), the Consultant
will invoice the Client for the Weekly Fees and expense reimbursements relating to the Services
rendered during the previous week (each, an “Invoice”). The Consultant's week shall commence each
Saturday and run through the following Friday. Each Invoice shall include the Weekly Fees due and
an itemized list of the reimbursable expenses incurred by the Consultant. To the extent the precise
amount of any reimbursable expenses that are charged may not be known with certainty
4
until the applicable credit card statement is received, Consultant may invoice Client for such
reimbursable expenses within a reasonable time after Consultant’s receipt of any such credit card
statement.
b. Payments Subject only to the requirements set forth in Section 4(a) above, the Client shall pay to the
Consultant, not later than three (3) Business Days after its receipt of each Invoice and in immediately
available funds, the total of the Weekly Fees and reimbursable disbursements set forth in such Invoice.
The Client shall make each payment via wire transfer to the account of Consultant as specified by
Consultant in its invoice or by separate written instruction. If an invoiced amount is due on a date that
is not a Business Day such due date shall be extended to the next Business Day.
c. Certain Remedies If the Client fails timely to make a payment as required under Section 5(b)
above or under any other provision of this Agreement, or if the Client materially breaches any other
provision of this Agreement, then the Consultant may give the Client written notice specifying such
failure or breach. If the Client fails to cure such breach within three (3) Business Days after its receipt of
such notice: (i) the Consultant may suspend or discontinue the performance of the Services or terminate
this Agreement without any further liability or obligation to the Client, without limitation as to the
Consultant's rights and remedies to obtain full payment of all amounts and disbursements due or to
become due in accordance with the terms and conditions of this Agreement and/or (ii) either Party may
seek an arbitral determination of any disputed or unpaid amount invoiced under this Section 6 in
accordance with Section 11(c) below. For purposes of this Agreement, “Business Day” means any day
other than a Saturday, Sunday or holiday on which commercial banks are required or authorized to
close. For purposes of the Consultant’s remedies stated in this Section, it shall be assumed that
Consultant would have met or exceeded the 40-hour-per-week commitment stated in Section 4(a) above
for the remainder of the Term.
6. Retainer
Simultaneously with the Parties’ execution and delivery of this Agreement, the Client shall pay to the
Consultant, by wire transfer of immediately available funds to the account specified in Parts 4 and 5 above,
a retainer of $20,000 against sums due and owing to the Consultant under this Agreement. The Consultant,
in its sole discretion, may hold such retainer as security against amounts to be paid or apply such balance,
in whole or in part, to pay amounts due and owing but unpaid.
7. Return of Documents and Property; Certain Representations
a. Upon the expiration or termination of the Term, and provided all amounts due to the Consultant
hereunder have been paid, the Consultant shall (upon written request from the Client) deliver to the
Client all documents and materials relating to the Client's business. The Consultant may retain copies of
documents and materials comprising the Consultant's work product, and shall pay the cost of such
delivery and for copies of its work product.
b. Each Party represents and warrants to the other that: (a) it has the full power and authority to be bound
by the terms and conditions set forth herein and to execute all documents and perform all
5
acts required hereby and (b) neither the delivery of this Agreement nor the performance of any
obligations contemplated hereunder will result in any material breach or default under any agreement
or understanding, or any violation of any law or regulation, to which it is a party or is subject.
8. Indemnification
a. The Client shall indemnify and hold the Consultant harmless from and against all losses,
damages, liabilities, claims, demands, lawsuits, costs and expenses, including reasonable attorneys’
fees and disbursements, that the Consultant in its role as a consultant under this Agreement may incur
or be liable for arising out of or in connection with any of the following: (i) any (alleged or actual)
false, misleading, inaccurate or incomplete information provided by the Client to the Consultant, or
any (alleged or actual) omission by the Client of any material fact, in connection with the Consultant’s
performance of the Services, (ii) any matter arising from the Consultant's rendering of the Services
other than claims resulting from the Consultant's gross negligence, willful misconduct or material
breach of its obligations hereunder, (iii) any matter relating to, arising out of or concerning the
business, services, finances, liabilities, obligations, or other affairs of the Client or (iv) the collection
by the Consultant of sums due to be paid by the Client pursuant to this Agreement or otherwise relating
to the Consultant's enforcement of this Agreement. In connection with the Client’s indemnification
obligations, the Client shall reimburse the Consultant promptly for, or at the Consultant’s option
advance amounts sufficient to cover, any legal and other fees and expenses, provided that the
Consultant agrees to repay any and all such amounts so advanced if it shall ultimately be determined
that the Consultant is not entitled to be indemnified therefor.
b. The Consultant shall indemnify and hold the Client harmless from and against all losses, damages,
liabilities, claims, demands, lawsuits, costs and expenses, including reasonable attorneys’ fees and
disbursements, that the Client may incur or be liable for arising out of or in connection with any of the
following: (i) any claims resulting from the Consultant's gross negligence or willful misconduct in its
rendering of services to the Client pursuant to this Agreement, or material breach of its obligations
hereunder or (ii) the Client’s enforcement of this Agreement. However, in no event shall the Consultant
be liable under this indemnification provision, as a direct or indirect result of the performance of its
duties under this Agreement, for: (a) special, indirect, consequential or punitive damages or lost profits
or (b) any amount that exceeds the aggregate compensation (exclusive of costs, expenses and other
amounts reimbursed to the Consultant under this Agreement) that the Consultant shall have actually
received pursuant to this Agreement.
9. Confidentiality
a. Each Party shall hold in confidence this Agreement and make it available only: (i) to other persons as
may be necessary to comply with applicable securities and other disclosure requirements, (ii) on a
need-to-know basis to facilitate the Consultant’s performance of the Services, (iii) to its professional
advisors and (iv) in the Client’s case, to its lender.
6
b. The Consultant may be furnished with or may otherwise receive or have access to proprietary
information relating to the finances, client lists, business plans and processes, marketing plans, business
strategies, technical data and other matters of the Client (collectively, the "Confidential Information").
The Consultant acknowledges that the Confidential Information to be furnished is confidential and that
any disclosure or use of the same by the Consultant, except as provided in this Agreement or necessary
for the Consultant to perform the Services, may harm the Client. The Consultant agrees that it will not
use the Confidential Information for any purpose except as contemplated by this Agreement and agrees
that it will not disclose Confidential Information to any third party provided that: (i) the
Confidential Information furnished may be disclosed to the Consultant’s personnel and attorneys who
require the same for the purpose of performing the Services or in connection with collection of amounts
due tothe Consultant (it being understood that the Consultant will inform such personnel and attorneys
of the confidential nature of such Confidential Information and direct them to treat such Confidential
Information confidentially) and (ii) disclosure may be made as required under applicable law, legal
process or court order if the Consultant’s counsel determines it is necessary and the Consultant gives
prior written notice to the Client and cooperates in all reasonable respects with the Client (at the Client’s
expense) in the Client’s efforts to limit such disclosure. The limitations herein shall not apply to
Confidential Information that: (A) is or becomes publicly known other than by breach of this
Agreement by the Consultant or (B) is given to the Consultant by someone else who is not obligated
to maintain confidentiality (other than the Existing Lender or a New Lender).
10. Limitation of Liability; Assignment and Notices
a. In no event shall the Consultant be liable, in damages or otherwise, to the Client for any good faith error
of judgment or other act or omission performed or omitted by the Consultant under or otherwise in
respect of this Agreement, except for acts or omissions that constitute gross negligence, willful
misconduct or a material breach hereof on the part of the Consultant. Furthermore, in no event shall the
Consultant be liable, as a direct or indirect result of the performance of its duties under this Agreement,
for: (a) special, indirect, consequential or punitive damages or lost profits or (b) any amount that
exceeds the aggregate compensation (exclusive of costs, expenses and other amounts reimbursed to the
Consultant under this Agreement) that the Consultant shall have actually received pursuant to this
Agreement.
b. Neither Party may transfer or assign this Agreement without the prior written consent of the other Party,
except that the Client may assign this Agreement to any entity that is an affiliate of the Client provided
that: (i) the assignee assumes in writing all obligations of the Client under this Agreement and (ii) the
Client remains liable for the due performance of the Client’s obligations in this Agreement. Any
purported assignment in violation hereof shall be ab initio null and void.
c. Any notice required or permitted under this Agreement shall have been effectively made or given if in
writing and either: (a) personally delivered, or (b) delivered by a reputable overnight delivery service,
prepaid for next-day delivery. Unless otherwise changed by notice delivered in accordance with these
provisions, notice shall be properly addressed to Geoff S. Barrall at 4962 Minas Drive, San Jose, CA
95136 and properly addressed to the Client at: Imation Corp. , Attention: John Breedlove, Vice
President and General Counsel, 1 Imation Way, Oakdale, Minnesota 55128.
