10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For fiscal year ended December 31, 2003
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number: 1-14310

IMATION CORP.

(Exact name of registrant as specified in its charter)

Delaware	41-1838504
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1 Imation Place Oakdale, Minnesota (Address of principal executive offices)	55128 (Zip Code)

(651) 704-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.01 per share	New York Stock Exchange, Inc.; Chicago Stock Exchange, Incorporated
Preferred Stock Purchase Rights	New York Stock Exchange, Inc.; Chicago Stock Exchange, Incorporated

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Act).     Yes þ          No o

      Aggregate market value of voting stock of the Registrant held by non-affiliates of the Registrant, based on the closing price of $37.82 as reported on the New York Stock Exchange on June 30, 2003: $1,345.1 million.

      The number of shares outstanding of the Registrant’s common stock on February 26, 2004 was 35,340,555.

DOCUMENTS INCORPORATED BY REFERENCE

      Selected portions of Registrant’s Proxy Statement for Registrant’s 2004 Annual Meeting are incorporated by reference into Part III.

PART I

Item 1. Business.

General

      Imation Corp. (Imation or the Company), a Delaware corporation formed in 1996, develops, manufactures, sources and markets recordable magnetic and optical removable data storage media products, categorized under the Standard Industrial Classification (SIC) code as “3695; Magnetic and Optical Recording Media” or the North American Industry Classification System (NAICS) code as “334613; Magnetic and Optical Recording Media Manufacturing,” for users of digital information technology in more than 100 countries around the world.

      The Company was formed in a spin-off of the businesses which comprised substantially all of the data storage and imaging systems groups of 3M Company. Since the spin-off, the Company has divested most of the non-data storage businesses, consolidated warehouses and physical infrastructure it inherited with the spin-off, invested in information systems, and focused the basic operational infrastructure to support the Company more efficiently. Divestitures within the last three years include: 1) the color proofing and color software business that comprised most of the Color Technologies segment sold on December 31, 2001 to Kodak Polychrome Graphics LLC and Kodak Polychrome Graphics Company LTD (collectively referred to as KPG), and 2) the Digital Solutions and Services (DSS) business that provided field service on Imation and other Original Equipment Manufacturers’ (OEMs) hardware devices, manufactured microfilm aperture cards and sold document imaging consumables and hardware systems. The North America DSS business was sold effective August 30, 2002 to DecisionOne Corporation while the remaining DSS businesses outside North America were closed or sold by September 30, 2002 (see Note 3 to the Consolidated Financial Statements).

      Following its divestitures, the Company is now almost singularly focused on the removable data storage media industry (see Figure #1). The Company has a long history in this industry dating from 1947, when this business was started by 3M Company, resulting in the first commercialized data storage tape introduced in 1953. The Company’s vision is to be the worldwide leader in removable data storage, to be the most trusted source for digital data storage by consumers and businesses alike, and to be recognized as an independent expert in digital information back-up, archive, and protection. Key elements of the Company’s strategy are as follows:

•  Strengthen and grow the core removable data storage media business;

•  Offer a broad and comprehensive portfolio of products across different customer applications of the market where it competes;

•  Leverage existing infrastructure to support growth initiatives;

•  Expand into business areas that are closely adjacent to the core removable data storage media business;

•  Develop and enhance manufacturing, supply chain and sourcing capabilities to provide optimum total delivered cost and product quality;

•  Leverage broad and successful relationships with leading OEMs, customers, and distribution channels;

•  Increase market penetration for U.S. government sales;

•  Increase market penetration for U.S. and international commercial and consumer sales; and

•  Maintain and extend technology capabilities in key areas, including precision tape coating, cartridge design and manufacturing, servo-writing, and advanced optical storage technologies.

      Historical results are reported by the Company for four business segments: Data Storage and Information Management (DS&IM), Specialty Papers, Color Technologies, and Digital Solutions and Services (DSS) outside of North America. As noted in Note 3 to the Consolidated Financial Statements, the North America DSS business was sold on August 30, 2002 and was reclassified as discontinued operations for all periods presented. The DSS businesses outside of North America, which were sold or closed by September 30, 2002, remained in the presentation of continuing operations as did the Color Technologies business sold as of December 31, 2001 (see Notes 3 and 11 to the Consolidated Financial Statements). For 2003, the Company’s operations consisted of two segments, DS&IM and Specialty Papers.

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      Approximately 54 percent of the Company’s revenues are derived from international sales in over 100 countries outside the U.S. Financial information by segment and geographic region can also be found in Note 11 to the Consolidated Financial Statements.

Figure #1

DS&IM, Specialty Papers & Other Revenue

*  Other includes previously divested businesses that are still included in continuing operations.

Data Storage and Information Management (DS&IM)

Industry Background

      The Company competes within the global information technology (IT) industry. Specifically, the Company develops, manufactures, sources, and markets removable data storage media for organizations and individuals that must store, retain and protect vital digital information. The Company’s primary products include magnetic tape cartridges, magnetic diskettes and recordable optical disks. The need to capture, manipulate, store and protect ever-larger amounts of this digital information is driving demand for a variety of data storage media formats that are differentiated by total storage capacity, reliability, data transfer rates, cost, portability, permanency, and physical media size. According to various industry analysts and Company estimates, the total global data storage market, including hardware and services, is estimated to be in excess of $70 billion. Removable media provide certain advantages due to their portability, low overall cost of ownership, and scalability, which make the removable media market an attractive market. The removable storage media market is estimated to exceed $7 billion, which includes the removable flash memory market where the Company has not competed through 2003. The Company’s market share in the removable media storage sectors where it directly competes is estimated to be 18 percent.

      There are many diverse ways to store digital information, depending on the application and the amount of information to be retained. In a commercial environment, decisions about the kind of data storage platform to use depend on a multitude of factors including storage capacity, access speed, performance, scalability, portability, compatibility with other components, and total cost. For example, “live” data that is directly accessed and manipulated typically will be treated differently than data which is copied for purposes of back-up or archiving. As a result, storage implementations in a commercial environment typically include more than one platform and media format.

      The demand for removable data storage media is driven by the rapid growth of digital information, a trend that has accelerated with the emergence of the digital economy where increasing quantity and diversity of information is created and managed digitally. As data storage hardware, software, and transmission networks continue to deliver improved

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cost/performance, new and expanded applications have emerged that require the creation of larger, more complex sets of data and larger databases to more efficiently support critical business processes. With business data reaching across multiple locations, data security, archiving and reliable backup have become critical business processes. In addition, there has been heightened awareness of the risks of catastrophic data loss and new requirements for record retention, causing an increase in data backup and retention practices at many organizations. As pervasive use of the Internet becomes the norm for both business and individuals, information important to users is created and stored in digital formats with greater frequency and in ever-larger amounts. As the size and price of consumer electronics devices continue to shrink, the need to store music, video and photography on a variety of digital media continues to grow rapidly.

Application Areas and Products

      There are many removable storage formats, in both magnetic and optical technologies, ranging from tape cartridges and diskettes to CDs and DVDs. Removable data storage products such as those offered by the Company allow the customer to easily expand capacity, and provide data transportability, data management, and data security at a significantly lower relative cost than fixed disk storage. The Company develops, manufactures, sources, and markets removable data storage media products in nearly every capacity range a user may require — from 2 megabyte to hundreds of gigabytes or from data that could occupy one book up to data occupying thousands of libraries. The Company’s data storage media products are used across all major application areas — enterprise data centers, the network server environment at both the mid-range and entry-level, and personal storage applications for both consumer electronics devices and desktop or laptop computers.

      The digital economy, as discussed above, is at a different level of development and penetration in different geographies. As a result, growth rates will typically vary in different application areas and product categories in different parts of the world.

      Data Center — Imation is the leading supplier of magnetic tape cartridges to large data centers worldwide. Large data centers are found in a wide variety of industries, including financial services, geophysical exploration, transportation, government, and telecommunications. In the data center, Imation’s products are used in both mainframe and open systems environments, in large data libraries for back-up, business and operational continuance planning, near-line data storage and retrieval, cost-effective mass storage, and archival storage. Imation’s tape cartridges are often used in an automated tape library that can either be direct-attached storage or part of networked storage infrastructure such as a Storage Area Network (SAN). Enterprise level tape storage cartridges are used to store large amounts of data — up to 400 gigabytes (GB) of data on some cartridges and data transfer rates as high as 40 megabytes (MB) per second. Imation is the exclusive manufacturer of certain cartridges used in enterprise-class applications including BlackWatch™ 9840 and 9940 cartridges developed for use with StorageTek drives, and BlackWatch 3480, 3490, 3590, and 3590E cartridges, developed for use with IBM drives.

      Network Server — Imation manufactures and distributes data tape cartridges for the wide variety of tape drives that are used in the network server environment, providing back-up, archive, and near-line storage in open systems environments. For mid-range to high-end network servers, Imation’s BlackWatch DLTtape IV and BlackWatch SuperDLTtape cartridges are used in DLT and SDLT tape drives sold by several drive manufacturers. BlackWatch Ultrium™ cartridges are used in Linear Tape Open drives manufactured by IBM Corp. (IBM), Certance LLC, and Hewlett-Packard Company (HP).

      Small-Medium Business — Imation also manufactures and distributes data tape cartridges for small to mid-sized businesses, primarily for back-up and archival applications. Imation cartridges work with tape drive systems that support the major operating environments including Unix, Linux, and Microsoft Windows® NT. Imation cartridges include Travan™ tape cartridges for use with Certance Travan drives, and SLR tape cartridges for use with drives sold by Tandberg Data ASA (Tandberg). Imation also distributes VXA and other cartridges for use with Exabyte tape drives.

      Personal Storage Applications — In the personal storage media sector, businesses and consumers use Imation’s broad range of digital storage media to store business information, spreadsheets, presentations, digital photos, data, music, and more. Imation products provide storage media capacities ranging from 1.44MB diskettes to 650 MB CD-R (recordable) and CD-RW (re-recordable) optical disks to 9.4GB DVD optical disks.

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      The installed base of tape drives globally has been estimated by various market researchers to range between 16 million and 25 million units. This substantial installed base of tape drives presents a recurring revenue opportunity for much of the Company’s tape products. The application areas described above are overlapping with no definitive boundaries. The Company’s products are frequently used in more than one environment, depending on the specific customer need for functionality or capacity. In addition, the way these application areas are defined frequently changes as storage capacities and functionality needs increase. The following chart is intended to represent the Company’s data storage media offerings on a continuum of capacities and typical applications:

Customers

      As described above, the Company’s products are used by business customers in a variety of industries and by individual consumers. The Company’s removable data storage products and accessories are produced in multiple formats, including both magnetic and optical, across a wide spectrum of data storage drives, many with multiple manufacturers. The products are also often used in more than one storage environment, depending on the needed capacity. No one customer constituted 10 percent or more of the Company’s revenues in 2003.

      The Company works with Original Equipment Manufacturers (OEMs) which develop tape drives for differing customer applications in various market sectors. Significant OEMs include StorageTek Technology Company (StorageTek), IBM, HP, Exabyte Corp. (Exabyte) and Tandberg. StorageTek and IBM are both customers of and OEM partners with the Company. As described above, the Company is the sole source of supply for tape cartridges for use with StorageTek and IBM drives used in the high end data center. The development of future formats with key OEMs, such as StorageTek and IBM, is critical to the Company’s future success and the loss of such a relationship could have a material effect on the Company’s business. During the past year, the Company announced it had entered into a joint development agreement with StorageTek for their next generation of automated tape drives. The Company believes it is well positioned to maintain its relationship as a key media development partner with important OEMs.

Competition

      The global markets for the Company’s products are intensely competitive and subject to continuous pricing pressure, frequent product performance improvement, and rapid technological change. Removable magnetic and optical media competes to some extent against other forms of data storage, including hard disk and solid state (semi-conductor based) flash memory. Hard disk storage typically has been used for on-line applications whereas removable storage has been used for near-line and off-line applications such as back-up and archive, and in various consumer applications.

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Competition is based on a multitude of factors, including cost, breadth of product line, capacity, access speed and performance, durability, reliability, distribution capability, geographic availability, scalability, and compatibility. At the personal storage level, multiple formats of removable storage compete based on many different factors, with particular emphasis on pricing, emerging applications, convenience, compatibility and technology. Broad competition has resulted in continuous price pressure in the past and the Company expects this trend to continue.

      The Company’s primary competitors in the removable data storage market include Fuji Photo Film Co., Ltd., Hitachi Maxell, Ltd., Memorex, Inc., Verbatim Corporation, TDK Corp., and Sony Corp. In addition, the Company has various agreements with other companies such that it is possible to be, at various times, a competitor of, supplier to, or customer of those companies. While these companies compete in the removable media market, they do not generally report financial results for these businesses on a stand alone basis. Therefore it is difficult for the Company to estimate its relative market share. However, the Company uses a variety of industry sources to estimate market size and share and estimates that in 2002, the latest period for which data is available, it held more than 18 percent of the total market sectors in which it competes for removable media, one to two percentage points greater than its nearest competitor. The Company’s market share in 2001 was estimated to be 15 to 17 percent.

Joint Ventures, Alliances and Acquisitions

      The Company has engaged in a variety of transactions from time to time with other companies, including acquisitions, licensing, distribution, joint venture and joint development agreements in order to expand its presence in various market sectors. Such transactions since the beginning of 2003 include the following.

•  A series of agreements with Moser Baer India Ltd. (MBI) that established MBI as a significant, non-exclusive source for Imation’s optical media products and created a joint venture marketing company for optical media products, Global Data Media (GDM). Imation holds a 51 percent interest in GDM and MBI holds a 49 percent interest. As the controlling shareholder, Imation consolidates the results of the joint venture in its financial statements (see the Company’s Consolidation policy in Note 2 to the Consolidated Financial Statements). MBI brings its optical manufacturing capacity and product development capability to this series of agreements. Imation brings intellectual property and licensing rights in optical products, process technology know-how and global distribution capability.

•  A joint development agreement with StorageTek to develop and manufacture enterprise-class tape storage media to support StorageTek’s next generation tape drives.

•  A distribution agreement with Exabyte that establishes Imation as the exclusive worldwide distributor of Exabyte brand media products.

•  A license agreement with Roxio Corp., parent company to Napster, that establishes Imation as the exclusive distributor of Napster-branded optical media products in North America. In addition to the exclusive distribution agreement, Imation will also provide sales, marketing and distribution services for Napster-branded blank CD and DVD products.

•  A five year extension of an existing agreement with IBM to manage and deliver after-market data storage media distribution services for IBM worldwide that establishes Imation as a key distributor of IBM brand media products, providing sales, marketing, distribution, and management services.

•  An agreement with HP on the sourcing, sales, marketing, logistics support and product distribution of HP brand CD-R, CD-RW, DVD+R and DVD+RW optical media products marketed in Europe, the Middle East and Africa.

•  An agreement, expected to close in 2004, to purchase certain assets and intellectual property relating to half-inch legacy tape products, such as 3480, 3490E and 9490EE tape cartridges, from EMTEC Magnetics GmbH, an insolvent German-based manufacturing subsidiary of EMTEC International Holding GmbH.

     Marketing and Distribution

      Imation’s data storage products are sold through a combination of distributors and value-added resellers, OEMs, and retailers. World-wide, approximately 64 percent of revenues come from distributors, 21 percent from OEMs and

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15 percent from the retail channel. The Company maintains a sales force of approximately 250 representatives to service this distribution network around the world.

      Approximately 56 percent of the Company’s data storage revenues come from sales outside the United States, primarily through subsidiaries, sales offices, distributors and relationships with OEMs throughout Europe, Asia, Latin America, and Canada.

     Manufacturing

      The Company manufactures data storage products at its facilities located in the U.S. at plants in Camarillo, California; Tucson, Arizona; Wahpeton, North Dakota; and Weatherford, Oklahoma. All of these manufacturing facilities are certified to ISO 9001:2000 quality standards. The Company manufactures most of the components for its magnetic data storage products, including magnetic tape and plastic components, but sources some material from outside suppliers. Through the end of 2003, the Company spent approximately $45 million in capital to design and build a new facility, with state-of-the-art tape coating capability, at its Oklahoma plant. In 2004, the Company expects to spend less than $10 million in capital, excluding any potential start-up costs associated with bringing the new coater on-line, to complete the project. The new coating facility is expected to begin operation by the end of the second quarter of 2004. While the Company manufactures most of its own magnetic tape products, the Company does not manufacture the vast majority of the optical media products it sells. Most optical products are sourced from manufacturers outside the U.S.

      The manufacture of high quality, competitive removable data storage media requires exacting manufacturing process steps with precise physical, electrical, and chemical tolerances as well as significant technical expertise in several areas including coating process, servo-writing, media and component design, fine particle dispersion, plastic injection molding, automated high volume assembly, and magnetic and optical physical and material science. To manufacture magnetic media, a thin plastic film material is coated precisely and uniformly with a magnetic dispersion solution. To meet the market requirements for future advanced tape media products with higher data transfer rates, greater data density, and faster tape speeds, the Company must produce tape coated with smaller particle sizes, increasing uniformity and surface smoothness, and greater bit and track density on thinner substrates. Significant experience is required to keep pace with these requirements and the technical expertise within its manufacturing and engineering organization is viewed as a critical element of the Company’s overall competitiveness. The Company employs certain critical process technology, intellectual property, and technical know-how in the manufacture of its magnetic data storage media and invests to maintain research and development facilities and pilot manufacturing lines for potential future products in both magnetic and optical media. The Company believes its application of key proprietary design and manufacturing technologies in the production of its media provides it with a competitive edge for certain products. The Company relies upon the availability of experienced and skilled personnel and invests in both R&D and capital equipment in order to successfully develop, manufacture and source magnetic and optical media that meet market requirements.

      Servo-writing technology in linear tape and tape drives provides precise positioning of read/write heads to achieve higher data densities on tape and is a critical technology to achieve increased storage capacities. Tape handling through the cartridge is an increasingly critical element of system robustness for the cartridge and the drive as tape transport speeds in the drives increase and the distance between the read/write head and the tape media decreases. Cartridge design and manufacturing includes the manufacture and assembly of plastic moldings and components, metal part stamping and modeling of the tape path and tape handling through the cartridge. The Company believes its servo-writing and cartridge design and manufacturing capabilities in particular give it a competitive advantage for certain products.

     Raw Materials and Other Purchased Products

      The principal raw materials the Company uses for the manufacture of data storage products include plastic resins, polyester films, magnetic pigments, specialty chemicals, and solvents. The Company makes significant purchases of these and other materials and components used in the manufacturing operations from many domestic and foreign sources. There are two sources of supply for the base film and two for the MP (metal particulate) pigments on which the industry relies. If supply were disrupted for any of these key materials, the business of the Company and its

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competitors could be negatively impacted. The Company does rely on certain partners as sole suppliers for components used in its manufacturing processes. The loss of these certain suppliers could have a material impact on the business.

      The Company has an agreement to acquire chrome pigments, a key raw material for certain legacy tape formats. As a result of this agreement, the Company believes it has adequate supplies of this raw material for the foreseeable future.

      Except for the instances cited above, the Company is not overly dependent on any single supplier of raw materials. The Company also makes significant purchases of other finished and semi-finished products, including optical media and certain finished tape and tape cartridges, primarily from Asian suppliers. As noted above, during 2003, the Company entered into a non-exclusive sourcing agreement with MBI for certain optical products.

     Specialty Papers

      The Company’s Specialty Papers unit manufactures a wide variety of carbonless paper products that are used to make multi-part business forms at its specialty coating and converting production facility located in Nekoosa, Wisconsin. The Specialty Papers business represented less than five percent of the Company’s total revenues in 2003.

      The Specialty Papers unit has been an innovative leader in the carbonless paper industry for over 40 years, specializing in cut sheet products. These products are used by most industry segments and are distributed through distribution channels including traditional fine paper merchants. The primary competitors to this business include Appleton Papers, Inc. and MeadWestvaco Corporation. The Specialty Papers business also manufacturers private label carbonless paper products and provides contract manufacturing for various third party organizations.

      The Company’s videodisc replication business, which was closed in the first quarter of 2002, was also part of the Specialty Papers segment.

     Digital Solutions and Services (DSS)

      The Company sold its North America DSS business in August 2002 (see Note 3 to the Consolidated Financial Statements). These operations are presented in the Company’s Consolidated Statements of Operations as discontinued operations.

      The Company also completed its planned exit of the DSS business outside of North America in the third quarter of 2002. As of the end of the third quarter, all DSS operations outside of North America had been closed or sold. The operations outside of North America are still included in continuing operations (see Note 11 to the Consolidated Financial Statements).

      The Company’s DSS business was a service organization with a focus on two areas — Field Service and Document Imaging products. Through relationships with OEMs, the Field Service group offered call center, help desk support, spare parts logistics, and field service to end-user customers, with a focus on providing services for the wide format color and imaging equipment markets. In the Document Imaging products area, the Company acted as a system integration coordinator to help its customer base transition from analog to digital systems, with an emphasis on providing integrated solutions in the wide format engineering document imaging systems market by combining hardware, software, supplies and services for its customers. The business also manufactured microfilm aperture cards.

     Color Technologies

      Through 2001, the Company was an active participant in the graphic arts industry as a manufacturer and marketer of products and services for the capture, enhancement, management, and transmission of color images. On December 31, 2001, the Company consummated the sale of its worldwide color proofing and color software business to KPG. KPG acquired substantially all the assets and assumed substantially all the liabilities associated with this business and paid the Company $50 million in cash. Approximately 500 Imation employees worldwide were transferred to KPG in connection with the transaction, along with the portion of the Company’s Weatherford, Oklahoma plant associated with color proofing (see Notes 3 and 11 to the Consolidated Financial Statements).

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Research and Development

      New product development is critical to the Company’s future success and Imation maintains advanced research facilities and invests substantial resources in developing new products, improving existing products and researching potential new technologies for data storage media. The Company’s research and development expenses were $57.0 million, $50.6 million, and $62.1 million, for 2003, 2002, and 2001, respectively, averaging approximately five percent of revenues. The increase in spending from 2002 to 2003 was due to investments in emerging new data storage format areas, while the decline in spending from 2001 to 2002 was due to the divestitures of the color proofing and software business and the DSS business outside of North America. Most of the Company’s research and development spending was focused on the development of existing and future formats of removable magnetic and optical storage media. This includes development of high density metal particulate tape such as the LTO Ultrium and StorageTek next generation tape formats. These advanced formats will deliver increased storage capacity per cartridge through using more advanced metal particulate pigments with smaller particle size, coating thinner layers on thinner substrates and advanced tape handling characteristics within both manufacturing processes and in tape cartridges. R&D spending is also focused on extensions of existing magnetic tape products, and advanced forms of optical storage media (which rely on shorter wavelength laser light and improved optics).

      Imation’s competitive capabilities are dependent upon development and protection of intellectual property. The Company’s proprietary rights are protected through a combination of patents, copyrights, trademarks, and trade secrets. Over the last several years, the Company has had a focused effort to increase its patent portfolio and creation of invention records and filing of patent applications. During 2003, the Company was awarded 34 U.S. patents and at the end of the year held over 330 patents in the U.S. relating to its data storage business, including approximately 120 related to cartridge components, 80 related to optical, 60 related to magnetic tape coating and manufacturing, and 70 related to drive systems. The Company believes that no single patent is material to its overall business. The chart below summarizes the Company’s patent activity for the past five years:

      The Company entered into a joint development agreement with StorageTek in 2003 to develop and commercialize a next generation data storage tape solution for the enterprise data center market. The Company is also engaged in certain programs both on its own and in collaboration with other organizations that are more research in nature and which do not yet have a specific product or product set in the market or soon to be introduced. Examples of these efforts include:

•  a four-year, $11.9 million grant jointly awarded to Imation and several other organizations from the National Institute of Standards and Technology — Advanced Technology Program (NIST-ATP) for development of technologies needed to increase data density of current magnetic tape data systems, and lay the foundation for even greater densities in future tape systems;

•  an investment of up to $3 million for up to a 6.5 percent equity stake in O-Mass, a subsidiary of drive manufacturer Tandberg focused on developing the world’s fastest performing, highest capacity tape drive based on a combination of magnetic and optical technologies;

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•  a joint development agreement with InPhase Technologies, to develop proprietary, holographic data storage technology.

International Operations

      Imation’s products are sold in over 100 countries outside the U.S., primarily through subsidiaries, sales offices, distributors and relationships with OEMs in more than 60 countries. Approximately 54 percent of the Company’s total 2003 revenues come from outside the U.S. The Company does not manufacture outside the U.S. Note 11 to the Consolidated Financial Statements shows financial information by geographic region. The chart below breaks out the Company’s 2003 revenues by area:

Employees

      As of December 31, 2003, Imation employed approximately 2,800 people worldwide.

Environmental Matters

      The Company’s operations are subject to a wide range of federal, state, and local environmental protection laws. The Company has remedial activities underway at one of its facilities. Environmental remediation costs are accrued when a probable liability has been determined and the amount of such liability has been reasonably estimated. These accruals are reviewed periodically as remediation and investigatory activities proceed, and are adjusted accordingly. Compliance with environmental regulations has not had a material adverse effect on the financial results of the Company. In 2003, the Company spent approximately $50,000 on environmental related matters. As of December 31, 2003, the Company had environmental related accruals totaling approximately $0.6 million. The Company believes that its accruals are adequate, though there can be no assurance that the amount of expenses relating to remedial actions and compliance with applicable environmental laws will not exceed the amounts reflected in the Company’s accruals.

Executive Officers of the Company

      The executive officers of the Company on February 26, 2004, together with their ages and business experiences, are set forth below.

      William T. Monahan, age 56, is Chairman of the Board, President and Chief Executive Officer, positions he has held since the Company was spun-off from 3M on July 1, 1996. From June 1993 to March 1996, he was Group Vice President responsible for 3M’s Electro and Communications Group, and from May 1992 to May 1993, he was Senior Managing Director of 3M Italy. From September 1989 to May 1992, he was Vice President of 3M’s Data Storage Products Division. Mr. Monahan plans to retire from the Company by the end of 2004.

      Bradley D. Allen, age 53, is Vice President, Corporate Communications and Investor Relations. He has led the Company’s investor relations function since spin-off. From October of 1994 to May of 1996, he held the senior investor

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relations position at Cray Research, which was acquired by Silicon Graphics in 1996. Prior to Cray Research, he headed the investor relations function at Digital Equipment Corporation.

      Jacqueline A. Chase, age 50, is Vice President, Human Resources, a position she has held since October 1998. Prior to assuming her current responsibilities she was Director of Human Resources. She has been with the Company since spin-off. From 1991 to 1996, she held the position of Senior Counsel in 3M’s legal department. Prior to joining 3M, she was an associate attorney at the law firm of Oppenheimer, Wolff and Donnelly.

      Frank P. Russomanno, age 56, is Executive Vice President and Chief Operating Officer, a position he has held since November 2003. He has been with the Company since spin-off. Prior to assuming his current responsibilities he had various managerial positions within the Company, including President of DS&IM, Vice President and General Manager of Data Storage and Media Services, DS&IM and General Manager of Advanced Imaging Technologies. Prior to joining the Company, he held several management positions with 3M, including European Business Director.

      John L. Sullivan, age 49, is Senior Vice President, General Counsel and Corporate Secretary. He joined the Company in August 1998 from Silicon Graphics, where he most recently was Vice President-General Counsel. Prior to joining Silicon Graphics, he held several positions with Cray Research from 1989 to 1997, including the positions of General Counsel and Corporate Secretary from 1995 to 1997. Cray Research became part of Silicon Graphics in 1996.

      Colleen R. Willhite, age 47, is Vice President, DS&IM, Manufacturing and Supply Chain, a position she has held since February 2002. She has been with the Company since spin-off. Prior to assuming her current responsibilities she had various managerial positions within the Company, including Corporate Supply Chain Director, Global Application Migration Project Leader, and Operations General Manager, Color Technologies. Prior to joining the Company, she held several management positions with 3M.

      Paul R. Zeller, age 43, is Vice President, Corporate Controller. He was elected to his position as Vice President in February 2000, and has held the Corporate Controller position since May 1998. He has been with the Company since spin-off and held accounting manager and division controller positions with the Company prior to May 1998. Prior to joining the Company, he held several accounting management positions with 3M.

Availability of SEC Reports

      The Company’s website address is www.imation.com. The Company makes available free of charge on or through its internet website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after the Company electronically files such material with or furnishes it to the SEC. Materials posted on the Company’s website are not incorporated by reference into this annual report on Form 10-K.

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Item 2.      Properties.

      The Company’s headquarters are located in Oakdale, Minnesota. The Company’s major facilities, and the products manufactured at such facilities, are listed below. The Company’s facilities are in good operating condition suitable for their respective uses and adequate for the Company’s current needs.

Facility	Products
United States and Canada
Camarillo, California (owned/leased)*	Data tape manufacturing
Miami, Florida (leased)	Sales/Administrative
Nekoosa, Wisconsin (owned)	Carbonless paper manufacturing
Oakdale, Minnesota (owned)	Headquarters/laboratory facility
Tucson, Arizona (owned)	Data tape manufacturing
Wahpeton, North Dakota (owned/leased)*	Diskette/molding/CD-Rewritable discs/data tape manufacturing
Weatherford, Oklahoma (owned)	Diskette manufacturing and data tape manufacturing**
London, Ontario, Canada (owned)	Sales/Administrative
Europe
Bracknell, United Kingdom (leased)	Sales/Administrative
Cergy, France (leased)	Sales/Administrative
Madrid, Spain (leased)	Sales/Administrative
Neuss, Germany (leased)	Sales/Administrative
Schiphol-rijk, Netherlands (leased)	Sales/Administrative
Segrate, Italy (leased)	Sales/Administrative
Latin America
Mexico City, Mexico (leased)	Sales/Administrative
Santiago, Chile (leased)	Sales/Administrative
Sao Paulo, Brazil (owned)	Sales/Administrative
Asia Pacific
Baulkham Hills, Australia (leased)	Sales/Administrative
Beijing, China (leased)	Sales/Administrative
Guangzhou, China (leased)	Sales/Administrative
North Point, Hong Kong (leased)	Sales/Administrative
Seoul, Korea (leased)	Sales/Administrative
Shanghai, China (leased)	Sales/Administrative
Singapore (leased)	Sales/Administrative
Taipei, Taiwan (leased)	Sales/Administrative
Tokyo, Japan (leased)	Sales/Administrative

      * In December 2003, the Company sold one of the buildings at its Camarillo, California facility in a sale-leaseback transaction and will be leasing back a portion of the building. In 2002, the Company sold one of the buildings at its Wahpeton, North Dakota facility in a sale-leaseback transaction and is leasing the entire facility back.

      ** The Company’s new state-of-the-art tape production line is expected to begin operation at this facility in 2004.

Item 3.      Legal Proceedings.

      The Company is the subject of various pending or threatened legal actions in the ordinary course of its business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Consequently,

11

as of December 31, 2003, the Company is unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that may be incurred by the Company with respect to these matters. While these matters, certain of which are described below, could materially affect operating results in future periods depending upon the final resolution, it is management’s opinion that after final disposition, any monetary liability to the Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2003 would not be material to the Company’s financial position.

Jazz Photo Corp.

      On May 10, 1999, Jazz Photo Corp. (Jazz Photo) served the Company and its affiliate, Imation S.p.A., with a civil complaint filed in New Jersey Superior Court. The complaint charges breach of contract, breach of warranty, fraud, and racketeering activity in connection with the Company’s sale of allegedly defective film to Jazz Photo by its Photo Color Systems business which was sold in 1999 (see Note 3 to the Consolidated Financial Statements). In the complaint, Jazz Photo seeks unspecified compensatory damages, treble damages, punitive damages, and equitable relief for both initial purchases and subsequent additional purchases of film. In 2002, the parties continued to litigate the scope of document production and discovery, and depositions began in the third quarter of 2002.

      On February 24, 2003, the Company was served with the reports of Jazz Photo’s testifying expert witnesses in the case (the Jazz Photo Reports). In the opinion of Jazz Photo’s experts as set forth in the Jazz Photo Reports, the alleged damages to Jazz Photo were caused by a combination of heat, moisture, and fumes from packaging materials supplied by Jazz Photo. The Jazz Photo Reports do not contain any opinions that the alleged damages to Jazz Photo were caused by any error by the Company in the manufacture of the film or by damage to the film during shipment to Jazz Photo. The primary opinion set forth in the Jazz Photo Reports is that the film was not fit for Jazz Photo’s particular use or purpose (use in reloaded single use cameras) because the film design made it more vulnerable to a combination of heat, moisture, and chemical fumes than other film products. The Jazz Photo Reports further conclude that the Company should have known that use in reloaded cameras would expose the film to the damaging combination of heat, moisture, and chemical fumes. The Company vigorously disputes this theory of liability and believes that it has meritorious defenses. The Jazz Photo Reports claim alleged out-of-pocket damages of approximately $13 million, lost profits through 2002 of approximately $41 million, and lost future profits of approximately $32 million. The Company vigorously disputes the amount of the out-of-pocket damages claim and vigorously disputes that Jazz Photo has suffered any lost profits as a result of any action by the Company. Any claim for treble damages by Jazz Photo would have to be based on a violation of the New Jersey Racketeer Influenced and Corrupt Organizations Act or the New Jersey Consumer Fraud Act. Even though Jazz Photo has asserted claims under these acts, the Jazz Photo Reports contain no allegation of damages related to the additional purchases of film by Jazz Photo in 1999.

      The Company is vigorously defending the action. Factual discovery is now complete. On May 6, 2003, the Company served reports of testifying expert witnesses, who conclude that the Company’s film was appropriately designed and manufactured and was fit for use in single use cameras, including reloaded single use cameras. The Company’s experts agree that the damage to the film was caused by a combination of chemical fumes, excess moisture, and excess heat occurring after the film was delivered to Jazz Photo. They conclude that Jazz Photo was responsible for the damage because it failed to put in place a quality control system consistent with industry norms and failed to comply with manufacturer instructions and industry standards concerning protecting film from heat, humidity, and chemical fumes. Also on May 6, 2003, the Company served the report of a financial expert who concludes that the plaintiff’s financial analysis is fundamentally flawed. Both sides filed rebuttal expert reports and have taken expert depositions.

      On October 2, 2003, the Company filed a summary judgment motion for dismissal of the entire case against it. On the same date, Jazz Photo filed a motion for partial summary judgment in its favor on its New Jersey racketeering and consumer fraud claims. Decisions by the Court on these motions are pending. The final pre-trial conference was held on October 30, 2003. A settlement conference and hearing on the parties’ summary judgment motions took place on January 22, 2004. Barring summary judgment dismissal or settlement of the case, the trial is scheduled to begin April 12, 2004.

      On May 20, 2003, Jazz Photo filed a Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code. The Jazz Photo litigation with the Company will proceed despite the bankruptcy. The largest bankruptcy creditor Jazz Photo listed was Fuji Photo Film Co., Ltd. (Fuji). Fuji obtained a judgment against Jazz Photo

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in the amount of approximately $30 million after a patent infringement trial in the United States District Court for the District of New Jersey. Fuji has brought a motion seeking an order for the appointment of a Chapter 11 trustee pursuant to 11 USC § 1104, on grounds of fraud, dishonesty or, in the alternative, incompetence and gross mismanagement by those currently controlling Jazz Photo. A decision in that motion is pending

      The St. Paul Fire and Marine Insurance Co. (St. Paul) insured the Company under a primary commercial general liability policy. St. Paul has, under a reservation of rights, reimbursed the Company for its defense costs in the Jazz Photo litigation up to the limit of $2 million under one insuring agreement of the policy issued by St. Paul. In 2003, the Company recorded $1.3 million after-tax in discontinued operations, primarily related to incurred litigation costs associated with the Company’s defense of its ongoing legal dispute with Jazz Photo that have not been reimbursed. The Company has asserted that it is entitled to higher limits for defense and indemnity contained in other insuring agreements of the St. Paul policy. The Company also believes it has coverage for defense and/or indemnity under policies issued by another primary carrier, Cigna and by its excess carrier, AIG. The disputes regarding additional coverage under both the primary and excess policies has been stayed pending resolution of the Jazz Photo litigation.

Spanish Collecting Society

      The Company was a defendant in a lawsuit filed in Court of First Instance Num. 5 in Madrid by a Spanish collecting society demanding copyright levies for recording artists to be paid on all CDR-Data discs that have been sold during 1998 and 1999. Prior to July 2003, there was an agreed upon levy assessed on all CDR-Audio discs sold in Spain but no agreement had been reached regarding an applicable levy for CDR-Data discs. The Spanish collecting society filed a lawsuit against the Company and at least three other companies alleging that consumers are using CDR-Data discs to make copies of music for private use and, therefore, the same levy that applies to CDR-Audio disc sales should also apply to CDR-Data disc sales. A judgement was rendered by a Court of First Instance in Madrid on November 28, 2002 which required the Company’s affiliate, Imation Iberia S.A., to provide an accounting of CDR-Data discs that were sold in 1998 and 1999 which may be subject to CDR levies. The Company appealed this judgement. In July 2003, an agreement for the payment of levies on CDR-Data discs was reached in Spain between the collecting society and the industry association (in which the Company is an active member). The agreement anticipates that the member companies of the industry association will enter into individual agreements with the collecting society containing the terms agreed to between the industry association and the collecting society. Pursuant to terms of the agreement between the industry association and the collecting society, the Company entered into an agreement with the collecting society and began to pay levies on CDR-Data discs sold in Spain on a going-forward basis as of September 1, 2003. In accordance with this agreement, there will be no payment of levies for sales of CDR-Data discs in Spain prior to September 1, 2003. Based upon the agreement between the parties, in October 2003, the appellate court dismissed the appeals, with prejudice, filed by the collecting society and the Company. In the second quarter of 2002, the Company recorded a $1.0 million charge in the Litigation line of its Consolidated Statement of Operations. This amount was reversed in the third quarter of 2003.

Item 4.     Submission of Matters to a Vote of Security Holders.

      Not applicable.

PART II

Item 5.     Market for Registrant’s Common Equity and Related Stockholder Matters.

      As of February 26, 2004, there were 35,340,555 shares of the Company’s common stock, $0.01 par value (Common Stock), outstanding held by approximately 34,300 shareholders of record. The Company’s Common Stock is listed on the New York and Chicago Stock Exchanges under the symbol of IMN. In May 2003, the Board of Directors declared the Company’s first dividend payable to holders of Common Stock in the amount of $0.08 per share. The Board of Directors also declared dividends of $0.08 per share of Common Stock in August and November 2003. The Company paid a total of $8.5 million in dividends to shareholders in 2003. On February 4, 2004, the Board of Directors approved a quarterly cash dividend of $0.08 per share, payable March 30, 2004, to shareholders of record at the close

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of business on March 15, 2004. Any decision to pay future dividends will be made by the Company’s Board of Directors.

      The following table sets forth, for the periods indicated, the high and low sales prices of Common Stock as reported on the New York Stock Exchange Composite Transactions.

	2003 Sales Prices				2002 Sales Prices
	High		Low		High		Low
First Quarter	$	39.58	$	34.21	$	26.53	$	21.07
Second Quarter	$	38.41	$	32.25	$	31.00	$	26.26
Third Quarter	$	40.80	$	32.65	$	33.84	$	25.51
Fourth Quarter	$	35.78	$	32.95	$	42.25	$	27.64

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Item 6.      Selected Financial Data.

Selected Consolidated Financial Data*

			2003			2002			2001			2000			1999
			(In millions, except per share data)
Statement of Operations Data:
	Net revenues		$	1,163.5		$	1,066.7		$	1,119.3		$	1,171.3		$	1,337.2
	Gross profit			334.7			327.8			335.4			339.0			408.3
	Selling, general and administrative			166.3			176.9			232.0			312.7			280.0
	Research and development			57.0			50.6			62.1			64.1			72.5
	Litigation			(1.0	)		(6.4	)		—			—			—
	Restructuring and other			(0.7	)		(4.0	)		48.0			21.8			—
	Gain on sale of color proofing and color software business			(11.1	)		—			(1.9	)		—			—
	Loan impairment			4.6			—			—			—			—
	Operating income (loss)			119.6			110.7			(4.8	)		(59.6	)		55.8
	Income (loss) from continuing operations before cumulative effect of accounting change			81.8			73.2			(0.8	)		(8.7	)		37.6
	Cumulative effect of accounting change			—			—			—			(3.4	)		—
	Net income (loss)			82.0			75.1			(1.7	)		(4.4	)		43.9
	Earnings (loss) per common share from continuing operations before cumulative effect of accounting change:
		Basic		2.30			2.09			(0.02	)		(0.25	)		1.01
		Diluted		2.25			2.05			(0.02	)		(0.25	)		1.00
	Net earnings (loss) per common share Basic			2.31			2.15			(0.05	)		(0.13	)		1.18
		Diluted		2.26			2.11			(0.05	)		(0.13	)		1.17
Balance Sheet Data:
	Working capital		$	541.2		$	532.2		$	409.7		$	395.1		$	414.2
	Property, plant and equipment, net			226.5			181.5			171.2			200.7			212.8
	Total assets			1,172.8			1,119.9			1,053.7			987.6			1,127.6
	Long-term debt			—			—			—			—			1.1
	Total liabilities			352.5			381.4			398.0			325.4			402.3
	Total shareholders’ equity			820.3			738.5			655.7			662.5			725.3
Other Information:
	Current ratio			2.8			2.7			2.2			2.4			2.2
	Days sales outstanding(1)			46			43			48			48			59
	Days of inventory supply(1)			71			70			67			63			76
	Return on average assets(2)			7.1	%		6.7	%		(0.1	)%		(0.8	)%		3.1	%
	Return on average equity(2)			10.5	%		10.5	%		(0.1	)%		(1.3	)%		5.1	%
	Dividends per common share		$	0.24		$	—		$	—		$	—		$	—
	Capital expenditures			75.1			42.6			47.0			50.5			64.1
	Number of employees(3)			2,800			2,800			3,400			4,300			4,850

*  See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for a description of the basis of presentation of the financial information presented in this table.

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(1)	1999 excludes the impact of the photo color business, which was sold on August 2, 1999. 2001 excludes the impact of the color proofing and color software business, which was sold on December 31, 2001. 2002 excludes the impact of the North American digital solutions and services business, which was sold on August 30, 2002.
(2)	Return percentages are calculated using income (loss) from continuing operations before cumulative effect of accounting change.
(3)	Years prior to 2002 include employees of subsequently discontinued operations.

Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document.

Overview

      Imation is a global technology company that derives revenue and profits primarily from the sale of removable data storage media products to both consumers and business. These products range from floppy diskettes and recordable CDs and DVDs to tape cartridges used in small-medium businesses to high capacity tape cartridges used in large automated tape silos in a data center environment. These products are sold in over 100 countries outside the U.S., and approximately 54 percent of the Company’s total 2003 revenues came from outside the U.S. The Company also has a specialty papers business, representing less than five percent of revenue, which manufactures and distributes carbonless paper for use in the creation of multi-part business forms.

      The core data storage market presents attractive growth opportunities as well as challenges. The market is highly competitive, characterized by continuing changes in technology, pricing pressure on media products, diverse distribution channels, and a large variety of formats for both tape and optical products. The Company is challenged to deliver a broad portfolio of products across diverse distribution channels and geographies and maintain low overall costs. Success in this market is dependent on being early to market with new formats, having efficient manufacturing and supply chain operations, working closely with leading OEM’s (Original Equipment Manufacturers) to develop enhancements to existing and new formats, carrying a broad assortment of products across multiple competing tape drive platforms, and having a broad geographic and market coverage across a variety of distribution channels.

      While the overall removable data storage media industry is a growth industry, the highest revenue growth opportunities over the next three to five years lie outside the Company’s historical core magnetic tape and diskette media businesses. These higher growth markets include newer tape formats in semi-proprietary or open systems environments, recordable optical discs, which currently are more consumer oriented products, and removable flash memory, which the Company has not, to date, marketed. These higher revenue growth opportunities described above provide revenue streams that are, as a rule, at lower gross profit margins than the Company’s historical gross margins on the core magnetic media business. As a result, the Company’s strategy has been to consciously position itself to profitably take advantage of these growth opportunities by establishing strategic sourcing, brand distribution and licensing arrangements which require relatively low capital investments and by implementing a relatively flat and efficient operating structure, which can support higher revenue without the need to add substantial infrastructure or overhead costs, thus delivering increased gross margin dollars and operating profit growth on increased revenues. For example, while the Company has intellectual property, patents and know-how in optical media, it sources these products from third party manufacturers. The resulting business model can be thought of as a hybrid between a manufacturer and a brand distributor.

      The growth opportunities in the removable data storage media market are also generally higher in emerging markets such as Asia and Latin America than in more established markets in the U.S. and Western Europe. As a result, as the Company pursues growth opportunities in emerging markets, revenues are expected to increasingly be derived from sales outside the U.S.

Results of Operations

      On August 30, 2002, the Company consummated the sale of its North America DSS business to DecisionOne Corporation (DecisionOne). These operations are presented in the Company’s Consolidated Statements of Operations as

16

discontinued operations. On December 31, 2001, the Company closed on the sale of its worldwide color proofing and color software business. Since this business did not constitute a complete segment, the operations related to this business are presented in the Company’s Consolidated Statements of Operations as continuing operations. Unless otherwise noted, the following discussion of results of operations refers to continuing operations only.

      The following table sets forth the percentage relationship to revenue of certain items in the Company’s Consolidated Statements of Operations for the years indicated.

										Percentage of dollar increase
Percentage of revenue										(decrease)
2003			2002			2001				2003 vs 2002			2002 vs 2001
	100.0	%		100.0	%		100.0	%	Net revenues		9.1	%		(4.7	)%
	28.8			30.7			30.0		Gross profit		2.1			(2.3	)
	14.3			16.6			20.7		Selling, general and administrative expenses		(6.0	)		(23.8	)
	4.9			4.7			5.5		Research and development expenses		12.6			(18.5	)
	(0.1	)		(0.6	)		—		Litigation expenses		n/m			n/m
	(0.1	)		(0.4	)		4.3		Restructuring and other expenses		n/m			n/m
	(0.9	)		—			(0.1	)	Gain on sale of color proofing and color software business		n/m			n/m
	0.4			—			—		Loan impairment charge		n/m			n/m
	10.3			10.4			(0.4	)	Operating income (loss)		8.0			n/m
	(0.2	)		(0.2	)		0.1		Non-operating (income) expense, net		n/m			n/m
	3.5			3.7			(0.4	)	Income tax provision (benefit)		2.3			n/m
	7.0			6.9			(0.1	)	Income (loss) from continuing operations		11.7			n/m

n/m: not meaningful

Net Revenues

      Net revenues in 2003, 2002, and 2001 were $1,163.5 million, $1,066.7 million, and $1,119.3 million, respectively. Net revenues increased 9.1 percent in 2003 compared to a 4.7 percent decline in 2002. DS&IM net revenues increased 10.6 percent in 2003. The revenue decline in 2002 was due to the sale of the color proofing and color software business and the closing or selling of all the DSS businesses, offset by a 14.6 percent revenue increase in DS&IM. DS&IM was approximately 95 percent of net revenues for continuing operations in 2003 and 2002 (see discussion of DS&IM results in the Performance by Segments section). Approximately 54 percent, 49 percent, and 48 percent of the Company’s net revenues in 2003, 2002, and 2001, respectively, were from sales outside the U.S.

Gross Profit

      Gross profit for 2003, 2002, and 2001 was $334.7 million or 28.8 percent of revenues, $327.8 million or 30.7 percent of revenues, and $335.4 million or 30.0 percent of revenues, respectively. Gross profit dollars increased in 2003 by $6.9 million from 2002 primarily due to revenue growth while gross profit dollars decreased $7.6 million from 2001 to 2002 due primarily to the divestiture of the color proofing and color software business. The 1.9 percentage point decrease in gross profit margin as a percent of revenue for 2003 was due to a higher mix of lower gross margin products as the Company drove operating earnings growth through its strategic growth initiatives, in line with the Company’s strategy, as noted in the Overview above. The 0.7 percentage point increase in gross profit margin in 2002 was driven by strong volume growth, especially in the business-to-business tape products, that helped lower unit costs, and more than offset the negative 2.8 percentage point impact related to the divestiture of the relatively higher gross margin color proofing and color software business. The gross profit for 2001 includes special charges related to inventory write-downs of $0.6 million.

Selling, General and Administrative Expenses (SG&A)

      In 2003, 2002, and 2001, SG&A expenses were $166.3 million or 14.3 percent of revenues, $176.9 million or 16.6 percent of revenues, and $232.0 million or 20.7 percent of revenues, respectively. The decrease in SG&A as a

17

percent of revenue in 2003 was primarily due to the Company’s continued focus on controlling spending and implementing an efficient cost structure in all geographic areas as well as the result of the revenue growth initiatives within DS&IM which increased revenues without a significant impact on SG&A expenses, all of which is in line with the Company’s strategy, as noted in the Overview above. The decrease in SG&A as a percent of revenues in 2002 was driven primarily by a 2.2 percentage point impact from the divestiture of the relatively higher SG&A color proofing and color software business, benefits from the previously announced restructuring program, and from continued focus on reducing selling and administrative expenses. Increased DS&IM revenue in the year also benefited SG&A as a percent of revenues. SG&A in 2002 included $8.4 million received for transition services associated with divested businesses which offset certain costs previously allocated to the divested businesses. Transition services substantially ended in January of 2003. SG&A in 2001 included $5.7 million of accelerated amortization of certain capitalized software (see Note 15 to the Consolidated Financial Statements).

Research and Development Expenses

      Research and development expenses in 2003, 2002, and 2001 were $57.0 million, $50.6 million, and $62.1 million, respectively. The $6.4 million increase in 2003 is related to investments in emerging new data storage format areas. The $11.5 million decline in 2002 is due primarily to the divestiture of the color proofing and color software business.

Litigation

      In 2003, the Company recorded a $1.0 million reversal of the reserve set up in 2002 for a litigation matter related to optical disc royalties in Spain (see Note 16 to the Consolidated Financial Statements). In 2002, the Company recorded a $6.4 million net litigation benefit. This consisted of a $7.4 million litigation benefit from Quantum and Maxell legal settlements, net of associated legal expenses, and a $1.0 million charge for the litigation matter related to optical disc royalties in Spain.

Restructuring and Other

      In 2003, the Company recorded a $0.7 million benefit for the reversal of previously recorded charges due to lower than expected costs of restructuring (see Note 5 to the Consolidated Financial Statements), This restructuring adjustment, in accordance with applicable accounting standards, was made as part of the Company’s regular practice of reviewing its recorded restructuring reserves quarterly and making adjustments as necessary to reflect management’s best estimate of costs remaining for each restructuring program.

      In 2002, the Company recorded a $4.0 million net benefit in restructuring. Adjustments to previously recorded restructuring reserves of $5.8 million were offset by a new charge of $1.8 million. Part of the adjustment was related to the Company’s DSS businesses in Europe and was primarily due to lower than estimated employee separation costs as well as recognition of pension-related benefits that can only be recorded under the applicable accounting standards when the employees are separated. The new charge relates to the realignment of the Storage Professional Services organization within the Company’s DS&IM business segment. The charges include asset impairments, exit costs and $0.4 million for employee separation programs related to headcount reduction of approximately 15 employees.

      In 2001, the Company recorded $48.0 million of restructuring and other charges to reduce its administrative structure, improve the profitability of the remaining, non-data storage businesses and rationalize its data storage manufacturing. The charges included $25.0 million for employee separation programs related to a headcount reduction of approximately 430 employees relating to continuing operations, of which approximately 45 percent related to administrative structure, 50 percent related to the non-data storage businesses, and the remainder related to the data storage business. The Company also recorded a $0.6 million special charge reflecting inventory write-downs in cost of goods sold (included in Gross Profit above).

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      The following tables represent the activity related to the restructuring programs initiated in 2002 and 2001, respectively, adjusted to exclude those activities specifically related to discontinued operations:

									Liability as of
	Program		Cumulative			Net			December 31,
	Amounts		Usage			Adjustments			2003
	(In millions)
Severance	$	25.4	$	(19.9	)	$	(4.6	)	$	0.9
Asset impairments		18.3		(18.3	)					—
Other		6.1		(4.7	)	$	(0.2	)		1.2
Total	$	49.8	$	(42.9	)	$	(4.8	)	$	2.1

			Cumulative		Balance as of
	Program		Reductions and		December 31,
(Approximate Headcount)	Amounts		Adjustments		2003
Headcount		445		440		5

      During 2003, the Company made cash payments of $5.3 million related to all of its restructuring programs, related primarily to lease payments of exited facilities and headcount reductions. Headcount was reduced by approximately 15 employees in 2003. The Company expects to make payments of $2.1 million related primarily to lease payments of exited facilities and headcount reductions, with substantially all being made in 2004, to complete its restructuring programs (see Note 5 to the Consolidated Financial Statements). In 2002 and 2001, the Company made cash payments of $22.3 million and $14.7 million, respectively, related to all of its restructuring programs.

Gain on Sale of Color Proofing and Color Software Business

      In 2003, the Company recorded an $11.1 million gain primarily related to outstanding transition services payments for the color proofing and color software business sold in 2001 (see Note 3 to the Consolidated Financial Statements). In 2001, the Company recorded an $1.9 million gain on the sale of this business.

Loan Impairment

      In 2003, the Company recorded a $4.6 million impairment of a loan to offset substantially all of an outstanding loan receivable from a contract manufacturer (see Note 15 to the Consolidated Financial Statements).

Operating Income (Loss)

      Operating income (loss) for 2003, 2002, and 2001, was $119.6 million, $110.7 million, and $(4.8) million, respectively. As a percent of revenues, operating income for 2003, 2002, and 2001 was 10.3 percent, 10.4 percent, and (0.4) percent, respectively. Operating income in each year was driven by the factors discussed above, including the items in Litigation, Restructuring and Other, Gain on Sale of Color Proofing and Color Software, and Loan Impairment.

Non-Operating Income/ Expense

      Non-operating income was $2.5 million and $1.9 million in 2003 and 2002, respectively, as compared with expense of $0.6 million in 2001. Interest income was $5.9 million in 2003, $8.4 million in 2002, and $12.4 million in 2001, down due to lower short-term interest rates. Other non-operating expenses in 2002 included a $3.0 million write-off of an equity investment and in 2001 included $5.4 million of write-offs related to certain venture capital investments. The Company utilizes certain financial instruments to manage risks associated with interest rate and foreign currency risks (see Item 7A and Note 8 to the Consolidated Financial Statements).

Income Tax

      The Company’s effective tax rate was 33 percent, 35 percent, and 85 percent for 2003, 2002, and 2001 respectively, as discussed in Note 6 to the Consolidated Financial Statements. The tax rate in 2001 was significantly impacted by Restructuring and Other items, which increased the reported tax rate from 24 percent to 85 percent. The

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Company has performed an analysis of the recoverability of deferred tax assets and has recorded valuation allowances for certain amounts not considered recoverable. As of December 31, 2003 and 2002, the Company had net deferred tax assets of $74.6 million and $92.7 million, respectively. The future recoverability of the Company’s net deferred tax assets is primarily dependent upon generation of future taxable income in the U.S. The Company believes that it will generate sufficient future taxable income to recover the Company’s recorded net deferred tax assets.

     Income (Loss) from Continuing Operations

      Income from continuing operations in 2003 was $81.8 million, or $2.25 per diluted share, and in 2002 was $73.2 million, or $2.05 per diluted share. This compares to a loss from continuing operations in 2001 of $0.8 million, or $0.02 per diluted share. The increases in 2003 and 2002 are due to increased operating income as discussed above.

     Net Income (Loss)

      Net income in 2003 was $82.0 million, or $2.26 per diluted share, and $75.1 million in 2002, or $2.11 per diluted share. This compares to a the net loss in 2001 of $1.7 million, or $0.05 per diluted share. The increases in 2003 and 2002 are due to increased operating income as discussed above as well as small gains from discontinued operations (see Note 3 to the Consolidated Financial Statements).

Performance By Geographic Area

      Approximately 54 percent, 49 percent, and 48 percent of the Company’s net revenues in 2003, 2002, and 2001, respectively, were from sales outside the U.S. U.S. revenues totaled $532.7 million, $546.7 million, and $587.4 million in 2003, 2002, and 2001, respectively. International revenues were $630.8 million, $520.0 million, and $531.9 million in 2003, 2002, and 2001, respectively. The shift in revenues from the U.S. to international was driven by strong growth in Asia and Latin America as well as the launch in 2003 of Global Data Media (GDM), the Company’s joint venture with Moser Baer India. Favorable currency rates also benefited international revenues. See Performance by Segments below for additional information as well as Note 11 to the Consolidated Financial Statements.

Performance by Segments

      The Company’s businesses are organized, managed and internally reported as segments differentiated primarily by their products and services and the markets they serve. These segments, whose results are discussed below, are Data Storage and Information Management, Specialty Papers, Digital Solutions and Services, and Color Technologies. In 2001, Specialty Papers and Color Technologies were combined as a single segment. Beginning in 2002, they were separated and the prior period results were restated to conform to the new presentation as a result of the sale of the color proofing and color software business to KPG in 2001.

     Data Storage and Information Management (DS&IM)

      DS&IM net revenues were $1,110.6 million, $1,003.9 million, and $875.9 million in 2003, 2002, and 2001, respectively. The 10.6 percent increase in 2003 was driven by a volume increase of approximately 16 percent and foreign currency benefits of approximately five percent, partially offset by price declines of approximately 10 percent. In 2003, volume growth was especially strong in the Company’s existing optical media business and optical media sales through its joint venture, Global Data Media. Optical media growth was strong in both CD and DVD related formats. The Company also experienced growth in Ultrium and SDLT tape cartridges. The DS&IM revenue increase of 14.6 percent in 2002 was driven by a volume increase of approximately 24 percent, offset by price declines of approximately 10 percent, and foreign currency benefits of less than one percent. In 2002, significant volume increases occurred in all major product categories and across all geographic areas, while pricing pressures were less than in 2001. For 2002, growth was especially strong in Ultrium tape cartridges, optical products, and 9840 and 9940 cartridges. The revenue increase in 2002 also was driven by the Company’s distribution program with IBM in which IBM branded media products are sold through the Company’s distribution channels. The IBM branded business, which spans across multiple product lines, began in the third quarter of 2001.

      Operating income was $104.7 million, $99.2 million, and $52.5 million in 2003, 2002, and 2001, respectively. The operating income improvement in 2003 was driven by optical related products. Currency exchange rate benefits also

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contributed to the improvement. The operating income increase in 2002 was driven by the strong demand of business to business tape products as noted above, gross margin improvements, lower SG&A costs, and currency exchange rate benefits.

     Specialty Papers

      Specialty Papers net revenues were $52.9 million, $53.1 million, and $51.0 million in 2003, 2002, and 2001, respectively. Revenues from 2002 to 2003 were essentially unchanged. The increase in 2002 was driven by an increase in private label sales and contract manufacturing as well as improving market share in Imation branded business.

      Operating income was $6.9 million, $7.2 million, and $2.0 million in 2003, 2002, and 2001, respectively. Operating income from 2002 to 2003 was relatively unchanged. The increase in 2002 operating income was due primarily to increased revenues and the benefits from restructuring in 2001.

      The videodisc replication division of the Specialty Papers segment was closed at the end of the first quarter of 2002.

     Digital Solutions and Services (DSS)

      Due to the presentation of the North America DSS business as discontinued operations, the results of this segment relate only to the DSS businesses outside of North America. DSS net revenues were $9.5 million and $29.6 million in 2002 and 2001, respectively. The decline in 2002 was due to the planned discontinuation of DSS businesses in regions outside North America, all of which had been closed or sold by the end of the third quarter of 2002, as part of the Company’s 2001 restructuring program.

      The 2002 operating loss of $4.0 million compares to an operating loss of $7.5 million in 2001. The loss in 2002 was lower than in previous years due to exiting the operations partway through the year.

     Color Technologies

      As previously discussed in Item 1 “Business,” on December 31, 2001, the Company consummated the sale of its worldwide color proofing and color software business to KPG. In 2001, Color Technologies net revenues were $160.8 million and operating income was $7.9 million.

Financial Position

      As of December 31, 2003, the Company’s cash and equivalents balance was $411.4 million, a decrease of $63.3 million compared to December 31, 2002, as a result of planned investments in new growth initiatives. These initiatives included $45 million for construction of a new tape manufacturing facility in Weatherford, Oklahoma, $20 million for a brand distribution agreement with Exabyte, and $15 million for the planned purchase of certain assets from EMTEC.

      The accounts receivable days sales outstanding was 46 days as of December 31, 2003, compared to a record low 43 days as of December 31, 2002. This increase was driven primarily by the establishment of and growth in GDM. The Company had 71 days of inventory supply on hand as of December 31, 2003 compared to 70 days as of December 31, 2002. Other current assets decreased by approximately $20 million as a result of the settlement of outstanding issues with Kodak (see Note 3 to the Consolidated Financial Statements). Other assets were $107.9 million as of December 31, 2003 compared to $96.2 million as of December 31, 2002. This change was driven by an increase in intangible assets related to Exabyte of $18.5 million as well as long term cash investments of $13.3 million, offset by a decrease in deferred taxes of $14.7 million. Other current liabilities decreased to $126.7 million during the year, principally related to the Kodak settlement. Other liabilities decreased by $16.1 million during 2003, primarily due to increased pension funding (see Liquidity and Capital Resources discussion in this section).

      In 2003, the Company’s receivables allowance balance declined $1.7 million from 2002 even though total accounts receivables increased by $57.0 million, driven primarily by optical growth. As noted in the Company’s Trade Accounts Receivable policy in Note 2 to the Consolidated Financial Statements, the Company takes into account many factors when determining the appropriate allowance balance. The allowance is established primarily to represent estimated

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reductions of receivables for a variety of activities, including deductions arising from terms discounts, product returns, pricing adjustments, as well as the inability of certain customers to meet their obligations. The decrease in the allowance was due to several factors, including cycle time improvements in processing customer returns and allowances, reduction of terms discounts, and an improvement of the overall credit-worthiness of the Company’s customers.

Liquidity and Capital Resources

      Cash provided by operating activities was $81.0 million in 2003. The major driver was net income as adjusted for non-cash items of $132.4 million, offset by other working capital usages of $37.0 million. Net income as adjusted for significant non-cash items includes net income of $82.0 million adjusted for depreciation and amortization of $39.0 million and deferred income taxes of $19.6 million, less restructuring, litigation, and other special items of $8.2 million (see Note 5, 15 and 16 to the Consolidated Financial Statements). The working capital changes in 2003 were driven by payments for broad-based employee incentive compensation plans related to full year 2002 performance of $13.5 million, a $13.2 million increase in inventory primarily related to growth in the Company’s optical business, the Company’s settlement with Kodak resulting in a net $7.2 million usage of cash (see Note 3 to the Consolidated Financial Statements) and payments related to restructuring programs of $5.3 million. The establishment and growth in the Company’s joint venture with Moser Baer India, GDM, whose financial statements are consolidated into the Company’s financial statements, increased total accounts receivable by $22.1 million and accounts payable by $30.7 million. GDM is the Company’s 51 percent owned joint venture with MBI created to sell optical products. The overall increase in accounts receivable of $47.7 million (including GDM) was nearly offset by an increase in accounts payable of $42.9 million (including GDM), both primarily driven by optical growth.

      Cash provided by operating activities was $120.8 million in 2002. The major driver was net income as adjusted for non-cash items of $141.6 million, offset by other working capital usages of $26.0 million. Net income as adjusted for significant non-cash items includes net income of $75.1 million adjusted for depreciation and amortization of $38.7 million and deferred income taxes of $38.2 million, less restructuring, litigation, and other special items of $10.4 million (see Notes 5 and 16 to the Consolidated Financial Statements). The cash used in 2002 related to other working capital changes was due largely to payments for restructuring programs of $23.3 million relating to both continuing and discontinued operations, cash paid for income taxes of $11.7 million, deferred revenue decrease of $11.7 million (due primarily to the sale or closing of all DSS businesses) and payments related to employee incentive compensation of $13.8 million, offset by a cash inflow of $20.5 million due to a decrease in accounts receivable and a cash inflow of $12.0 million due to an increase in accounts payable.

      Cash provided by operating activities was $128.2 million in 2001. The major drivers were net income as adjusted for non-cash items of $75.5 million and other working capital decreases of $38.1 million. Net income as adjusted for significant non-cash items includes net loss of $1.7 million adjusted for depreciation and amortization of $54.1 million and restructuring and other special items of $56.5 million (see Note 5 to the Consolidated Financial Statements), offset by deferred income taxes of $33.4 million. The amortization amount in 2001 includes $5.7 million of accelerated amortization (see Note 15 to the Consolidated Financial Statements). Cash provided in 2001 related to total working capital decreases was $38.1 million. Cash flows were positively impacted by changes in other current assets and other current liabilities, offset by a cash outflow due to an increase in inventory.

      Cash used in investing activities was $129.6 million in 2003, as compared to $43.5 million in 2002 and $0.2 million in 2001. Capital spending totaled $75.1 million, $42.6 million, and $47.0 million in 2003, 2002, and 2001, respectively (capital expenditures by business segment are shown in Note 11 to the Consolidated Financial Statements). The large increase in capital spending in 2003 compared to prior years was related to the installation of a new tape coating line at the Company’s Weatherford, Oklahoma, plant site. The new tape coating line is expected to be in operation by the end of the second quarter of 2004. Investing activities in 2003 also included usages of $20.0 million associated with the Exabyte brand distribution agreement, $13.3 million of cash invested in high quality interest bearing securities with maturities greater than one year (and classified as non-current assets), and $15.0 million associated with the purchase of certain assets of EMTEC Magnetics GmbH. Investing activities in 2002 also included the proceeds from the sale of the North America DSS business of $5.0 million while investing activities in 2001 included the proceeds from the sale of the color proofing and color software business of $50.0 million.

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      Cash used in financing activities was $16.3 million in 2003, as compared to $1.2 million in 2002 and $2.7 million in 2001. Cash usages in 2003 were driven by share repurchases of $20.0 million, dividend payments of $8.5 million and repayment of short-term debt of $4.5 million, offset by cash inflows of $12.2 million related to the exercise of stock options. Cash usages in 2002 were driven by share repurchases of $9.9 million and repayment of short-term debt of $8.5 million, offset by cash inflows of $13.4 million related to the exercise of stock options. Cash usages in 2001 were primarily driven by repayment of short-term debt of $9.9 million, offset by cash inflows of $2.3 million related to the exercise of stock options.

      The Company had a Loan and Security Agreement (the Loan Agreement) with a group of banks that provided borrowing availability not to exceed $100 million. The Loan Agreement was terminated on December 16, 2003, in connection with entering into a new Credit Agreement described below. No borrowings were outstanding under the Loan Agreement as of December 31, 2002.

      In December 2003, the Company entered into a new Credit Agreement with a group of banks that expires December 15, 2006. The Credit Agreement provides for revolving credit, including letters of credit, with borrowing availability of $100 million. The Credit Agreement provides for, at the option of the Company, borrowings at either a floating interest rate based on a defined prime rate or a fixed rate related to the Eurodollar rate, plus a margin based on the Company’s consolidated leverage ratio. The margins over a defined prime rate and Eurodollar rate range from zero to 0.4 percent and 1.1 to 1.6 percent, respectively. Letter of credit fees are equal to the Eurodollar margins. A facility fee ranging from 0.2 percent to 0.4 percent per annum based on the Company’s consolidated leverage ratio is payable on the line. A utilization fee ranging from zero to 0.25 percent per annum based on the Company’s consolidated leverage ratio is payable on the line. In conjunction with the Credit Agreement, the Company has pledged 65 percent of the stock of certain of the Company’s foreign subsidiaries. Covenants include maintenance of a minimum consolidated tangible net worth, a required EBITDA, and a maximum leverage ratio. The Company does not expect these covenants to restrict materially its ability to borrow funds in the future. No borrowings were outstanding under the Credit Agreement as of December 31, 2003 and the Company was in compliance with all covenants under the Credit Agreement.

      In addition, certain international subsidiaries have arranged borrowings locally outside of the Credit Agreement discussed above. As of December 31, 2003, there were no borrowings outstanding under such arrangements. As of December 31, 2003, the Company had no debt, while Company’s ratio of debt to total capital was 0.6 percent as of December 31, 2002.

      In 1999, the Company’s Board of Directors authorized the repurchase of up to 10 million shares of the Company’s common stock. During 2003 and 2002, the Company repurchased approximately 0.6 million shares and 0.4 million shares, respectively. A minimal number of shares was repurchased during 2001. As of December 31, 2003, the Company had repurchased 7.8 million shares under this authorization and held, in total, 7.5 million shares of treasury stock acquired at an average price of $22.62 per share.

      The Company contributed $28.3 million to its defined benefit pension plans during 2003. Based on this higher level of funding as well as improved overall market performance on plan assets, the Company ended 2003 with an aggregate unfunded status of these plans of $25.5 million, down from the $47.6 million aggregate unfunded status at the end of 2002. Based on the relationship of the unfunded accumulated benefit obligations to amounts accrued in the financial statements, the applicable accounting rules require the Company to record a minimum pension liability adjustment. As a result of plan asset returns and contributions, the Company decreased its minimum pension liability adjustment to $26.0 million at the end of 2003. The decrease in minimum pension liability is reflected as an increase in shareholder’s equity of $3.7 million, net of tax. The Company expects pension contributions to be in the range of $15 million to $20 million in 2004, depending on asset performance and interest rates. The Company estimates that it has no minimum pension contribution required by statute for 2004.

      The Company’s liquidity needs in 2004 include: capital expenditures targeted to be approximately $45 million; tax payments of approximately $24 million; pension funding of approximately $15 to $20 million; lease payments of approximately $11 million (see Note 9 to the Consolidated Financial Statements); cash payments related to restructuring of approximately $2 million; and any amounts associated with the repurchase of common stock under the authorization discussed above or any dividends that may be paid upon approval of the Board of Directors. The Company expects that

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cash and equivalents, together with cash flow from operations and availability of borrowings under its current and future sources of financing, will provide liquidity sufficient to meet these needs and operate the Company.

Off-Balance Sheet Arrangements

      Other than the lease commitments discussed in Note 9 to the Consolidated Financial Statements, the Company is not using off-balance sheet arrangements, including special purpose entities, nor does it have any contractual obligations or commercial commitments with terms greater than one year, that would significantly impact its liquidity.

Summary of Contractual Obligations

	Payments Due by Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(In millions)
Long-term debt	$	—	$	—	$	—	$	—	$	—
Capital lease obligations		—		—		—		—		—
Operating leases		34.3		10.9		19.4		4.0		—
Purchase obligations		36.0		31.2		4.8		—		—
Other long-term liabilities*		55.3		—		2.7		2.2		4.6

*  Aside from the sale-leaseback payments recorded in long-term liabilities, timing of payments for the vast majority of the remaining long-term liabilities, primarily consisting of pension and other post retirement benefit liabilities, cannot be reasonably determined.

Critical Accounting Policies and Estimates

      The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates to ensure they are consistent with historical experience and the various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and could materially impact the Company’s results of operations.