7
11. Independent Contractor; Governing Law; Dispute Resolution
a. In performing the Services under this Agreement, the Consultant shall serve as an independent
contractor of the Client, and not in a fiduciary relationship with the Client. Nothing in this Agreement
establishes a partnership, association, joint venture, principal/agent or similar relationship. Nothing in
this Agreement limits, expands, or otherwise affects Geoff Barrall’s fiduciary duties to Imation as a
member of the Board and the Committee. For avoidance of doubt, notwithstanding any contents of this
Agreement that might appear to the contrary, none of the duties to be performed or services to be
provided by Consultant as an independent contractor Consultant pursuant to the terms of this Agreement
are accompaniedby any fiduciary responsibilities or obligations; and none of such duties or
responsibilities shall coincide with or be conflated with any of Geoff Barrall’s fiduciary obligations as a
member of the Board and the Committee.
b. This Agreement shall be interpreted and construed, if any construction be necessary, in accordance
with, governed by and enforced under, the laws of the State of Delaware without regard to principles of
conflicts or choice of laws, save and except that the arbitration clause shall be governed, interpreted
and applied pursuant to the Federal Arbitration Act (“FAA”), and the federal court jurisprudence
interpreting and applying the FAA.
a. Any dispute, claim or controversy arising out of or relating to this Agreement or the breach,
termination, enforcement, interpretation or validity thereof, including the determination of the
scope or applicability of this agreement to arbitrate, shall be determined by mandatory, binding
arbitration before one (1) neutral arbitrator in accordance with the following provisions. In the event
that the Parties are unable to resolve any dispute under or relating to this Agreement, either Party may
commence an arbitration proceeding to resolve such dispute. Arbitration may be commenced by either
Party by giving written demand for arbitration to the other party, stating in reasonable detail the
matter(s) in dispute and the relief or remedies sought; the Party who receives a written demand for
arbitration shall promptly (within fifteen days) serve a written response to such demand stating in
reasonable detail its answer to all allegations of the demand. Any such arbitration shall be conducted in
St. Paul, MN. If the Parties do not agree promptly upon a mutually acceptable neutral arbitrator,
then either Party may submit the demand for arbitration to the American Arbitration Association
(“AAA”) to invoke AAA’s procedures for selection of a neutral arbitrator and administration of the
arbitration; and the arbitration shall then proceed under the auspices of the AAA. Whether
administered by a mutually acceptable arbitrator or under the auspices of the AAA, the arbitration shall
be conducted in accordance with the expedited arbitration procedures under the Commercial Arbitration
Rules of the AAA; and the arbitrator's determination with respect to any dispute shall be final and
binding on the Parties and not subject to appeal or review (judicial or otherwise) on any ground, except
as may be permitted by the Federal Arbitration Act. No action shall be filed in any court by either
Party against the other to remedy any alleged breach of this agreement; provided, however, that
nothing herein contained shall be construed to limit or prohibit either Party from applying to any court
of competent jurisdiction for injunctive or other provisional relief to prevent or enjoin any violation of
its rights under this Agreement or to require the other Party to participate
8
in arbitration as required by this provision or to enforce this arbitration clause, or to judicially
enforce the arbitration award, or for entry of judgment based upon the arbitration award if the
award is not promptly fulfilled by the Parties as directed by the arbitrator, or to vacate or modify
the arbitration award under the limited grounds permitted by the Federal Arbitration Act , which
the Parties agree shall govern and control the application and any interpretation or construction of this
arbitration clause. From and after the commencement of any such arbitration and until the final award
therein, each Party shall be liable for one-half of: (i) the out-of-pocket filing fees charged in
connection with the commencement of such arbitration, and (ii) the costs and expenses of the
arbitrator, provided that the arbitrator shall be entitled, as part of the final award in such arbitration,
to award to the prevailing Party therein such of its attorneys' fees, reasonable experts’ fees, and
disbursements and other fees, costs and expenses as the arbitrator may deem necessary, appropriate,
just or equitable. Notwithstanding any language in this Agreement that mightappear to the contrary,
the arbitrator shall not have authority to award relief that is not authorized by this Agreement or to
modify the terms of this Agreement.
12. Miscellaneous
a. Neither Party intends this Agreement to benefit or create any right or cause of action in any person or entity
other than the Parties hereto. Any failure on the part of either Party to enforce any of its rights shall not
constitute a waiver, and shall apply only to the specific event at hand and not constitute a waiver or
abandonment of any other rights.
b. If a provision of this Agreement is found to be illegal, invalid or unenforceable, such finding shall not affect
the legality, validity or enforceability of the other provisions, which shall remain in effect. This Agreement
constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes
all other agreements and understandings between the Parties with respect to such subject matter. This
Agreement may not be changed or modified except by a writing signed by an authorized representative of
each of the Parties.
c. Notwithstanding any termination or expiration of this Agreement, the following Sections shall survive and
remain in full force and effect for the periods set forth below: (i) Sections 1, 5, 6, 7 and 8, until the final
resolution of the rights and obligations of the Parties therein, (ii) Section 9, until all possible claims for
indemnification thereunder have either been adjudicated to a final, non-appealable conclusion, or
extinguished under applicable statutes of limitation, and (iii) Sections 10, 11, 12 and this Section 13, until
final resolution of all rights and obligations of the Parties pursuant to this Agreement or until the foregoing
Sections mentioned in this subsection (c) are no longer in effect, whichever occurs later.
d. This Agreement is the result of negotiations between the Parties and their counsel, and shall not be construed
in favor of or against any Party by reason of the extent to which such Party or its counsel participated in the
drafting of this Agreement. This Agreement may be signed in counterparts, and a signature on behalf of a
Party that is delivered to the other Party via .pdf scan or facsimile will have the same effect as a duly
delivered original signature.
9
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10
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above
written.
CLIENT:
IMATION CORP.
CONSULTANT:
REALIZATION SERVICES, INC.
By: /s/Joseph DePerio
Joseph DePerio
Its Chairman of the Board of Directors
By: /s/Geoff S. Barrall
Geoff S. Barrall
11
CONSULTING AGREEMENT
Consulting Agreement (this “Agreement”), dated August 17, 2015, by and between Robert B. Fernander
(the “Consultant”), and Imation Corp. , a Delaware corporation (the “Client”). The Consultant and the Client are
sometimes referred to herein individually as a “Party”, and collectively as the “Parties.”
WHEREAS, the Client desires to retain the Consultant, and the Consultant desires to be retained by the
Client, pursuant to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and for
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties do
hereby agree as follows:
1Term; Reporting; Supervision of Work; Primary
.
Contact; Etc.
a. This Agreement shall commence as of August 17, 2015 (the “Effective Date”) and end October 12, 2015
(the “Term”). Should the Client wish to extend the term it shall be renewable on a weekly basis by
mutual consent. The Client may cancel this agreement at anytime, with no advance notice of termination
required; any such cancellation shall be effected by written notice to Consultant and shall become
effective upon receipt of such notice by Consultant. Should the Client choose to cancel this agreement
prior to October 12, 2015 then the Client will remit payment for any remaining work planned through
October 12, 2015 at the time of termination.
b. The Consultant shall report to the Board of Directors (the “Board”) of the Client. The Consultant will
coordinate its efforts with Mr. Ian Williams and the other members of Client’s management team
(“Management”) in all respects. The Consultant shall be physically present at the locations of the Client
at such times and frequency as the Consultant may reasonably determine. The Consultant will expend the
time it deems necessary (in his professional judgment) to perform the Services.
c. The Consultant shall be working with the Special Independent Review Committee (the “Committee”) of
Client’s Board. The Consultant will also be a member of that Committee, and his services hereunder are
in addition to his work on the Committee.
Services
2
.
As directed by the independent members of the Board, the Client hereby engages the Consultant to perform
the following services (collectively with the services described in Section 3 below, the “Services”) during
the Term:
Review and Assessment of Business
a. Assisting the Client to: (i) review and evaluate its overall business and operations and historical, current
and projected financial statements, financial position, budget and operating performance, and business
plans, (ii) identify the critical areas of the Client’s business that need to be addressed, with a focus on
(A) reducing discretionary expenditures and overhead relating to the Client’s business, (B) accounts
receivable management, (C) inventory management, (D) accounts payable management, (E) strategic
analysis of locations, and the projected utilization in operations and cost benefits of owned versus leased
facilities, and (F) analysis of profitability by product and
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geographic region (to the extent practicable or appropriate), and (iii) assess the Client’s headcount,
organizational and functional personnel structures, staffing and use of human resources.
Formulation of Business Plan and Budget
b. Based on the foregoing review and assessment, assisting the Client (via close consultation with
Management to formulate: (i) a plan (a “Business Plan”) designed to enhance shareholder value and
(ii) an integrated, rolling, computer-based budget (the “Budget”) on a cash basis for the Client’s
operations covering: (A) monthly, the remainder of calendar year 2015 and (B) quarterly, calendar year
2016, such Budget to reflect the overall Business Plan and include explanation of the underlying budget
assumptions, and projections for: (1) income statement, (2) cost of sales, (3) selling, general and
administrative expenses, (4) R&D spending, and (5) specific employees or positions for staffing.
c. As part of the Business Plan, assisting the Client to identify the action steps needed to achieve the
objective for each critical area set forth in the Business Plan for Client’s Nexsan Data Storage and
IronKey businesses) and the timetable(s) for the implementation of such steps. Such objectives will
include for the Client’s operations (other than the Nexsan Data Storage and IronKey businesses): (i)
reducing the workforce and (ii) reducing operating losses.
d. The Parties acknowledge and confirm that the objective of the Business Plan is to assist the Client to
position itself to improve shareholder value.
Time Frame for Approval of Business Plan and Budget
e. The Consultant and the Client will endeavor to present to the Board for its discussion and approval a
preliminary Business Plan and accompanying Budget by September 28 2015. Once feedback is received
from the board a final plan with independent validation of product roadmap and market viability will be
presented to the board October 12, 2015 .
Services Relating to Detailed Development of Business Plan Action Steps
f. As part of the Business Plan, assisting the Client to: (i) focus on each critical area identified in the
Business Plan and related Budget and identify in further detail the action steps that the Client needs to
take in order to achieve the objective for that area and (ii) further develop for each critical area the costs
of and/or savings to be realized from the action steps, and estimated timetables for implementing such
steps. During development of the Business Plan, the Budget and the detailed action steps, the Consultant
will, to the extent needed or appropriate, continue to make recommendations for improving each critical
area, and refine recommendations previously made.
Services Relating to Implementation of Business Plan and Budget; “Roadmap”
g. The Consultant will identify appropriate components of the Business Plan that the Client, with the
assistance of the Consultant, may begin to implement immediately.
h. Assisting the Client to present to the Board (on a periodic basis) a “roadmap” outlining the Client’s
progress in implementing the Business Plan and the Budget, and indicating decision-making aspects of
such implementation for the Board’s consideration.
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Computer-Based Model
i. To the extent that the exigencies of Consultant’s other agreed tasks permit, the Consultant will use
historical data drawn from information provided by the Client to develop a computer-based financial
model ( i.e. , the Budget) of the Client’s operations. Such model will be formulated in close consultation
with Mr. Lucas, Mr. Williams and other members of Management. Such model is to be: (i) useful during
the Term to help the Parties to analyze the variables that affect the Client’s business (such as the impact
of various levels of SG&A and R&D expense, etc.) and (ii) designed in a user-friendly manner to enable
the Client to use the model after the Term to perform further analyses. The Consultant will perform some
work on the financial model while assisting the Client to formulate the Business Plan/Budget but most of
the work on such model will be done during implementation of the Business Plan/Budget.
Services Relating to Sales Efforts
j. The Consultant will interview customers and resellers of Client to provide third party validation of
Client’s value to customers and partners.
No Outcome Assured
k. The Parties confirm that the objective of the Business Plan and the Budget is to assist the Client to
achieve the specific objectives to be set forth therein. Notwithstanding such objectives, and the good
faith efforts the Client may expend to achieve them, the Parties acknowledge that future events and
results are caused by multiple factors and cannot be foreseen or guaranteed; and the Parties agree and
acknowledge that Consultant has not guaranteed that any particular results shall be achieved.
Retention of Other Consultants
l. The Consultant intends to retain, at Client’s expense, independent contractor consultants to provide
suitable validation of the proposed future product roadmap. It is anticipated that this activity will
constitute one or two independent domain experts whose individual fees will not exceed $10,000 each.
3Matters Relating to Services; Meetings
.
with Board
During the Term, the Client shall: (i) provide the Consultant’s personnel with reasonable access to the
Client’s locations to facilitate the performance of the Services and (ii) furnish promptly such financial
statements, business records and other documents and instruments as the Consultant may reasonably specify
as necessary or desirable for its performance of the Services. The Consultant shall meet with the Committee
and/or the Board from time to time as the Committee or the Board (as the case may be) may specify.
4Compensation for Services; Expenses and
.
Disbursements
The Client shall pay to the Consultant the following compensation for performance of the Services:
-3-
a. Weekly Fees – Subject to Section 5(b) below, a fee (a “Weekly Fee”) for the work of Consultant per
week, as follows: (a) $25,000 for Consultant’s full-time ( i.e. , not less than 40 hours) performance of
Services during such week. It is understood and agreed that the 40 hours per week commitment shall also
include the time spent by Robert Fernander as a member of the Committee; provided, that if
Consultant devotes less than forty (40) hours cumulatively towards meeting this agreed cumulative
40-hour commitment during any week of the Term, then the applicable Weekly Fee ( i.e. , $25,000) shall
be proportionately reduced to reflect the lower number of hours, any such reduction to be calculated pro
rata according to the number of hours actually spent cumulatively that week. For avoidance of doubt, the
Weekly Fees do not include any fees paid, or to be paid, to Robert Fernander in Fernander’s capacity as a
Board Member and/or Committee member for Robert Fernander’s service on the Committee or the
Board.
b. Limitations on Fees; Reporting of Time – In no event shall the Weekly Fees for any week during the
Term exceed (in the aggregate) $25,000, irrespective of the number of hours cumulatively per week that
the Consultant may devote to performance of the Services. The Consultant will report to the Client the
individual time devoted to performance of the Services during each week. For this purpose, travel time of
the Consultant, including travel time between the Consultant’s home and Client’s office and facility
locations, and between and among Client’s office and facility locations, will be reported and counted.
c. Expenses/Disbursements – The Client will reimburse the Consultant weekly, in accordance with Section
6(b) below, for all reasonable, out-of-pocket expenses the Consultant and/or its personnel incur in
performing the Services and traveling to perform the work. Such out-of-pocket expenses will include air
travel costs; hotel, lodging and local travel costs; meals while traveling and working on-site; and
incidental expenses (such as overnight mail charges, office supplies, laundry services etc.). For purposes
of the foregoing, all air travel will be pre-booked, or charged to the Client, in coach (to reduce airfare
costs).
d. Any fees or expenses not paid to Consultant within thirty (30) days after their due date shall bear
interest from the 31 st day after they become due until fully paid, at the lesser of: (i) the rate of ten
per cent (10%) per annum; or (ii) the maximum rate permitted under Texas law.
Invoices;
5
Payments; Certain
.
Remedies
a. Invoices On Monday of each week (commencing Monday, August 24, 2015), the Consultant will
invoice the Client for the Weekly Fees and expense reimbursements relating to the Services rendered
during the previous week (each, an “Invoice”). The Consultant's week shall commence each Saturday
and run through the following Friday. Each Invoice shall include the Weekly Fees due and an itemized
list of the reimbursable expenses incurred by the Consultant. To the extent the precise amount of any
reimbursable expenses that are charged may not be known with certainty until the applicable credit card
statement is received, Consultant may invoice Client for such reimbursable expenses within a reasonable
time after Consultant’s receipt of any such credit card statement.
b. PaymentsSubject only to the requirements set forth in Section 4(a) above, the Client shall pay to the
Consultant, not later than three (3) Business Days after its receipt of each Invoice and in immediately
available funds, the total of the Weekly Fees and reimbursable disbursements set
-4-
forth in such Invoice. The Client shall make each payment via wire transfer to the account of Consultant
as specified by Consultant in its invoice or by separate written instruction. If an invoiced amount is due
on a date that is not a Business Day such due date shall be extended to the next Business Day.
c. Certain Remedies If the Client fails timely to make a payment as required under Section 5(b) above or
under any other provision of this Agreement, or if the Client materially breaches any other provision of
this Agreement, then the Consultant may give the Client written notice specifying such failure or breach.
If the Client fails to cure such breach within three (3) Business Days after its receipt of such notice: (i)
the Consultant may suspend or discontinue the performance of the Services or terminate this Agreement
without any further liability or obligation to the Client, without limitation as to the Consultant's rights
and remedies to obtain full payment of all amounts and disbursements due or to become due in
accordance with the terms and conditions of this Agreement and/or (ii) either Party may seek an arbitral
determination of any disputed or unpaid amount invoiced under this Section 6 in accordance with Section
11(c) below. For purposes of this Agreement, “Business Day” means any day other than a Saturday,
Sunday or holiday on which commercial banks are required or authorized to close. For purposes of the
Consultant’s remedies stated in this Section, it shall be assumed that Consultant would have met or
exceeded the 40-hour-per-week commitment stated in Section 4(a) above for the remainder of the Term.