      The Company believes the following critical accounting policies are affected by significant judgements and estimates used in the preparation of its consolidated financial statements:

      Income Tax Accruals and Valuation Allowances — Significant management judgement is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. The Company operates in multiple tax jurisdictions both in the U.S. and outside the U.S. Accordingly, the Company must determine the appropriate allocation of income to each of these jurisdictions. The determination requires the Company to make several estimates and assumptions. Tax audits associated with the allocation of this income, and other complex issues, may require an extended period of time to resolve and could result in adjustments to the Company’s income tax balances that are material to its consolidated financial position and results of operations.

      In conjunction with its financial reporting, the Company assesses both tax reserves and recoverability of its deferred tax assets, and provides reserves for potential tax audit adjustments and valuation allowances to offset deferred tax assets, as needed. Due to uncertainties related to the Company’s ability to utilize some portion of the deferred tax assets, a valuation allowance of $18.2 million has been recorded as of December 31, 2003, resulting in a net deferred tax asset of $74.6 million. The future recoverability of the Company’s deferred tax assets is primarily dependent upon the sufficient generation of future taxable income. The Company believes that it will generate future taxable income to recover the recorded net deferred tax assets. In the event that actual results differ from these estimates, the Company may need to adjust, upwards or downwards, the valuation allowance.

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      Litigation — Management’s current estimated range of liability related to pending litigation is based on claims for which the Company can estimate the amount or range of loss. Based upon information presently available, management believes that accruals for these claims are adequate. Due to uncertainties related to both the amount and range of loss on the remaining pending litigation, the Company is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. While these matters could materially affect operating results in future periods depending on the final resolution, it is management’s opinion that after final disposition, any monetary liability to the Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2003 would not be material to the Company’s financial position. As additional information becomes available, potential liability related to pending litigation will be assessed and estimates will be revised as necessary. The Company’s most significant litigation matter relates to Jazz Photo, which is described in Item 3 to this Form 10-K and Note 16 to the Consolidated Financial Statements.

      Excess Inventory and Obsolescence Accruals — The Company writes down its inventory for estimated excess and obsolescence to the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, adjustments to these reserves may be required.

      Rebates — The Company maintains an accrual for customer rebates which totaled $37.6 million as of December 31, 2003. This accrual requires a program by program estimation of outcomes based on a variety of factors including customer unit sell-through volumes and end user redemption rates. In the event that actual volumes and redemption rates differ from the estimates used in the accrual calculation, adjustments to the accrual, upward or downward, may be necessary.

      Other Accrued Liabilities — The Company also maintains other accrued liabilities, including uninsured claims and pensions. These accruals are based on a variety of factors including past experience and various actuarial assumptions and, in many cases, require estimates of events not yet reported to the Company. If future experience differs from these estimates, operating results in future periods would be impacted.

Recently Issued Accounting Standards

      In 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits (revised 2003). This revised statement provides required disclosures for pensions and other postretirement benefit plans. The Company adopted the disclosure requirements of this statement as of December 31, 2003.

      In January 2003, the FASB issued Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities. FIN 46 addresses the requirements for business enterprises to consolidate related entities, for which they do not have controlling interests through voting or other rights, if they are determined to be the primary beneficiary as a result of variable economic interests. FIN 46 provides guidance for determining the primary beneficiary for entities with multiple economic interests. FIN 46 is effective in 2003 for interests obtained after January 31, 2003. Beginning in the first quarter of fiscal year 2004, FIN 46, as amended, is applied to interests in variable interest entities acquired prior to February 1, 2003. The Company believes the adoption of FIN 46 will not have a material impact on the Company’s consolidated results of operations, financial position, or cash flows.

Forward-Looking Statements

      The Company and its representatives may from time to time make written or oral forward-looking statements with respect to future goals of the Company, including statements contained in this report, the Company’s other filings with the Securities and Exchange Commission and in the Company’s reports to shareholders. The Company wishes to caution investors not to place undue reliance on any such forward looking statements, which speak only as of the date made.

      Based on estimates from industry analysts, the removable media industry is expected to grow between five and ten percent over the next several years. However, in any given period the rate of growth may fall outside that range

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based on industry or economic factors. The following statements are based on the Company’s current outlook for fiscal year 2004, subject to the risks and uncertainties described below in “Risk Factors”:

•  Total company revenue growth for the full year 2004 is targeted to range between ten and 15 percent or between a range of $1.28 billion and $1.34 billion.

•  Full year 2004 operating income is targeted to range between $120 million and $123 million. Due to very strong operating income recorded in the first quarter of 2003, the Company anticipates that year-over-year operating income growth will be strongest in the second half of the year.

•  Tax rate is targeted to be in the range of 35 to 36 percent. The Company would see a lower tax rate in 2004 if certain tax benefits are recognized, but is unable to project with certainty those benefits at this time.

•  Capital spending is targeted to be approximately $45 million.

•  Depreciation and amortization is targeted to be in the range of $45 to $50 million.

      Certain information contained in this report which does not relate to historical financial information, including the 2004 targeted projections, may be deemed to constitute forward-looking statements. The words or phrases “is targeting,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe” or similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from historical results, and those presently anticipated or projected.

Risk Factors

      Due to significant risks and uncertainties which exist even in the most stable economic environment, the Company cannot predict, with certainty, the operating results for future periods. Among the factors that could cause the Company’s actual results in the future to differ materially from any opinions or statements expressed with respect to future periods are the following:

      Competitive Industry Conditions — The Company operates in a highly competitive environment. The Company’s competitors are both larger and smaller than the Company in terms of resources and market share. The marketplaces in which the Company operates are generally characterized by rapid technological change, frequent new product introductions, a variety of distribution channels, relatively large and aggressive marketing efforts, and aggressive pricing practices which result in consistent price erosion.

      In these highly competitive markets, the Company’s success will depend to a significant extent on its ability to continue to develop and introduce differentiated and innovative products, services and customer solutions cost effectively and on a timely basis. The success of the Company’s offerings is dependent on several factors including its ability to develop relationships with distributors and OEMs, competitive technology capabilities, differentiation from competitive offerings, the timing of new product introductions, effectiveness of marketing programs, and low manufacturing and supply chain costs. Although the Company believes that it can take the necessary steps to meet the competitive challenges of these marketplaces, no assurance can be given with regard to the Company’s ability to take these steps, the actions of competitors, some of which will have greater resources than the Company, or the pace of technological changes.

      New Products and Services — The Company’s competitive position and operating results are dependent upon its ability to successfully develop, manufacture, and market innovative new products and services. There can be no assurance that the Company will be able to continue to introduce new products or maintain competitive technology competencies, that the markets will be receptive to its new products, that the Company’s marketing programs will be successful, or that the Company’s competitors will not introduce more advanced products ahead of the Company. The Company is also dependent in some cases upon various third parties, such as certain drive manufacturers, for new product introductions, the timing of which is out of the Company’s control. In addition, there can be no assurance that the Company will maintain existing or create new OEM relationships, the lack of which could cause a material adverse impact on its business and financial results. Also, while the Company currently has access to significant proprietary technologies through internal development and licensing arrangements with third parties, there can be no assurance that it will continue to have access to new competitive technologies that may be required to introduce new products. In

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addition, new technological innovations generally require a substantial investment before any assurance is available as to their commercial viability. Therefore, the Company must make strategic decisions from time-to-time as to the technologies in which the Company invests. If the Company is not successful in executing any of the above described risks, the Company may incur a material adverse impact on its business and financial results.

      Manufacturing and Product Quality — The Company’s success depends upon the ability to manufacture and deliver products to our customers at acceptable quality, volume and cost levels. The manufacture of the Company’s products involves complex and precise processes requiring production in highly controlled and clean environments. If not managed effectively, changes in the Company’s manufacturing processes could significantly hurt the Company’s ability to meet our customers’ product volume and quality needs at acceptable costs. Even within a cleanroom environment, minor equipment malfunctions in any one of the many manufacturing process steps could halt production and lead to additional costs. In some cases, existing manufacturing techniques may not achieve the Company’s volume and cost targets. In these cases, new manufacturing processes and techniques will need to be developed to achieve the targets and lower manufacturing costs.

      Availability and Pricing of Purchased Products, Raw Materials and Energy — The Company makes significant purchases of finished products, raw materials, and energy from many domestic and foreign sources. While the Company is presently able to obtain sufficient purchased products, raw materials and energy to meet its needs, no assurances can be given that such availability at acceptable pricing levels will continue. Some critical raw materials have a limited number of suppliers, as discussed in Raw Material and Other Purchased Products in Item 1. If the Company is unable to continue to obtain critical purchased products, raw materials, energy, the Company may incur a material adverse impact on its business and financial results.

      Moser Baer Relationship — In 2003, the Company entered into a series of agreements with Moser Baer India Ltd. (MBI) that established MBI as a significant, non-exclusive source for Imation’s optical media products and created a joint venture marketing company for optical media products, Global Data Media (GDM). Imation holds a 51 percent interest in GDM and MBI holds a 49 percent interest. As the controlling shareholder, Imation consolidates the results of the joint venture in its financial statements. The Company’s current outlook is dependant, among other things, upon its ability to achieve the expected benefits from the MBI relationships, including the GDM joint venture.

      International Operations and Foreign Currency — The Company sells products in more than 100 countries outside the United States. International operations, which comprised approximately 54 percent of the Company’s revenues in 2003, may be subject to various risks which are not present in domestic operations, including political instability, the possibility of expropriation, restrictions on royalties, dividends and currency remittances, requirements for governmental approvals for new ventures, and local participation in operations such as local equity ownership and workers’ councils. In addition, the Company’s business and financial results are affected by fluctuations in world financial markets, including foreign currency exchange rates. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk for additional information on foreign currency.

      Intellectual Property Rights — The Company’s success depends in part on its ability to obtain and protect its intellectual property rights and to defend itself against intellectual property infringement claims of others. If the Company is not successful in defending itself against claims that may arise from time-to-time alleging infringement of the intellectual property rights of others, the Company could incur substantial costs in implementing remediation actions, such as redesigning its products or processes or acquiring license rights. Such costs or the disruption to the Company’s operations occasioned by the need to take such actions could have a material adverse effect on the Company. In addition, the Company utilizes valuable non-patented technical know-how and trade secrets in its product development and manufacturing operations. Although the Company utilizes confidentiality agreements and other measures to protect such proprietary information, there can be no assurance that these agreements will not be breached or that competitors of the Company will not acquire the information as a result of such breaches or through independent development. The Company has pursued a policy of enforcing its intellectual property rights against others who may infringe those rights. In connection with such enforcement actions, the Company may incur significant costs for which the Company may or may not be reimbursed by the alleged infringer.

      Retention of Key Talent and Employees — The Company operates in a highly competitive market for key talent and employees. While the Company is presently able to retain key talent and employees, no assurances can be given that

27

this situation will continue. If the Company is unable to retain its key talent and employees, the Company may incur a material adverse impact on its business and financial results.

      Fluctuations in the Company’s Stock Price — The Company’s stock price may be subject to significant volatility. If revenue or earnings in any quarter fail to meet the investment community’s expectations, there could be an immediate impact on the Company’s stock price. The stock price may also be affected by broader market trends and world events unrelated to the Company’s performance.

      Litigation — The Company is the subject of various pending or threatened legal actions in the ordinary course of its business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Consequently, as of December 31, 2003, the Company is unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that may be incurred by the Company with respect to these matters.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      The Company is exposed to various market risks, including volatility in foreign currency exchange rates primarily related to the Euro and Japanese Yen, interest rates, and credit risk. Foreign currency exposures primarily relate to the sale of products to foreign customers, purchases from foreign suppliers, and acquisition of raw materials from both domestic and foreign suppliers.

      The Company sells products in over 100 countries outside the U.S. International operations, which comprised approximately 54 percent of the Company’s revenues in 2003, may be subject to various risks which are not present in domestic operations, including political instability, the possibility of expropriation, restrictions on royalties, dividends and currency remittances, requirements for governmental approvals for new ventures and local participation in operations such as local equity ownership and workers’ councils.

      The Company’s foreign currency hedging policy attempts to manage some of the foreign currency risks over near term periods; however, these risk management activities cannot assure that these programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in foreign exchange rates or that medium and longer term effects of exchange rates will not be significant.

      The Company may, from time to time, utilize derivative financial instruments, including forward exchange contracts, options and swap agreements to manage certain of these exposures when it is considered practical to do so in accordance with established policies and procedures. Factors that could impact the effectiveness of the Company’s hedging include accuracy of revenue forecasts, volatility of the currency markets, and availability of hedging instruments. Although the Company attempts to utilize transaction hedging to manage the impact of changes in currency exchange rates, when the U.S. dollar sustains a strengthening position against currencies in which the Company sells products or a weakening exchange rate against currencies in which the Company incurs costs, the Company’s revenues or costs would be adversely impacted. The Company does not hold or issue derivative financial instruments for trading or speculative purposes and is not a party to leveraged derivative transactions.

      As of December 31, 2003, the Company had $182.6 million notional amount of foreign currency forward and option contracts of which $51.4 million hedged recorded balance sheet exposures. This compares to $190.1 million notional amount of foreign currency forward and option contracts as of December 31, 2002, of which $79.2 million hedged recorded balance sheet exposures. A hypothetical adverse change of 10 percent in year-end foreign currency exchange rates would reduce the fair value of foreign currency contracts outstanding as of December 31, 2003 by $21.5 million.

      The Company is also exposed to interest rate risk as changes in interest rates affect interest income earned on its cash investments. A hypothetical 10 percent adverse movement in interest rates applied to cash investments would not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

      The Company is exposed to credit risk associated with cash investments and foreign currency derivatives. The Company does not believe that its cash investments and foreign currency derivatives present significant credit risks because the counterparties to the instruments consist of major financial institutions and the Company monitors and manages the notional amount of contracts entered into with any one counterparty in accordance with its internal policies.

28

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Imation Corp.:

      In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders’ equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of Imation Corp. and its subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

January 27, 2004

29

IMATION CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

			Years Ended December 31,
			2003			2002			2001
			(In millions, except per share amounts)
Net revenues			$	1,163.5		$	1,066.7		$	1,119.3
Cost of goods sold				828.8			738.9			783.9
Gross profit				334.7			327.8			335.4
Operating expenses:
	Selling, general and administrative			166.3			176.9			232.0
	Research and development			57.0			50.6			62.1
	Litigation			(1.0	)		(6.4	)		—
	Restructuring and other			(0.7	)		(4.0	)		48.0
	Gain on sale of color proofing and color software business			(11.1	)		—			(1.9	)
	Loan impairment			4.6			—			—
		Total operating expenses		215.1			217.1			340.2
Operating income (loss)				119.6			110.7			(4.8	)
Interest expense				1.3			1.1			1.4
Interest income				(5.9	)		(8.4	)		(12.4	)
Other expense, net				2.1			5.4			11.6
Income (loss) from continuing operations before income taxes				122.1			112.6			(5.4	)
Income tax provision (benefit)				40.3			39.4			(4.6	)
Income (loss) from continuing operations				81.8			73.2			(0.8	)
Discontinued operations:
	Income (loss) from operations of discontinued businesses, net of income taxes			—			3.0			(0.9	)
	Gain (loss) on disposal of discontinued businesses, net of income taxes			0.2			(1.1	)		—
Income (loss) from discontinued operations				0.2			1.9			(0.9	)
Net income (loss)			$	82.0		$	75.1		$	(1.7	)
Earnings (loss) per common share – basic:
	Continuing operations		$	2.30		$	2.09		$	(0.02	)
	Discontinued operations			0.01			0.06			(0.03	)
Net income (loss)			$	2.31		$	2.15		$	(0.05	)
Earnings (loss) per common share – diluted:
	Continuing operations		$	2.25		$	2.05		$	(0.02	)
	Discontinued operations			0.01			0.06			(0.03	)
Net income (loss)			$	2.26		$	2.11		$	(0.05	)
Weighted average basic shares outstanding				35.5			35.0			34.8
Weighted average diluted shares outstanding				36.3			35.6			34.8

The accompanying notes to consolidated financial statements are an integral part of these statements.

30

IMATION CORP.

CONSOLIDATED BALANCE SHEETS

			As of December 31,
			2003			2002
			(In millions, except
			share and per
			share amounts)
ASSETS
Current assets
	Cash and equivalents		$	411.4		$	474.7
	Accounts receivable, net			196.8			138.1
	Inventories			159.4			139.0
	Other current assets			70.8			90.4
		Total current assets		838.4			842.2
Property, plant and equipment, net				226.5			181.5
Other assets				107.9			96.2
		Total assets	$	1,172.8		$	1,119.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Accounts payable		$	148.3		$	96.2
	Accrued payroll			22.2			28.0
	Short-term debt			—			4.5
	Other current liabilities			126.7			181.3
		Total current liabilities		297.2			310.0
Other liabilities				55.3			71.4
Commitments and contingencies
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			0.4			0.4
	Additional paid-in capital			1,037.3			1,033.3
	Retained earnings (accumulated deficit)			49.4			(19.3	)
	Accumulated other comprehensive loss			(97.6	)		(106.9	)
	Unearned ESOP shares and other compensation			—			(2.8	)
	Treasury stock, at cost, 7.5 million and 7.4 million shares as of December 31, 2003 and 2002, respectively			(169.2	)		(166.2	)
		Total shareholders’ equity		820.3			738.5
		Total liabilities and shareholders’ equity	$	1,172.8		$	1,119.9

The accompanying notes to consolidated financial statements are an integral part of these statements.

31

IMATION CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

								Retained			Accumulated			Unearned
					Additional			Earnings			Other			ESOP Shares						Total
			Common		Paid-In			(Accumulated			Comprehensive			and Other			Treasury			Shareholders’
			Stock		Capital			Deficit)			Loss			Compensation			Stock			Equity
			(In millions, except share and per share amounts)
Balance as of December 31, 2000			$	0.4	$	1,030.6		$	(90.8	)	$	(91.1	)	$	(13.1	)	$	(173.5	)	$	662.5
	Amortization of unearned ESOP shares					(0.2	)								5.9						5.7
	Purchase of treasury stock (44,613 shares)																	(1.0	)		(1.0	)
	Exercise of stock options (135,846 shares)								(0.7	)								3.0			2.3
	Other unearned compensation														0.6						0.6
	Stock compensation (31,152 shares)					(0.8	)		(0.2	)								0.8			(0.2	)
	Tax benefit from shareholder transactions					0.7															0.7
	Comprehensive loss:
		Net loss							(1.7	)											(1.7	)
		Net change in cumulative translation adjustment										(9.1	)								(9.1	)
		Minimum pension liability adjustments (net of income tax benefit of $3.7)										(6.3	)								(6.3	)
		Reclassification adjustments for loss on available-for-sale securities included in net loss (net of income tax provision of $0.3)										0.5									0.5
		Cash flow hedging (net of income tax provision of $0.7)										1.7									1.7
		Comprehensive loss																			(14.9	)
Balance as of December 31, 2001				0.4		1,030.3			(93.4	)		(104.3	)		(6.6	)		(170.7	)		655.7
	Amortization of unearned ESOP shares					0.9									3.8						4.7
	Purchase of treasury stock (408,100 shares)																	(9.9	)		(9.9	)
	Exercise of stock options (592,401 shares)								(1.0	)								14.4			13.4
	Tax benefit from shareholder transactions					2.1															2.1
	Comprehensive income:
		Net income							75.1												75.1
		Net change in cumulative translation adjustment										11.5									11.5
		Minimum pension liability adjustments (net of income tax benefit of $7.0)										(13.0	)								(13.0	)
	Cash flow hedging (net of income tax benefit of $0.6)											(1.1	)								(1.1	)
	Comprehensive income																				72.5
Balance as of December 31, 2002				0.4		1,033.3			(19.3	)		(106.9	)		(2.8	)		(166.2	)		738.5
	Amortization of unearned ESOP shares					1.5									2.8						4.3
	Purchase of treasury stock (585,000 shares)																	(20.0	)		(20.0	)
	Exercise of stock options (551,435 shares)								(4.8	)								17.0			12.2
	Tax benefit from shareholder transactions					2.5															2.5
	Dividend payments ($0.24 per share)								(8.5	)											(8.5	)
	Comprehensive income:
		Net income							82.0												82.0
		Net change in cumulative translation adjustment										10.7									10.7
		Minimum pension liability adjustments (net of income tax provision of $1.9)										3.7									3.7
		Cash flow hedging (net of income tax benefit of $1.8)										(5.1	)								(5.1	)
		Comprehensive income																			91.3
Balance as of December 31, 2003			$	0.4	$	1,037.3		$	49.4		$	(97.6	)	$	—		$	(169.2	)	$	820.3

The accompanying notes to consolidated financial statements are an integral part of these statements.

32

IMATION CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Years Ended December 31,
				2003			2002			2001
				(In millions)
Cash Flows from Operating Activities
	Net income (loss)			$	82.0		$	75.1		$	(1.7	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation			33.3			33.2			42.8
		Amortization			5.7			5.5			11.3
		Deferred income taxes			19.6			38.2			(33.4	)
		Restructuring, litigation, and other special items			(8.2	)		(10.4	)		56.5
		Other			(14.4	)		5.2			14.6
		Other working capital changes:
		Accounts receivable			(47.7	)		20.5			(4.2	)
		Inventories			(13.2	)		(7.5	)		(10.5	)
		Other current assets			37.5			(4.1	)		16.5
		Accounts payable			42.9			12.0			6.7
		Accrued payroll and other current liabilities			(56.5	)		(46.9	)		29.6
		Total other working capital changes			(37.0	)		(26.0	)		38.1
			Net cash provided by operating activities		81.0			120.8			128.2
Cash Flows from Investing Activities
	Capital expenditures				(75.1	)		(42.6	)		(47.0	)
	Purchase of intangible assets				(20.5	)		(4.0	)		—
	Purchase of investments				(15.1	)		—			—
	Prepayment and restricted cash deposit related to planned asset purchase				(15.0	)		—			—
	Capitalized software				—			—			(4.3	)
	Proceeds from sale of businesses				—			5.0			50.0
	Other investing activities				(3.9	)		(1.9	)		1.1
			Net cash used in investing activities		(129.6	)		(43.5	)		(0.2	)
Cash Flows from Financing Activities
	Net change in short-term debt				(4.5	)		(8.5	)		(9.9	)
	Purchase of treasury stock				(20.0	)		(9.9	)		(1.0	)
	Exercise of stock options				12.2			13.4			2.3
	Dividend payments				(8.5	)		—			—
	Net proceeds from sale-leaseback				1.7			—			—
	Decrease in unearned ESOP shares				2.8			3.8			5.9
			Net cash used in financing activities		(16.3	)		(1.2	)		(2.7	)
Effect of exchange rate changes on cash and equivalents					1.6			8.8			(5.2	)
Change in cash and equivalents					(63.3	)		84.9			120.1
Cash and equivalents — beginning of year					474.7			389.8			269.7
Cash and equivalents — end of year				$	411.4		$	474.7		$	389.8
Non-cash investing activity:
Capital expenditures financed through accounts payable				$	5.0		$	—		$	—

The accompanying notes to consolidated financial statements are an integral part of these statements.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Background and Basis of Presentation

Background

      Imation Corp. (Imation or the Company), a Delaware corporation, was formed in 1996 as a result of the spin-off of substantially all of the businesses which comprised the data storage and imaging systems groups of 3M Company (3M). The Company develops, manufactures, sources and markets magnetic and optical removable data storage products to information technology systems users. Through divestitures over the past five years, the Company has exited substantially all of the non-data storage businesses from the spin-off (see Note 3) such that the data storage business constitutes approximately 95 percent of the Company’s net revenues for the year ended December 31, 2003.

      Until the sale of the color proofing and color software business effective December 31, 2001 (see Note 3), the Company was an active participant in the graphic arts industry as a manufacturer and marketer of products and services for the capture, enhancement, management, and transmission of color images. The Company also sold its North America Digital Solutions and Services (DSS) business on August 30, 2002 and completed the exit of this business outside of North America by the third quarter of 2002 (see Note 3). This business provided call center, help desk support, spare parts logistics, and field service to end-user customers through the Company’s relationships with Original Equipment Manufacturers (OEMs) of wide-format color and imaging equipment; provided repair service to large OEMs of wide-format color and imaging equipment; and was a systems integrator for customers with wide-format engineering document imaging systems migrating from analog to digital formats.

Basis of Presentation

      On August 30, 2002, the Company closed on the sale of its North America DSS business. These operations are presented in the Company’s Consolidated Statements of Operations as discontinued operations for all periods presented. Also in 2002, the Company completed its process to close or sell all of its DSS businesses outside of North America. The results of operations for the DSS businesses outside of North America are included in continuing operations within the DSS business segment for all periods presented.

      On December 31, 2001, the Company closed on the sale of its worldwide color proofing and color software business. The results of operations for this business are included in continuing operations within the Color Technologies business segment for all periods presented. The balance sheet as of December 31, 2001 excludes all assets and liabilities which were included in the sale.

      Unless otherwise noted, disclosures of revenues and expenses in the Notes to Consolidated Financial Statements refer to continuing operations only.

Note 2 — Summary of Significant Accounting Policies

      Consolidation. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant inter-company transactions have been eliminated. The Company has a 51 percent ownership interest in its Global Data Media subsidiary that was formed in 2003, as well as a 60 percent ownership interest in its subsidiary in Japan. The minority interest in the income of these subsidiaries is not material for the periods presented.

      Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

      Foreign Currency. Local currencies are generally considered the functional currencies outside the U.S., except for subsidiaries located in highly inflationary economies, where the U.S. dollar is considered the functional currency. Generally, income and expense items are translated at average rates of exchange prevailing during the year. For operations in local currency environments, assets and liabilities are translated at year-end exchange rates with cumulative translation adjustments included as a component of shareholders’ equity. Foreign currency transaction gains

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and losses are included in the results of operations. For operations in which the U.S. dollar is considered the functional currency, certain financial statement amounts are remeasured at historical exchange rates, with all other assets and liabilities translated at year-end exchange rates. These remeasured adjustments are reflected in the results of operations. These net foreign currency exchange impacts included in results of operations were not material in all periods presented.

      Concentrations of Credit Risk. The Company sells a wide range of products and services to a diversified base of customers around the world and performs ongoing credit evaluations of its customers’ financial condition, and therefore believes there is no material concentration of credit risk. The Company had one customer that represented approximately 11 percent of total net revenues in 2002, all of which were included in of the Data Storage and Information Management segment. No single customer represented more than 10 percent of total net revenues in 2003 or 2001.

      Cash Equivalents. Cash equivalents consist of temporary investments purchased with original maturities of three months or less.

      Trade Accounts Receivables. Trade accounts receivables are initially recorded at fair value upon the sale of goods or services to customers. They are stated net of allowances, which primarily represent estimated amounts for expected customer returns, allowances and deductions for a variety of claims such as discounts, quality and pricing, or the inability of certain customers to make the required payments. When determining the allowances, the Company takes several factors into consideration, including prior history of accounts receivable credit activity and write-offs, the overall composition of accounts receivable aging, the types of customers, and its day-to-day knowledge of specific customers. Changes in the allowances are recorded as reductions of net revenues or bad debt expense (included in selling, general and administrative expense), as appropriate, in the Consolidated Statements of Operations.

      Inventories. Inventories are stated at the lower of cost or market, with cost generally determined on a first-in, first-out basis.

      Investments. The Company invests in interest bearing securities with maturities of greater than one year, which are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The fair value of such investments, $13.3 million as of December 31, 2003, is included in other assets on the Consolidated Balance Sheets. The Company also has other investments, which are accounted for on the cost basis.

      Derivative Financial Instruments. The Company follows SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, requires that all derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. Derivatives that are not hedges must be recorded at fair value through operations. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the underlying assets or liabilities through operations or recognized in accumulated other comprehensive income (loss) in shareholders’ equity until the underlying hedged item is recognized in operations. These gains and losses generally are recognized as an adjustment to cost of goods sold for inventory-related hedge transactions, or as adjustments to foreign currency transaction gains/losses included in non-operating expenses for foreign denominated payables- and receivables-related hedge transactions. Cash flows attributable to these financial instruments are included with cash flows of the associated hedged items. The ineffective portion of a derivative’s change in fair value is to be immediately recognized in operations.

      Other Financial Instruments. The Company’s other financial instruments consist principally of cash and equivalents, certain investments, and short-term receivables and payables, for which their current carrying amounts approximate fair market value.

      Property, Plant and Equipment. Property, plant and equipment are recorded at cost. Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the related accounts and resulting gains or losses are reflected in the results of operations.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Plant and equipment are generally depreciated on a straight-line basis over their estimated useful lives. The estimated depreciable lives range from 15 to 40 years for buildings and three to 15 years for machinery and equipment. Leasehold improvements are amortized over the lesser of the remaining life of the lease or the estimated useful life of the improvement.

      Intangible Assets. Intangible assets consist primarily of capitalized software and certain purchased distribution and intellectual property rights. The Company capitalizes certain external and internal costs related to the design and implementation of internally developed software, along with related interest. Intangible assets are amortized over their estimated useful lives, which generally range from three to five years. The carrying amount of intangible assets is periodically reviewed to assess the remaining useful lives and the recoverability based on undiscounted expected future cash flows.

      Long-Lived Assets. The Company periodically reviews its long-lived assets, including property, plant and equipment and intangible assets, in order to assess recoverability based on projected income and related cash flows on an undiscounted basis. Should the sum of the related expected future net cash flows be less than the carrying value, an impairment loss would be recognized. An impairment loss would be measured as the amount by which the carrying value of the asset exceeds the fair value of the asset.

      Recent Accounting Pronouncements. In 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits (revised 2003). This revised statement provides required disclosures for pensions and other postretirement benefit plans. The Company adopted the disclosure requirements of this statement as of December 31, 2003.

      In January 2003, the FASB issued Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities. FIN 46 addresses the requirements for business enterprises to consolidate related entities, for which they do not have controlling interests through voting or other rights, if they are determined to be the primary beneficiary as a result of variable economic interests. FIN 46 provides guidance for determining the primary beneficiary for entities with multiple economic interests. FIN 46 is effective in 2003 for interests obtained after January 31, 2003. Beginning in the first quarter of fiscal year 2004, FIN 46, as amended, is applied to interests in variable interest entities acquired prior to February 1, 2003. The Company believes the adoption of FIN 46 will not have a material impact on the Company’s consolidated results of operations, financial position, or cash flows.

      Revenue Recognition. Revenue from product sales is recognized when the risks and rewards of ownership pass, which is primarily upon delivery of goods to customers. Revenue from services is recognized upon performance. Revenue from service contracts is deferred and recognized over the life of the contracts as service is performed.

      Research and Development Costs. Research and development costs are charged to expense as incurred.

      Advertising Costs. Advertising costs are charged to expense as incurred and totaled approximately $24 million, $25 million, and $28 million in 2003, 2002, and 2001, respectively.

      Income Taxes. The Company accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method prescribed in SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

      Treasury Stock. The Company’s repurchases of shares of common stock are recorded as treasury stock and are presented as a reduction of shareholders’ equity. When treasury shares are reissued, the Company uses a last-in, first-out method and the excess of repurchase cost over reissuance price is treated as an adjustment to retained earnings (accumulated deficit).

      Stock-Based Compensation. The Company accounts for stock-based compensation using the intrinsic value approach under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost for employee stock options is measured as the excess, if any, of the quoted market price of the Company’s common stock at the date of the grant over the amount an employee must pay to acquire the stock.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company has adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense has been recognized for the stock option plans as all options granted in 2003, 2002, and 2001 had no intrinsic value at the time of grant. The table below illustrates the effect on net income (loss) and earnings (loss) per share if the fair value of options granted had been recognized as compensation expense on a straight-line basis over the vesting periods in accordance with the provisions of SFAS No. 123. See Note 14 for additional information regarding Employee Stock Plans.

		Years Ended December 31,
		2003			2002			2001
		(In millions,
		except per share amounts)
Net income (loss), as reported		$	82.0		$	75.1		$	(1.7	)
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects			(5.5	)		(6.2	)		(5.4	)
Pro forma net income (loss)		$	76.5		$	68.9		$	(7.1	)
Earnings (loss) per share:
	Basic — as reported	$	2.31		$	2.15		$	(0.05	)
	Basic — pro forma	$	2.15		$	1.97		$	(0.20	)
	Diluted — as reported	$	2.26		$	2.11		$	(0.05	)
	Diluted — pro forma	$	2.11		$	1.94		$	(0.20	)

      Comprehensive Income. Comprehensive income (loss) for the Company includes net income (loss), the effects of currency translation, unrealized gains and losses on available-for-sale securities, unrealized gains and losses on cash flow hedges, and minimum pension liability adjustments. Comprehensive income (loss) for all periods presented is included in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income.

      Earnings Per Share. Basic earnings per share is calculated using the weighted average number of shares outstanding during the period, adjusted for Employee Stock Ownership Plan (ESOP) shares not allocated to employee accounts. Under the applicable accounting rules, unallocated shares held in the Company’s ESOP trust, which was established in 1996 as a way of funding certain employee retirement savings benefits, are not considered outstanding for purposes of calculating earnings per share. Diluted earnings per share is computed on the basis of the weighted average basic shares outstanding plus the dilutive effect of outstanding stock options using the “treasury stock” method. The following table sets forth the computation of the weighted average basic and diluted shares outstanding:

	Years Ended
	December 31,
	2003			2002			2001
	(In millions)
Weighted average number of shares outstanding during the period		35.6			35.2			35.2
Weighted average number of shares held by the ESOP not yet allocated		(0.1	)		(0.2	)		(0.4	)
Weighted average common shares outstanding		35.5			35.0			34.8
Potential common shares resulting from the assumed exercise of stock options		0.8			0.6			—
Total weighted average common shares and common share equivalents		36.3			35.6			34.8

      Options to purchase 0.1 million shares and 0.5 million shares of the Company’s common stock were outstanding as of December 31, 2003 and December 31, 2002, respectively, that were not considered in the computation of potential common shares because the effect of the options would be antidilutive. For 2001, options to purchase 4.6 million shares of the Company’s common stock were not considered in the calculation of diluted earnings per share because the Company had a net loss and to do so would have been antidilutive.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3 — Divestitures

Divestitures presented as discontinued operations

      North America DSS Business: On August 30, 2002, the Company consummated the sale of its North America DSS business to DecisionOne Corporation (DecisionOne). These operations are presented in the Company’s Consolidated Statements of Operations as discontinued operations. Under the terms of the agreement, DecisionOne paid the Company $5.0 million in cash. This amount is shown as proceeds from sale of businesses in the Consolidated Statement of Cash Flows for the year ended December 31, 2002. In the third quarter of 2002, the Company recognized a pre-tax gain of $2.6 million, or $1.6 million after-tax, on the disposal of the discontinued business. In addition, the terms of the sale include the potential for additional future payments to the Company in 2004, of up to $5.0 million, based upon revenue targets achieved by DecisionOne associated with the DSS business. Any additional proceeds will be recorded by the Company as a component of income from discontinued operations when and if earned.

      Medical Imaging and Photo Color Systems Businesses: In 1998, the Company sold its worldwide Medical Imaging Systems business (the Medical Imaging Sale) to Eastman Kodak Company (Kodak). As noted in the Company’s previously issued financial statements, excluded from the Medical Imaging Sale was the Company’s medical imaging/photo color manufacturing facility in Ferrania, Italy (the Ferrania Facility), at which certain x-ray and wet laser medical imaging products and photographic film were manufactured. In exchange for retaining the Ferrania Facility and pursuant to certain conditions, Kodak agreed to pay the Company up to $25.0 million at such time as it was sold.

      In 1999, the Company sold its worldwide Photo Color Systems business, together with the Ferrania Facility and certain other associated assets and businesses, to Schroder Ventures, through Schroder Ventures’ wholly owned affiliate, Ferrania Lux, S.A.R.L.

      Kodak had challenged the Company’s claim for the full $25.0 million as well as claims for other amounts which the Company believed were due from Kodak in connection with the Medical Imaging Sale. The Company had retained cash, which it collected on behalf of Kodak, in an amount approximately equal to these disputed items.