Retainer
6
.
Simultaneously with the Parties’ execution and delivery of this Agreement, the Client shall pay to the
Consultant, by wire transfer of immediately available funds to the account specified in Parts 4 and 5 above,
a retainer of $35,000 against sums due and owing to the Consultant under this Agreement. The Consultant,
in its sole discretion, may hold such retainer as security against amounts to be paid or apply such balance, in
whole or in part, to pay amounts due and owing but unpaid.
7Return of Documents and Property; Certain
.
Representations
a. Upon the expiration or termination of the Term, and provided all amounts due to the Consultant
hereunder have been paid, the Consultant shall (upon written request from the Client) deliver to the
Client all documents and materials relating to the Client's business. The Consultant may retain copies of
documents and materials comprising the Consultant's work product, and shall pay the cost of such
delivery and for copies of its work product.
b. Each Party represents and warrants to the other that: (a) it has the full power and authority to be bound
by the terms and conditions set forth herein and to execute all documents and perform all acts required
hereby and (b) neither the delivery of this Agreement nor the performance of any obligations
contemplated hereunder will result in any material breach or default under any agreement or
understanding, or any violation of any law or regulation, to which it is a party or is subject.
Indemnification
8
.
a. The Client shall indemnify and hold the Consultant harmless from and against all losses, damages,
liabilities, claims, demands, lawsuits, costs and expenses, including reasonable attorneys’ fees and
disbursements, that the Consultant in its role as a consultant under this Agreement may incur
-5-
or be liable for arising out of or in connection with any of the following: (i) any (alleged or actual) false,
misleading, inaccurate or incomplete information provided by the Client to the Consultant, or any
(alleged or actual) omission by the Client of any material fact, in connection with the Consultant’s
performance of the Services, (ii) any matter arising from the Consultant's rendering of the Services
other than claims resulting from the Consultant's gross negligence, willful misconduct or material
breach of its obligations hereunder, (iii) any matter relating to, arising out of or concerning the
business, services, finances, liabilities, obligations, or other affairs of the Client or (iv) the collection
by the Consultant of sums due to be paid by the Client pursuant to this Agreement or otherwise relating
to the Consultant's enforcement of this Agreement. In connection with the Client’s indemnification
obligations, the Client shall reimburse the Consultant promptly for, or at the Consultant’s option
advance amounts sufficient to cover, any legal and other fees and expenses, provided that the
Consultant agrees to repay any and all such amounts so advanced if it shall ultimately be determined
that the Consultant is not entitled to be indemnified therefor.
b. The Consultant shall indemnify and hold the Client harmless from and against all losses, damages,
liabilities, claims, demands, lawsuits, costs and expenses, including reasonable attorneys’ fees and
disbursements, that the Client may incur or be liable for arising out of or in connection with any of the
following: (i) any claims resulting from the Consultant's gross negligence or willful misconduct in its
rendering of services to the Client pursuant to this Agreement, or material breach of its obligations
hereunder or (ii) the Client’s enforcement of this Agreement. However, in no event shall the Consultant
be liable under this indemnification provision, as a direct or indirect result of the performance of its
duties under this Agreement, for: (a) special, indirect, consequential or punitive damages or lost profits
or (b) any amount that exceeds the aggregate compensation (exclusive of costs, expenses and other
amounts reimbursed to the Consultant under this Agreement) that the Consultant shall have actually
received pursuant to this Agreement.
Confidentiality
9
.
a. Each Party shall hold in confidence this Agreement and make it available only: (i) to other persons as
may be necessary to comply with applicable securities and other disclosure requirements, (ii) on a
need-to-know basis to facilitate the Consultant’s performance of the Services, (iii) to its professional
advisors and (iv) in the Client’s case, to its lender.
b. The Consultant may be furnished with or may otherwise receive or have access to proprietary
information relating to the finances, client lists, business plans and processes, marketing plans, business
strategies, technical data and other matters of the Client (collectively, the "Confidential Information").
The Consultant acknowledges that the Confidential Information to be furnished is confidential and that
any disclosure or use of the same by the Consultant, except as provided in this Agreement or necessary
for the Consultant to perform the Services, may harm the Client. The Consultant agrees that it will not
use the Confidential Information for any purpose except as contemplated by this Agreement and agrees
that it will not disclose Confidential Information to any third party provided that: (i) the
Confidential Information furnished may be disclosed to the Consultant’s personnel and attorneys who
require the same for the purpose of performing the Services or in connection with collection of amounts
due to the Consultant (it being understood that the Consultant will inform such personnel and attorneys
of the confidential nature of such Confidential Information and direct them to treat such Confidential
Information confidentially) and (ii) disclosure may be made as required under applicable law, legal
process or court order if
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the Consultant’s counsel determines it is necessary and the Consultant gives prior written notice to the
Client and cooperates in all reasonable respects with the Client (at the Client’s expense) in the Client’s
efforts to limit such disclosure. The limitations herein shall not apply to Confidential Information that:
(A) is or becomes publicly known other than by breach of this Agreement by the Consultant or (B)
is given to the Consultant by someone else who is not obligated to maintain confidentiality (other than
the Existing Lender or a New Lender).
1Limitation of Liability; Assignment and
0
Notices
.
a. In no event shall the Consultant be liable, in damages or otherwise, to the Client for any good faith error
of judgment or other act or omission performed or omitted by the Consultant under or otherwise in
respect of this Agreement, except for acts or omissions that constitute gross negligence, willful
misconduct or a material breach hereof on the part of the Consultant. Furthermore, in no event shall the
Consultant be liable, as a direct or indirect result of the performance of its duties under this Agreement,
for: (a) special, indirect, consequential or punitive damages or lost profits or (b) any amount that exceeds
the aggregate compensation (exclusive of costs, expenses and other amounts reimbursed to the
Consultant under this Agreement) that the Consultant shall have actually received pursuant to this
Agreement.
b. Neither Party may transfer or assign this Agreement without the prior written consent of the other Party,
except that the Client may assign this Agreement to any entity that is an affiliate of the Client provided
that: (i) the assignee assumes in writing all obligations of the Client under this Agreement and (ii) the
Client remains liable for the due performance of the Client’s obligations in this Agreement. Any
purported assignment in violation hereof shall be ab initio null and void.
c. Any notice required or permitted under this Agreement shall have been effectively made or given if in
writing and either: (a) personally delivered, or (b) delivered by a reputable overnight delivery service,
prepaid for next-day delivery. Unless otherwise changed by notice delivered in accordance with these
provisions, notice shall be properly addressed to the Robert B. Fernander at 4312 Avenue B, Austin
TX 78751, with a copy to: Stephen Greenberg, 13062 Hwy 290 West, Suite 104, Austin Texas 78737
and properly addressed to the Client at: Imation Corp. , Attention: John Breedlove, Vice President
and General Counsel, 1 Imation Way, Oakdale, Minnesota 55128.
1 Independent Contractor; Governing Law; Dispute
1
Resolution
.
a. In performing the Services under this Agreement, the Consultant shall serve as an independent contractor
of the Client, and not in a fiduciary relationship with the Client. Nothing in this Agreement establishes a
partnership, association, joint venture, principal/agent or similar relationship. Nothing in this Agreement
limits, expands, or otherwise affects Robert Fernander’s fiduciary duties to Imation as a member of the
Board and the Committee. For avoidance of doubt, notwithstanding any contents of this Agreement that
might appear to the contrary, none of the duties to be performed or services to be provided by Consultant
as an independent contractor Consultant pursuant to the terms of this Agreement are accompanied by any
fiduciary responsibilities or obligations; and none of such duties or responsibilities shall coincide with or
be conflated with any of Robert Fernander’s fiduciary obligations as a member of the Board and the
Committee.