      During the second quarter of 2003, the Company resolved these disputed items with Kodak on terms more favorable than anticipated, resulting in a pre-tax gain of $1.8 million in discontinued operations, or $1.1 million after-tax. The settlement resulted in a net $7.2 million reduction in the Company’s cash and equivalents balance, reflecting a $17.2 million cash payment to Kodak, $10.0 million of which was offset by previously recorded restricted cash in other current assets. As a result of the settlement, the Company’s other current assets were reduced by $32.0 million and other current liabilities were reduced by $41.0 million. There were no other impacts to the Company’s financial statements resulting from the settlement of the Kodak dispute.

      Other Discontinued Operations Activity: In the fourth quarter of 2003, the Company recorded a gain of $0.4 million, net of income taxes of $0.3 million, resulting from an adjustment of estimated costs associated with discontinued operations described above. In 2002, the Company recorded a charge of $2.7 million, net of income taxes of $1.6 million, resulting from the adjustment of estimated costs associated with discontinued operations described above. In 2003, the Company recorded expenses of $1.3 million, net of taxes of $0.7 million, related to incurred litigation costs associated with the Photo Color Systems business. These expenses were primarily related to the Company’s defense of its ongoing legal dispute with Jazz Photo Corp. (see Note 16).

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The results of discontinued operations for the years ended December 31, 2003, 2002, and 2001 were as follows:

	2003		2002			2001
	(In millions)
Net revenues	$	—	$	34.9		$	57.2
Income (loss) before income taxes		—		4.9			(1.4	)
Income tax provision (benefit)		—		1.9			(0.5	)
Income (loss) from operations of discontinued businesses, net of income taxes		—		3.0			(0.9	)
Gain from disposal of discontinued businesses, net of income taxes		—		1.6			—
Adjustment to discontinued operations amounts previously reported, net of income taxes		0.2		(2.7	)		—
Gain (loss) on disposal of discontinued businesses, net of income taxes		0.2		(1.1	)		—
Total discontinued operations	$	0.2	$	1.9		$	(0.9	)

Divestitures presented as part of continuing operations

      DSS Business Outside of North America: In 2002, the Company completed the process of closing or selling its DSS businesses outside of North America as part of the Company’s 2001 restructuring program. These activities outside of North America did not have a material impact on cash flows or net income after consideration of costs accrued for as part of the Company’s 2001 restructuring program.

      Color Proofing and Color Software Business: On December 31, 2001, the Company consummated the sale of its worldwide color proofing and color software business to Kodak Polychrome Graphics LLC and Kodak Polychrome Graphics Company LTD (collectively referred to as KPG). KPG acquired substantially all the assets and assumed substantially all the liabilities associated with this business. Under the terms of the agreement, KPG paid the Company $50 million in cash on December 31, 2001, which is shown as proceeds from sale of businesses in the Consolidated Statement of Cash Flows for the year ended December 31, 2001. In addition, KPG was required to pay the Company approximately $20 million over a two year period for transition services. The Company recorded a pre-tax gain of $1.9 million ($1.3 million after taxes), net of related costs, in restructuring and other in the Consolidated Statement of Operations for the year ended December 31, 2001. During the fourth quarter of 2003, the Company settled all claims with KPG, which consisted primarily of a dispute over the amount of KPG’s minimum transition services obligation owed to the Company over and above the amount already reimbursed for services provided. As a result of the settlement, the Company recorded a pre-tax gain of $11.1 million in restructuring and other in the Consolidated Statement of Operations for the year ended December 31, 2003.

Divestitures Transition Services

      In connection with the sales of the Medical Imaging Systems, Photo Color Systems, color proofing and color software, and North America DSS businesses, the Company received reimbursement for certain transition services and distribution agreements that the Company had agreed to provide to the respective purchasers of these businesses. Reimbursements for transition services provided by the Company are presented as reductions of general and administrative expenses in the Consolidated Statements of Operations. These transition services substantially ended in January 2003. Reimbursements for these transition services were $0.8 million in 2003, $8.4 million in 2002, and $1.6 million in 2001.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 4 — Supplemental Balance Sheet Information

			2003			2002
			(In millions)
Accounts Receivable
	Accounts receivable		$	211.5		$	154.5
	Less allowances			(14.7	)		(16.4	)
		Accounts receivable, net	$	196.8		$	138.1
Inventories
	Finished goods		$	117.9		$	91.5
	Work in process			15.0			18.9
	Raw materials and supplies			26.5			28.6
		Total inventories	$	159.4		$	139.0
Other Current Assets
	Deferred income taxes		$	24.5		$	27.9
	Restricted cash			8.3			11.1
	Other			38.0			51.4
		Total other current assets	$	70.8		$	90.4
Property, Plant and Equipment
	Land		$	3.0		$	3.0
	Buildings and leasehold improvements			150.0			137.0
	Machinery and equipment			528.9			551.7
	Construction in progress			66.3			25.6
		Total	$	748.2		$	717.3
	Less accumulated depreciation			(521.7	)		(535.8	)
		Property, plant and equipment, net	$	226.5		$	181.5
Other Assets
	Deferred income taxes		$	50.1		$	64.8
	Intangible assets			29.8			13.9
	Other			28.0			17.5
		Total other assets	$	107.9		$	96.2
Other Current Liabilities
	Employee separation costs		$	0.9		$	5.1
	Rebates			37.6			35.8
	Income taxes			27.4			26.5
	Other			60.8			113.9
		Total other current liabilities	$	126.7		$	181.3
Other Liabilities
	Pension		$	25.4		$	46.2
	Other			29.9			25.2
		Total other liabilities	$	55.3		$	71.4
Accumulated Other Comprehensive Loss
	Cumulative translation adjustment		$	(76.6	)	$	(87.3	)
	Minimum pension liability adjustments			(15.6	)		(19.3	)
	Cash flow hedging			(5.4	)		(0.3	)
		Total accumulated other comprehensive loss	$	(97.6	)	$	(106.9	)

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5 — Restructuring and Other

      In the fourth quarter of 2003, the Company recorded a $0.7 million benefit for restructuring, reflecting adjustments to previously recorded restructuring reserves of $0.2 million (related to the 2002 restructuring program) and $0.5 million (related to the 2001 restructuring program). The adjustments were made, in accordance with applicable accounting standards, as part of the Company’s regular practice of reviewing its recorded restructuring reserves quarterly and making adjustments as necessary to reflect management’s best estimate of costs remaining for each restructuring program. The adjustments were made to reflect lower than expected severance costs, primarily in Europe. Each of the restructuring programs is discussed in more detail below.

      In 2002, the Company recorded a $4.0 million net benefit for restructuring. Adjustments to previously recorded restructuring reserves of $4.1 million (related to the 2001 restructuring program) and $1.7 million (related to the 2000 restructuring program) were offset by a new charge of $1.8 million. Part of the adjustment to the 2001 restructuring program was related to the Company’s DSS businesses in Europe and was primarily due to lower than estimated employee separation costs as well as recognition of pension-related benefits that can only be recorded under the applicable accounting standards when the employees are separated.

2002 and 2001 Restructuring Programs

      The $1.8 million charge recorded in 2002 relates to the realignment of the Storage Professional Services organization within the Company’s Data Storage and Information Management (DS&IM) business segment. The charges included asset impairments, exit costs and $0.4 million for employee separation programs related to headcount reduction of approximately 15 employees. During 2003 and 2002, the Company made cash payments of $0.5 million and $0.3 million, respectively, related to this restructuring program and reduced its headcount by a total of 15. This program was completed in the fourth quarter of 2003.

      In 2001, the Company recorded $48.0 million of restructuring and other charges to reduce its administrative structure, improve the profitability of the remaining, non-data storage businesses, and rationalize its data storage manufacturing. The charges include $25.0 million for employee separation programs related to a headcount reduction of approximately 430 employees related to continuing operations, of which approximately 45 percent related to administrative structure, 50 percent related to the non-data storage businesses, and the remainder related to the data storage businesses. The Company also recorded a $0.6 million special charge reflecting inventory write-downs in cost of goods sold. During 2003, 2002 and 2001, the Company made cash payments of $4.8 million, $19.7 million and $1.7 million, respectively, related to these restructuring activities. The Company expects to make payments of $2.1 million related primarily to lease payments of exited facilities and employee severance, with substantially all payments being made in 2004, to complete this restructuring program. Since the inception of this restructuring program through December 31, 2003, the Company has reduced its headcount related to continuing operations by approximately 425, which includes both voluntary and involuntary employee reductions.

      The following tables represent the activity related to the 2002 and 2001 restructuring programs, adjusted to exclude those activities specifically related to discontinued operations:

									Liability as of
	Program		Cumulative			Net			December 31,
	Amounts		Usage			Adjustments			2003
	(In millions)
Severance	$	25.4	$	(19.9	)	$	(4.6	)	$	0.9
Asset impairments		18.3		(18.3	)					—
Other		6.1		(4.7	)		(0.2	)		1.2
Total	$	49.8	$	(42.9	)	$	(4.8	)	$	2.1

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Cumulative		Balance as of
	Program		Reductions and		December 31,
	Amounts		Adjustments		2003
	(Approximate Headcount)
Headcount		445		440		5

2000, 1998 and 1997 Restructuring Programs

      During 2002 and 2001, the Company made cash payments of $2.3 million and $13.0 million, respectively, related to the 2000, 1998, and 1997 restructuring programs, all of which were completed in 2002 or 2001. Through these restructuring programs, the Company reduced its headcount related to continuing operations by approximately 2,500, which included both voluntary and involuntary employee reductions.

Note 6 — Income Taxes

      The components of income (loss) from continuing operations before income taxes are as follows:

	2003		2002		2001
	(In millions)
U.S.	$	91.2	$	74.1	$	(18.7	)
International		30.9		38.5		13.3
Total	$	122.1	$	112.6	$	(5.4	)

      The income tax provision (benefit) from continuing operations is as follows:

		2003		2002			2001
		(In millions)
Currently payable (refundable)
	Federal	$	14.3	$	(8.3	)	$	23.4
	State		1.4		(0.8	)		2.2
	International		7.6		7.7			3.2
Deferred
	Federal		14.4		35.4			(29.8	)
	State		1.3		3.3			(2.8	)
	International		1.3		2.1			(0.8	)
Total		$	40.3	$	39.4		$	(4.6	)

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The components of net deferred tax assets and (liabilities) are as follows:

	2003			2002
	(In millions)
Accounts receivable allowances	$	2.2		$	3.1
Inventories		7.8			8.5
Property, plant and equipment		(6.0	)		(6.3	)
Payroll, pension and severance		13.0			19.1
Credit carryforwards		9.6			9.2
Net operating loss carryforwards		14.2			14.9
Accrued liabilities and other reserves		7.1			14.6
Research and experimentation costs		41.1			49.0
Other, net		3.8			1.4
Valuation allowance		(18.2	)		(20.8	)
Net deferred tax assets	$	74.6		$	92.7

      The valuation allowance was provided to account for uncertainties regarding the recoverability of certain foreign net operating loss carryforwards and state tax credit carryforwards. Of the aggregate net operating loss carryforwards, $23.6 million expire in 2004, $2.2 million expire in 2006, $0.3 million expire in 2007, $0.2 million expire in 2008, and $15.3 million may be carried forward indefinitely. Certain foreign net operating loss carryforwards are subject to adjustment by foreign tax authorities. The foreign tax credit carryforwards of $0.6 million expire by 2005, the state tax credit carryforwards of $7.4 million expire by 2017, and the alternative minimum tax credits of $1.6 million may be carried forward indefinitely.

      Substantially all of the Company’s net deferred tax assets as of December 31, 2003, relate to the U.S. tax jurisdiction and future recoverability is primarily dependent upon the generation of future taxable income in the U.S. The Company believes that it will generate sufficient future taxable income in the U.S. to recover the Company’s recorded net deferred tax assets.

      The income tax provision (benefit) from continuing operations differs from the amount computed by applying the statutory U.S. income tax rate (35 percent) because of the following items:

		2003			2002			2001
		(In millions)
Tax at statutory U.S. tax rate		$	42.7		$	39.4		$	(1.9	)
	State income taxes, net of federal benefit		2.2			3.1			(0.3	)
	Net effect of international taxes		(6.4	)		(4.0	)		(3.9	)
	Other		1.8			0.9			1.5
	Income tax provision (benefit)	$	40.3		$	39.4		$	(4.6	)

      As of December 31, 2003, approximately $176 million of earnings attributable to international subsidiaries were considered to be permanently invested. No provision has been made for taxes that might be payable if these earnings were remitted to the U.S. It is not practicable to determine the amount of incremental tax that might arise if these earnings were to be remitted.

      In 2003 and 2002, cash paid for income taxes, relating to both continuing and discontinued operations, was $14.9 million and $11.7 million, respectively. In 2001, as a result of income tax refunds, net cash received for income taxes, relating to both continuing and discontinued operations, was $12.2 million.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 7 — Debt

      The Company had no outstanding long-term debt as of December 31, 2003 or 2002.

      The Company had a Loan and Security Agreement (the Loan Agreement) with a group of banks that provided borrowing availability not to exceed $100 million. The Loan Agreement was terminated on December 16, 2003, in connection with entering into a new Credit Agreement described below. No borrowings were outstanding under the Loan Agreement as of December 31, 2002.

      In December 2003, the Company entered into a new Credit Agreement with a group of banks that expires December 15, 2006. The Credit Agreement provides for revolving credit, including letters of credit, with borrowing availability of $100 million. The Credit Agreement provides for, at the option of the Company, borrowings at either a floating interest rate based on a defined prime rate or a fixed rate related to the Eurodollar rate, plus a margin based on the Company’s consolidated leverage ratio. The margins over a defined prime rate and Eurodollar rate range from zero to 0.4 percent and 1.1 to 1.6 percent, respectively. Letter of credit fees are equal to the Eurodollar margins. A facility fee ranging from 0.2 percent to 0.4 percent per annum based on the Company’s consolidated leverage ratio is payable on the line. A utilization fee ranging from zero to 0.25 percent per annum based on the Company’s consolidated leverage ratio is payable on the line. In conjunction with the Credit Agreement, the Company has pledged 65 percent of the stock of certain of the Company’s foreign subsidiaries. Covenants include maintenance of a minimum consolidated tangible net worth, a required EBITDA, and a maximum leverage ratio. The Company does not expect these covenants to restrict materially its ability to borrow funds in the future. No borrowings were outstanding under the Credit Agreement as of December 31, 2003 and the Company was in compliance with all covenants under the Credit Agreement.

      As of December 31, 2003 and 2002, the Company had outstanding letters of credit of $9.0 million and $13.4 million, respectively.

      The Company had no short-term debt as of December 31, 2003. Short-term debt as of December 31, 2002 was $4.5 million, which consisted primarily of local borrowings by international subsidiaries. These borrowings had original maturities of one year or less and had a weighted average interest rate of 1.9 percent. As of December 31, 2003, the Company had $10.0 million available under credit facilities held by various subsidiaries outside the U.S.

      The Company estimated that the fair value of its short-term debt approximated the carrying amount as of December 31, 2002.

      The Company’s interest expense, which includes letter of credit fees and commitment fees under the Loan Agreement, for 2003, 2002, and 2001 was $1.3 million, $1.1 million, and $1.4 million, respectively. Cash paid for interest in these periods, relating to both continuing and discontinued operations, was $1.2 million, $1.2 million, and $1.7 million, respectively.

Note 8 — Derivatives and Hedging Activities

      The Company maintains a foreign currency exposure management policy that allows for the use of derivative instruments, principally foreign currency forward and option contracts, to manage risks associated with exchange rate volatility. Generally, these contracts are entered into to fix the U.S. dollar amount of the eventual cash flows resulting from such transactions. The Company does not hold or issue derivative financial instruments for speculative or trading purposes and is not a party to leveraged derivatives.

      The Company is exposed to credit loss in the event of nonperformance by counter-parties in foreign currency forward and option contracts, but does not anticipate nonperformance by any of these counter-parties. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counter-parties.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash Flow Hedges

      The Company attempts to mitigate the risk that forecasted cash flows associated with operating income denominated in foreign currencies may be adversely affected by changes in foreign currency exchange rates through a combination of foreign currency option and forward contracts. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge items. This process includes linking all derivatives to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be highly effective as a hedge, the Company discontinues hedge accounting prospectively, with gains and losses that were accumulated in other comprehensive income (loss) recognized in current period operations. As of December 31, 2003 and 2002, cash flow hedges ranged in duration from one to twelve months and had a total notional amount of $131.2 million and $110.9 million, respectively. Hedge costs, representing the premiums paid on expired options net of hedge gains, of $2.1 million, $1.8 million and $2.3 million were reclassified into operations in 2003, 2002 and 2001, respectively. The amount of net deferred losses on foreign currency cash flow hedges included in accumulated other comprehensive income (loss) in shareholders’ equity as of December 31, 2003 was $8.3 million, pre-tax, all of which is expected to reverse in 2004.

Other Hedges

      The Company enters into foreign currency forward contracts, generally with durations of less than two months, to manage the foreign currency exposure of its monetary assets and liabilities denominated in foreign currencies. The Company records the estimated fair value of these forwards within other current assets or other current liabilities in the Consolidated Balance Sheets, and changes in their fair value are immediately recognized in earnings. As of December 31, 2003 and 2002, the Company had a notional amount of forward contracts of $51.4 million and $79.2 million, respectively, to hedge the Company’s recorded balance sheet exposures.

Fair Value Disclosure

      As of December 31, 2003 and 2002, the negative fair value of the Company’s foreign currency forward and option contracts outstanding was $7.3 million and $0.2 million, respectively. The estimated fair market values were determined using available market information or other appropriate valuation methodologies.

Note 9 — Leases

Operating Leases

      Rent expense under operating leases, which primarily relate to equipment and office space, amounted to $10.4 million, $12.4 million, and $11.3 million in 2003, 2002 and 2001, respectively. The following table sets forth the minimum rental payments under operating leases with non-cancelable terms in excess of one year as of December 31, 2003:

	2004		2005		2006		2007		2008		Thereafter		Total
	(In millions)
Minimum lease payments	$	10.9	$	8.9	$	6.4	$	4.1	$	3.7	$	0.3	$	34.3

Sale-Leaseback Transactions

      In 2002, the Company executed a sale-leaseback transaction related to an additional manufacturing facility that it had constructed in Wahpeton, North Dakota. The terms of this agreement include monthly payments by the Company to the buyer/lessor, and an obligation by the Company to purchase the facility at the end of the agreement term. In 2003, the Company executed another sale-leaseback transaction related to a portion of its manufacturing facility in Camarillo, California. The Company accepted a note from the buyer/lessor for a portion of the sale price, and is required, under the lease agreement, to make monthly payments to the buyer/lessor. As a result of the Company’s continuing

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

involvement with each of the facilities, the agreements have been accounted for as financings. As of December 31, 2003, net assets totaling $11.3 million are included in property, plant and equipment related to these facilities. The following table sets forth the future minimum payments related to these obligations as of December 31, 2003:

	2004		2005		2006		2007		2008		Thereafter		Total
	(In millions)
Minimum payments	$	0.9	$	0.9	$	0.9	$	0.9	$	0.8	$	5.1	$	9.5

Note 10 — Shareholders’ Equity

      The Company maintains a shareholder rights plan (Rights Plan) under which the Company has issued one preferred share purchase right (Right) for each common share of the Company. If they become exercisable, each Right will entitle its holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $125, subject to adjustment. The Rights are exercisable only if a person or group (Acquiring Person) acquires beneficial ownership of 15 percent or more of the Company’s outstanding common stock, except that the Rights Plan excludes acquisitions by any Acquiring Person who becomes the beneficial owner of 15 percent or more of the shares of common stock then outstanding as a result of a reduction in the number of shares of common stock outstanding due to the repurchase of common stock by the Company unless and until such person, after becoming aware of such, acquires beneficial ownership of any additional shares of common stock. The Rights expire on July 1, 2006 and may be redeemed earlier by the Board of Directors for $0.01 per Right.

      The Company’s Board of Directors has authorized the repurchase of up to 10 million shares of the Company’s common stock. As of December 31, 2003, 2.2 million shares remained under this authorization. During 2003 and 2002, the Company repurchased approximately 0.6 million and 0.4 million shares, respectively. A minimal number of shares was repurchased during 2001. As of December 31, 2003, the Company held 7.5 million shares of treasury stock acquired at an average price of $22.62 per share.

Note 11 — Business Segment Information

      The Company’s businesses are organized, managed and internally reported as segments differentiated primarily by their products and services and the markets they serve. These segments, whose results are shown below, are Data Storage and Information Management, providing removable data storage media for use in the personal storage, network and enterprise data center markets; Specialty Papers, which includes carbonless paper, such as multi-part business forms, and videodisc replication (videodisc replication was closed at the end of the first quarter of 2002); Digital Solutions and Services, which provided technical service and support for equipment sold by the Company as well as by other third party equipment vendors, and document imaging products for large format engineering documentation (all businesses within the DSS segment were sold or closed prior to September 30, 2002 — see footnote 1 to the table below); and Color Technologies, whose principal products included printing and color proofing systems, printing films and plates for the graphic arts marketplace, was sold to KPG on December 31, 2001. In 2001, Specialty Papers and Color Technologies were combined and presented as a single segment. Beginning in 2002, they were separated and the prior period’s presentation was restated to conform to the new presentation as a result of the sale of the color proofing and color software business to KPG.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Business Segment Information
		Data				Digital
		Storage and				Solutions					Corporate,
		Information		Specialty		and			Color		Other and
		Management		Papers		Services(1)			Technologies		Unallocated			Total
		(In millions)
Net revenues(2)	2003	$	1,110.6	$	52.9	$	—		$	—	$	—		$	1,163.5
	2002		1,003.9		53.1		9.5			—		0.2			1,066.7
	2001		875.9		51.0		29.6			160.8		2.0			1,119.3
Operating income (loss)(2)	2003	$	104.7	$	6.9	$	—		$	—	$	8.0		$	119.6
	2002		99.2		7.2		(4.0	)		—		8.3			110.7
	2001		52.5		2.0		(7.5	)		7.9		(59.7	)		(4.8	)
Assets(3)	2003	$	569.1	$	14.4	$	—		$	—	$	589.3		$	1,172.8
	2002		438.8		13.5		—			—		667.6			1,119.9
	2001		406.4		18.1		16.1			—		613.1			1,053.7
Depreciation and Amortization(3)	2003	$	38.3	$	0.7	$	—		$	—	$	—		$	39.0
	2002		36.8		0.6		0.6			—		0.7			38.7
	2001		33.0		0.6		1.2			12.6		6.7			54.1
Capital Expenditures(3)	2003	$	74.7	$	0.4	$	—		$	—	$	—		$	75.1
	2002		42.1		0.5		—			—		—			42.6
	2001		39.3		0.5		0.3			6.5		0.4			47.0

(1)	In the third quarter of 2002, the Company sold its North America DSS business and reclassified it to discontinued operations, as discussed in Note 3. Also in the third quarter of 2002, the Company completed the process of closing its DSS businesses outside of North America as part of the Company’s 2001 restructuring program. The DSS portion of this table includes amounts related to the DSS businesses outside of North America which have not been reclassified as discontinued operations.
(2)	The Corporate, Other and Unallocated amounts for net revenues and operating income (loss) primarily include the results for certain businesses not included in the Company’s disclosable business segments, general overhead which was previously allocated to the North America DSS business, the loan impairment charge and accelerated software amortization discussed in Note 15, restructuring and other special charges and credits discussed in Note 5, litigation charges and credits discussed in Note 16, and all divestiture-related charges and credits discussed in Note 3.
(3)	Segment assets primarily include accounts receivable, inventory, and net property, plant and equipment associated with the Company’s disclosable business segments. Assets included in Corporate, Other and Unallocated are cash and equivalents, deferred income taxes, certain unallocated net property, plant and equipment, intangible assets, assets of divested and discontinued businesses, and other miscellaneous assets. Depreciation and amortization and capital expenditure amounts include amounts associated with these assets, as well as the accelerated software amortization discussed in Note 15.

      Intersegment revenues were not material.

      The following table presents information about the Company by geographic area.

		United				Total
		States		International		Company
		(In millions)
Net revenues(1)	2003	$	532.7	$	630.8	$	1,163.5
	2002		546.7		520.0		1,066.7
	2001		587.4		531.9		1,119.3
Long-lived assets(2)	2003	$	247.4	$	9.1	$	256.5
	2002		188.4		7.0		195.4
	2001		181.1		15.2		196.3

(1)	Net revenues are classified into geographic areas primarily based on destination.
(2)	Includes net property, plant and equipment and intangibles excluding deferred income taxes and certain investments.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 12 — Retirement Plans

      The Company has various non-contributory defined benefit employee pension plans covering substantially all U.S. employees and certain employees outside the U.S. Total pension expense was $11.1 million, $8.8 million and $15.7 million in 2003, 2002, and 2001, respectively. Net pension cost is reported on a continuing operations basis, whereas the funded status of the pension plans includes both continuing and discontinued operations. The Company uses December 31 as the measurement date for all of its pension plans. The Company expects to contribute $15 million to $20 million to its pension plans in 2004.

      The following provides reconciliations of benefit obligations, plan assets and funded status of the plans.

U.S. Plan

	2003			2002
	(In millions)
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	104.7		$	104.6
Service cost		9.9			9.3
Interest cost		6.9			7.0
Actuarial loss		9.3			0.1
Benefits paid		(9.3	)		(16.9	)
Plan amendments		2.3			—
Special termination benefits(1)		—			0.6
Projected benefit obligation, end of year	$	123.8		$	104.7
Change in plan assets
Plan assets at fair value, beginning of year	$	73.6		$	76.4
Actual return on plan assets		20.2			(5.9	)
Company contributions		27.0			20.0
Benefits paid		(9.3	)		(16.9	)
Plan assets at fair value, end of year	$	111.5		$	73.6
Accrued pension cost
Funded status of the plan	$	(12.3	)	$	(31.1	)
Unrecognized prior service cost		2.1			—
Unrecognized actuarial loss		16.4			20.0
Total accrued pension cost	$	6.2		$	(11.1	)
Amount recognized in financial statements
Accrued pension liability	$	(11.3	)	$	(30.9	)
Intangible asset		2.1			—
Accumulated other comprehensive loss — pre-tax		15.4			19.8
Total recognized	$	6.2		$	(11.1	)

      The accumulated benefit obligation for the plan was $122.8 million and $104.5 million at December 31, 2003 and 2002, respectively.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Net periodic pension cost includes the following components:

	2003			2002			2001
	(In millions)
Service cost	$	9.9		$	9.3		$	13.0
Interest cost		6.9			7.0			6.1
Expected return on plan assets		(7.3	)		(7.0	)		(7.0	)
Amortization of prior service cost		0.2			—			—
Special termination benefits(1)		—			2.4			4.9
Discontinued operations		—			(3.2	)		(2.1	)
Net periodic pension cost	$	9.7		$	8.5		$	14.9

(1)  In 2002, $2.4 million was recognized for curtailment and other benefits for employees transferred to DecisionOne as part of the sale of the North America DSS business (see Note 3), including $1.7 million of recognized net actuarial loss. In 2001, $2.6 million was recognized for curtailment and other benefits for employees transferred to KPG as part of the sale of the color proofing and color software business (see Note 3), including $1.6 million of recognized net actuarial loss. In addition, $2.3 million was recognized for restructuring charges, of which $ 0.8 million was related to discontinued operations.

      The following assumptions were used to determine the plan’s benefit obligations as of the end of the plan year:

	2003		2002
Discount rate		6.25%		6.75%
Rate of compensation increase		4.75%		4.75%

      The following assumptions were used to determine the plan’s net periodic pension cost:

	2003		2002		2001
Discount rate		6.75%		7.25%		7.50%
Expected return on plan assets		8.00%		9.00%		9.00%
Rate of compensation increase		4.75%		4.75%		4.75%

      The expected long-term rate of return on plan assets is chosen from the range of likely results of compound average annual returns over a 10-year time horizon based on the plan’s current investment policy. The expected return and volatility for each asset class is based on historical equity, bond and cash market returns. While this approach gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate.

      The plan’s asset allocation as of December 31, 2003 and 2002 by asset category is as follows:

		2003		2002
Equity securities			74%		71%
Debt securities			23%		27%
Other			3%		2%
	Total		100%		100%

      The Company maintains target allocation percentages among various asset classes based on an investment policy established for the plan which is designed to achieve long term objectives of return, while mitigating against downside risk and considering expected cash flows. The current target asset allocation includes equity securities at 65 to 80 percent, debt securities at 20 to 30 percent, and other investments at zero to five percent. The Company’s investment policy for the plan is reviewed at least annually by management.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

International Plans

	2003			2002
	(In millions)
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	57.4		$	50.1
Service cost		0.6			0.8
Interest cost		2.8			2.7
Foreign exchange rate changes		8.2			5.7
Plan amendment		(4.5	)		—
Settlements and curtailments		—			(2.3	)
Actuarial loss		0.7			2.3
Benefits paid		(2.7	)		(0.9	)
Transfer of obligations(2)		—			(1.0	)
Projected benefit obligation, end of year	$	62.5		$	57.4
Change in plan assets
Plan assets at fair value, beginning of year	$	40.8		$	39.6
Actual return on plan assets		3.5			(2.1	)
Foreign exchange rate changes		6.4			4.4
Company contributions		1.3			0.8
Benefits paid		(2.7	)		(0.9	)
Transfer of assets(2)		—			(1.0	)
Plan assets at fair value, end of year	$	49.3		$	40.8
Accrued pension cost
Funded status of the plans	$	(13.2	)	$	(16.6	)
Unrecognized items		10.7			15.0
Total accrued pension cost	$	(2.5	)	$	(1.6	)
Amount recognized in financial statements
Prepaid pension cost	$	0.7		$	0.5
Accrued pension liability		(14.1	)		(15.3	)
Intangible asset		0.3			3.0
Accumulated other comprehensive loss — pre-tax		10.6			10.2
Total recognized	$	(2.5	)	$	(1.6	)

Weighted-average assumptions, end of year	2003			2002			2001
Discount rate		4.90	%		4.70	%		5.20	%
Expected return on plan assets (for following year)		5.60	%		5.90	%		6.60	%
Rate of compensation increase		3.20	%		3.30	%		3.50	%

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Net periodic pension cost includes the following components:

	2003			2002			2001
	(In millions)
Service cost	$	0.6		$	0.8		$	0.9
Interest cost		2.8			2.7			2.7
Expected return on plan assets		(2.4	)		(2.6	)		(3.0	)
Amortization of unrecognized items and other		0.7			0.5			0.3
Settlements and curtailments(3)		—			(0.7	)		—
Discontinued operations		(0.3	)		(0.4	)		(0.1	)
Net periodic pension cost	$	1.4		$	0.3		$	0.8

      The projected benefit obligation, accumulated benefit obligation, and plan assets at fair value for the pension plans with accumulated benefit obligations in excess of plan assets resulting in minimum pension liability adjustments are as follows:

	2003		2002
	(In millions)
Projected benefit obligation, end of year	$	40.9	$	44.8
Accumulated benefit obligation, end of year		40.5		42.5
Plan assets at fair value, end of year		29.2		28.4

(2)

2002 includes certain benefit obligations and related plan assets transferred as a result of the sales of certain DSS businesses in Europe.

(3)

In 2002, a $1.2 million curtailment benefit was recognized following the separation of certain employees of the Company’s DSS businesses in Europe. In addition, a $0.3 million curtailment charge was recognized for employees transferred to DecisionOne as part of the sale of the North America DSS business (see Note 3). An additional curtailment charge of $0.2 million was also recognized during 2002.

Note 13 — Employee Savings and Stock Ownership Plans

      The Company sponsors a 401(k) retirement savings plan under which eligible U.S. employees may choose to save up to 15 percent of eligible compensation on a pre-tax basis, subject to certain IRS limitations. The Company matches 100 percent of employee contributions on the first three percent of eligible compensation and 25 percent on the next three percent of eligible compensation, in company stock. The Company also sponsors a variable compensation program, in which the Company may, at its option, contribute up to three percent of eligible employee compensation to employees’ 401(k) retirement accounts, depending upon Company performance.

      The Company established an ESOP during 1996 as a cost-effective way of funding the employee retirement savings benefits noted above. The ESOP borrowed $50.0 million from the Company in 1996 and used the proceeds to purchase approximately 2.2 million shares of the Company’s common stock, with the ESOP shares pledged as collateral for the debt. The Company makes monthly contributions to the ESOP to cover the debt service plus an additional amount so that the total contribution releases shares to satisfy the Company’s matching requirements. As the debt is repaid, shares are released from collateral, and these shares are allocated to employee accounts as they are earned. The shares not yet allocated to employee accounts are reported as unearned ESOP shares in the Consolidated Balance Sheets. The Company reports compensation expense equal to the current market price of the shares allocated to employee accounts, and all such shares are considered outstanding for the computation of earnings per share.

      The ESOP will be terminated in the first quarter of 2004, and the Company plans to use shares of treasury stock to match future employee 401(k) contributions.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The ESOP shares as of December 31, 2003 and 2002 are as follows:

		2003		2002
	Released and allocated shares		2,175,126		2,051,824
	Unallocated shares		761		124,063
	Total original ESOP shares		2,175,887		2,175,887
Fair value of unallocated shares as of December 31		$	26,749	$	4,352,130

      Total expense related to the ESOP was $4.3 million, $4.3 million and $5.2 million in 2003, 2002 and 2001, respectively.

      The Company also sponsors a defined contribution plan in Japan, which began in 2003. Total expense in 2003 related to the new plan was $1.0 million.

Note 14 — Employee Stock Plans

      The Company currently has stock options outstanding under the Imation 1996 Employee Stock Incentive Program (the Employee Plan), the Imation 1996 Directors Stock Compensation Program (the Directors Plan), and the Imation 2000 Stock Incentive Plan (the Incentive Plan).

      The Employee Plan was approved and adopted by 3M on June 18, 1996, as the sole shareholder of the Company, and became effective on July 1, 1996. The total number of shares of common stock could have been issued or awarded under the Employee Plan could not exceed 6 million. All shares subject to awards under the Employee Plan that were canceled or terminated were made available again for issuance pursuant to awards under the Employee Plan. Grant prices were generally equal to the fair market value of the Company’s common stock at date of grant. The options normally have a term of ten years and generally become exercisable from one to five years after grant date. As a result of the approval and adoption of the Incentive Plan, no further shares are available for grant under the Employee Plan.

      The Directors Plan was also approved and adopted by 3M, as the sole shareholder of the Company, and became effective on July 1, 1996. The total number of shares of common stock that may be issued or awarded under the Directors Plan may not exceed 800,000. The outstanding options are non-qualified options with a term of ten years and generally become exercisable one year after grant date. Grant prices are generally equal to the fair market value of the Company’s common stock at the date of grant. As of December 31, 2003 and 2002, there were 145,441 and 259,917 shares available for grant under the Directors Plan, respectively.

      The Incentive Plan was approved and adopted by Imation’s shareholders on May 16, 2000, and became effective immediately. The total number of shares of common stock that may be issued or awarded under the Incentive Plan may not exceed 4 million. All shares under the plan that are canceled or terminated will be available again for issuance pursuant to awards under the Incentive Plan. Grant prices are generally equal to the fair market value of the Company’s common stock at date of grant. The options normally have a term of ten years and generally become exercisable from one to four years after grant date. As of December 31, 2003 and 2002, there were 1,333,420 and 2,247,632 shares available for grant under the Incentive Plan, respectively.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes stock option activity for 2003, 2002, and 2001:

	Year Ended December 31,					Year Ended December 31,					Year Ended December 31,
	2003					2002					2001
	Stock			Weighted Average		Stock			Weighted Average		Stock			Weighted Average
	Options			Exercise Price		Options			Exercise Price		Options			Exercise Price
Outstanding, beginning of year		4,766,080		$	24.12		4,620,517		$	23.80		5,358,763		$	24.13
Granted		1,168,223			34.08		1,320,050			24.59		242,350			22.03
Exercised		(551,435	)		21.97		(592,401	)		22.10		(135,846	)		17.35
Canceled		(361,030	)		27.40		(582,086	)		24.74		(844,750	)		26.44
Outstanding, end of year		5,021,838			26.44		4,766,080			24.12		4,620,517			23.80
Exercisable, end of year		2,726,723			23.52		2,575,977			23.04		2,874,584			23.07

      The following table summarizes information about stock options outstanding as of December 31, 2003:

						Options				Options
						Outstanding-				Exercisable-
				Weighted Average		Weighted				Weighted
		Options		Remaining		Average Exercise		Options		Average Exercise
Range of Exercise Prices		Outstanding		Contractual Life		Price		Exercisable		Price
$10.39			433		2.9	$	10.39		433	$	10.39
$14.15 to $19.20			642,818		5.1		17.44		630,565		17.48
$19.56 to $23.95			1,562,248		6.0		22.91		877,364		22.84
$24.10 to $28.70			616,469		3.6		24.93		597,718		24.92
$28.75 to $39.38			2,199,870		8.0		32.00		620,643		29.29
	$10.39 to $39.38		5,021,838		6.5		26.44		2,726,723		23.52

      The weighted average fair values at date of grant for options granted by the Company, all of which had exercise prices equal to the market price on the grant date, were $18.05, $11.34 and $9.18, in 2003, 2002 and 2001, respectively.

      The fair values at date of grant were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

	2003			2002			2001
Volatility		45	%		48	%		45	%
Risk free interest rate		2.60	%		3.82	%		4.69	%
Expected life (months)		59			59			51
Dividend yield		0.9	%		Zero			Zero

Note 15 — Miscellaneous Charges

Loan Impairment

      In order to improve the overall profitability associated with mid-range tape products, the Company has re-evaluated its manufacturing strategy for certain products and plans to leverage its metal particulate manufacturing capabilities and selective outsourcing to a greater degree in place of existing contract manufacturing. As a result, the Company recorded a $4.6 million provision to offset substantially all of an outstanding loan receivable from a contract manufacturer. This charge was recorded on a separate line in the Consolidated Statement of Operations in 2003.

Capitalized Software Amortization

      During the last half of 2000, the Company abandoned certain components of its computer software system at various dates through the end of first quarter 2001. Accordingly, the Company shortened the estimated useful life of the majority of its capitalized software and recorded the final pre-tax charge of $5.7 million in selling, general and administrative expenses in the first quarter of 2001 related to the amortization of this software being abandoned.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 16 — Commitments and Contingencies

      In 2002, the Company recorded a $6.4 million net litigation benefit consisting of a $7.4 million litigation benefit from Quantum Corporation (Quantum) and Hitachi Maxell, Ltd. (Maxell) legal settlements, net of associated legal expenses, and a $1.0 million charge for an unrelated litigation matter related to optical disk royalties in Spain. In 2003, the Company reversed the reserve related to the Spain litigation due to a favorable settlement. Each of these matters is discussed in more detail below.

      The Company is the subject of various pending or threatened legal actions in the ordinary course of its business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Consequently, as of December 31, 2003, the Company is unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that may be incurred by the Company with respect to these matters. While these matters, certain of which are described below, could materially affect operating results depending upon the final resolution in future periods, it is management’s opinion that after final disposition, any monetary liability to the Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2003 would not be material to the Company’s financial position.

Jazz Photo Corp.

      On May 10, 1999, Jazz Photo Corp. (Jazz Photo) served the Company and its affiliate, Imation S.p.A., with a civil complaint filed in New Jersey Superior Court. The complaint charges breach of contract, breach of warranty, fraud, and racketeering activity in connection with the Company’s sale of allegedly defective film to Jazz Photo by its Photo Color Systems business which was sold in 1999 (see Note 3). In the complaint, Jazz Photo seeks unspecified compensatory damages, treble damages, punitive damages, and equitable relief for both initial purchases and subsequent additional purchases of film. In 2002, the parties continued to litigate the scope of document production and discovery, and depositions began in the third quarter of 2002.

      On February 24, 2003, the Company was served with the reports of Jazz Photo’s testifying expert witnesses in the case (the Jazz Photo Reports). In the opinion of Jazz Photo’s experts as set forth in the Jazz Photo Reports, the alleged damages to Jazz Photo were caused by a combination of heat, moisture, and fumes from packaging materials supplied by Jazz Photo. The Jazz Photo Reports do not contain any opinions that the alleged damages to Jazz Photo were caused by any error by the Company in the manufacture of the film or by damage to the film during shipment to Jazz Photo. The primary opinion set forth in the Jazz Photo Reports is that the film was not fit for Jazz Photo’s particular use or purpose (use in reloaded single use cameras) because the film design made it more vulnerable to a combination of heat, moisture, and chemical fumes than other film products. The Jazz Photo Reports further conclude that the Company should have known that use in reloaded cameras would expose the film to the damaging combination of heat, moisture, and chemical fumes. The Company vigorously disputes this theory of liability and believes that it has meritorious defenses. The Jazz Photo Reports claim alleged out-of-pocket damages of approximately $13 million, lost profits through 2002 of approximately $41 million, and lost future profits of approximately $32 million. The Company vigorously disputes the amount of the out-of-pocket damages claim and vigorously disputes that Jazz Photo has suffered any lost profits as a result of any action by the Company. Any claim for treble damages by Jazz Photo would have to be based on a violation of the New Jersey Racketeer Influenced and Corrupt Organizations Act or the New Jersey Consumer Fraud Act. Even though Jazz Photo has asserted claims under these acts, the Jazz Photo Reports contain no allegation of damages related to the additional purchases of film by Jazz Photo in 1999.

      The Company is vigorously defending the action. Factual discovery is now complete. On May 6, 2003, the Company served reports of testifying expert witnesses, who conclude that the Company’s film was appropriately designed and manufactured and was fit for use in single use cameras, including reloaded single use cameras. The Company’s experts agree that the damage to the film was caused by a combination of chemical fumes, excess moisture, and excess heat occurring after the film was delivered to Jazz Photo. They conclude that Jazz Photo was responsible for the damage because it failed to put in place a quality control system consistent with industry norms and failed to comply with manufacturer instructions and industry standards concerning protecting film from heat, humidity, and chemical fumes. Also on May 6, 2003, the Company served the report of a financial expert who concludes that the

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

plaintiff’s financial analysis is fundamentally flawed. Both sides filed rebuttal expert reports and have taken expert depositions.

      On October 2, 2003, the Company filed a summary judgment motion for dismissal of the entire case against it. On the same date, Jazz Photo filed a motion for partial summary judgment in its favor on its New Jersey racketeering and consumer fraud claims. Decisions by the Court on these motions are pending. The final pre-trial conference was held on October 30, 2003. A settlement conference and hearing on the parties’ summary judgment motions took place on January 22, 2004. Barring summary judgment dismissal or settlement of the case, the trial is scheduled to begin April 12, 2004.

      On May 20, 2003, Jazz Photo filed a Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code. The Jazz Photo litigation with the Company will proceed despite the bankruptcy. The largest bankruptcy creditor Jazz Photo listed was Fuji Photo Film Co., Ltd. (Fuji). Fuji obtained a judgment against Jazz Photo in the amount of approximately $30 million after a patent infringement trial in the United States District Court for the District of New Jersey. Fuji has brought a motion seeking an order for the appointment of a Chapter 11 trustee pursuant to 11 USC § 1104, on grounds of fraud, dishonesty or, in the alternative, incompetence and gross mismanagement by those currently controlling Jazz Photo. A decision in that motion is pending.

      The St. Paul Fire and Marine Insurance Co. (St. Paul) insured the Company under a primary commercial general liability policy. St. Paul has, under a reservation of rights, reimbursed the Company for its defense costs in the Jazz Photo litigation up to the limit of $2 million under one insuring agreement of the policy issued by St. Paul. In 2003, the Company recorded $1.3 million after-tax in discontinued operations, primarily related to incurred litigation costs associated with the Company’s defense of its ongoing legal dispute with Jazz Photo that have not been reimbursed. The Company has asserted that it is entitled to higher limits for defense and indemnity contained in other insuring agreements of the St. Paul policy. The Company also believes it has coverage for defense and/or indemnity under policies issued by another primary carrier, Cigna and by its excess carrier, AIG. The disputes regarding additional coverage under both the primary and excess policies has been stayed pending resolution of the Jazz Photo litigation.

Quantum and Maxell

      On October 1, 2001, the Company filed a lawsuit in the Federal District Court in St. Paul, Minnesota, charging Quantum with violations of Sections 1 and 2 of the Sherman Antitrust Act, including price fixing and conspiracy to monopolize the production and sale of data storage tape compatible with Quantum’s digital linear tape (DLT) tape drives. The Company amended the complaint to include Maxell as an additional defendant and to add Quantum’s attempt to monopolize the production and sale of data storage tape compatible with Quantum’s S-DLT tape drives. The lawsuit specifically charged that Quantum had fixed prices on DLT-compatible tape, invited Imation to join an illegal tape cartel, inappropriately extended patents on licensed DLT tape drives to tape media as a way to enforce its monopoly hold on the tape market, and misrepresented DLT-compatible tape as an open standard with competitive pricing. The complaint sought an injunction barring Quantum from further violations of antitrust law in this market and recovery of damages of at least $150 million.

      On October 3, 2001, Quantum Corporation filed a lawsuit in the Superior State Court in California in Santa Clara County seeking to prohibit Imation from selling its digital linear tape for use on Quantum DLT tape drives. The lawsuit accused Imation of misappropriation of trade secrets, deceptive and misleading advertising, and unfair business practices. Quantum also filed a motion for a preliminary injunction to block Imation from selling Black Watch^TM Digital Linear Tape IV cartridges. The court issued a preliminary injunction that allowed the Company to sell its Black Watch Digital Linear Tape IV cartridges but required that the Company pay Quantum a 30 percent royalty on those revenues (as set forth in the license agreement between the parties) during the interim until the claims were resolved.

      On May 29, 2002, the Company, Quantum, and Maxell settled all legal claims between the companies over the qualification, production, and sale of DLT tape media products. Quantum and the Company also committed to completing the qualification process of the Company as a manufacturer of DLT tape media, which was completed in August 2002. The antitrust lawsuit and all counterclaims have been withdrawn.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Spanish Collecting Society

      The Company was a defendant in a lawsuit filed in Court of First Instance Num. 5 in Madrid by a Spanish collecting society demanding copyright levies for recording artists to be paid on all CDR-Data discs that have been sold during 1998 and 1999. Prior to July 2003, there was an agreed upon levy assessed on all CDR-Audio discs sold in Spain but no agreement had been reached regarding an applicable levy for CDR-Data discs. The Spanish collecting society filed a lawsuit against the Company and at least three other companies alleging that consumers are using CDR-Data discs to make copies of music for private use and, therefore, the same levy that applies to CDR-Audio disc sales should also apply to CDR-Data disc sales. A judgement was rendered by a Court of First Instance in Madrid on November 28, 2002 which required the Company’s affiliate, Imation Iberia S.A., to provide an accounting of CDR-Data discs that were sold in 1998 and 1999 which may be subject to CDR levies. The Company appealed this judgement.

      In July 2003, an agreement for the payment of levies on CDR-Data discs was reached in Spain between the collecting society and the industry association (in which the Company is an active member). The agreement anticipates that the member companies of the industry association will enter into individual agreements with the collecting society containing the terms agreed to between the industry association and the collecting society. Pursuant to terms of the agreement between the industry association and the collecting society, the Company entered into an agreement with the collecting society and began to pay levies on CDR-Data discs sold in Spain on a going-forward basis as of September 1, 2003. In accordance with this agreement, there will be no payment of levies for sales of CDR-Data discs in Spain prior to September 1, 2003. Based upon the agreement between the parties, in October 2003, the appellate court dismissed the appeals, with prejudice, filed by the collecting society and the Company.

Note 17 — Agreement with EMTEC Magnetics GMBH

      The Company entered into an agreement on June 30, 2003, to purchase certain assets and intellectual property relating to the removable data storage tape media operations from EMTEC Magnetics GmbH, a German-based manufacturing subsidiary of EMTEC International Holding GmbH. This agreement required the Company to escrow approximately $15 million in the third quarter of 2003 pending the satisfaction of certain terms of the agreement. In October 2003, the Company received regulatory approval in Germany to continue with the transaction. Payment out of escrow is subject to contractual milestones as the transaction moves toward closure in 2004. Approximately $7.8 million was released from escrow in the fourth quarter of 2003 and is reflected as a down payment in other current assets on the Consolidated Balance Sheet as of December 31, 2003. The remaining amount held in escrow, along with the currency impact, is reflected as part of restricted cash in other current assets on the Consolidated Balance Sheet and is expected to be released from escrow in 2004.

Note 18 — Quarterly Data (Unaudited)

		First		Second		Third			Fourth		Total(1)
		(In millions, except per share amounts)
2003
Net revenues		$	273.3	$	268.0	$	287.8		$	334.4	$	1,163.5
Gross profit			87.1		81.5		77.7			88.4		334.7
Operating income			32.8		26.8		22.7			37.3		119.6
Income from continuing operations			21.5		18.9		16.7			24.7		81.8
Discontinued operations			—		0.5		(0.3	)		—		0.2
Net income			21.5		19.4		16.4			24.7		82.0
Earning per common share, continuing operations:
	Basic	$	0.61	$	0.54	$	0.47		$	0.69	$	2.30
	Diluted		0.59		0.52		0.46			0.68		2.25
Earnings (loss) per common share, discontinued operations:
	Basic	$	—	$	0.01	$	(0.01	)	$	—	$	0.01
	Diluted		—		0.01		(0.01	)		—		0.01

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		First		Second		Third		Fourth			Total(1)
		(In millions, except per share amounts)
Earnings per common share, net income:
	Basic	$	0.61	$	0.55	$	0.46	$	0.69		$	2.31
	Diluted		0.59		0.53		0.45		0.68			2.26
2002
Net revenues		$	270.6	$	261.4	$	263.8	$	270.9		$	1,066.7
Gross profit			78.5		78.6		85.2		85.5			327.8
Operating income			22.5		30.3		27.5		30.4			110.7
Income from continuing operations			15.7		20.1		16.4		21.0			73.2
Discontinued operations			1.1		1.4		2.1		(2.7	)		1.9
Net income			16.8		21.5		18.5		18.3			75.1
Earning per common share, continuing operations:
	Basic	$	0.45	$	0.58	$	0.47	$	0.60		$	2.09
	Diluted		0.45		0.57		0.46		0.58			2.05
Earnings (loss) per common share, discontinued operations:
	Basic	$	0.03	$	0.04	$	0.06	$	(0.08	)	$	0.06
	Diluted		0.03		0.04		0.06		(0.07	)		0.06
Earnings per common share, net income:
	Basic	$	0.48	$	0.62	$	0.53	$	0.52		$	2.15
	Diluted		0.48		0.61		0.52		0.51			2.11

(1)  The sum of the quarterly earnings per share does not equal the annual earnings per share due to changes in average shares outstanding.

57

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

      Not applicable.

Item 9A. Controls and Procedures

      Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2003, the end of the period covered by this report, the Chairman of the Board and Chief Executive Officer, William T. Monahan, and the Vice President, Corporate Controller*, Paul R. Zeller, have concluded that the disclosure controls and procedures were effective.

      During the fiscal quarter ended December 31, 2003, there was no change in the Company’s 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, the Company’s internal control over financial reporting.

*  Pursuant to a Board of Directors resolution adopted on August 6, 2003, Mr. Zeller has assumed the Chief Financial Officer function with respect to preparation of financial statements and SEC filings.

PART III

      Except where otherwise noted, the information required by Items 10 through 14 is incorporated by reference from the Company’s definitive Proxy Statement pursuant to general instruction G(3), with the exception of the executive officers section of Item 10, which is included in Item 1 of this Form 10-K. The Company will file its definitive Proxy Statement pursuant to Regulation 14A by April 30, 2004.

Item 10. Directors and Executive Officers of the Registrant.

      Board of Directors of the Company

      Michael S. Fields, Chairman and CEO, The Fields Group (a management consulting firm)

      Linda W. Hart, Vice Chairman and Chief Executive Officer, Hart Group, Inc. (a diversified group of companies primarily involved in residential and commercial building materials)

      Ronald T. LeMay, Representative Executive Officer of Japan Telecom (a telecommunications company), and an Industrial Partner of Ripplewood Holdings

      Marvin L. Mann, Chairman Emeritus, Lexmark International (a supplier of network and personal printers and information processing supplies)

      L. White Matthews, III, Retired Executive Vice President and Chief Financial Officer, Ecolab, Inc. (developer and marketer of cleaning and sanitizing products and services), and Former Chief Financial Officer and Executive Vice President of Union Pacific Corporation (a company involved primarily in rail transportation and trucking)

      William T. Monahan, Chairman, President and Chief Executive Officer, Imation Corp.

      Glen A. Taylor, Chairman, Taylor Corporation (a holding company in the specialty printing and marketing areas)

      Daryl J. White, Former President and Chief Financial Officer, Legerity, Inc. (a supplier of data and voice communications integrated circuitry), and Former Senior Vice President of Finance and Chief Financial Officer, Compaq Computer Corporation (a computer equipment manufacturer).

      See Part I of this Form 10-K, “Executive Officers of the Company.” The Section of the Proxy Statement entitled “Board of Directors-Director Independence and Audit Committee Financial Expert Determination,” “Board of Directors-Committees of the Board, “ “Section 16(a) Beneficial Ownership Reporting Compliance” and “Item 1-Election of Directors” is incorporated by reference into this Form 10-K.

      The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer/ controller or persons performing similar functions and all other Company employees. This

58

code of ethics is part of the Company’s broader Business Conduct Policy, posted on the Company’s website. The Internet address for the Company’s website is http://www.imation.com, and the Business Conduct Policy may be found on the “Investor Relations” page, which can be accessed from the main web page under “About Imation.” The Company intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the required code of ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer/ controller or persons performing similar functions by posting such information on the Company’s website, at the address and location specified above. The Company’s Corporate Governance Guidelines, and charters for its Audit and Finance, Compensation and Nominating and Governance Committees are also available the Company’s website on the “Investor Relations Page.” The Business Conduct Policy, Corporate Governance Guidelines, and charters for its Audit and Finance, Compensation and Nominating and Governance Committees are also available in print to any shareholder who requests them and such requests should be made to: Imation Corp., Investor Relations, 1 Imation Place, Oakdale, MN 55128. Materials posted on the Company’s website are not incorporated by reference into this annual report on Form 10-K.

Item 11. Executive Compensation.

      The Section of the Proxy Statement entitled “Compensation of Executive Officers” is incorporated by reference into this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

      The Section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership by Management” are incorporated by reference into this Form 10-K.

Equity Compensation Plan Information

      The following table gives information about the Company’s common stock that may be issued upon the exercise of options under all of the Company’s existing equity compensation plans as of December 31, 2003, including the 2000 Stock Incentive Plan, the 1996 Employee Stock Incentive Program, as amended, and the 1996 Director Stock Compensation Program. As of December 31, 2003, options are the only form of compensation that has been granted under the 1996 Employee Stock Incentive Program and the 2000 Stock Incentive Plan. Options, restricted stock and restricted stock units have been granted to directors under the 1996 Director Stock Compensation Program. All of the compensation plans listed below have been approved by the Company’s shareholders.

						Number of
						Securities Remaining
	Number of					Available for Future
	Securities to be					Issuance Under the
	Issued Upon Exercise			Weighted-average		Equity Compensation
	of Outstanding			Exercise Price of		Plans (Excluding
	Options, Warrants			Outstanding Options,		Securities Reflected
Equity compensation plans approved by shareholders	and Rights			Warrants and Rights		in the First Column)
2000 Stock Incentive Plan		2,511,077		$	28.96		1,333,420	(1)
1996 Employee Stock Incentive Program		2,047,697		$	23.37		0	(2)
1996 Director Stock Compensation Program		462,631	(3)	$	26.34		145,441	(4)
Total		5,021,405	(5)	$	26.44		1,478,861

(1)	Under the 2000 Stock Incentive Plan, the Compensation Committee may issue restricted stock, performance awards and other stock-based awards in addition to options.
(2)	No additional awards may be granted under the Company’s 1996 Employee Stock Incentive Plan.
(3)	This number does not include 10,698 shares of restricted stock.
(4)	Under the 1996 Director Stock Compensation Program, the Compensation Committee may issue restricted stock in addition to options and restricted stock units.

59

(5)  This number does not include outstanding options for 433 shares of common stock at a weighted average exercise price of $10.39 per share that were assumed in connection with an acquisition. No subsequent grants of any kind will be made pursuant to this compensation plan.

Item 13. Certain Relationships and Related Transactions.

      Not applicable.

Item 14. Principal Accountant Fees and Services

      The Section of the Proxy Statement entitled “Audit and Other Fees and Audit and Finance Committee Pre-Approval Policies” is incorporated by reference into this Form 10-K.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) List of Documents filed as Part of this Report

1.  Financial Statements

      The following Report of Independent Auditors and consolidated financial statements of the Company are contained in Part II of this Report:

	Page
Report of Independent Auditors		29
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002, and 2001		30
Consolidated Balance Sheets as of December 31, 2003 and 2002		31
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2003, 2002, and 2001		32
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001		33
Notes to Consolidated Financial Statements		34

2.  Financial Statement Schedules

      All financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements or the notes thereto.

3.  Exhibits

      Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of the Company are not filed, and in lieu thereof, the Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request.

60

      The following Exhibits are filed as part of, or incorporated by reference into, this Report:

Exhibit
Number		Description of Exhibit
	3.1	Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Registration Statement on Form 10, No. 1-14310)
	3.2	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended September 30, 2003)
	4.1	Rights Agreement, dated as of June 18, 1996 between the Company and Norwest Bank Minnesota, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to Registration Statement on Form 10, No. 1-14310)
	4.2	Amendment No. 1 to the Rights Agreement dated as of January 12, 1999 between the Company and Norwest Bank Minnesota, N.A., as Rights Agent (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K Current Report dated February 8, 1999)
	4.3	Amendment No.2 to the Rights Agreement (incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q for the quarter ended June 30, 2003)
	4.4	Amendment No. 3 to the Rights Agreement (incorporated by reference to Exhibit 4.2 of the Company’s Form 10-Q for the quarter ended June 30, 2003)
	4.5	Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company (incorporated by reference to Exhibit 4.2 to Registration Statement on Form 10, No. 1-14310)
	10.1*	Imation 1996 Employee Stock Incentive Program (incorporated by reference to Exhibit 10.8 to Registration Statement on Form 10, No. 1-14310)
	10.2*	Imation Excess Benefit Plan (incorporated by reference to Exhibit 10.10 to Registration Statement on Form 10, No. 1-14310)
	10.3*	Form of Indemnity Agreement between the Company and each of its directors (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the year ended December 31, 1996)
	10.4*	Employment Agreement dated as of April 1, 1998, between Robert L. Edwards and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended March 31, 1998).
	10.5*	Form of amended severance agreement between the Company and its executive officers other than William T. Monahan (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended March 31, 2001)
	10.6*	Summary of transaction bonus agreements between the Company and certain executive officers (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quarter ended March 31, 2001)
	10.7*	Imation 2000 Stock Incentive Plan, as amended.
	10.8*	1996 Directors Stock Compensation Program, as amended May 8, 2002. (incorporated by reference to Exhibit 10.1 of the Company’s 10-Q for the quarter ended June 30, 2002)
	10.9*	Severance Agreement dated August 7, 2002 between the Company and William T. Monahan, replacing the Employment Agreement dated as of July 1, 1996 which was included as exhibit 10.7 in the Company’s Registration Statement on Form 10 (No. 1-14310) (incorporated by reference to Exhibit 10.1 of the Company’s 10-Q for the quarter ended September 30, 2002)
	10.10*	Retirement Agreement dated November 7, 2002 between the Company and David H. Wenck (incorporated by reference to exhibit 10.12 of the Company’s 10-K for the fiscal year ended December 31, 2002)
	10.11	Shareholders Agreement in relation to Global Data Media FZ-LLC.
	21.1	Subsidiaries of Imation Corp.
	23.1	Consent of Independent Auditors
	24.1	Power of Attorney
	31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

61

Exhibit
Number		Description of Exhibit
	32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*  Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(b)  Reports on Form 8-K

      A Form 8-K Current Report dated October 23, 2003 was furnished relating to the Company’s third quarter earnings release.

      A Form 8-K Current Report dated November 17, 2003 was furnished relating to the Company’s CEO’s announced intent to retire prior to the end of 2004.

62

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

IMATION CORP.

By:  /s/ WILLIAM T. MONAHAN

William T. Monahan

Chairman, President and

Chief Executive Officer

Date: March 1, 2004

63

      Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
/s/ WILLIAM T. MONAHAN William T. Monahan		Chairman, President, Chief Executive Officer and Director (principal executive officer)	March 1, 2004
/s/ PAUL R. ZELLER Paul R. Zeller		Vice President, Corporate Controller (principal financial officer and controller)**	March 1, 2004
* Michael S. Fields		Director	March 1, 2004
* Linda W. Hart		Director	March 1, 2004
* Ronald T. LeMay		Director	March 1, 2004
* Marvin L. Mann		Director	March 1, 2004
* L. White Matthews, III		Director	March 1, 2004
* Glen A. Taylor		Director	March 1, 2004
* Daryl J. White		Director	March 1, 2004
*By:	/s/ JOHN L. SULLIVAN John L. Sullivan Attorney-in-fact

** Pursuant to a Board of Directors resolution adopted on August 6, 2003, Mr. Zeller has assumed the Chief Financial Officer function with respect to preparation of financial statements and SEC filings.

64 EX-10.7 3 c82796exv10w7.htm 2000 STOCK INCENTIVE PLAN, AS AMENDED

Exhibit 10.7

IMATION CORP.
2000 STOCK INCENTIVE PLAN
AS AMENDED FEBRUARY 6, 2003

Section 1. Purpose; Effect on Prior Plans.

            (a) Purpose. The purpose of the Imation 2000 Stock Incentive Plan (the “Plan”) is to promote the interests of Imation Corp. (the “Company”) and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants and independent contractors capable of assuring the future success of the Company, to provide such persons with opportunities for stock ownership in the Company and to offer such persons other incentives to put forth maximum efforts for the success of the Company’s business.

            (b) Effect on Prior Plans. From and after the date of shareholder approval of the Plan, no awards shall be granted under the Company’s 1996 Employee Stock Incentive Plan, but all outstanding awards previously granted under the 1996 Employee Stock Incentive Plan shall remain outstanding in accordance with the terms thereof.

Section 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

            (a) “Affiliate” shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee.

            (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan.

            (c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing an Award granted under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee.

            (d) “Board” shall mean the Board of Directors of the Company.

            (e) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.

            (f) “Committee” shall mean the Compensation Committee or such other committee of Directors designated by the Board to administer the Plan. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3, and each member of the Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3 and an “outside director” within the meaning of Section 162(m) of the Code.

-1-

The Company expects to have the Plan administered in accordance with the requirements for the award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

            (g) “Company” shall mean Imation Corp., a Delaware corporation, and any successor corporation.

            (h) “Director” shall mean a member of the Board.

            (i) “Dividend Equivalent” shall mean any right granted under Section 6(e) of the Plan.

            (j) “Eligible Person” shall mean any employee, officer, consultant or independent contractor providing services to the Company or any Affiliate whom the Committee determines to be an Eligible Person, but shall not include any non-employee Director.

            (k) “Fair Market Value” shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing, the Fair Market Value of Shares as of a given date shall be the last sale price of the Shares as reported on the New York Stock Exchange Composite Transactions on such date.

            (l) “Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision.

            (m) “Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

            (n) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

            (o) “Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.

            (p) “Participant” shall mean an Eligible Person designated to be granted an Award under the Plan.

            (q) “Performance Award” shall mean any right granted under Section 6(d) of the Plan.

            (r) “Person” shall mean any individual, corporation, partnership, association or trust.

-2-

            (s) “Plan” shall mean the Imation Corp. 2000 Stock Incentive Plan, as amended from time to time, the provisions of which are set forth herein.

            (t) “Restricted Stock” shall mean any Shares granted under Section 6(c) of the Plan.

            (u) “Restricted Stock Unit” shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date.

            (v) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation.

            (w) “Shares” shall mean shares of Common Stock, par value $.01 per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.

            (x) “Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

Section 3. Administration.

            (a) Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement; (vi) accelerate the exercisability of any Award or the lapse of restrictions relating to any Award; (vii) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (viii) determine whether, to what extent and under what circumstances cash, Shares, promissory notes, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (ix) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate.

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            (b) Delegation. The Committee may delegate its powers and duties under the Plan to one or more Directors or a committee of Directors, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion.

            (c) Power and Authority of the Board of Directors. Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.

Section 4. Shares Available for Awards.

            (a) Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under all Awards under the Plan shall be 4,000,000. Shares to be issued under the Plan may be either authorized but unissued Shares, treasury Shares or Shares acquired in the open market or otherwise. Any Shares that are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, or in connection with the satisfaction of tax obligations relating to an Award, shall again be available for granting Awards (other than Incentive Stock Options) under the Plan. In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan.

            (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan.

            (c) Award Limitations Under the Plan. No Eligible Person may be granted any Award or Awards under the Plan, the value of which Award or Awards is based solely on an increase in the value of the Shares after the date of grant of such Award or Awards, for more than 500,000 Shares (subject to adjustment as provided for in Section 4(d) of the Plan), in the aggregate in any calendar year. The foregoing annual limitation specifically includes the grant of any Award or Awards representing “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

            (d) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares

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or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.

Section 5. Eligibility.

     Any Eligible Person shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full-time or part-time employees (which term as used herein includes, without limitation, officers and Directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code or any successor provision.

Section 6. Awards.

            (a) Options. The Committee is hereby authorized to grant Options to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

                   (i) Exercise Price. The purchase price per Share purchasable under an Incentive Stock Option shall be equal to 100% of the Fair Market Value of a Share on the date of grant of such Option. Non-Qualified Stock Options may have a purchase price equal to or more or less than 100% of Fair Market Value, as determined by and at the sole discretion of the Committee.

                   (ii) Option Term. The term of each Option shall be fixed by the Committee.

                   (iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the applicable exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made.

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            (b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.

            (c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized to grant Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

                   (i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, a waiver by the Participant of the right to vote or to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.

                   (ii) Stock Certificates; Delivery of Shares. Any Restricted Stock granted under the Plan shall be issued and held by the Company or held in nominee name by the stock transfer agent or brokerage service selected by the Company to provide such services for the Plan. No stock certificates evidencing such Restricted Stock shall be issued to the Participant prior to the lapse or waiver of restrictions applicable to such Restricted Stock. Stock certificates registered in the name of the Participant shall be delivered to the Participant promptly after the applicable restrictions lapse or are waived. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holder of the Restricted Stock Units.

                   (iii) Forfeiture. Except as otherwise determined by the Committee, upon a Participant’s termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units held by the Participant at such time shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units.

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            (d) Performance Awards. The Committee is hereby authorized to grant Performance Awards to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee.

            (e) Dividend Equivalents. The Committee is hereby authorized to grant to Eligible Persons Dividend Equivalents under which the Participant shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, such Dividend Equivalents may have such terms and conditions as the Committee shall determine.

            (f) Other Stock-Based Awards. The Committee is hereby authorized to grant to Eligible Persons, subject to the terms of the Plan and any applicable Award Agreement, such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.

            (g) General.

                   (i) No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.

                   (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

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                   (iii) Forms of Payment under Awards. Subject to the terms of the Plan and any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof) and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments.

                   (iv) Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by a Participant other than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, transfer Options (other than Incentive Stock Options) or designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participant’s lifetime only by the Participant (except as otherwise provided in an Award Agreement or amendment thereto relating to a Non-Qualified Stock Option pursuant to terms determined by the Committee) or, if permissible under applicable law, by the Participant’s guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.

                   (v) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee.

                   (vi) Restrictions; Securities Exchange Listing. All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may cause appropriate entries to be made or legends to be placed on the certificates for such Shares or other securities to reflect such restrictions. If the Shares or other securities of the Company are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.

Section 7. Amendment and Termination; Adjustments.

            (a) Amendments to the Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, prior approval of the stockholders of the Company shall be required for any amendment to the Plan that requires stockholder approval under the rules or regulations of New York Stock Exchange, or to comply with section 16(b) of the Securities Exchange Act of 1934, as amended.

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            (b) Amendments to Awards. Subject to the provisions of the Plan, the Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof.

            (c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 8. Income Tax Withholding.

     In order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (a) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (b) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined.

Section 9. General Provisions.

            (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.

            (b) Award Agreements. No Participant shall have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant.

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            (c) No Rights of Shareholders. Except with respect to Restricted Stock, neither a Participant nor the Participant’s legal representative shall be, or have any of the rights and privileges of, a shareholder of the Company in respect of any Shares issuable upon the exercise or payment of any Award, in whole or in part, unless and until the Shares have been issued.

            (d) No Limit on Other Compensation Plans or Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation plans or arrangements, and such plans or arrangements may be either generally applicable or applicable only in specific cases.

            (e) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement.

            (f) Governing Law. The internal law, and not the law of conflicts, of the State of Delaware shall govern all questions concerning the validity, construction and effect of the Plan and any rules and regulations relating to the Plan or any Award.

            (g) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.

            (h) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

            (i) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Share or whether such fractional Share and any rights thereto shall be canceled, terminated or otherwise eliminated.

            (j) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

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Section 10. Term of the Plan.

     The Plan shall terminate ten (10) years after the date of the initial grants or awards under the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond that date.