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b. This Agreement shall be interpreted and construed, if any construction be necessary, in accordance with,
governed by and enforced under, the laws of the State of Delaware without regard to principles of
conflicts or choice of laws, save and except that the arbitration clause shall be governed, interpreted
and applied pursuant to the Federal Arbitration Act (“FAA”), and the federal court jurisprudence
interpreting and applying the FAA.
c. Any dispute, claim or controversy arising out of or relating to this Agreement or the breach,
termination, enforcement, interpretation or validity thereof, including the determination of the scope
or applicability of this agreement to arbitrate, shall be determined by mandatory, binding arbitration
before one (1) neutral arbitrator in accordance with the following provisions. In the event that the Parties
are unable to resolve any dispute under or relating to this Agreement, either Party may commence an
arbitration proceeding to resolve such dispute. Arbitration may be commenced by either Party by giving
written demand for arbitration to the other party, stating in reasonable detail the matter(s) in dispute and
the relief or remedies sought; the Party who receives a written demand for arbitration shall promptly
(within fifteen days) serve a written response to such demand stating in reasonable detail its answer to all
allegations of the demand. Any such arbitration shall be conducted in St. Paul, MN. If the Parties do
not agree promptly upon a mutually acceptable neutral arbitrator, then either Party may submit the
demand for arbitration to the American Arbitration Association (“AAA”) to invoke AAA’s
procedures for selection of a neutral arbitrator and administration of the arbitration; and the
arbitration shall then proceed under the auspices of the AAA. Whether administered by a mutually
acceptable arbitrator or under the auspices of the AAA, the arbitration shall be conducted in accordance
with the expedited arbitration procedures under the Commercial Arbitration Rules of the AAA; and the
arbitrator's determination with respect to any dispute shall be final and binding on the Parties and not
subject to appeal or review (judicial or otherwise) on any ground, except as may be permitted by the
Federal Arbitration Act. No action shall be filed in any court by either Party against the other to
remedy any alleged breach of this agreement; provided, however, that nothing herein contained shall
be construed to limit or prohibit either Party from applying to any court of competent jurisdiction for
injunctive or other provisional relief to prevent or enjoin any violation of its rights under this Agreement
or to require the other Party to participate in arbitration as required by this provision or to enforce this
arbitration clause, or to judicially enforce the arbitration award, or for entry of judgment based upon
the arbitration award if the award is not promptly fulfilled by the Parties as directed by the arbitrator,
or to vacate or modify the arbitration award under the limited grounds permitted by the Federal
Arbitration Act , which the Parties agree shall govern and control the application and any interpretation
or construction of this arbitration clause. From and after the commencement of any such arbitration and
until the final award therein, each Party shall be liable for one-half of: (i) the out-of-pocket filing fees
charged in connection with the commencement of such arbitration, and (ii) the costs and expenses of the
arbitrator, provided that the arbitrator shall be entitled, as part of the final award in such arbitration, to
award to the prevailing Party therein such of its attorneys' fees, reasonable experts’ fees, and
disbursements and other fees, costs and expenses as the arbitrator may deem necessary, appropriate, just
or equitable. Notwithstanding any language in this Agreement that might appear to the contrary, the
arbitrator shall not have authority to award relief that is not authorized by this Agreement or to
modify the terms of this Agreement.
-8-
Miscellaneous
1
2
.
a. Neither Party intends this Agreement to benefit or create any right or cause of action in any person or
entity other than the Parties hereto. Any failure on the part of either Party to enforce any of its rights shall
not constitute a waiver, and shall apply only to the specific event at hand and not constitute a waiver or
abandonment of any other rights.
b. If a provision of this Agreement is found to be illegal, invalid or unenforceable, such finding shall not
affect the legality, validity or enforceability of the other provisions, which shall remain in effect. This
Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof
and supersedes all other agreements and understandings between the Parties with respect to such subject
matter. This Agreement may not be changed or modified except by a writing signed by an authorized
representative of each of the Parties.
c. Notwithstanding any termination or expiration of this Agreement, the following Sections shall survive
and remain in full force and effect for the periods set forth below: (i) Sections 1, 5, 6, 7 and 8, until the
final resolution of the rights and obligations of the Parties therein, (ii) Section 9, until all possible claims
for indemnification thereunder have either been adjudicated to a final, non-appealable conclusion, or
extinguished under applicable statutes of limitation, and (iii) Sections 10, 11, 12 and this Section 13,
until final resolution of all rights and obligations of the Parties pursuant to this Agreement or until the
foregoing Sections mentioned in this subsection (c) are no longer in effect, whichever occurs later.
d. This Agreement is the result of negotiations between the Parties and their counsel, and shall not be
construed in favor of or against any Party by reason of the extent to which such Party or its counsel
participated in the drafting of this Agreement. This Agreement may be signed in counterparts, and a
signature on behalf of a Party that is delivered to the other Party via .pdf scan or facsimile will have the
same effect as a duly delivered original signature.
[Remainder of page intentionally left blank]
-9-
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above
written.
CLIENT:
IMATION CORP.
CONSULTANT:
By: /s/Joseph DePerio
Joseph DePerio
Its Chairman of the Board of Directors
By: /s/Robert B. Fernander
Robert B. Fernander
-10-
CONSULTING AGREEMENT
Consulting Agreement (this “Agreement”), dated August 17, 2015, by and between Realization Services,
Inc. , a New York corporation (the “ Consultant ”), and Imation Corp. , a Delaware corporation (the “ Client ”).
The Consultant and the Client are sometimes referred to herein individually as a “ Party ”, and collectively as the “
Parties .”
WHEREAS, the Client desires to retain the Consultant, and the Consultant desires to be retained by the
Client, pursuant to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and for
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties do
hereby agree as follows:
1Term; Reporting; Supervision of Work; Primary
.
Contact; Etc.
a. This Agreement shall commence as of August 8, 2015 (the “Effective Date”) and continue through
October 2, 2015 (the “ Term ”), unless terminated earlier upon seven (7) days’ prior written notice by the
Client.
b. The Consultant shall report to the Board of Directors (the “Board”) of the Client and to the Strategic
Alternatives Committee (the “ Committee ”) of the Board. Subject to the foregoing, Barry L. Kasoff (“
Mr. Kasoff ”), in his position as the Consultant’s President until his appointment as interim President of
the Client, and thereafter in his position as interim President of the Client, and not in his capacity as a
member of the Board or the Committee, will supervise the day-to-day performance of the Services to be
performed by the Consultant pursuant to this Agreement as set forth in Sections 2 and 3 below. The
Consultant’s personnel shall be physically present at the locations of the Client at such times and
frequency as the Consultant may reasonably determine. The Consultant will expend the time it deems
necessary (in its professional judgment) to perform the Services.
Services
2
.
As directed by the independent members of the Board, the Client hereby engages the Consultant to perform
the following services (collectively with the services described in Section 3 below, the “ Services ”)
during the Term:
Services Relating to Secured Lenders and Other Parties
a. Secured Lender – Assisting the Client to analyze and compare the appropriateness of: (i) continuing the
Client’s existing primary secured loan (the “ Existing Loan ”) with Bank of America, N.A. (as agent and
a lead lender) and JP Morgan Chase Bank, N.A. and Wells Fargo Bank, National Association (as
additional lead lenders) (collectively, the “ Existing Lender ”) or (ii) replacing the Existing Loan with
a new asset-based secured lending relationship (a “ New Loan ”) with a new lender (“ New Lender ”). In
this connection, the Consultant will: (a) assist the Client to seek one or more proposals from
asset-based lenders with the objective of obtaining a letter of intent, and possibly take steps to begin to
assist the Client to obtain a commitment letter, from a major New Lender for a New Loan having a
facility size of net less than $100,000,000 and
-1-
significantly greater borrowing availability than exists under the Existing Loan and (b) make a
recommendation as to a New Loan for review and consideration by the Board.
b. Customers and Vendors – To the extent desired by the Client (in its reasonable judgment), assisting
the Client in its dealings with customers and vendors.
Review and Assessment of Business
c. Assisting the Client to: (i) review and evaluate its overall business and operations and historical, current
and projected financial statements, financial position, budget and operating performance, and business
plans, (ii) identify the critical areas of the Client’s business that need to be addressed, with a strong
focus on (A) reducing discretionary expenditures and overhead relating to the Client’s legacy businesses,
corporate functions and other areas, (B) accounts receivable management, (C) inventory management,
(D) accounts payable management, (E) restructuring of corporate functions, (F) strategic analysis of
locations, and the projected utilization in operations and cost benefits of owned versus leased facilities,
and (G) analysis of profitability by location (to the extent practicable or appropriate), and (iii) assess
the Client’s headcount, organizational and functional personnel structures, staffing and use of human
resources.