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EX-10.7

exv10w7

EX-10.11

Exhibit 10.11

Shareholders Agreement in relation to Global Data
Media FZ-LLC

Dated 25 February 2003

Imation Corp.
(Imation)

Moser Baer India Ltd.
(MBI)

Global Data Media FZ-LLC
(the Company) and

MBI International FZ-LLC
(International)

Denton Wilde Sapte
PO Box 1756
Dubai
United Arab Emirates
Tel:00 971 4 331 0220
Fax:00 791 4 331 0201
www.dentonwildesapte.com

TABLE OF CONTENTS

1 Definitions and Interpretation
	1.1 Definitions
	1.2 Interpretation
2 Purpose and Business of the Group
	2.1 Definition of Business
	2.2 Objectives of the Parties
	2.3 Business Plan
	2.4 House Brand
	2.5 Constitutive Documents
	2.6 Non-competition
3 Closing
	3.1 Initial capitalisation
	3.2 Time and place of Closing
	3.3 Obligations at Closing
4 Provision of Finance
	4.1 Financing the Group
	4.2 Further funding
	4.3 Default in funding obligation
	4.4 Terms of Shareholders Loans
	4.5 Dividend
5 The Board and Management
	5.1 Nominated Directors
	5.2 Chairman
	5.3 Board meetings
	5.4 Quorum
	5.5 Alternate Directors
	5.6 Voting at Board meetings
	5.7 Majority voting
	5.8 Written resolutions of the Board
	5.9 Recording of Minutes of the Board Meetings
	5.10 Shareholders to ensure Nominated Director’s resignation
	5.11 Auditors of the Company
	5.12 Directors of other Group Companies
6 Operation of the Company’s Business
	6.1 Managing Director
	6.2 Appointment and removal of Managing Director
	6.3 Director of Sales
	6.4 Customer support team
	6.5 Employee liability
	6.6 Business housekeeping
	6.7 Subsidiaries and Branches
	6.8 Limitations on Disclosure
	6.9 Sales to Customers
	6.10 Transfer of employees to MBI
7 Shareholder Meetings
	7.1 Notice of Shareholder meetings
	7.2 Quorum for Shareholder meetings
	7.3 Chairman of Shareholder meetings
	7.4 Voting at General Meetings
	7.5 General Meeting of Subsidiaries
8 Information
	8.1 Preparation and currency of financial information
	8.2 Financial information
	8.3 Audit rights
	8.4 Exercise of audit rights
	8.5 Restriction on disclosure of information
	8.6 Access and verification of Company information
9 Minority Shareholder Protections
	9.1 List of minority Shareholder protections
	9.2 Deadlock resolution
	9.3 Related Party Agreements
	9.4 Application of restrictions to Subsidiaries
10 Confidentiality and Announcements
	10.1 Definitions in this Clause
	10.2 Duty of confidentiality
	10.3 Permitted disclosures
	10.4 Consultation
	10.5 Restrictions on announcements
	10.6 Permitted announcements
	10.7 Prior consultation on announcements
	10.8 Continuance of obligations
11 Transfer of Shares
	11.1 General prohibition on Share transfers
	11.2 Permitted transfers
12 Duration and termination
	12.1 Duration
	12.2 Termination without cause
	12.3 Termination with cause by Imation
	12.4 Termination with cause by MBI
	12.5 Termination with cause — termination fee
	12.6 Consequences of termination — liquidation of the Company and its Subsidiaries
	12.7 Consequences of termination — Imation as Defaulting Party
	12.8 Consequences of termination — MBI as Defaulting Party
	12.9 Consequences of termination — Non solicitation
	12.10 Termination for disagreement on a Major Decision
	12.11 List of Major Decisions
13 Representations, Warranties and Indemnities
	13.1 Warranties by Imation
	13.2 Warranties by MBI
	13.3 Compliance with laws
	13.4 Consent to certain matters
	13.5 US Foreign Corrupt Practices Act
	13.6 Indemnity
	13.7 Limitation of Liability
14 General
	14.1 Parties’ general obligation
	14.2 Conflict with the Regulations
	14.3 No partnership
	14.4 Costs
	14.5 No Assignment
	14.6 Execution in Counterparts
15 Notices
	15.1 Method and delivery
	15.2 Addresses
	15.3 Receipt
16 English law
17 Arbitration
	17.1 Submission to arbitration
	17.2 Language of proceedings
18 Imation Guarantee
	18.1 Guaranteed obligations
	18.2 No release etc
	18.3 No avoidance of release, settlement etc
19 Survival
Schedule 1 — Representations and Warranties
Schedule 2 — Closing obligations
Schedule 3 — Confidentiality Agreement (Clause 6.8)
Schedule 4 — Management Roles and Responsibilities (Clause 6.6(d))
2000 Stock Incentive Plan, as Amended
Shareholders Agreement - Global Data Media FX-LLC
Subsidiaries
Consent of Independent Auditors
Power of Attorney
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

Contents

1	Definitions and Interpretation	2
1.1	Definitions	2
1.2	Interpretation	4
2	Purpose and Business of the Group	4
2.1	Definition of Business	4
2.2	Objectives of the Parties	5
2.3	Business Plan	5
2.4	House Brand	6
2.5	Constitutive Documents	6
2.6	Non-competition	6
3	Closing	7
3.1	Initial capitalisation	7
3.2	Time and place of Closing	7
3.3	Obligations at Closing	7
4	Provision of Finance	8
4.1	Financing the Group	8
4.2	Further funding	8
4.3	Default in funding obligation	8
4.4	Terms of Shareholders Loans	8
4.5	Dividend	9
5	The Board and Management	9
5.1	Nominated Directors	9
5.2	Chairman	10
5.3	Board meetings	10
5.4	Quorum	10
5.5	Alternate Directors	10
5.6	Voting at Board meetings	10
5.7	Majority voting	11
5.8	Written resolutions of the Board	11
5.9	Recording of Minutes of the Board Meetings	11
5.10	Shareholders to ensure Nominated Director's resignation	11
5.11	Auditors of the Company	11
5.12	Directors of other Group Companies	12
6	Operation of the Company’s Business	12
6.1	Managing Director	12
6.2	Appointment and removal of Managing Director	13
6.3	Director of Sales	13
6.4	Customer support team	13
6.5	Employee liability	14
6.6	Business housekeeping	14
6.7	Subsidiaries and Branches	14
6.8	Limitations on Disclosure	15
6.9	Sales to Customers	15
6.10	Transfer of employees to MBI	15
7	Shareholder Meetings	16
7.1	Notice of Shareholder meetings	16
7.2	Quorum for Shareholder meetings	16
7.3	Chairman of Shareholder meetings	16

Contents (i)

7.4	Voting at General Meetings	16
7.5	General Meeting of Subsidiaries	16
8	Information	16
8.1	Preparation and currency of financial information	16
8.2	Financial information	17
8.3	Audit rights	17
8.4	Exercise of audit rights	17
8.5	Restriction on disclosure of information	18
8.6	Access and verification of Company information	18
9	Minority Shareholder Protections	19
9.1	List of minority Shareholder protections	19
9.2	Deadlock resolution	20
9.3	Related Party Agreements	20
9.4	Application of restrictions to Subsidiaries	20
10	Confidentiality and Announcements	21
10.1	Definitions in this Clause	21
10.2	Duty of confidentiality	21
10.3	Permitted disclosures	21
10.4	Consultation	21
10.5	Restrictions on announcements	22
10.6	Permitted announcements	22
10.7	Prior consultation on announcements	22
10.8	Continuance of obligations	22
11	Transfer of Shares	22
11.1	General prohibition on Share transfers	22
11.2	Permitted transfers	23
12	Duration and termination	23
12.1	Duration	23
12.2	Termination without cause	23
12.3	Termination with cause by Imation	23
12.4	Termination with cause by MBI	24
12.5	Termination with cause - termination fee	24
12.6	Consequences of termination - liquidation of the Company and its Subsidiaries	24
12.7	Consequences of termination - Imation as Defaulting Party	24
12.8	Consequences of termination - MBI as Defaulting Party	25
12.9	Consequences of termination - Non solicitation	25
12.10	Termination for disagreement on a Major Decision	25
12.11	List of Major Decisions	25
13	Representations, Warranties and Indemnities	26
13.1	Warranties by Imation	26
13.2	Warranties by MBI	26
13.3	Compliance with laws	26
13.4	Consent to certain matters	27
13.5	US Foreign Corrupt Practices Act	27
13.6	Indemnity	27
13.7	Limitation of Liability	28
14	General	28
14.1	Parties’ general obligation	28
14.2	Conflict with the Regulations	28
14.3	No partnership	28
14.4	Costs	28

Contents (ii)

14.5	No Assignment	28
14.6	Execution in Counterparts	28
15	Notices	29
15.1	Method and delivery	29
15.2	Addresses	29
15.3	Receipt	29
16	English law	30
17	Arbitration	30
17.1	Submission to arbitration	30
17.2	Language of proceedings	30
18	Imation Guarantee	30
18.1	Guaranteed obligations	30
18.2	No release etc	31
18.3	No avoidance of release, settlement etc	31
19	Survival	31
Schedule 1 - Representations and Warranties		32
Schedule 2 - Closing obligations		34
Schedule 3 - Confidentiality Agreement (Clause 6.8)		37
Schedule 4 - Management Roles and Responsibilities (Clause 6.6(d))		40

Contents (iii)

Shareholders Agreement (hereinafter the Agreement)

Dated 25 February 2003

Between

(1)	Imation Corp. (Imation) a company incorporated in the State of Delaware, USA having its principal office at Imation Place, Oakdale, Minnesota, USA;
(2)	Moser Baer India Ltd. (MBI) a company incorporated in India with registered number 15431 having its registered office at 63, Ring Road, Lajpat Nagar III, New Delhi - 110024, India;
(3)	Global Data Media FZ-LLC (the Company) a free zone limited liability company incorporated in the Dubai Internet City under licence number 19599 and having its registered office at Office No. 119/120, Building 14, First Floor, Dubai Internet City, Dubai, United Arab Emirates; and
(4)	MBI International FZ-LLC (International) a free zone limited liability company incorporated in the Dubai Internet City under licence number 19612 and having its registered office at Office No. 119/120, Building 14, First Floor, Dubai Internet City, Dubai, United Arab Emirates.

Recitals

A	Imation is a multi-national company involved in the development and marketing of magnetic and optical removable data storage products.
B	MBI is a multi-national company involved in the manufacture and supply of magnetic and optical removable data storage products.
C	The Company proposes to market and sell optical removable data storage products to customers worldwide (excluding in India) through its wholly owned Subsidiaries in order to maximise the sales opportunities created by synergies between Imation and MBI which could not fully be exploited by either of them acting alone.
D	Imation and MBI have agreed to promote the Company being a Dubai registered “technology, electronic commerce and media free zone limited liability company” in the Dubai Internet City in Dubai, United Arab Emirates, together with its Subsidiaries for the purpose of conducting the Business as described in Clause 2.1 with the objectives described in Clause 2.2.
E	Imation and MBI are entering into this Agreement to regulate their relationship as shareholders in and the management of the Company and its Subsidiaries.
F	The Company and International are entering into this Agreement to obtain the benefit of certain rights and to enter into certain obligations.

In consideration of and in reliance upon the mutual covenants and agreements of the Parties set out in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Party, the Parties agree as follows:

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1 Definitions and Interpretation

1.1	Definitions
	In this Agreement and its Recitals the following definitions shall apply.
	AED means United Arab Emirates Dirhams.
	Annual Budget means a budget including income statements (incorporating operating expenditure), working capital, capital expenditure and cash flow statements for a financial year of the Group.
	Applicable Laws means the Dubai Technology, Electronic Commerce & Media Free Zone Law comprising law no.1 of 2000 of the Emirate of Dubai, together with all relevant laws and regulations issued by the government of Dubai and the Authority and all laws and regulations of the United Arab Emirates and the Emirate of Dubai applicable to the Company as an FZ-LLC incorporated within the Dubai Internet City.
	Articles means the articles of association of the Company in the agreed form or as they may subsequently be amended from time to time pursuant to Clause 9.1.
	Associate means, with respect to any Party (excluding any Group Company), any person (excluding any Group Company) that from time to time directly or indirectly through one or more intermediaries, owns or controls, or is owned or controlled by, or is under common ownership or control with the Party or person specified, where own means ownership of more than 50% of the equity interests or rights to distributions on account of equity of the Party or person and control means the power to direct the management or policies of the Party or person specified.
	Authority means the Dubai Technology, Electronic Commerce & Media Free Zone Authority constituted in accordance with the Dubai Technology, Electronic Commerce & Media Free Zone Law comprising law no.1 of 2000 of the Emirate of Dubai.
	Board means the board of directors of the Company.
	Business has the meaning set out in Clause 2.1.
	Business Plan means the business plan of the Group as mutually agreed between the Parties and as amended from time to time in accordance with this Agreement.
	Chairman means the Chairman from time to time of the Board.
	Closing means the closing of the transaction contemplated by this Agreement in accordance with Clause 3 and Schedule 2.
	Customers means persons requiring branded, private label and/or bulk Products.
	Director means a director of the Company and A Directors and B Directors shall have the meanings in Clause 5.1.
	Director of Sales means the individual appointed from time to time as the director of sales of the Group pursuant to Clause 6.3.
	Glyphics Agreement means the agreement of even date between (1) MBI and (2) the Company for the purchase by the Company of the entire issued and outstanding stock of Glyphics Media, Inc. (Glyphics).

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Group or Group Companies means the Company and its Subsidiaries and Group Company means any of them.

House Brand means a brand of Products in which a Group Company owns the brand intellectual property rights.

Imation Purchaser means Imation and each of its Associates.

LIBOR means the interest rate for Dollar deposits for a 30 day period which appears on the screen display designated as “Page 3750” on the Telerate Service (or such other screen display or service as may replace it for the purpose of displaying British Bankers’ Association LIBOR Rates for Dollar deposits in the London interbank market) at or about 11.00 a.m. on the due date for receipt by the Company of Shareholder Loans and every 30 days thereafter.

Managing Director or MD means the individual appointed from time to time as the managing director of the Group pursuant to Clause 6.2.

Nominated Directors means the A Directors and the B Directors.

Other Goods shall mean media and other related products (other than Products) that may be manufactured/supplied by MBI for distribution to customers in the Territory.

Party means Imation, MBI, International or the Company and Parties means all or any of them as the context may require.

Permitted Transferee has the meaning in Clause 11.2.

Products means optical data storage media in the CD and DVD recordable and re-writeable formats, whether packaged or unpackaged.

PSS Division means the business division within Imation and/or its Associates which produces and/or sells personal computer storage applications comprising of optical media products (such as the Products) and/or magnetic disc products (such as diskettes), including the relevant part of another division within Imation and/or its Associates into which such business division may be reorganised in whole or in part from time to time.

Related Party means, with respect to any Party (excluding any Group Company), any person (excluding any Group Company) that from time to time directly or indirectly through one or more intermediaries, owns or controls, or is owned or controlled by, or is under common ownership or control with the Party or person specified or the key officers of the Party or person specified, where own means ownership of more than 26% of the equity interests or rights to distributions on account of equity of the Party or person and control means the power to direct the management or policies of the Party or person specified.

Related Party Agreement means an agreement, contract or understanding (whether or not in writing) between any Group Company and a Party (excluding any Group Company) or a Related Party.

Supply Services Agreement means an agreement of even date entered into between (1) the Company and (2) MBI and Imation for the provision of services by MBI and Imation to the Company.

Shareholder means Imation or MBI and Shareholders means both of them.

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Shareholder Loans means loans made by the Shareholders or any Associate of either Shareholder to any Group Company pursuant to Clause 4.2, to be repaid on the terms set out in Clause 4.4.

Shares means shares with a nominal value of AED 1,000 each in the capital of the Company.

Subsidiaries means the direct and indirect subsidiaries of the Company from time to time, including the companies to be formed in accordance with Clause 6.7.

Territory means all countries excluding the Republic of India. US$means United States Dollars.

1.2	Interpretation
	In this Agreement, unless otherwise specified:

(a)	reference to any law, bye-law, regulation, rule, delegated legislation or order is to any law, bye-law, regulation, rule, delegated legislation or order as amended, modified or replaced from time to time and to any law, bye-law, regulation, rule, delegated legislation or order replacing or made under any of them;
(b)	references to any Clause, paragraph or Schedule are to those contained in this Agreement and all Schedules to this Agreement are an integral part of this Agreement;
(c)	headings are for ease of reference only and shall not be taken into account in construing this Agreement;
(d)	person includes any individual, firm, partnership, company or other incorporated or unincorporated body;
(e)	in writing includes any communication made by email (provided it has been subsequently confirmed by letter or fax), letter or fax;
(f)	a document is in the agreed form if it is in the form of a draft agreed between and initialled by or on behalf of the Parties on or before the date of this Agreement;
(g)	references to any month, year or date shall be construed by reference to the Gregorian Calendar; and
(h)	the words include, including and in particular shall be construed as being by way of illustration or emphasis only and shall not be construed as, nor shall they take effect as, limiting the generality of any preceding words.

2 Purpose and Business of the Group

2.1	Definition of Business
	The business of the Group (the Business) shall only be:

(a) to act as non-exclusive purchaser of Products manufactured/supplied by MBI under the “have made rights” of Imation, the Company and/or the Subsidiaries and their sale to Customers in accordance with the provisions of Clause 2.2 below;

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(b)	to act as non-exclusive purchaser of Products manufactured/supplied by MBI, for which the “have made rights” of Imation, the Company and/or the Subsidiaries are not then applicable and their sale to Customers in accordance with the provisions of Clause 2.2 below;
(c)	to act as non-exclusive distributor for MBI in respect of Other Goods manufactured/supplied by MBI;
(d)	to purchase and sell media formats other than the Products only if agreed and to the extent agreed to by Imation, MBI and the Company at a later date; and
(e)	to purchase Other Goods from third parties for sale to customers, only if agreed and to the extent agreed upon by Imation, MBI and the Company from time to time.

2.2

Objectives of the Parties

The purpose of the Company is to combine the manufacturing expertise of MBI and the marketing and sales expertise of Imation, to the fullest extent possible, in a joint venture company that can focus on new marketing and sales opportunities that neither MBI or Imation can fully exploit acting alone and that can provide enhanced customer support to their Customers. In addition, through the Group, Imation will have an avenue to more fully utilize and exploit its existing and future intellectual property portfolio in the Products (including its have made rights relating to the Products) to the benefit of Imation, MBI and the Group. The Parties agree to the following principles and objectives for entering into this Agreement:

(a)	the Company shall purchase the Products under its have made rights exclusively from MBI. Any Product for which the have made rights are not then available shall also be purchased exclusively by the Company from MBI;
(b)	the Company shall sell the Products exclusively to International and Glyphics Media, Inc. (after it becomes a direct wholly-owned Subsidiary of the Company and executes a deed of adherence in the agreed form) and International and Glyphics Media, Inc. (after it becomes a direct wholly-owned Subsidiary of the Company and executes a deed of adherence in the agreed form) shall purchase the Products exclusively from the Company;
(c)	International and Glyphics Media, Inc. (after it becomes a direct wholly-owned Subsidiary of the Company and executes a deed of adherence in the agreed form) shall sell the Products to Customers directly;
(d)	Imation shall cause Glyphics Media, Inc., MBI International Services Private Limited and any other future Subsidiaries of the Company to execute a deed of adherence in the agreed form within 30 days of it becoming a Subsidiary, thereby agreeing to confirm and abide by the terms and conditions of this Agreement;
(e)	all rights of Imation and MBI as shareholders of the Company shall be applicable to them with respect to International and all other Subsidiaries as if they are also the shareholders of each such Subsidiary.

2.3	Business Plan
	The Business shall be carried on in accordance with the Business Plan. Any modifications or amendments to the Business Plan or any new/subsequent Business Plan shall require the prior approval of the Board.

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2.4	House Brand
	No Group Company shall develop or acquire a House Brand and shall not market or sell any brand of Products in which any of the Shareholders or their Associates own the brand intellectual property rights.
2.5	Constitutive Documents
	The Parties agree that the memorandum of association and articles of association of each Group Company shall to the extent permissible under Applicable Law, reflect the terms of this Agreement. To this end the Parties shall, to the extent permissible under Applicable Law, cause the articles of association of each Group Company to be amended to reflect the understanding set out in this Agreement. Any inconsistency between the provisions of this Agreement and the memorandum of association and articles of association of any Group Company shall be interpreted in such a manner as to give effect to all such documents; provided, however, that in the event of an inconsistency between this Agreement and the memorandum of association and articles of association of any Group Company, the provisions of this Agreement shall prevail as between the Parties and shall govern their contractual relationship.
2.6	Non-competition
2.6.1	In this Clause 2.6:
	Existing Customer of Imation means an existing Customer from time to time of an Imation Purchaser;
	Existing MBI Customer means a Customer of MBI as at the date of this Agreement and/or an existing Customer from time to time of MBI and/or a Customer of Glyphics as at the date of this Agreement; and
	Existing Customer of the Group means a Customer which from time to time during the term of this Agreement becomes a Customer of the Group, subject to Clause 2.6.4.
2.6.2	During the subsistence of this Agreement, Imation undertakes to the Company and to MBI that it shall not, and shall ensure that the other Imation Purchasers shall not, sell any Products to any Existing MBI Customer or any Existing Customer of the Group provided that the restriction in this Clause 2.6.2 shall not apply to the sale of Products to an Existing Customer of Imation (unless such Customer became an Existing Customer of Imation in breach of this Clause 2.6.2).
2.6.3	During the subsistence of this Agreement, the Company undertakes to MBI that it shall not, and shall ensure that the other Group Companies shall not, sell any Products to any Existing MBI Customer provided that, subject to Clause 2.6.4, the restriction in this Section 2.6.3 shall not apply to the sale of Products to a Customer which is an Existing Customer of the Group (unless such Customer became an Existing Customer of the Group in breach of this Clause 2.6.3).
2.6.4	Notwithstanding anything to the contrary in Clause 2.6.3, MBI shall have the right to refer the Existing MBI Customers to the Group and in such case the Subsidiaries shall have the right to sell the Products to such Existing MBI Customers, provided the Subsidiaries’ right to sell the Products to such Customers shall only be to the extent and until such time MBI deems fit and proper in its sole and absolute discretion and any such Customer shall not be treated as an Existing Customer of the Group.

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2.6.5 If MBI has reason to believe that an Imation Purchaser is selling Products to an Existing MBI Customer in breach of Clause 2.6.2, MBI may serve notice on Imation, following receipt of which Imation shall ensure that the relevant Imation Purchaser stops selling Products to such Existing MBI Customer (subject to the completion of any outstanding committed orders).

3 Closing

3.1	Initial capitalisation
	Imation represents and warrants to MBI that each of the statements set out below is true and accurate and not misleading as of the date of execution of this Agreement and each such representation and warranty shall be repeated at Closing:

(a)	the Company has been incorporated as an FZ-LLC in the Dubai Internet City in accordance with the Applicable Laws and is validly subsisting and is in good standing under the Applicable Laws and with an initial capital of AED500,000 divided into 500 Shares, all of which have been fully paid-up;
(b)	the current sole holder of the Shares is Imation Europe B.V., which is a wholly-owned subsidiary of Imation;
(c)	International has been incorporated as an FZ-LLC in the Dubai Internet City in accordance with the Applicable Laws and is validly subsisting and is in good standing under the Applicable Laws and with an initial capital of AED500,000, divided into 500 shares of AED1,000 each, all of which have been fully paid-up;
(d)	the current sole holder of the issued shares in International is the Company;
(e)	245 Shares which are to be transferred by Imation Europe B.V. to MBI on Closing are validly issued, fully paid-up and non-assessable and will be transferred to MBI free from any liens or other encumbrances whatsoever;
(f)	the Company and International have all the necessary corporate power, authority and capacity to enter into this Agreement and to carry out their obligations under this Agreement; and
(g)	the Company and International have proper licenses and permits from all governmental and statutory authorities to conduct their business as contemplated by the Parties from and after the Closing.

3.2	Time and place of Closing
	Closing shall take place on or before 7 March 2003 at the offices of Denton Wilde Sapte at 26th Floor, API World Tower, Sheikh Zayed Road, Dubai.

3.3

Obligations at Closing

At Closing, the Parties shall comply with their respective obligations set out in Schedule 2. The Shares to be issued to MBI and Imation on Closing shall be validly issued, fully paid-up and non-assessable and shall be free from any liens or other encumbrances whatsoever. Following the Closing, Imation shall hold 7,487 Shares, representing 51% of the issued Shares, and MBI shall hold 7,194 Shares, representing 49% of the issued Shares.

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4 Provision of Finance

4.1	Financing the Group
	The Group shall be financed initially out of the proceeds of the initial capitalisation of the Shares referred to in Clause 3.1, out of the subscriptions of further Shares made on Closing pursuant to Clause 3.3 and Schedule 2 and thereafter, including but not limited to, out of the cashflows and working capital of the Group.

4.2

Further funding

If the initial financing referred to in Clause 4.1 and the cashflows and working capital of the Group are insufficient to meet the Group’s working capital, capital expenditure and other funding requirements as set out in the Annual Budget, the Shareholders shall provide the shortfall by way of Shareholder Loans to the Company pro rata to their respective shareholdings in the Company. The obligations of the Shareholders to provide Shareholder Loans shall require the prior written agreement of both Shareholders to the extent that the aggregate amount of Shareholder Loans made by both Shareholders following Closing would exceed US$4,000,000. The Shareholders shall, subject to their prior written agreement as aforesaid and to necessary regulatory approvals, if any, which regulatory approvals the relevant Shareholder shall use reasonable endeavours to obtain as soon as practicable, make such Shareholder Loans in cash in immediately available cleared funds no later than 60 days (the Funding Period) following the receipt by the Shareholders of a notice in writing (a Funding Notice) from the Managing Director setting out:

(a)	the amount required from each Shareholder; and
(b)	the repayment date.

4.3

Default in funding obligation

If a Shareholder (the Defaulting Shareholder) fails to provide within the Funding Period funding which it has agreed to provide pursuant to Clause 4.2, the other Shareholder (the Non-Defaulting Shareholder) may (at its election and within a further 30 days following notice from the Managing Director that a Defaulting Shareholder has failed to provide funding) provide the funding to meet the shortfall. Such payment shall be without prejudice to any other rights or claims which the Non-Defaulting Shareholder may have under this Agreement in respect of the Defaulting Shareholder’s default.

4.4	Terms of Shareholders Loans
	The terms of the Shareholder Loans made by the Shareholders to the Company pursuant to this Agreement shall be as follows:

(a)	they shall be denominated for all purposes in US$;
(b)	they shall bear interest at the rate of LIBOR plus 50 basis points;
(c)	such interest shall accrue and be payable at the same time as repayment of the principal amount of the relevant Shareholder Loans;
(d)	they shall be repayable on their respective terms or upon written demand signed by both Shareholders (other than in the event of the Company’s liquidation, in which case they shall be repayable in full);

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(e)	the Company may prepay all or any part of the Shareholder Loans at any time in accordance with sub-clause (f) below;
(f)	they shall be repayable to the Shareholders pro rata to their respective shareholdings in the Company provided that any Shareholder Loans made by a Non-Defaulting Shareholder pursuant to Clause 4.3 shall, to the extent of the Shareholder Loans made pursuant to Clause 4.3, be repaid first in priority to any other Shareholder Loans; and
(g)	in the event of the insolvent winding-up or liquidation of the Company, the obligation of the Company to repay the Shareholder Loans (and any interest due thereon) shall be subordinated to the payment in full of all preferred and ordinary creditors of the Company.

Provided however, that the repayment or prepayment of any Shareholder Loans or interest accrued thereon shall be made only after payment of all outstanding dues of the Group on account of any purchase orders, whether fulfilled or otherwise, placed with any of the Group’s suppliers, payment of amounts payable by the Company under the Supply Services Agreement, ensuring adequate working capital requirements and/or making adequate provision in respect thereof. It is clearly agreed upon by the Parties that the Shareholder Loans shall be unsecured loans and shall always be payable after clearing the supplier outstandings, the amounts payable by the Company under the Supply Services Agreement, ensuring adequate working capital requirements and/or making adequate provision for payment in respect thereof. Payments due to the suppliers (including payments to MBI for the supply of Products and Other Goods and payments under the Supply Services Agreement) shall always have a priority in payment over the repayment of Shareholder Loans and/or payment of any interest due thereon.

4.5	Dividend
	The maximum amount of the profit of the Company available for distribution by way of dividend shall be distributed to the Shareholders on a quarterly basis, subject to the following:

(a)	payment of all supplier outstandings including those payable to MBI for supply of Products/Other Goods, payment of amounts payable by the Company under the Supply Services Agreement and/or making adequate provision for payments in respect thereof;
(b)	repayment of outstanding Shareholder Loans or third party loans and interest due thereon which are then due and payable; and
(c)	the Group having, in the opinion of the Board, sufficient financial resources to meet its normal and foreseeable requirements including working capital requirements, payments to statutory authorities and compliance with the Applicable Laws in this regard.

5 The Board and Management

5.1

Nominated Directors

The Board shall comprise five Directors. Imation shall have the exclusive right to appoint, remove and replace three Directors and MBI shall have the exclusive right to appoint, remove and replace two Directors. Such rights shall be exercisable by notice to the Company, a copy of which shall be given to the other Shareholder. The Directors appointed by Imation shall be known as A Directors and the Directors appointed by MBI shall be known as B Directors.

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Imation undertakes that it shall not, other than with the prior written consent of MBI, appoint any person as an A Director who is working, or who has worked at any time in the period of 18 months prior to his appointment, in the PSS Division.

5.2	Chairman
	The Chairman of the Company shall be an A Director designated as such by Imation. The Chairman shall not have a second or casting vote.

5.3

Board meetings

Board meetings shall be held at the registered office of the Company or at such other place as agreed by a quorum of the Board. Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities which permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. Board meetings may be convened by any Director by not less than 30 days’ prior written notice other than in the event of an emergency or other unusual circumstances, provided that the shorter notice period is consented to in writing by at least one A Director and one B Director. The notice shall be given in accordance with Clause 15 to all the Directors (including, for the avoidance of doubt, by email) at their address available with the Company and shall be accompanied by an agenda and supporting papers setting out in reasonable detail the business proposed to be transacted at such meeting. The Board meeting shall only deal with business which is set out in such agenda unless agreed otherwise at such meeting by a quorum of the Board. The Company shall reimburse each Director for all reasonable travel, hotel and other expenses incurred by a Director in attending Board meetings.

5.4

Quorum

Subject to Clause 9.3, the quorum for a Board meeting shall be one A Director and one B Director present in person. If within 30 minutes of the time appointed for a Board meeting there is no quorum, the Director(s) present shall adjourn the meeting (and shall forthwith give notice to all Directors by the quickest means then practicable) to a place and time not less than 10 days later, provided that at such adjourned meeting the requirement that such Director(s) shall be present shall not apply and the Director(s) present may, subject to the provisions of Clause 9.1, conduct the business of the meeting.

5.5	Alternate Directors
	Each Director may at any time by notice in writing to the Company appoint any other Director to act as his alternate and to remove such person. Any Director acting as an alternate shall have an additional vote for every Director for whom he acts as alternate in addition to his own vote as a Director.

5.6

Voting at Board meetings

Subject to Clause 9.3, at any meeting of the Board each A Director and each B Director shall be entitled to cast one vote on each issue put to the vote PROVIDED THAT if any A Director or B Director shall not be present at any meeting of the Board and shall not have appointed an alternate to attend such meeting and vote in his place, the other Director(s) present at such meeting and appointed by the same Party as the absent Director(s) shall be entitled to cast the vote(s) of such absent Director(s). Prior to calling of votes on any resolution, the Chairman shall ensure that the requisite quorum, as required for convening a Board meeting (including any adjourned meeting), is present. MBI and Imation agree to cause the Company to comply with the terms and conditions of this Agreement and agree to act, through their respective voting rights as shareholders in the Company and through their respective Nominated Directors at meetings of the Board, so as to ensure the proper implementation of the terms and conditions set out in this Agreement.

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5.7	Majority voting
	The Board shall act by majority vote, except in relation to resolutions concerning matters set out in Clause 9.1 on which no decisions or actions shall be taken unless previously approved in accordance with that Clause or except in relation to resolutions concerning matters set out in Clause 9.3.

5.8	Written resolutions of the Board
	A resolution in writing signed by all the Directors (or their alternates) shall be as valid and effective as if it had been passed at a duly convened and held meeting of the Board. Any such resolution may consist of several documents in the same form, each signed by one or more of the Directors.

5.9

Recording of Minutes of the Board Meetings

All proceedings of the Board and all minutes of the Board meetings of the Company shall be in English. The minutes of the Board meetings of the Company shall be prepared in draft and circulated to all the Directors for the approval by the Directors who were present at such meeting. Upon receipt of such approval, in writing (including, for the avoidance of doubt, by email), from all such Directors, the minutes shall be signed by the Chairman and maintained by the Company in accordance with law. Any objection to the minutes received from a Director who was present at such meeting shall itself be recorded in the minutes. Each resolution passed at a meeting of the Board (other than a resolution passed in contravention of Clause 9) shall come into force at the earlier of:

(a)	48 hours after the circulation of the minutes of the meeting to all Directors; and
(b)	the receipt by the Company of the approval of the minutes by the Directors who were present at such meeting.

5.10

Shareholders to ensure Nominated Director’s resignation

Each Shareholder shall ensure that every Director appointed by it under this Clause shall (unless he is also employed by the Company in an executive capacity), when that Shareholder ceases to be a shareholder in the Company or when such Director is removed by that Shareholder, resign without cost to the Company and such Shareholder shall indemnify the Company and the other Parties from and against all claims, demands and rights which any such Director may have against the Company in respect of dismissal, redundancy or otherwise.

5.11

Auditors of the Company

The external auditors of the Company shall be appointed by the Board, with the first such auditors being PricewaterhouseCoopers and any subsequent auditors being an internationally recognised firm of similar repute and standing. On at least a semi-annual basis, the Board meeting agenda shall include reviews of any audit reports and management letters prepared by the Company’s external auditors or the internal auditors of Imation or MBI. This review shall also include management’s response to those reports and the status of corrective action, if necessary. The external audit partner assigned to the Company’s audit should attend the audit related portion of the agenda in person on at least an annual basis, which should include time in executive session with the Board. The Board shall act to ensure that:

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(a)	the Company’s internal control process provides assurance that its assets are being safeguarded;
(b)	the financial statements are being prepared in accordance with US GAAP and that appropriate statutory reporting has occurred;
(c)	employees are acting in compliance with the Company’s Business Conduct Policy established pursuant to Clause 6.1(j) and that the Company is in compliance with applicable laws and regulations;
(d)	the Company’s IT systems are operating as intended; and
(e)	appropriate training opportunities exist.

5.12	Directors of other Group Companies
	Clauses 5.1 to 5.11 shall apply mutatis mutandis to International and each other Group Company except as otherwise mutually agreed in writing between the Shareholders, so that the reference to the term Company shall refer to each Subsidiary and the reference to other defined terms in relation to the Company shall have the correlative meaning in relation to each Subsidiary.

6 Operation of the Company’s Business

6.1	Managing Director
	The day to day management of the operations of the Group shall be carried out by the Managing Director who shall have full power and authority, subject to Clauses 9.1, 9.3 and 12.11 and any specific resolution of the Board to the contrary, to decide all matters in the ordinary course of the Business. Such matters shall only relate to the following:

(a)	subject to Clause 6.9, representing each Group Company in respect of all dealings with third parties;
(b)	conducting all ordinary business of the Group Company;
(c)	receiving and making payments due to and from each Group Company;
(d)	appointing and dismissing all employees and setting their remuneration and other benefits (subject to Clauses 6.3 and 6.4 and with the exception of the appointment, dismissal and the setting of the remuneration and other benefits of the MD and the Director of Sales which shall be the responsibility of the Board);
(e)	preparing the Annual Budget and an update of the Business Plan for the approval by the Board;
(f)	opening, closing and operating the bank accounts of each Group Company and entering into banking and financial transactions on behalf of each Group Company;
(g)	taking on lease and renting out fixed and moveable assets;

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(h)	appointing lawyers and attorneys to appear before all courts, arbitration panels and similar tribunals including, without limitation, the Federal Supreme Court, and all courts of cassation, courts of appeal, courts of first instance and execution courts anywhere within or outside the United Arab Emirates;
(i)	subject to Clause 6.9, approving and signing all contracts and orders in relation to the Group’s operations including all decisions (including pricing) concerning the Group Company’s sales and purchasing of goods and services;
(j)	establishing and enforcing a Business Conduct Policy for the Group on terms similar to Imation’s Business Conduct Policy;
(k)	purchasing and selling assets, whether fixed or moveable in the ordinary course of any business carried on by the Group;
(l)	with the prior approval of the Board, establishing any branch or representative office; and
(m)	taking all other action required in connection with the day to day running of the Business

PROVIDED THAT under all circumstances, the power of the MD to incur expenditure or enter into commitments on behalf of the Group shall be limited to such sum (with an excess of 20% for any line item) as set out in the Annual Budget as approved from time to time by the Board and further that the taking of any action by any Group Company in which the MD is directly or indirectly interested shall require the prior approval of the Board.

6.2

Appointment and removal of Managing Director

The Group shall have a Managing Director, who shall be a full-time employee of the Company. The MD shall be appointed by the Board from a list of candidates selected by Imation and may be removed by the Board. The first MD shall be Thomas W. Foyer. The MD shall not serve as a Director on the Board but shall attend and have the right to speak at all meetings of the Board. Until the business of the Company requires the services of a full-time Chief Financial Officer, the MD shall also act as Chief Financial Officer.

6.3

Director of Sales

The Group shall have a Director of Sales, who shall be a full-time employee of the Company and shall be located in Dubai. The Director of Sales shall be appointed by the Board only from a list of a minimum of two candidates selected by MBI. The first Director of Sales shall be Sanat Kumar. The Director of Sales shall not serve as a Director on the Board but shall attend and have the right to speak at all meetings of the Board. The roles and responsibilities of the Director of Sales shall include the matters set forth in Schedule 4. Any person appointed in a sales and marketing capacity by the Group shall be appointed by the MD only from a list of candidates selected by the Director of Sales. In the normal course of operations, the persons appointed in a sales and marketing capacity of the Group shall report to the Director of Sales. The sales and marketing function of the Group shall, subject to Clause 6.9, be performed exclusively by the Director of Sales and the persons appointed pursuant to this Clause 6.3.

6.4

Customer support team

Subject to compliance with all applicable legal requirements and the agreement by the relevant employees to the transfer of their employment, the employees listed in the agreed form list who are currently employed by MBI, shall become employees of MBI International Services Private Limited, the wholly-owned subsidiary of International and shall be members of the Group’s customer support team. Any subsequent appointment to the customer support team shall be made by the MD only from a list of candidates selected by the Director of Sales. In the normal course of operations, the customer support team shall report to the Director of Sales.

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6.5

Employee liability

Each Shareholder agrees to indemnify the other Shareholder, its Associates and the relevant Group Company against all losses, damages or expenses which the other Shareholder, its Associates or the relevant Group Company (as the case may be) may suffer or incur as a result of any claim made against them by an employee of the first mentioned Shareholder (or its Associates) who is transferred to a Group Company by that Shareholder in so far as such claim relates to the period prior to such employee becoming an employee of the relevant Group Company.

6.6	Business housekeeping
	The Parties shall ensure that the Group shall:

(a)	carry on and conduct its business in a proper lawful manner;
(b)	comply with all Applicable Laws and obtain and maintain all necessary licences and approvals required in order to carry on the Business;
(c)	observe and perform its obligations under this Agreement; and
(d)	exercise legal (de jure) and actual (de facto) control of the Business from its office within the Dubai Internet City pursuant to the roles and responsibilities defined and set out in Schedule 4.

6.7	Subsidiaries and Branches
6.7.1	Prior to or as soon as practicable following Closing, the Company shall form:

(a)

a wholly-owned subsidiary of International in New Delhi, India to be called MBI International Services Private Limited for the purposes of carrying out back-end customer relationship support and other business support services on the terms of a service level agreement to be entered into between International and such Subsidiary. In particular, the employees of such Subsidiary shall work under the close supervision and direction of International, will have limited authority to communicate with Customers, entertain Customer enquiries, discuss pricing for Products and other commercial aspects of transactions, offer price discounts within a range specified by the Managing Director and act as a communication channel between Customers and other Group Companies. Such Subsidiary and its employees shall not be entitled to bind any other Group Company to any contract with a Customer or sign any contract on behalf of any other Group Company; and

(b)

a branch office of International in Rotterdam, the Netherlands for the purposes of a sales and marketing office.

6.7.2 On or prior to Closing, the Glyphics Agreement shall be executed, pursuant to which the Company shall acquire the entire issued and outstanding stock of Glyphics, thereby making Glyphics a wholly owned Subsidiary of the Company.

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6.7.3 Save and except as provided in this Clause 6.7, notwithstanding anything to the contrary contained in this Agreement, the Company shall not set up, create, form or establish a Subsidiary, without the express prior written consent of each of Imation and MBI. In case another Subsidiary is formed or created with the prior written approval of each of Imation and MBI, then the Parties shall ensure that such Subsidiary executes a deed of adherence in the agreed form, thereby agreeing to abide by and confirm to the terms and conditions of this Agreement. All the rights and obligations of the Shareholders with respect to such Subsidiary would be the same as the Shareholders enjoy with respect to the Company.

6.8	Limitations on Disclosure
6.8.1	The Directors, MD, Director of Sales and the employees shall be required to execute a confidentiality agreement with the Group, in the form as annexed as Schedule 3, undertaking not to disclose any Confidential Information (as defined in Clause 10.1), including the information referred to in Clause 8.5. The Company shall ensure that the lawyers, auditors and other relevant consultants appointed by each Group Company execute a confidentiality agreement substantially in the form annexed as Schedule 3 or which covers substantially similar terms. Notwithstanding anything to the contrary contained herein, in case of breach of any of the aforesaid confidentiality agreements by the relevant person executing such confidentiality agreement with the Group, the relevant Group Company shall take appropriate action, including termination of employment/appointment of such person.
6.8.2	Imation shall ensure that the employees, lawyers, internal and external auditors and other relevant consultants appointed by any Imation Purchaser and to whom Restricted Information is disclosed as permitted under Clause 8.5 execute a confidentiality agreement substantially in the form annexed as Schedule 3 or which covers substantially similar terms. Notwithstanding anything to the contrary contained herein, in case of breach of any of the aforesaid confidentiality agreements by the relevant person executing such confidentiality agreement with the Group, the relevant Group Company and Imation shall take, and Imation shall ensure that the relevant Imation Purchaser shall take, appropriate action, including termination of employment/appointment of such person.

6.9

Sales to Customers

Notwithstanding anything to the contrary in this Agreement, all decisions (including pricing) concerning the sale of Products by a Group Company to Customers shall be taken by the MD on the basis of the recommendations of the Director of Sales. If the MD does not agree with the recommendations of the Director of Sales, then no decision shall be taken on such matter, the MD or the Director of Sales may refer such matter to the Board for determination by the Board and the relevant Group Company shall not take any action on such matter until it has been determined by the Board. The Parties undertake to procure the holding of a Board meeting to resolve such matter as soon as practicable in the circumstances.

6.10

Transfer of employees to MBI

At the request and cost of MBI from time to time, the Company shall, and shall ensure that the relevant employing Group Company shall, transfer as soon as reasonably practicable to MBI’s employment any person who has become an employee of a Group Company pursuant to Clause 6.3 or Clause 6.4. The Company shall, and shall ensure that the relevant employing Group Company shall, include in the employment contracts with each such employee a clause providing for such transfer.

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7 Shareholder Meetings

7.1	Notice of Shareholder meetings
	All Shareholders shall be entitled to at least 30 days’ (or such shorter period of notice as the Shareholders may consent to in accordance with the articles of association of the relevant Group Company) prior written notice of any shareholders’ meeting of any Group Company given to them at the address set out in Clause 15.

7.2

Quorum for Shareholder meetings

The quorum for shareholders’ meeting of any Group Company shall be Shareholder(s) present in person or by proxy holding not less than 75% of the total number of Shares issued from time to time. If there shall be no quorum within 30 minutes of the time appointed for a shareholders’ meeting the meeting shall be adjourned to a specified time and place (which shall not be earlier than 10 days after the date originally fixed for the meeting). If at any adjourned meeting a quorum is not present within 30 minutes from the time appointed for the adjourned meeting or such longer interval as the chairman of the meeting may think fit to allow, the Shareholder(s) then present in person or by proxy, provided that they represent at least 49% of the total number of Shares issued from time to time, and further provided that such shareholder(s) were present at the original meeting, shall form the quorum and may (subject to Clause 9.1) transact all the business of the meeting.

7.3	Chairman of Shareholder meetings
	The chairman of any general meeting of any Group Company shall not be entitled to a second or casting vote.

7.4

Voting at General Meetings

All decisions at the general meeting of any Group Company shall be taken by majority vote (save where a higher majority is required by Applicable Law), except in relation to resolutions concerning matters set out in Clause 9.1 on which no decisions or actions shall be taken unless previously approved in accordance with that Clause or except in relation to resolutions concerning matters set out in Clause 9.3.

7.5

General Meeting of Subsidiaries

With respect to all Subsidiaries of the Company, MBI and Imation shall be deemed to be the shareholders of such Subsidiaries and whenever a decision is to be taken at a general meeting of any of the Subsidiaries, which if taken at the general meeting of the Company would, as per this Agreement or the Applicable Laws, require the prior approval of MBI, then such decision shall require the prior approval of MBI. Each Shareholder shall have the same voting rights with respect to all matters in a general meeting of a Subsidiary as such Shareholder has in relation to such matter in a general meeting of the Company.

8 Information

8.1	Preparation and currency of financial information
	The Parties shall ensure that the financial and accounting books and records of the Company and the Subsidiaries:

(a) shall be prepared in US Dollars; and

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(b) shall be prepared in accordance with US GAAP consistently applied.

8.2	Financial information
	The Parties shall ensure that the Company shall provide to each Shareholder the following, provided that the same does not amount to breach of Clause 8.5:

(a)	unaudited management accounts of each Group Company and consolidated results of the Group within 30 days from the end of each month;
(b)	quarterly unaudited accounts (comprising an income statement and balance sheet) of each Group Company and consolidated results of the Group within 10 days following the end of each quarter;
(c)	audited statutory accounts of each Group Company as per US GAAP within 60 days from the end of the financial year;
(d)	the Annual Budget and annual revised Business Plan (including estimated major items of income and capital expenditure and monthly cash flow) not later than 90 days before the start of each financial year; and
(e)	such other information relating to the Group or any Group Company as any Shareholder may reasonably request from time to time.

It is clarified that any information provided, whether at the request of one Shareholder or the other, shall be provided to both Shareholders simultaneously. Further, any request for information by a Shareholder shall be forwarded by the Company to the other Shareholder and the other Shareholder shall have the right to object if, in its reasonable judgement, the provision of such information would result in the breach of the confidentiality obligations provided in this Agreement. The Company shall not and shall cause each Group Company not to disclose any information the disclosure of which has been reasonably objected by a Shareholder as would result in the breach of the confidentiality obligations provided in this Agreement.

8.3

Audit rights

The Party that commissions an audit shall be responsible for the costs related to such audit unless specified otherwise in this Agreement. The Parties shall ensure that Imation and MBI shall each have the right, at any time with written notice to MBI or Imation (as the case may be), to appoint either its own internal auditors or the external auditors of the Company to inspect and audit all relevant books, records and practices and interview the relevant personnel of the Company and the Subsidiaries only for the purpose of determining: (i) whether the financial reporting of the Company and of the Subsidiaries and their underlying practices is being carried out in accordance with US GAAP on a consistent basis; and/or (ii) whether the business practices of the Company and the Subsidiaries are being carried out in accordance with the Group’s Business Conduct Policy and other company policies.

8.4	Exercise of audit rights
	In connection with the exercise by any Party of the audit rights in Clause 8.3:

(a) such rights shall be exercised in such a manner as not to disrupt or otherwise adversely affect the business and operations of the person who is the subject of the audit;

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(b)

the relevant Group Company who is the subject of the audit shall take all necessary action, make all necessary facilities available and otherwise to reasonably co-operate with the audit being undertaken; and

(c)

the Party exercising such rights shall ensure the relevant auditors include in their mandate letter a confidentiality undertaking in a customary form restricting the disclosure of Confidential Information (as defined in Clause 10.1), including the restriction on the disclosure of Restricted Information (as defined in Clause 8.5.1) by the auditors subject to the same limitations as applicable to Imation Purchasers and the Company under Clause 8.5.

8.5	Restriction on disclosure of information
8.5.1	In addition to the generality of the obligations contained in Clause 10, the Parties acknowledge that information of any Group Company relating to Customer lists or information on an individual Customer or a potential customer or order basis regarding the Customer sales volume, Product mix, Product pricing or other similar information (Restricted Information) is very sensitive and competitive in nature and should not be disclosed except in the manner and to the extent provided under this Agreement. Notwithstanding anything to the contrary in this Agreement, the Company, International and Imation each undertakes to MBI that it shall ensure that the Group Companies shall not, and that the officers and employees of the Group Companies shall not, disclose any Restricted Information to any Imation Purchaser, provided that the Group Companies may disclose the Restricted Information to any Imation Purchaser (excluding any person working in the PSS Division (other than its financial controller)) strictly on a need to know basis and provided that any Restricted Information so disclosed shall be copied simultaneously by the relevant Group Company to MBI.
8.5.2	Imation further undertakes to the Company, International and to MBI that each Imation Purchaser (including the financial controller of the PSS Division) to whom the Restricted Information has been disclosed pursuant to Clause 8.5.1 and any recipient of such Restricted Information pursuant to this Clause 8.5.2 shall keep confidential such Restricted Information, shall not use any Restricted Information for any purpose in competition with the activities of the Group and/or MBI and shall not disclose Restricted Information to any person:

(a)	who is working in the PSS Division (excluding its financial controller); and
(b)	other than strictly on a need to know basis.

This Clause 8.5 shall not prohibit the disclosure of information, with the prior written approval of MBI, Imation and the Company, related to the sale of Products by any Group Company to any Customer which is an actual or potential Customer of both a Group Company and any Imation Purchaser.

8.6

Access and verification of Company information

Every invoice which a Group Company raises on its Customer shall be copied to MBI’s financial controller providing details of the Customer, Product mix, volume of sales and pricing of Products. MBI’s financial controller shall also be given online access to the Group’s information system on a read-only basis. MBI undertakes to Imation and the Company that its financial controller shall keep such information strictly confidential and shall not disclose such information to any person other than strictly on a need to know basis, provided that MBI may disclose such information to its officers, employees, legal or other professional advisers, to the extent necessary to enable it or them to perform or cause to be performed or to enforce any of its rights or obligations under this Agreement.

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9 Minority Shareholder Protections

9.1

List of minority Shareholder protections

Notwithstanding any other provision of this Agreement, no obligation of the Company or any of its Subsidiaries shall be entered into, no decision shall be made and no action shall be taken by or with respect to the Company or any of its Subsidiaries in relation to the following matters unless such obligation, decision or action as the case may be, is approved, if at any meeting of the Shareholders, duly called for the purpose of considering such obligation, decision or action, by an affirmative vote of MBI, and if at the meeting of the Board by an affirmative vote of, at least one nominee Director of MBI, and Imation shall ensure that the Company shall always act as stated above in respect of the following matters:

(a)	have any resolution passed or petition presented for its liquidation, winding up or de-registration or otherwise enter into any insolvency, bankruptcy or receivership proceeding;
(b)	increase or reduce the share capital of the Company or issue or allot or create any option or right to subscribe or acquire any shares, stock, debentures or debenture stock or convert loans or debentures into shares;
(c)	amend the Memorandum of Association or Articles of the Company;
(d)	enter into or vary or alter the terms of any Related Party Agreement or make loans, advances, investments or provide guarantees or security to Related Parties. For the avoidance of doubt, the making of purchase orders and sales orders by the Company for the purchase of Products from MBI and for the sale of Products to Imation Purchasers shall not require approval under this Clause 9.1;
(e)	change, discontinue or suspend the Business or carry on any business other than the Business;
(f)	incur any borrowings by the Group in any financial year which exceeds the lower of AED100,000 and 20% of the average borrowings of the Group during the previous financial year;
(g)	if closely related to the Business, create any mortgage, charge, pledge or any other encumbrance by the Group upon or in respect of the whole or more than 20% of the Business or the whole or more than 20% of the Group’s total assets;
(h)	if not closely related to the Business, create any mortgage, charge, pledge or other encumbrance upon or in respect of any of the Business or the Group’s assets;
(i)	acquire or dispose of any material interest in any business or company, participate in any partnership or joint venture or enter into any scheme of arrangement or merger;
(j)	enter into any one or a series of transactions by the Group in any financial year which causes the acquisition or disposal of any asset with a value of more than 20% of the fair market value of the Group’s total assets as existing on the beginning of each financial year;
(k)	create any capital reserve (save as required by the Applicable Laws);
(l)	incur any capital expenditure for any amount unrelated to the Business;

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(m)	the declaration or payment of any dividend or the declaration or making of any other distribution to Shareholders or the passing of any resolution to allocate profits to Shareholders;
(n)	formation of any Subsidiary (other than pursuant to Clause 6.7);
(o)	providing any guaranty or the extension of guarantees in respect of the obligations of any third party (other than another Group Company);
(p)	any merger, consolidation, reconstitution, recapitalization, reorganization, amalgamation or other business combination involving any Group Company or any combination of the above;
(q)	the initiation or settlement in any jurisdiction of legal or arbitration proceedings, other than routine debt collection, which involves an amount (including related costs for the Group) in excess of US$500,000; or
(r)	delegate to any person any power on any of the above or any commitment or agreement to do any of the foregoing.

9.2

Deadlock resolution

If the Shareholders are unable to agree on a matter referred to in Clause 9.1 (a Disputed Matter), the Disputed Matter may be referred to a committee (the Executive Committee) comprising the chief executive officer of Imation and the managing director of MBI. Any Nominated Director may make such a reference if the Disputed Matter has not been resolved within 30 days of (a) its first being considered by the Board or (b) the dissolution of a meeting which was convened to consider such matter. The reference to the Executive Committee shall contain a statement setting out the facts relevant to the Disputed Matter and the Executive Committee shall be supplied by the Company or the Shareholders with all such other information as it may require in order to reach a determination of the Disputed Matter. The Executive Committee shall meet within 30 days (or such longer period as the Executive Committee shall agree in writing) of the reference being made and shall attempt in good faith to resolve the Disputed Matter. The decision of the Executive Committee shall be final and binding on the Shareholders and shall be adopted as a decision of the Shareholders and the Board. If the Executive Committee fails to arrive at a unanimous decision on any such matter, no decision shall be taken by the Company or the Board to implement such proposal.

9.3

Related Party Agreements

Notwithstanding anything to the contrary in this Agreement, any decision by a Group Company in connection with the termination or enforcement of any Related Party Agreement in accordance with the terms thereof shall be made solely by the Nominated Directors of the Shareholder (the Non-Related Shareholder) which is not the person, or whose Related Party is not the person, against which the Related Party Agreement is being enforced or terminated in accordance with the terms thereof. The other Shareholder shall, and shall ensure that, its respective Nominated Directors shall, not take or seek to take, or be involved in any meeting (or the relevant part of any meeting) of the Board or the shareholders or other discussions in relation to, a decision concerning such termination or enforcement and, in particular, the Nominated Directors of the other Shareholder shall not have a right to vote on such decision.

9.4

Application of restrictions to Subsidiaries

Clauses 9.1- to 9.3 shall apply to each Subsidiary mutatis mutandis, so that the reference to the term Company shall refer to such Subsidiary and the reference to Memorandum of Association or Articles of the Company shall refer to the memorandum of association or the articles of association of such Subsidiary and the reference to other defined terms in relation to the Company shall have the correlative meaning in relation to each Subsidiary.

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10 Confidentiality and Announcements

10.1

Definitions in this Clause

In this Clause Confidential Information means all information and documents of confidential nature including, without limitation, confidential or secret information relating to the Business, trade ideas, trade secrets, patents, business methods, processes, know-how, finances, customer pricing, customer lists, customer volumes, Product mix, business plans, sales targets, sales statistics, customer relationships, database in computer systems, relating to any Group Company or MBI or Imation and any and all information received or obtained by a Party as a result of entering into or performing this Agreement.

10.2

Duty of confidentiality

Except as provided in Clause 10.3, each Party shall, and shall ensure that its and its Associates’ officers, employees, consultants, representatives, auditor and agents shall, keep confidential and not disclose to any person any Confidential Information. Notwithstanding anything to the contrary in this Agreement, no Party shall use any Confidential Information to further its own interest to the detriment of any other Party.

10.3	Permitted disclosures
	A Party may disclose or permit the disclosure of Confidential Information:

(a)	to its officers, employees, legal or other professional advisers, to the extent necessary to enable it or them to perform or cause to be performed or to enforce any of its rights or obligations under this Agreement, provided however, that under no circumstances shall Imation and/or any Group Company disclose any information in breach of Clause 8.5;
(b)	when required to do so by law or by or pursuant to the rules or any order of any court, tribunal or agency of competent jurisdiction;
(c)	to the extent that the Confidential Information has become publicly available or generally known to the public at the time of such disclosure otherwise than as a result of a breach of this Agreement; or
(d)	when required by any securities exchange, accounting, regulatory or governmental body having jurisdiction over the Party seeking to make disclosure (whether or not the requirement for disclosure has the force of law).

10.4	Consultation
	If a Party is required to disclose Confidential Information in a manner permitted by Clause 10.3(b) or (d) that Party shall to the extent such consultation is practicable and permitted by the relevant law, rule, order, exchange or body:

(a)	provide the other Parties with advance notice of the requirement and a copy of the information to be disclosed;
(b)	take into account any representations made by any other Party in relation to it; and

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(c) at the expense of and subject to being indemnified to its satisfaction by the other Party give the other Parties a reasonable opportunity to seek an appropriate remedy to prevent such disclosure and co-operate fully (including if necessary joining in legal proceedings) with the other Parties.

10.5	Restrictions on announcements
	Except as provided in Clause 10.6, a Party shall not make (and shall ensure that its officers, employees and Associates shall not make) any public announcement concerning the subject matter of this Agreement without the prior written approval of the other Parties.

10.6	Permitted announcements
	A Party may make a public announcement concerning the subject matter of this Agreement if required by:

(a)	law or by or pursuant to the rules or any order of any court, tribunal or agency of competent jurisdiction; or
(b)	any securities exchange, accounting, regulatory or governmental body having jurisdiction over it, whether or not such requirement for announcement has the force of law.

10.7	Prior consultation on announcements
	If a Party is required to make a public announcement in a manner permitted by Clause 10.6 that Party shall to the extent practicable and permitted by the relevant law, rule, order, exchange or body:

(a)	provide the other Parties with advance notice of the requirement and a copy of the announcement to be made;
(b)	take into account any representations made by any other Party in relation to it; and
(c)	at the expense of and subject to being indemnified to its satisfaction by the other Party give the other Parties a reasonable opportunity to seek an appropriate remedy to prevent such announcement and co-operate fully (including if necessary joining in legal proceedings) with the other Parties.

10.8	Continuance of obligations
	The obligations in this Clause 10 shall continue to apply after termination of this Agreement without limit in time.

11    Transfer of Shares

11.1	General prohibition on Share transfers
	No Shareholder shall assign, transfer, exchange, pledge, mortgage, charge or otherwise encumber or dispose of any of the Shares held by it or any interest in them except pursuant to Clause 11.2 and in any event without having first obtained the approval of the Authority in accordance with the Applicable Laws.

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11.2	Permitted transfers
	A Shareholder may transfer all (but not part only) of its Shares to its wholly owned subsidiary company (either directly or indirectly) (a Permitted Transferee) subject to:

(a)	the Permitted Transferee agreeing forthwith to transfer all of its Shares to the transferor or to another Permitted Transferee of the original transferor forthwith upon the Permitted Transferee ceasing to be a Permitted Transferee of the transferor; and
(b)	the Permitted Transferee and, if required by another Party a guarantor acceptable to such Party in respect of the Permitted Transferee’s obligations under this Agreement, entering into a deed agreeing to become party to and be bound by the terms of this Agreement in the form acceptable to the other Party (acting reasonably).

12 Duration and termination

12.1	Duration
	This Agreement shall continue unless and until terminated:

(a)	by the written agreement of the Parties; or
(b)	in accordance with Clause 12.2, 12.3 or 12.4.

12.2	Termination without cause
	This Agreement shall terminate without cause:

(a)	by either Imation or MBI giving to the other at least 12 months notice, such notice to be given not earlier than the third anniversary of the date of Closing; or
(b)	by MBI giving notice to Imation in the circumstances set out in Clause 12.10.

12.3	Termination with cause by Imation
	This Agreement shall be terminated with cause by Imation forthwith by Imation (the Non-Defaulting Party) giving to MBI (the Defaulting Party) written notice following the occurrence of any of the following events:

(a)	MBI fails to remedy any material breach of any representation and warranty or any covenants, agreements or obligations on its part of this Agreement within 30 days from the service of a written notice by Imation specifying such breach; or
(b)	the making of a voluntary or, unless it has been set aside within 90 days, involuntary bankruptcy filing in respect of MBI, the liquidation or dissolution of MBI, the making of any order or the passing of any resolution for the appointment of an administrator or for the winding-up of MBI (or any analogous proceedings); or
(c)	an encumbrancer lawfully takes possession or a receiver is validly appointed over the whole or any part of the undertaking, property or assets of MBI.

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12.4	Termination with cause by MBI
	This Agreement shall be terminated with cause by MBI forthwith by MBI (the Non-Defaulting Party) giving to Imation (the Defaulting Party) written notice following the occurrence of any of the following events:

(a)	Imation fails to remedy any material breach of any representation and warranty or any covenants, agreements or obligations on its part of this Agreement within 30 days from the service of a written notice by MBI specifying such breach; or
(b)	the making of a voluntary or, unless it has been set aside within 90 days, involuntary bankruptcy filing in respect of Imation, the liquidation or dissolution of Imation, the making of any order or the passing of any resolution for the appointment of an administrator or for the winding-up of Imation (or any analogous proceedings); or
(c)	an encumbrancer lawfully takes possession or a receiver is validly appointed over the whole or any part of the undertaking, property or assets of Imation.

12.5	Termination with cause - termination fee
	In the case of termination pursuant to either Clause 12.3(a) or Clause 12.4(a), within 14 days following either:

(a)	the written agreement of the Shareholders that the Agreement has been terminated in accordance with the relevant Clause; or
(b)	an arbitration award made pursuant to Clause 17 to the effect that the Agreement has been terminated in accordance with Clause 12.3(a) or 12.4(a) (as the case may be),

without prejudice to any other rights which the Non-Defaulting Party may have against the Defaulting Party under this Agreement, the Defaulting Party will pay to the Non-Defaulting Party the sum of US$ 2,000,000. The aforesaid sum of US$2,000,000 has been agreed to by the Parties as the compensation for the damage which the Non-Defaulting Party is likely to suffer as a result of termination of this Agreement.

12.6

Consequences of termination - liquidation of the Company and its Subsidiaries

On any termination of this Agreement, the Parties shall ensure the solvent winding-up of each Group Company’s affairs in accordance with the Applicable Laws. Any surplus assets following the winding-up shall be distributed amongst the Shareholders as they may agree in writing or, in the absence of such agreement, pro rata to their holdings of Shares immediately prior to the winding-up of the Company. Upon liquidation of the Company, Imation shall not have the right to use any name comprising of the words “MBI” or any similar or deceptive words in any manner whatsoever and neither Imation nor MBI shall have the right to use any name comprising of the words “Global Data Media” or any similar or deceptive words in any manner whatsoever.

12.7

Consequences of termination - Imation as Defaulting Party

If the Agreement is terminated pursuant to Clause 12.4 as a result of Imation being the Defaulting Party, Imation shall not, and shall ensure that its Associates shall not, for a period of 12 months from the date of termination save with the prior written consent of MBI enter into a similar joint venture with respect to the Products with any third party including but not limited to CMC, Ritek, Prodisc and Taiyo Yuden. For the avoidance of doubt, this restriction shall not operate to prevent Imation or any of its Associates purchasing its requirements for the Products from a third party manufacturer on arms’ length terms.

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12.8

Consequences of termination - MBI as Defaulting Party

If the Agreement is terminated pursuant to Clause 12.3 as a result of MBI being the Defaulting Party, MBI shall not, and shall ensure that its Associates shall not, for a period of 12 months from the date of termination save with the prior written consent of Imation enter into a similar joint venture with respect to the Products. For the avoidance of doubt, this restriction shall not operate to prevent MBI or any of its Associates entering into agreements with customers for the sale of the Products on arms’ length terms.

12.9	Consequences of termination - Non solicitation
	For a period of 12 months following the termination of this Agreement for whatever reason:

(a)	each Party undertakes with the other Parties that it shall not, and shall ensure that its Associates shall not, directly or indirectly solicit or employ any person who, in the period of 12 months prior to such termination, was an employee of any Group Company and who had also either previously been an employee of that other Party or one of its Associates or had been nominated as an employee of a Group Company by that other Party pursuant to this Agreement. For the avoidance of doubt it is clarified that any person appointed by the Managing Director from the list of candidates selected by the Sales Director in terms of Clause 6.3 and Clause 6.4 shall be deemed to have been an employee of MBI for the purpose of this Clause 12.9(a);
(b)	save with the prior consent of MBI, Imation undertakes with MBI that it shall not, and shall ensure that no Imation Purchaser shall, directly or indirectly solicit or employ any employee of MBI or one of its Associates; and
(c)	save with the prior consent of Imation, MBI undertakes with Imation that it shall not, and shall ensure that its Associates shall not, directly or indirectly solicit or employ any employee of an Imation Purchaser.

12.10

Termination for disagreement on a Major Decision

This Clause 12.10 sets out the circumstances referred to in Clause 12.2(b). No earlier than 10 days and no later than 40 days following the taking of a decision by the Board or (as appropriate) the Managing Director on any matter listed in Clause 12.11 and provided that no B Director voted in favour of such matter, MBI shall be entitled to terminate this Agreement on giving 12 months plus one day’s written notice of such termination to the Company and to Imation. For the avoidance of doubt, the giving of such notice shall not prohibit the relevant Group Company from acting upon any such decision.

12.11	List of Major Decisions
	The list of decisions referred to in Clause 12.10 which shall only be taken at a meeting of the board of directors or at a general meeting of the relevant Group Company, is as follows:

(a) the appointment, removal or the determination of the material terms of employment of any of the following management positions within the Group:

(i)	the MD; and
(ii)	the Director of Sales;

(b) change in the external auditors of the Company or any of its Subsidiaries;

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(c)	the entering into by the Company or its Subsidiaries with any party (excluding a Group Company) of any contract, agreement or other commitment (or a series of contracts, agreements or other commitments with the same party) for the sale or purchase of Products and/or Other Goods (other than the purchase of Products and/or Other Goods from MBI) at a consideration which exceeds in aggregate the sum of US$ 5 million;
(d)	any disbursement of funds by the Group in excess of the amounts approved in the Annual Budget plus a margin of 20%;
(e)	the Company or its Subsidiaries entering into any agreement with directors, officers or employees of the Company other than an employment agreement or the like;
(f)	the issuance of duplicate share certificates or consolidation, sub-division, cancellation, forfeiture, reduction, redemption, purchase, buy-back of any shares in the Company or its Subsidiaries;
(g)	the determination of the Annual Budget and the Business Plan and any amendments thereto; and
(h)	(unless such matter is specifically provided for in the Annual Budget) the incurring of any expenditure by any Group Company (other than for the purchase of Products) in excess of US$250,000 per item or a series of transactions for the same subject matter the aggregate amount of which exceeds US$250,000.

13 Representations, Warranties and Indemnities

13.1

Warranties by Imation

Imation represents and warrants to MBI that each of the statements in Part 1 of Schedule 1 is true and accurate and not misleading as of the date of execution of this Agreement and each such representation and warranty shall be repeated at Closing. Further, Imation represents and warrants that each of the statements in Part 1 of Schedule 1 shall also be true and accurate and not misleading throughout the subsistence of this Agreement.

13.2

Warranties by MBI

MBI represents and warrants to Imation that each of the statements in Part 2 of Schedule 1 is true and accurate and not misleading as of the date of execution of this Agreement and each such representation and warranty shall be repeated at Closing. Further, MBI represents and warrants that each of the statements in Part 2 of Schedule 1 shall also be true and accurate and not misleading throughout the subsistence of this Agreement.

13.3	Compliance with laws
13.3.1	Each Party represents to the other Parties that it will, in acting under this Agreement, comply at all times with all applicable laws, rules and regulations and in particular, but without limitation, those relating to the prevention of money-laundering, the protection of the environment, health and safety of employees and contractors and employment practices.
13.3.2	The performance by Imation and each Group Company of its obligations under this Agreement shall be subject to the applicable laws of the United States of America, including, without limitation, US Department of State, Treasury or Commerce Export Control or other US Government regulations relating to the export, re-export, transfer or disclosure, directly or indirectly, of products and/or technical data supplied under or in accordance with this Agreement. Accordingly, the non-performance by Imation and/or any Group Company in whole or in part because of such US laws or regulations shall not be construed as and shall not constitute a default by Imation and/or the relevant Group Company of any obligation applicable to them and such non-performance shall not subject any of them to any liability for damages or convey any right to any other person to terminate this Agreement.

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13.3.3 The performance by MBI of its obligations under this Agreement shall be subject to the applicable laws of the Republic of India, including, without limitation, the Reserve Bank of India and other regulatory and statutory authorities relating to the export, re-export, transfer or disclosure, directly or indirectly, of products (including Products and Other Goods) and/or technical data supplied under or in accordance with this Agreement. Accordingly, the non-performance by MBI in whole or in part because of such Indian laws or regulations shall not be construed as and shall not constitute a default by MBI of any obligation applicable to it and such non-performance shall not subject any of them to any liability for damages or convey any right to any other person to terminate this Agreement.

13.4

Consent to certain matters

The Parties acknowledge that neither Imation has nor has any Group Company, authority to, and nor any Group Company shall, without the prior written consent of Imation, export, re-export, transfer or disclose any product or technical data supplied under or in accordance with this Agreement directly or indirectly to such countries as may from time to time be specified by the US Department of State, Treasury or Commerce Export Control or to anyone in any such country or any national thereof. It is understood that Imation’s power to give consent to such supply or the transfer or disclosure of technical data is limited by the US government and that in some cases Imation may be forbidden to give such consent, and in case it is so forbidden then Imation’s failure to give such consent shall not be ground for a claim, right or cause of action on the part of any person under this Agreement.

13.5	US Foreign Corrupt Practices Act
	MBI represents and warrants to Imation that it is familiar with the terms of the US Foreign Corrupt Practices Act (FCPA) as attached to this Agreement and that, to the best of its knowledge, it has no knowledge of any act that has been taken or is contemplated that would violate the FCPA in connection with performance of this Agreement.

13.6

Indemnity

Each Party (the Indemnifying Party) agrees to indemnify and keep indemnified each other Party (the Indemnified Party) from and against any and all actions, claims, liabilities, losses, costs and expenses (including, but not limited to, court costs and reasonable professional fees) that are incurred by the Indemnified Party arising from any breach by the Indemnifying Party of its obligations or undertakings in this Agreement or any breach or inaccuracy of any representation or warranty on its part contained in this Agreement. Further, Imation also agrees to indemnify and keep indemnified MBI from and against any and all actions, claims, liabilities, losses, costs and expenses (including, but not limited to, court costs and reasonable professional fees) that are incurred by MBI arising from any claim brought by a third party against the Company and/or International from and after the date of Closing other than for any action taken by the Company and International prior to the date of Closing in the ordinary course of establishing the Company and/or International.

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13.7	Limitation of Liability
	In no event shall any Party be liable to the other under this Agreement for consequential, special, or indirect damages of any kind whatsoever.

14 General

14.1	Parties’ general obligation
	Each Party undertakes to act in good faith and do all such things as may be within its power, including but without limitation:

(a)	passing or ensuring the passing of all resolutions at meetings of the Board and of the members of the Company; and
(b)	exercising all rights, powers and privileges, whether granted pursuant to this Agreement or the Applicable Laws,

in order to put in effect, or preserve the effect of, the terms of this Agreement.

14.2

Conflict with the Regulations

To the extent permitted by the Applicable Laws, the Parties intend that the provisions of this Agreement shall prevail over the Articles in the event of conflict and, accordingly, the Parties shall, if necessary, exercise all voting and other rights and powers available to them as shareholders or under this Agreement to ensure, to the extent permitted by the Applicable Laws, that the terms of this Agreement shall prevail in such circumstances.

14.3	No partnership
	Nothing in this Agreement shall constitute or be deemed to constitute a partnership between the Parties.

14.4	Costs
	Each Party shall pay its legal and other fees incurred in putting into effect the provisions of this Agreement.

14.5	No Assignment
	No Party may assign its rights and obligations under this Agreement without the prior written consent of the other Parties, other than to the Permitted Transferee of a Shareholder to which it has transferred its Shares in accordance with Clause 11.2.

14.6	Execution in Counterparts
	This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any Party whose signature appears thereon, and all of such shall together constitute one and the same instrument.