Formulation of Business Plan and Budget
d. Based on the foregoing review and assessment, assisting the Client (via close consultation with members
of management (collectively, “ Management ”)) to formulate: (i) a plan (a “ Business Plan ”) designed
to enhance shareholder value and (ii) an integrated, rolling, computer-based budget (the “ Budget ”)
on a cash basis for the Client’s operations covering: (A) weekly, the thirteen (13) weeks ending on
November 30, 2015, (B) monthly, the remainder of calendar year 2015 and (C) quarterly, calendar year
2016, such Budget to reflect the overall Business Plan and include explanation of the underlying budget
assumptions, and projections for: (1) income statement, (2) balance sheet, (3) inventory, (4) cost of sales,
(5) selling, general and administrative expenses and (6) specific employees or positions for staffing.
e. As part of the Business Plan, assisting the Client to identify the action steps needed to achieve the
objective for each critical area set forth in the Business Plan for Client’s legacy businesses (businesses
other than the Nexsan Data Storage and IronKey businesses) and the timetable(s) for the implementation
of such steps. Such objectives will include for the Client’s operations (other than the Nexsan Data
Storage and IronKey businesses): (i) reducing the workforce and (ii) reducing operating losses (to
zero, if feasible).
f. Assisting the Client to include as part of the overall Business Plan: (i) a restructuring plan for the Client’s
legacy businesses, with the objective of maximizing the cash flow generated from such legacy business
segment (including identification of business units recommended for divestiture or termination), (ii)
identification of non-core assets (of such legacy businesses and otherwise) to be sold or otherwise
disposed of, and the methods for such sales/dispositions, (iii) measures to complete sales of assets and
(if necessary) divestiture transactions, (iv) measures to improve the Client’s cash balance and achieve
cash-flow breakeven if possible (excluding investments for growth, such as approved research and
development and capital investments) by October 2, 2015 , (v) monetizing assets, (vi) addressing
vacation pay in order to reduce liabilities, (vii) evaluation of bankruptcy as an option for certain legal
entities (whose liabilities exceed their asset value) and (viii) provisions for adapting the overall sale(s)
process to the pro
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forma requests of a leading potential buyer of the Client’s ongoing businesses (if under exclusivity with
such buyer).
g. The Parties acknowledge and confirm that the objective of the Business Plan is to assist the Client to
position itself to improve shareholder value.
Time Frame for Approval of Business Plan and Budget
h. The Consultant and the Client will endeavor to present to the Board for its discussion and approval the
Business Plan and accompanying Budget by September 8, 2015 .
Services Relating to Detailed Development of Business Plan Action Steps
i. As part of the Business Plan, assisting the Client to: (i) focus on each critical area identified in the
Business Plan and related Budget and identify in further detail the action steps that the Client needs to
take in order to achieve the objective for that area and (ii) further develop for each critical area the costs
of and/or savings to be realized from the action steps, and estimated timetables for implementing such
steps. During development of the Business Plan, the Budget and the detailed action steps, the Consultant
will, to the extent needed or appropriate, continue to make recommendations for improving each critical
area, and refine recommendations previously made.
Services Relating to Implementation of Business Plan and Budget; “Roadmap”
j. The Consultant will identify appropriate components of the Business Plan that the Client, with the
assistance of the Consultant, may begin to implement immediately.
k. Assisting the Client to present to the Board (on a periodic basis) a “roadmap” outlining the Client’s
progress in implementing the Business Plan and the Budget, and indicating decision-making aspects of
such implementation for the Board’s consideration.
Computer-Based Model
l. The Consultant will use historical data drawn from information provided by the Client to develop a
computer-based financial model ( i.e. , the Budget) of the Client’s operations. Such model will be
formulated in close consultation with Management. Such model is to be: (i) useful during the Term to
help the Parties to analyze the variables that affect the Client’s business (such as the impact of various
levels of overhead, etc.) and (ii) designed in a user-friendly manner to enable the Client to use the model
after the Term to perform further analyses. The Consultant will perform some work on the financial
model while assisting the Client to formulate the Business Plan/Budget but most of the work on such
model will be done during implementation of the Business Plan/Budget.
Services Relating to Sales Efforts
m. The Consultant will assist the Client to perform a due diligence evaluation of the Client’s business and
operations ( i.e. , sell-side or “reverse” due diligence) to aid in preparing the Client for one or more
possible transaction(s) to sell its business (either as a whole or in parts) and to enhance the Client’s value
to prospective buyers. As part of such evaluation, the Consultant will assist
-3-
the Client in creating or supplementing the real and/or virtual “data room” to be accessed by potential
buyers that enter into an appropriate confidentiality agreement with the Client. The Consultant will
cooperate and work with Houlihan Lokey as the Client’s financial adviser in support of efforts to
identify prospective buyer(s) and one or more possible sale transactions for consideration by the Board.
For the avoidance of doubt, the Consultant will not be entitled to any additional fees or expense
reimbursements other than those provided in Section 6 below relating to any such transaction unless
agreed to in writing by the Client.
No Outcome Assured
n. The Parties confirm that the objective of the Business Plan and the Budget is to assist the Client to
achieve the specific objectives to be set forth therein. Notwithstanding such objectives, and the good
faith efforts the Client may expend to achieve them, the Parties acknowledge that future events and
results cannot be foreseen or guaranteed.
Additional Services
o. If Consultant, in performing any of the Services, determines (in its reasonable discretion following
consultation with the Client’s General Counsel) that it is advisable to obtain the advice or opinion of
legal counsel on issues relating to the Client or to this engagement, Consultant may consult with counsel
of its own choosing (other than the Client’s existing counsel). The reasonable attorneys’ fees and
disbursements relating to any such consultation shall be an expense of the Client, provided that total
attorneys’ fees/disbursements for this purpose may not exceed $7,500 per month without the prior
approval of the Board.
Collaboration with Other Consultants
p. The Client intends to retain the firm of Alvarez & Marsal (“Alvarez”), or another firm, to perform (or
assist in performing) certain aspects of the Services described above. The Client shall determine such
specific aspects and the related responsibilities after discussions with the Consultant and with Alvarez or
such other firm. Currently, the Client contemplates that it may request the involvement of two to three
consultants from Alvarez or such other firm. In this regard, Consultant will coordinate with and allocate
responsibilities to Alvarez (or such other consulting firm) in connection with this engagement as and to
the extent the Client and the Consultant determine to be appropriate.
3Matters Relating to Services; Meetings
.
with Board
During the Term, the Client shall: (i) provide the Consultant’s personnel with reasonable access to the
Client’s locations to facilitate the performance of the Services and (ii) furnish promptly such financial
statements, business records and other documents and instruments as the Consultant may specify as
necessary or desirable for its performance of the Services. The Consultant shall meet with the Committee
and/or the Board from time to time as the Committee or the Board (as the case may be) may specify.
Consulting
4
Team,
.
Etc.
-4-
The Consultant’s team for the performance of the Services will consist of two of the Consultant’s staff
under the direction of Mr. Kasoff in his position as Consultant’s President until his appointment as interim
President of the Client, and thereafter in his position as interim President of the Client. Such staffing will be
subject to the Consultant’s usual practices for granting vacation and other personal time to its personnel. In
the event that a member of the Consultant’s team becomes unavailable (for a reason beyond the
Consultant’s control, or otherwise), the Consultant may replace such team member with an alternative staff
member having (in the Consultant’s reasonable judgment) equivalent skills and abilities. In addition, at its
option the Consultant may from time to time staff performance of the Services (either on-site, off-site or
both) with additional personnel. In all events, the Consultant’s staffing of the Services will be subject to the
fee arrangement set forth in Section 5 below.
5Compensation for Services; Expenses and
.
Disbursements
The Client shall pay to the Consultant the following compensation for performance of the Services:
a. Weekly Fees – Subject to Section 5(b) below, a fee (a “Weekly Fee”) for the work of Mr. Kasoff and
each other staff person of the Consultant per week, as follows: (a) $35,000 for Mr. Kasoff’s full-time (
i.e. , not less than 40 hours) performance of Services during such week and (b) $25,000 for each
individual staff person’s full-time ( i.e. , not less than 40 hours) performance of Services during such
week, provided that if Mr. Kasoff, or if such a staff person, devotes less than forty (40) hours to
performing Services during such week then the applicable Weekly Fee ( i.e. , $35,000 or $25,000, as the
case may be) shall be proportionately reduced to reflect the lower number of hours. Notwithstanding the
foregoing, following the appointment of Mr. Kasoff as interim President of the Client, the Consultant
will not receive any fees for the work done by Mr. Kasoff in connection with this Agreement, it being
expressly understood that Mr. Kasoff will receive compensation from the Client for his services as
interim President of the Client and that such compensation will take into account Mr. Kasoff’s role in
overseeing the work of the Consultant hereunder.
b. Limitations on Fees; Reporting of Time – In no event shall the Weekly Fees for any week during the
Term exceed (in the aggregate) $85,000 (or, following Mr. Kasoff’s appointment as interim President of
the Client, $50,000), irrespective of the number of staff persons that the Consultant may devote to
performance of the Services. The Consultant will report to the Client the individual time devoted to
performance of the Services during each week in increments of one-tenth of an hour ( i.e. , six minutes).