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15     Notices

15.1

Method and delivery

Any notice or other communication to be given under this Agreement shall be in writing in English and, unless otherwise provided, shall be sent first by email and then confirmed either by being delivered by hand, sent by prepaid recorded delivery or registered post, or sent by facsimile to the email address, address or facsimile transmission number given in Clause 15.2 (or such other email address, address or facsimile transmission number as the receiving Party has specified to the sending Party on at least 10 days’ notice).

15.2	Addresses
	The addresses and numbers of the Parties for the purposes of Clause 15.1 are:

(a) Imation:

Address:	1 Imation Place, Oakdale MN 55128-3414, USA
Attention:	Robert Edwards
Email:	rledwards@imation.com
Fax number:	001 651 704 7967
Copy to:	John L. Sullivan, General Counsel
Email:	jlsullivan@imation.com
Fax:	001 651 704 4412

(b) MBI:

Address:	63, Ring Road, Lajpat Nagar III, New Delhi-110024, India
Attention:	Ratul Puri
Email:	ratul.puri@moserbaer.net
Fax number:	00 91 11 26218429
Copy to:	Rakesh Govil
Email:	rakesh.govil@moserbaer.net
Fax:	00 91 11 26224066

(c) the Company:

Address:	Office No. 199/120, Building 14, First Floor, Dubai Internet City, Dubai, UAE
Attention:	Thomas W. Foyer
Email:	tfoyer@mbi-intl.com
Fax number:	00 971 4 3908718

(d) International:

Address:	Office No. 199/120, Building 14, First Floor, Dubai Internet City, Dubai, UAE
Attention:	Thomas W. Foyer
Email:	tfoyer@mbi-intl.com
Fax number:	00 971 4 3908718

15.3	Receipt
	Any notice or other communication given or made under this Agreement shall, in the absence of earlier receipt, be deemed to have been received as follows:

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(a)	if sent by email, 24 hours from the time of transmission provided that the sender has received a message from the recipient confirming that the message has been delivered and accessed;
(b)	if delivered by hand, at the time of actual delivery;
(c)	if posted, on the fifth day following the day on which it was despatched by pre-paid post; or
(d)	if sent by facsimile transmission, with a confirmed receipt of transmission from the receiving machine

provided that if any day on which a notice would otherwise be deemed to have been received under this Clause 15.3 is not a working day in the place of receipt, such notice shall be deemed to have been received on the next working day in the place of receipt.

16	English law
	This Agreement shall be governed by and construed in accordance with the laws of England.

17 Arbitration

17.1

Submission to arbitration

Any dispute or difference of any kind whatsoever arising between the Parties out of, under, or in connection with this Agreement (including, without limitation, any question regarding its existence, interpretation, validity or termination) which cannot be resolved by consultation between the chief executive officer of Imation and the managing director of MBI within 30 days of the matter being referred to them by either Party (a Dispute) shall be referred to and finally resolved by arbitration in Paris, France before three arbitrators appointed in accordance with, and shall be decided pursuant to, the Rules of Conciliation and Arbitration of the International Chamber of Commerce from time to time. MBI shall appoint one arbitrator and Imation, International and the Company shall together appoint one arbitrator. The third arbitrator shall be appointed by those two arbitrators and shall act as chairman of the arbitration tribunal.

17.2	Language of proceedings
	The proceedings shall be conducted in the English language.

18     Imation Guarantee

18.1

Guaranteed obligations

Imation hereby irrevocably and unconditionally guarantees as a continuing guarantee the payment when demanded by MBI of all undisputed sums due owing or outstanding from either the Company or any other Group Company under this Agreement and the due performance by the Company and each other Group Company of all and several of its obligations under this Agreement and agrees to indemnify MBI from and against all loss, damage, costs and expenses which it may suffer through or arising from any failure by either the Company or any other Group Company to perform any of its said obligations or any failure by either the Company or any other Group Company duly, fully and punctually to pay any sum required to be paid by it or otherwise to perform its said obligations.

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18.2	No release etc
	Without prejudice to MBI’s rights against the Company and each Group Company, as between MBI and Imation, Imation shall be liable under this Clause 18 as if it were the sole principal debtor and not merely a surety, and its liability under this Clause 18 shall not be released, discharged or diminished by:

(a)	any legal limitation lack of capacity or authorisation or defect in the actions of either the Company or any other Group Company in relation to, any invalidity or unenforceability of, or any variation (whether or not agreed by Imation) of any of the terms of this Agreement, the bankruptcy, liquidation, insolvency, or dissolution of either the Company or any other Group Company or any change in either the Company or any other Group Company’s identity, constitution, status or control; or
(b)	any forbearance, neglect or delay in seeking performance of the obligations of either the Company or any other Group Company, any granting of time indulgence or other relief to either the Company or any other Group Company in relation to such performance, or any composition with, discharge, waiver or release of either the Company or any other Group Company; or
(c)	any other act, omission, fact or circumstance which might otherwise release, discharge or diminish the liability of a guarantor.

18.3

No avoidance of release, settlement etc

Any release, settlement or discharge between MBI and either the Company or any other Group Company shall be conditional upon no security or payment made or given to MBI being avoided, reduced, set aside or rendered unenforceable by virtue of any provision or enactment now or hereafter in force relating to bankruptcy, insolvency or liquidation and if any such security or payment shall be avoided, reduced, set aside or rendered unenforceable, MBI shall be entitled to recover the full amount or value of any such security or payment from Imation and otherwise to enforce this Clause 18 as if such release, settlement or discharge had not taken place.

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Survival

Notwithstanding any other provision in this Agreement to contrary, Clause 8.5 (Restriction on disclosure of Information), Clause 10 (Confidentiality and Announcements), Clause 12.5 to Clause 12.11, Clause 13.6 (Indemnity), Clause 13.7 (Limitation of Liability), Clause 14.4 (Costs), Clause 15 (Notices), Clause 16 (Governing Law), Clause 17 (Arbitration), Clause 18 (Imation Guarantee) and this Clause 19 (Survival) shall survive any termination of this Agreement.

Signed by the Parties or their duly authorised representatives the day and year first before written

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Schedule 1 - Representations and Warranties

Part 1

1.	Due Incorporation of Imation
	Imation is duly incorporated with limited liability as a corporation in the State of Delaware, USA.
2.	Due Authority of Imation
	The signature, execution and performance of this Agreement and all ancillary documents by Imation have been duly authorised and are within the corporate power of Imation, constitute binding obligations of Imation in accordance with their terms and will not give rise to any breach of any instrument, debenture, mortgage, agreement, law, order, judgment or decree by which Imation is bound, including all the contracts to supply Products including the contracts between Imation and CMC Magnetics Corporation and more particularly their agreement dated 22 January 1999 (as amended).
3.	Consents Obtained
	All consents, licences or approvals required by law or regulation in order for Imation to enter into this Agreement and all ancillary documents have been obtained without conditions or limitations which would limit Imation’s performance of this Agreement and all ancillary documents.
4.	Investigations
	Complete and accurate copies of all material documents relating to any actual, pending or threatened investigation or inquiry by any governmental, judicial or other analoguous body into the business and affairs of Imation and which could have a material effect on Imation’s ability to perform its obligations in relation to the transaction contemplated by this Agreement have been disclosed in writing to MBI prior to the date of this Agreement.

Part 2

1.	Due Incorporation of MBI
	MBI is duly incorporated with limited liability as a public limited company in India.
2.	Due Authority of MBI
	The signature, execution and performance of this Agreement and all ancillary documents by MBI have been duly authorised and are within its corporate power, constitute binding obligations of MBI in accordance with their terms and will not give rise to any breach of any instrument, debenture, mortgage, agreement, law, order, judgment or decree by which MBI is bound.
3.	Consents Obtained
	All consents, licences or approvals required by law or regulation in order for MBI to enter into this Agreement and all ancillary documents have been obtained without conditions or limitations which would limit MBI’s performance of this Agreement and all ancillary documents.

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4.	Employees
	Complete and accurate details of the terms of employment of and the current remuneration and other benefits to which such employees of MBI who are listed in the agreed form list referred to in Clause 6.4 are entitled have been provided to Imation in writing prior to the date of this Agreement.
5.	Investigations
	Other than with respect to the ongoing anti-dumping and anti-subsidy investigations into CD-R and CD-RW Products sold by MBI in Europe, complete and accurate copies of all material documents relating to any actual, pending or threatened investigation or inquiry by any governmental, judicial or other analoguous body into the business and affairs of MBI which could have a material effect on MBI’s ability to perform its obligations in relation to the transaction contemplated by this Agreement have been disclosed in writing to Imation prior to the date of this Agreement.

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Schedule 2 - Closing obligations

1.	Obligations of Imation
	Imation shall:

(a)	against payment of the sum referred to in paragraph 2(a), ensure the signature, notarisation and delivery to the Company for registration of a share transfer deed, duly executed by Imation Europe B.V., for the transfer of 245 Shares in favour of MBI;
(b)	ensure the signature, notarisation and delivery to the Company for registration of a share transfer deed, duly executed by Imation Europe B.V., for the transfer of 255 Shares in favour of Imation;
(c)	deliver to the Company the following documents, in each case notarised and attested to the level of the United Arab Emirates Embassy in the USA:

(i)	copy certificate of registration or original certificate of good standing of Imation;
(ii)	copy memorandum of association and by-laws of Imation;
(iii)	board resolution of Imation approving the holding of a 51.0% interest in the Company by Imation;
(iv)	any other documents relating to Imation which may be required in order for Imation to become the holder of Shares in the Company;

(d)	pay to the Company for subscribing to 7,232 additional Shares the sum of AED 7,232,000 in immediately available cleared funds; and
(e)	deliver to MBI a signed legal opinion in the agreed form in respect of Imation and the Company from, respectively, Dorsey & Whitney and Denton Wilde Sapte, Dubai.

2.	Obligations of MBI
	MBI shall:

(a)	pay to Imation Europe B.V. the sum of AED 245,000 in consideration for the transfer of Shares referred to in paragraph 1(a) in immediately available cleared funds;
(b)	deliver to the Company the following documents, in each case notarised and attested to the level of the United Arab Emirates Embassy in India:

(i)	copy certificate of registration or original certificate of good standing of MBI;
(ii)	copy memorandum and articles of association of MBI;
(iii)	board resolution of MBI approving the holding of a 49.0% interest in the Company by MBI;
(iv)	any other documents relating to MBI which may be required in order for MBI to become the holder of Shares in the Company;

(c) pay to the Company for subscribing to 6,949 additional Shares the sum of AED 6,949,000 in immediately available cleared funds; and

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(d) deliver to Imation a signed legal opinion in the agreed form in respect of MBI from Luthra & Luthra.

3. Joint Obligations

(1)	The Parties shall ensure that a meeting of the Board shall be held at which the following matters shall be approved:
(a)	the entry of the names of the Shareholders in the shareholder register of the Company as the holders of the Shares transferred to them pursuant to paragraph 1 (a) and (b) and the issue to each Shareholder of a share certificate in respect of such Shares;
(b)	the appointment of the persons listed below as the first Directors;

Joseph V. Gote as an A Director
Paul R. Zeller as an A Director
Brian J. Plummer as an A Director
Ramesh Sanka as a B Director
Rakesh Govil as a B Director

(c)	the appointment of Thomas W. Foyer as the secretary of the Company;
(d)	the appointment of Thomas W. Foyer as the first Managing Director;
(e)	the appointment of Sanat Kumar as the first Director of Sales;
(f)	the financial year of the Company shall end on 31 December, with the first financial year ending on 31 December 2003; and
(g)	the appointment of PricewaterhouseCoopers as auditors of the Company.
(2)	The Parties shall ensure that a meeting of the board of International shall be held at which the following matters shall be approved:
(a)	the appointment of the persons listed below as the first directors:

Joseph V. Gote as a director nominated by Imation
Paul R. Zeller as a director nominated by Imation
Brian J. Plummer as a director nominated by Imation
Ramesh Sanka as a director nominated by MBI
Rakesh Govil as a director nominated by MBI

(b)	the appointment of Thomas W. Foyer as the secretary of International;
(c)	the appointment of Thomas W. Foyer as the first Managing Director;
(d)	the appointment of Sanat Kumar as the first Director of Sales;
(e)	the financial year of International shall end on 31 December, with the first financial year ending on 31 December 2003; and
(f)	the appointment of PricewaterhouseCoopers as auditors of International.

The Parties shall co-operate with each other and take all necessary steps to ensure that the transfers of the Shares referred to in paragraphs 1(a) and (b) above shall be approved by the

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Authority and registered in the register of shareholders of the Company as soon as practicable following Closing.

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Schedule 3 - Confidentiality Agreement (Clause 6.8)

Date:                     

     To: Global Data Media FZ-LLC (“GDM”) and its direct and indirect subsidiaries (GDM and such subsidiaries are referred to individually as “Group Company” and collectively as “Group”)

Confidentiality Undertaking

Dear Sirs,

I,                                [insert the name of employee/director] have been appointed/nominated by [insert the name of the relevant Group Company/Imation Corp./Moser Baer India Limited] as [                               (incase of an employee, insert the designation of such employee)/ their nominee director on the board of directors] of                      [insert the name of relevant Group Company].

I understand that during the tenure of my (employment/appointment on the board of directors of                     [insert the name of relevant Group Company]), I may receive or become aware of Confidential Information including any Restricted Information (as defined hereafter), and I acknowledge and accept that any unauthorized disclosure of such information by me would constitute a breach of this Undertaking.

Confidential Information shall mean and include all information, data, studies, consultants reports, computer models and programs, contracts and documents of a confidential nature including, without limitation, those relating to the business, trade ideas, trade secrets, patents, business methods, processes, know-how, finances, customer pricing, customer lists, customer volumes, product mix, business plans, sales targets, sales statistics, customer relationships and database in computer systems relative to GDM or any Group Company or Moser Baer India Limited (an Indian company having its registered office at 63, Ring Road, Lajpat Nagar III, New Delhi, India and herein referred to as “Moser Baer”) or Imation Corp. (a Delaware corporation having its principal office at Imation Place, Oakdale, Minnesota, USA, and herein referred to as “Imation”) or of the any subsidiaries and group companies of Moser Baer or Imation.

I recognize and acknowledge the competitive value and confidential nature of the Confidential Information (including any Restricted Information) and the resultant damage to the concerned person if the Confidential Information (including any Restricted Information) is disclosed or is allowed to be disclosed to any unauthorized person. I acknowledge and agree that it is imperative that all Confidential Information (including any Restricted Information) remains strictly confidential.

I understand that GDM is a joint venture company between Imation and Moser Baer and that each of GDM, Moser Baer and Imation are involved in similar and competing businesses pertaining to magnetic and optical data storage products. Further, since the Group would be purchasing products from Moser Baer, any Restricted Information (as defined hereinafter) would contain information which is confidential and proprietary to the Group and/or Moser Baer and should not be disclosed except in the manner and to the extent provided herein and any unauthorised disclosure of the same to Imation or any of their employees or consultants, agents or representatives would cause irreparable

37

harm and injury to the Group and/or Moser Baer. In order to ensure that Imation and the Group work on an arms length basis and that their interests are not compromised or conflicted, I agree to the restrictions on disclosure of any portion of the Confidential Information (including any Restricted Information) imposed on me.

I agree and undertake as follows:

1.	that I shall use the Confidential Information received by me only for the purpose of performing my duties towards GDM and/or the relevant Group Company and shall not in any manner disclose any portion of the Confidential Information to any person except, subject to paragraph 3 below, strictly on a need to know basis and shall ensure that such person to whom the Confidential Information is disclosed shall keep such information strictly confidential.
2.	that I shall promptly advise GDM in writing if I learn of any unauthorized use or disclosure of Confidential Information.
3.	that notwithstanding anything to the contrary contained in this Undertaking, I shall not disclose any information of GDM or any Group Company relating to customer lists or information on an individual customer or a potential customer or order basis regarding the customer sales volume, product mix, product pricing or other similar information (“Restricted Information”) to any person except strictly on a need to know basis and only to such persons who have also executed undertakings in the form and content similar to this Undertaking, provided further, that under no circumstances shall I disclose the Restricted Information to any person who is working in or who has, in the past eighteen months, worked in the PSS Division (as defined hereinafter and excluding the financial controller of the PSS Division). I understand that the Restricted Information is very sensitive and competitive in nature and any unauthorized disclosure may cause irreparable harm and injury to Moser Baer and/or the Group. I further agree that if any disclosure of Restricted Information is required to be made to Imation or its employees, agents, representatives etc. (other than to persons who are presently working in or have in the past worked in the PSS Division as mentioned above, to whom disclosure is prohibited), then such disclosure shall only be made strictly on a need to know basis and only to such persons who have also executed undertakings in the form and content similar to this Undertaking. PSS Division means the business division within Imation and/or its associated / group companies which produces and/or sells personal computer storage applications comprising of optical media products (such as the optical data storage media in the CD and DVD recordable and re-writeable formats, whether packaged or unpackaged) and/or magnetic disc products (such as diskettes), including the relevant part of another division within Imation and/or its associated /group companies into which such business division may be reorganized in whole or in part from time to time
4.	that the restrictions in this Undertaking shall not apply to:

(a)	Confidential Information which both GDM and Moser Baer authorizes the disclosure in writing;
(b)	Confidential Information which is or becomes generally available to the public other than as a result of disclosure by me in violation of this Undertaking;
(c)	Confidential Information which is received by me from a source other than GDM, another Group Company, Moser Baer, Imation or any employees, consultants, representatives, agents of any of the foregoing entities, provided that such source, to the best of my knowledge, is not bound by a confidentiality agreement/undertaking with any person;

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(d) Confidential Information which is required to be disclosed by law or legal process or by any securities, exchanges, accounting, regulatory or governmental body (whether or not the requirement for disclosure has the force of law), after prior written notice has been given to GDM.

5.	that I acknowledge that the use or disclosure of the Confidential Information (including any Restricted Information) in a manner inconsistent with this Undertaking may cause GDM and/or the relevant Group Company and/or Moser Baer and/or Imation irreparable damage, and that the Group shall have the right to seek equitable relief including injunction to prevent the unauthorized use or disclosure. I agree not to oppose the granting of such relief to the maximum extent permissible under applicable law. Nothing shall be construed as prohibiting the Group from pursuing any other available remedies for such unauthorized use or disclosure, including the recovery of damages from me.
6.	that on my ceasing to be an employee/director of           [insert the name of relevant Group Company], I shall promptly return to [insert the name of the relevant Group Company] all documents or other materials (including any notes, copies, any reproductions, any extracts and summaries and any such information stored electronically on tapes, computer disks, or in any other manner) pertaining to the Confidential Information (including any Restricted Information) received by me during my tenure with GDM or any Group Company;
7.	that if any provision of this Undertaking shall be determined to be invalid or otherwise unenforceable by any court of competent jurisdiction, I consent and agree that the validity and enforceability of the other provisions of this Undertaking shall not be affected thereby, that this Undertaking shall be enforced to the maximum extent permitted by law, and that any provision found invalid or otherwise unenforceable may be appropriately amended by that court so as to be valid and enforceable.
8.	that the failure by any Group Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such terms, covenants and conditions.
9.	that this Undertaking shall be interpreted, governed and construed under the laws of England, as if executed and to be performed wholly within the territory of England.
10.	that I shall continue to abide by the terms hereof even after ceasing to be an employee/director of           [insert the name of relevant Group Company].

Signature of Employee/Director
Name:
Designation:

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Schedule 4 - Management Roles and Responsibilities (Clause 6.6(d))

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Global Data Media - MBI International - Glyphics Media, Inc.

Global Data Media –
Roles and Responsibilities
Summary

Glyphics Media, Inc. (USA)	GDM + MBI International (Dubai)	MBI International (India)	Imation Corp	Moser Baer India Ltd.
- Local Company Mgmt	- - Day to day operations such as operating &	- Procurement from MBI	- Strategic Direction	- Strategic Direction
	capital budgets, purchasing, pricing & employment	-Customer Relations/Account
- Front-line sales	- Company strategy	Mgmt	- Market Intelligence	- Market Intelligence
			- Capital contribution
- OEM Account Management - - Business Development	- - Planning and Forecasting - GDM-MBII Board of Directors Interface	- Marcom (Adv, tradeshows) - - Website/Internet presence	and loans - - IT systems support (Oracle + WAN)	- Capital Contribution and loans - - Product Roadmap
- Local Marketing	- - Company Identity/Company Marcom	- Market Intelligence	- Technical Assistance	- Production commitments by SKU
		- Order Fulfillment/Physical		- Product delivery and quality
- Local Market Intelligence	- - Imation customer invoicing and collections	Logistics	- Tech Service	performance
		- Product Allocation
		implementation	- Board Representation	- Technical Assistance
- Order management	- - Customer invoicing and collections	- Interface to MBI production scheduling		- IT Systems support (EMIS)
- - Credit note approvals	- - WW Sales Management (Sales Director)	- Product Road Map		- Logistics support
- - Expediting, air freight	- - Pricing Management			- Board Representation
- Local Acctg, AP, HR. IT & Admin	- - - Floor price management
- Local AR/Credit Mgmt.	- - - Margin maximization
- Local Legal and Statutory Compliance	- - Product Allocation direction/approvals

41

Glyphics Media, Inc. (USA)	GDM + MBI International (Dubai)	MBI International (India)	Imation Corp	Moser Baer India Ltd.
	- - Conflict Management
	- - Imation vs. OEM customer requirements
	- - Middle East and North Africa Sales
	- - Rolling forecasted demand to MBI
	- - Finance, Consolidations, Treasury internal/external auditing, taxation
	- - Selecting /terminating or setting compsenation of key management and other employees
Key Metrics:	Key Metrics:	Key Metrics:
- Net Sales vs. Target in $USD	- - Net Sales vs. Target in $USD	- Net Sales vs. Target - USD
- Gross Margins vs. target	- - Gross Margins vs. target	- Gross Margins vs. target
- Local SG&A vs. target	- - Company SG&A vs. target	- Logistics costs vs. target
- DSO and DOS vs. target - - Forecast accuracy vs. rolling estimate	- - DSO and DOS vs target - - Net Income and Cash flow	- Supply Chain performance vs target - - New product intro timeliness

42

Global Data Media - MBI International - Glyphics Media, Inc.

Roles and Responsibilities by Area - Page 1

					GDM-MBII	GDM-MBII	Imation	Moser Baer
	Description	Glyphics (USA)	MBII NL	MBII India	Dubai	BOD	Corp	India Ltd.
1.0	General Management
1.1	Day to day operations	MD	GM	MD India Office	MD	NA	NA
1.2	Front-line sales	Sales Director	GM	NA	Sales Director
1.3	Customer Account Mgmt	Sales Director	GM	Cust. Relations Mgr.	Sales Director
1.4	Business Development	Sales Director	GM	Cust. Relations Mgr.	Sales Director
1.5	Regional Marketing	Sales Director	NA	Cust. Relations Mgr.	Sales Director
1.6	Regional Market intelligence	Sales Director	GM	Cust. Relations Mgr.	Sales Director
2.0	Forecasting
2.0	Regional rolling forecast	Sales Director	NA	Cust. Relations Mgr.	Sales Director
2.0	MBII Consol. rolling forecast			SC Manager
2.0	MBII Consol forecast to MBI			SC Manager
2.0	MBI Manufacturing plan response							MBI production mgr.
2.0	MBII review and acceptance of Man. Plan	MD		SC Manager	MD
3.0	Order Management
3.1	New Customer approval	Sales Dir/MD	NA		Sales Dir/MD

43

					GDM-MBII	GDM-MBII	Imation	Moser Baer
	Description	Glyphics (USA)	MBII NL	MBII India	Dubai	BOD	Corp	India Ltd.
3.2	Customer order acceptance by Newco	Sales Dir/MD			Sales Dir/MD
3.3	MBII customer order acceptance by MBI							Exec. Director
3.4	Credit limit check	SC Specialist	NA		SC Specialist
3.5	Credit Limit override approval	Fin Manager			Fin Manager
3.6	Customer Orders into EMIS	SC Specialist			SC Specialist
3.7	Confirmation of customer ship date			SC Specialist
4.0	Customer Invoicing
4.1	Create and send MBI invoices to MBII							SC Specialist
4.2	Create BOL, pack list and send with product			Export Assistant
4.3	Create and send banking docs to MBII			Export Assistant
4.4	Create and send MBII invoice to customer			SC Specialist
4.5	Create and send MBII invoice to Imation AP Depts	SC Specialist			SC Specialist

44

Global Data Media - MBI International - Glyphics Media, Inc.

Roles and Responsibilities by Area - Page 2

						GDM-MBII		Moser Baer
	Description	Glyphics (USA)	MBII NL	MBII India	GDM-MBII Dubai	BOD	Imation Corp	India Ltd.
5.0	Customer Credit Notes
5.x	Approve Customer CN requests (Auth. Matrix)	Sales Dir or MD	GM	Cust. Relations Mgr.	Sales Dir or MD
5.x	Create and send CN to Customer		NA	Export Assistant
6.0	Price Management
6.1	Maintain Customer price list	Sales Dir/MD		Order Mgmt. Mgr	Sales Dir/MD
6.2	Prepare one-off price recommendation	Sales Dir/MD		Cust. Relations Mgr.	Sales Dir/MD
6.3	Transmit One-off price recomm to MD	Sales Dir/MD		Order Mgmt. Mgr	Sales Dir/MD
6.4	Approve one-off price change	Sales Dir/MD			Sales Dir/MD
6.5	Prepare permanent price change recomm.	Sales Dir/MD		Cust. Relations Mgr.	Sales Dir/MD
6.6	Forward price change recomm to MD and MBI	Sales Dir/MD		Order Mgmt. Mgr	Sales Dir/MD
6.7	Approve permanent price change	Sales Dir/MD			Sales Dir/MD
7.0	Annual Business Plan
7.1	Set annual business plan timetable				Fin Manager
7.2	Prepare business plan revenue and margin inputs				Sales Director

45

						GDM-MBII		Moser Baer
	Description	Glyphics (USA)	MBII NL	MBII India	GDM-MBII Dubai	BOD	Imation Corp	India Ltd.
7.3	Prepare operating & capital budgets, headcount levels				Fin Manager
7.4	Prepare final revenue, margin, operating & capital budgets				MD
7.5	Prepare final quarterly headcount plans Circulate final draft business plan to the BOD				MD MD
7.6	Approve annual Business Plan					BOD
8.0	Purchasing
8.1	Define purchasing process				MD/Fin Manager
8.2	Approve authorized signers list (external documents)				MD
8.3	Approve authorized approvers list and US$ limits				MD
8.5	Approve purchase requisitions (Auth. matrix)	Sales Dir, Fin Mgr and MD	GM	MD India Office	Sales Dir, Fin Mgr and MD
8.6	Approve purchase orders (Auth. matrix)	Sales Dir, Fin Mgr and MD	GM	MD India Office	Sales Dir, Fin Mgr and MD
8.7	Approve vendors (Auth. matrix)	MD/Fin Manager	GM	MD India Office	MD/Fin Manager
8.8	Approve vendor invoices for payment (Auth. Matrix)	Sales Dir, Fin Mgr and MD	GM	MD India Office	Sales Dir, Fin Mgr and MD

46

Global Data Media - MBI International -
Glyphics Media, Inc.

Roles and Responsibilities by Area Page 3

						GDM-MBII	Imation	Moser Baer
	Description	Glyphics (USA)	MBII NL	MBII India	GDM-MBII Dubai	BOD	Corp	India Ltd.
9.0	Employment Matters
9.1	Prepare headcount requisitions and promotion proposals	Sales Dir, Fin Mgr and MD	NA	MD India Office	Sales Dir, Fin Mgr and MD
9.2	Prepare salary change proposals (annual and interim)	Sales Dir, Fin Mgr and MD	GM	MD India Office	Sales Dir, Fin Mgr and MD
9.3	Approve headcount, promotions, salary changes				MD
9.4	Approve changes to MD compensation & other MD issues					BOD
9.5	Approve changes to Sales Director compensation					BOD
9.6	Hiring and dismissal of the Sales Director					BOD
9.7	Approve employee dismissal requests & related Comp.				MD
9.8	Establish employee compensation and benefits policy				MD
10.0	Capital Contributions
10.1	Set capital contributions limits						Via contract	Via contract
10.2	Approve additional capital contributions						Via contract	Via contract
10.3	Approve payment of dividends					BOD

47

Signed by	)
duly authorised for and	)
on behalf of	)	/s/ Robert L. Edwards
Imation	)
Signed by	)
duly authorised for and	)
on behalf of	)	/s/ Deepak Puri
MBI	)
Signed by	)
duly authorised for and	)
on behalf of	)	/s/ Joseph V. Gote
The Company	)
Signed by	)
duly authorised for and	)
on behalf of	)	/s/ Joseph V. Gote
International	)

48 EX-21.1 5 c82796exv21w1.htm SUBSIDIARIES

Exhibit 21.1

SUBSIDIARIES OF IMATION CORP.

			Country or State In		Percentage of
			Which Subsidiary		Ownership
			Was Organized		(Note 1)
Imation Enterprises Corp.				Delaware		100
Imation Funding Corp.				Delaware		100
Imation Insurance Ltd.				Bermuda		100
Imation Latin America Corp.				Delaware		100
	Imation do Brasil Ltda			Brazil		100
	Imation Chile S.A.			Chile		100
	Imation Mexico S.A. de C.V.			Mexico		100
	Imation Mercosur Trading S.A.			Uruguay		100
Imation Argentina S.A.C.I.F.I.A.				Argentina		100
Imation Colombia S.A.				Colombia		100
Imation de Guatemala S.A.				Guatemala		100
Imation Panama, S.A.				Panama		100
Imation Peru S.A.				Peru		100
Imation Caribbean Inc.				Puerto Rico		100
Imation Venezuela, S.A.				Venezuela		100
Imation Canada Inc.				Canada		100
Imation (Barbados) Corp.				Barbados		100
Imation (Thailand) Ltd.				Thailand		100
Imation Holdings Pte Ltd.				Singapore		100
	Imation Asia Pacific Pte Ltd			Singapore		100
		Imation ANZ Pty Ltd		Australia		100
		Imation (Shanghai) Co. Ltd.		China		100
		Imation (Guangzhou) International Co. Ltd.		China		100
		Imation (Tianjin) International Co. Ltd.		China		100
		Imation Information Technology (Beijing) Limited		China		100
		Imation Hong Kong Limited		Hong Kong		100
		Imation India Private Limited		India		100
		Imation Corporation Japan		Japan		60	*
		Imation Korea, Inc.		Korea		100
		Imation (Malaysia) SDN.BHD.		Malaysia		100
		Imation Singapore Pte. Ltd.		Singapore		100
		Imation Taiwan Ltd.		Taiwan		100
Imation Europe B.V.				Netherlands		100
	Imation France S.A.			France		100
	Imation Deutschland GmbH			Germany		100
	Imation Finanziaria S.p.A.			Italy		100
		Imation S.p.A.		Italy		100
	Imation International B.V.			Netherlands		100
	Imation So. Africa (Proprietary) Ltd.			South Africa		100
	Imation Iberia, S.A.			Spain		100
	Imation Middle East FZE			U.A.E.		100
	Imation U.K. Limited			United Kingdom		100
Imation Research Ltd.				United Kingdom		100
Global Data Media FZ-LLC				U.A.E.		51	*
	MBI International FZ-LLC			U.A.E.		51	*
	Glyphics Media Inc.			New York		51	*
	MBI International Services Private Ltd.			U.A.E.		51	*

Note 1 — Except where noted, the percentage of ownership refers to the total ownership by the indicated parent corporation.

* Japan and Global Data Media FZ-LLC and its subsidiaries are Joint Ventures EX-23.1 6 c82796exv23w1.htm CONSENT OF INDEPENDENT AUDITORS

Exhibit 23.1

Consent of Independent Auditors

      We hereby consent to the incorporation by reference in the Registration Statements of Imation Corp. on Form S-8 (Registration Nos. 333-15273, 333-15275, 333-15277, 333-35591, 333-38196, and 333-66030), of our report dated January 27, 2004, on our audits of the consolidated financial statements of Imation Corp. and subsidiaries as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, which report is included in this Annual Report on Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

March 1, 2004

EX-21.1

exv21w1

EX-23.1

exv23w1

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William T. Monahan and John L. Sullivan, and each of them, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the 2003 Annual Report on Form 10-K of Imation Corp., and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or the substitutes for such attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereof.

Name	Title	Date
/s/ PAUL R. ZELLER Paul R. Zeller	Vice President, Corporate Controller	February 6, 2004
/s/ MICHAEL S. FIELDS Michael S. Fields	Director	February 4, 2004
/s/ LINDA W. HART Linda W. Hart	Director	February 4, 2004
/s/ RONALD T. LEMAY Ronald T. LeMay	Director	February 4, 2004
/s/ MARVIN L. MANN Marvin L. Mann	Director	February 4, 2004
/s/ L. WHITE MATTHEWS, III L. White Matthews, III	Director	February 4, 2004
/s/ GLEN A. TAYLOR Glen A. Taylor	Director	February 4, 2004
/s/ DARYL J. WHITE Daryl J. White	Director	February 4, 2004

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302

of the Sarbanes-Oxley Act of 2002

      I, William T. Monahan, certify that:

      1. I have reviewed this annual report on Form 10-K 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)) 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) 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

      (c) 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.

Date: March 1, 2004

By:  /s/ WILLIAM T. MONAHAN

William T. Monahan

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302

of the Sarbanes-Oxley Act of 2002

      I, Paul R. Zeller, certify that:

      1. I have reviewed this annual report on Form 10-K 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)) 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) 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

      (c) 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.

Date: March 1, 2004

By:  /s/ PAUL R. ZELLER

Paul R. Zeller

Vice President, Corporate Controller*

*  Pursuant to a Board of Directors resolution adopted on August 6, 2003, Mr. Zeller has assumed the Chief Financial Officer function with respect to preparation of financial statements and SEC filings.

EX-32.1 10 c82796exv32w1.htm CERTIFICATION PURSUANT TO SECTION 906

Exhibit 32.1

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

      In connection with the Annual Report of Imation Corp. (the “Company”) on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William T. Monahan, Chairman and 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.

/s/ WILLIAM T. MONAHAN

______________________________________________________
William T. Monahan

Chairman and

Chief Executive Officer

March 1, 2004 EX-32.2 11 c82796exv32w2.htm CERTIFICATION PURSUANT TO SECTION 906

Exhibit 32.2

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

      In connection with the Annual Report of Imation Corp. (the “Company”) on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul R. Zeller, Vice President, Corporate Controller* 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.

/s/ PAUL R. ZELLER

______________________________________________________
Paul R. Zeller

Vice President,

Corporate Controller

March 1, 2004

* Pursuant to a Board of Directors resolution adopted on August 6, 2003, Mr. Zeller has assumed the Chief Financial Officer function with respect to preparation of financial statements and SEC filings. GRAPHIC 12 c82796c8279629.gif GRAPHIC begin 644 c82796c8279629.gif M1TE&.#EA[P%-`<0``$!`0("`@,#`P#\_/Q\?'SGIV]O;Q`0$/#P M\-#0T*"@H.#@X#`P,&!@8"`@(%!04'!P<+"PL)"0D-[>WJ:FIBDI*5-34R\O M+P\/#P<'!]_?WW]_?P```/___R'Y!```````+`````#O`4T!``7_X">.9&F> M:*JN;.N^<"S/=&W?>*[O?.__P*!P2"P:C\BDGZ"A1HX?#@$!70`!(JJDI**PL;*SM!^.$EF`"ZJL MC76O$@#"P\3%QL?(R`(=2K2H"J%&DRH%BG2ITZR@LV;-HU9A-R[;MD[5NX\HM`G>NW;M!\>K=:Z0NW[^`4?@-3#CPX,*(]1Y. 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EX-32.1

exv32w1

EX-32.2

exv32w2