For this purpose, travel time of the Consultant’s personnel from home or from the Consultant’s offices
will not be reported or counted, and travel time between the Client’s office and facility locations will be
reported and counted.
c. Expenses/Disbursements – The Client will reimburse the Consultant weekly, in accordance with
Section 6(b) below, for all pre-approved, out-of-pocket expenses the Consultant and/or its personnel
incur in performing the Services and traveling to perform the work. Such out-of-pocket expenses will
include air travel costs; hotel, lodging and local travel costs; meals while traveling and working on-site;
and incidental expenses (such as overnight mail charges, office supplies, etc.). Expenses in an amount of
$1,000 or more will be subject to prior approval by the Client’s Vice President and Chief Financial
Officer, Mr. Scott Robinson. For purposes of the foregoing, all air travel will be pre-booked, or charged
to the Client, in coach (to reduce airfare costs).
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Invoices;
6
Payments; Certain
.
Remedies
a. Invoices On Monday of each week (commencing Monday, August 17, 2015), the Consultant will
invoice the Client for the Weekly Fees and expense reimbursements relating to the Services rendered
during the previous week (each, an “ Invoice ”). The Consultant's week shall commence each Saturday
and run through the following Friday. Each Invoice shall include the Weekly Fees due and an itemized
list of the reimbursable expenses incurred by the Consultant.
b. PaymentsSubject only to the requirements set forth in Section 6(a) above, the Client shall pay to the
Consultant, not later than three (3) Business Days after its receipt of each Invoice and in immediately
available funds, the total of the Weekly Fees and reimbursable disbursements set forth in such Invoice.
The Client shall make each payment via wire transfer to the account of Consultant as specified by
Consultant in its invoice or by separate written instruction. If an invoiced amount is due on a date that is
not a Business Day such due date shall be extended to the next Business Day.
c. Certain Remedies If the Client fails timely to make a payment as required under Section 6(b) above or
under any other provision of this Agreement, or if the Client materially breaches any other provision of
this Agreement, then the Consultant may give the Client written notice specifying such failure or breach.
If the Client fails to cure such breach within three (3) Business Days after its receipt of such notice: (i)
the Consultant may suspend or discontinue the performance of the Services or terminate this Agreement
without any further liability or obligation to the Client, without limitation as to the Consultant's rights
and remedies to obtain full payment of all amounts and disbursements due or to become due in
accordance with the terms and conditions of this Agreement and/or (ii) either Party may seek an arbitral
determination of any disputed or unpaid amount invoiced under this Section 6 in accordance with
Section 12(c) below. For purposes of this Agreement, “ Business Day ” means any day other than a
Saturday, Sunday or holiday on which commercial banks in New York City are required or authorized to
close.
Retainer
7
.
Simultaneously with the Parties’ execution and delivery of this Agreement, the Client shall pay to the
Consultant, by wire transfer of immediately available funds to the account specified in Section 6(b) above,
a retainer of $85,000 against sums due and owing to the Consultant under this Agreement. The Consultant,
in its sole discretion, may hold such retainer as security against amounts to be paid or apply such balance to
pay amounts due and owing but unpaid.
8Return of Documents and Property; Certain
.
Representations
a. Upon the expiration or termination of the Term, and provided all amounts due to the Consultant
hereunder have been paid, the Consultant shall (upon written request from the Client) deliver to the
Client all documents and materials relating to the Client's business. The Consultant may retain copies of
documents and materials comprising the Consultant's work product, and shall pay the cost of such
delivery and for copies of its work product.
b. Each Party represents and warrants to the other that: (a) it has the full power and authority to be bound
by the terms and conditions set forth herein and to execute all documents and perform all acts required
hereby and (b) neither the delivery of this Agreement nor the performance of any obligations
contemplated hereunder will result in any material breach or default under any
-6-
agreement or understanding, or any violation of any law or regulation, to which it is a party or is
subject.
Indemnification
9
.
a. The Client shall indemnify and hold the Consultant harmless from and against all losses, damages,
liabilities, claims, demands, lawsuits, costs and expenses, including reasonable attorneys’ fees and
disbursements, that the Consultant in its role as a consultant under this Agreement may incur or be liable
for arising out of or in connection with any of the following: (i) any (alleged or actual) false,
misleading, inaccurate or incomplete information provided by the Client to the Consultant, or any
(alleged or actual) omission by the Client of any material fact, in connection with the Consultant’s
performance of the Services, (ii) any matter arising from the Consultant's rendering of the Services
other than claims resulting from the Consultant's gross negligence, willful misconduct or material breach
of its obligations hereunder, (iii) any matter relating to, arising out of or concerning the business,
services, finances, liabilities, obligations, or other affairs of the Client or (iv) the collection by the
Consultant of sums due to be paid by the Client pursuant to this Agreement or otherwise relating to the
Consultant's enforcement of this Agreement. In connection with the Client’s indemnification obligations,
the Client shall reimburse the Consultant promptly for, or at the Consultant’s option advance amounts
sufficient to cover, any legal and other fees and expenses, provided that the Consultant agrees to repay
any and all such amounts so advanced if it shall ultimately be determined that the Consultant is not
entitled to be indemnified therefor.
b. The Consultant shall indemnify and hold the Client harmless from and against all losses, damages,
liabilities, claims, demands, lawsuits, costs and expenses, including reasonable attorneys’ fees and
disbursements, that the Client may incur or be liable for arising out of or in connection with any of the
following: (i) any claims resulting from the Consultant's gross negligence or willful misconduct in its
rendering of services to the Client pursuant to this Agreement, or material breach of its obligations
hereunder or (ii) the Client’s enforcement of this Agreement.
Confidentiality
1
0
.
a. Each Party shall hold in confidence this Agreement and make it available only: (i) to other persons as
may be necessary to comply with applicable securities and other disclosure requirements, (ii) on a
need-to-know basis to facilitate the Consultant’s performance of the Services, (iii) to its professional
advisors and (iv) in the Client’s case, to its lender.
b. The Consultant may be furnished with or may otherwise receive or have access to proprietary
information relating to the finances, client lists, business plans and processes, marketing plans, business
strategies, technical data and other matters of the Client (collectively, the " Confidential Information ").
The Consultant acknowledges that the Confidential Information to be furnished is confidential and that
any disclosure or use of the same by the Consultant, except as provided in this Agreement or necessary
for the Consultant to perform the Services, may harm the Client. The Consultant agrees that it will not
use the Confidential Information for any purpose except as contemplated by this Agreement and agrees
that it will not disclose Confidential Information to any third party provided that: (i) the
Confidential Information furnished may be disclosed to the Consultant’s personnel and attorneys who
require the same for the purpose of performing the Services or in connection with collection of amounts
due to the Consultant (it being understood
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that the Consultant will inform such personnel and attorneys of the confidential nature of such
Confidential Information and direct them to treat such Confidential Information confidentially) and (ii)
disclosure may be made as required under applicable law, legal process or court order if the
Consultant’s counsel determines it is necessary and the Consultant gives prior written notice to the
Client and cooperates in all reasonable respects with the Client (at the Client’s expense) in the Client’s
efforts to limit such disclosure. The limitations herein shall not apply to Confidential Information that:
(A) is or becomes publicly known other than by breach of this Agreement by the Consultant or (B)
is given to the Consultant by someone else who is not obligated to maintain confidentiality (other than
the Existing Lender or a New Lender).
1Limitation of Liability; Assignment and
1
Notices
.
a. In no event shall the Consultant be liable, in damages or otherwise, to the Client for any good faith error
of judgment or other act or omission performed or omitted by the Consultant under or otherwise in
respect of this Agreement, except for acts or omissions that constitute gross negligence, willful
misconduct or a material breach hereof on the part of the Consultant. Furthermore, in no event shall the
Consultant be liable, as a direct or indirect result of the performance of its duties under this Agreement,
for: (a) special, indirect, consequential or punitive damages or lost profits or (b) any amount that exceeds
the aggregate compensation (exclusive of costs, expenses and other amounts reimbursed to the
Consultant under this Agreement) that the Consultant shall have actually received pursuant to this
Agreement.
b. Neither Party may transfer or assign this Agreement without the prior written consent of the other Party,
except that the Client may assign this Agreement to any entity that is an affiliate of the Client provided
that: (i) the assignee assumes in writing all obligations of the Client under this Agreement and (ii) the
Client remains liable for the due performance of the Client’s obligations in this Agreement. Any
purported assignment in violation hereof shall be ab initio null and void.
c. Any notice required or permitted under this Agreement shall have been effectively made or given if in
writing and either: (a) personally delivered, or (b) delivered by a reputable overnight delivery service,
prepaid for next-day delivery. Unless otherwise changed by notice delivered in accordance with these
provisions, notice shall be properly addressed to the Consultant at: Realization Services, Inc. ,
Attention : Barry L. Kasoff, President, 124 David’s Hill Road, Bedford Hills, New York 10507, with a
copy to: Michael D. Friedman, Esq., Troutman Sanders LLP, 875 Third Avenue, New York, New York
10022; and properly addressed to the Client at: Imation Corp. , Attention : John Breedlove, Vice
President and General Counsel, 1 Imation Way, Oakdale, Minnesota 55128.
1 Independent Contractor; Governing Law; Dispute
2
Resolution
.
a. In performing the Services under this Agreement, the Consultant shall serve as an independent contractor
of the Client, and not in a fiduciary relationship with the Client. Nothing in this Agreement establishes a
partnership, association, principal/agent or similar relationship. Nothing in this Agreement limits or
otherwise affects Mr. Kasoff’s fiduciary duties to the Client as a member of the Board and the
Committee and as the Client’s interim President.
b. This Agreement shall be construed in accordance with, governed by and enforced under the laws of the
State of New York without regard to principles of conflicts or choice of laws.
-8-
c. Any controversy or claim arising out of or relating to this Agreement shall be submitted by the Parties to
mandatory, binding arbitration in accordance with the following provisions. In the event that the Parties
are unable to resolve any dispute under or relating to this Agreement, either Party may commence an
arbitration proceeding to resolve such dispute. Any such arbitration shall be conducted in St. Paul, MN
by the American Arbitration Association (the " AAA ") in accordance with the expedited arbitration
procedures under the Commercial Arbitration Rules of the AAA, and the arbitrator's determination with
respect to any dispute shall be final and binding on the Parties and not subject to appeal or review
(judicial or otherwise) on any ground, except as may be permitted by applicable law, provided that
nothing herein contained shall be construed to limit or prohibit either Party from applying to any court of
competent jurisdiction for injunctive or other provisional relief to prevent or enjoin any violation of its
rights under this Agreement. From and after the commencement of any such arbitration and until the
final award therein, each Party shall be liable for one-half of: (i) the out-of-pocket filing fees charged in
connection with the commencement of such arbitration, and (ii) the costs and expenses of the arbitrator,
provided that the arbitrator shall be entitled, as part of the final award in such arbitration, to award to
the prevailing Party therein such of its attorneys' fees and disbursements and other fees, costs and
expenses as the arbitrator may deem necessary or appropriate.
Miscellaneous
1
3
.
a. Neither Party intends this Agreement to benefit or create any right or cause of action in any person or
entity other than the Parties hereto. Any failure on the part of either Party to enforce any of its rights shall
not constitute a waiver, and shall apply only to the specific event at hand and not constitute a waiver or
abandonment of any other rights.
b. If a provision of this Agreement is found to be illegal, invalid or unenforceable, such finding shall not
affect the legality, validity or enforceability of the other provisions, which shall remain in effect. This
Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof
and supersedes all other agreements and understandings between the Parties with respect to such subject
matter. This Agreement may not be changed or modified except by a writing signed by an authorized
representative of each of the Parties.
c. Notwithstanding any termination or expiration of this Agreement, the following Sections shall survive
and remain in full force and effect for the periods set forth below: (i) Sections 1, 5, 6, 7 and 8 , until the
final resolution of the rights and obligations of the Parties therein, (ii) Section 9 , until all possible
claims for indemnification thereunder have either been adjudicated to a final, non-appealable conclusion,
or extinguished under applicable statutes of limitation, and (iii) Sections 10, 11, 12 and this Section
13 , until the foregoing Sections mentioned in this subsection (c) are no longer in effect.
d. This Agreement is the result of negotiations between the Parties and their counsel, and shall not be
construed in favor of or against any Party by reason of the extent to which such Party or its counsel
participated in the drafting of this Agreement. This Agreement may be signed in counterparts, and a
signature on behalf of a Party that is delivered to the other Party via .pdf scan or facsimile will have the
same effect as a duly delivered original signature.
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[Remainder of page intentionally left blank]
-10-
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above
written.
CLIENT:
IMATION CORP.
CONSULTANT:
REALIZATION SERVICES, INC.
By: /s/Joseph DePerio
Joseph DePerio
Its Chairman of the Board of Directors
By: /s/Barry L. Kasoff
Barry L. Kasoff
Its President
-11-
AMENDMENT TO CONSULTING AGREEMENT
Amendment to Consulting Agreement (this “Amendment”), dated as of September 16, 2015, by and between
Realization Services, Inc. , a New York corporation (the “ Consultant ”), and Imation Corp. , a Delaware corporation
(the “ Client ”). The Consultant and the Client are sometimes referred to herein individually as a “ Party ”, and
collectively as the “ Parties .”
WHEREAS, pursuant to a Consulting Agreement dated August 17, 2015 (the “Consulting Agreement ”), the
Client retained the Consultant to perform certain Services (as defined) under the terms and conditions set forth in the
Consulting Agreement, and the Parties desire to enter into this Amendment to modify the terms and conditions of the
Consulting Agreement. All terms used by not defined herein shall have the respective meanings assigned to them in the
Consulting Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein and for other good
and valuation considerations, the Parties hereby agree as follows:
Modification
1
to Consultant’s Remuneration
.
To compensate the Consultant for the additional staffing it is providing from August 26, 2015 through the end of the
Revised Term (as defined below), the Parties agree to the following revised compensation, for which the Consultant shall
invoice weekly under Section 6(a) of the Consulting Agreement:
a. Relevant Period – In addition to the Weekly Fees to be paid to the Consultant pursuant to Sections 5(a) and (b) of the
Consulting Agreement, the Client shall also pay to the Consultant additional remuneration of up to $225,000 for the
Consultant’s Services performed during the period (the “ Relevant Period ”) from August 26, 2015 through September
18, 2015. Such additional remuneration shall be over and above the Weekly Fees applicable during the Relevant
Period.
b. Revised Term – Following the Relevant Period, the Consulting Agreement shall continue for a term (the “ Revised
Term ”) extending from September 19, 2015 through such date as the Client may specify (by giving seven (7) days’
prior written notice to the Consultant) as the last day of the Revised Term. During the Revised Term, the ceiling on
the Weekly Fee will be $125,000 (in lieu of $50,000).
Miscellaneous
2
.
The Consulting Agreement shall otherwise remain in full force and effect. Notwithstanding any termination of the
Consulting Agreement, the following sections shall survive and remain in effect for the periods specified: (i) Section 1
above until the final resolution of the rights and obligations of the Parties therein and (iii) this Section 2 until Section
1 is no longer in effect. Each Party represents and warrants to the other that it has full opportunity to obtain, and has in
fact obtained, the advice of its own legal counsel with respect to the Amendment and the transactions contemplated. This
Amendment may be signed in counterparts and shall become effective as if executed in a single, complex document upon
its execution by both Parties.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the day and year first above written.
CLIENT:
IMATION CORP.
CONSULTANT:
REALIZATION SERVICES, INC.
By: /s/Joseph DePerio
Joseph DePerio
Its Chairman of the Board of Directors
By: /s/Barry L. Kasoff
Barry L. Kasoff
Its President
Exhibit 31.1
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Robert B. Fernander, certify that:
1I have reviewed this quarterly report on Form 10-Q of
. Imation Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
November 9, 2015
By:
/s/ ROBERT B. FERNANDER
Robert B. Fernander,
Interim Chief Executive Officer
Exhibit 31.2
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Scott J. Robinson, certify that:
1I have reviewed this quarterly report on Form 10-Q of
. Imation Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
November 9, 2015
By:
/s/ SCOTT J. ROBINSON
Scott J. Robinson,
Vice President and Chief Financial Officer
Exhibit 32.1
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Imation Corp. (the “Company”) on Form 10-Q for the period ended September 30,
2015, as filed with the Securities and Exchange Commission (the “Report”), I, Robert B. Fernander, Interim Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
November 9, 2015
/s/ ROBERT B. FERNANDER
Robert B. Fernander,
Interim Chief Executive Officer
Exhibit 32.2
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Imation Corp. (the “Company”) on Form 10-Q for the period ended September 30,
2015, as filed with the Securities and Exchange Commission (the “Report”), I, Scott J. Robinson, Vice President and Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
November 9, 2015
/s/ SCOTT J. ROBINSON
Scott J. Robinson,
Vice President and Chief Financial Officer