Spear Point Capital Partners LLC

400 Poydras, Suite 2100

New Orleans, LA 70130
December 5, 2014
The Board of Directors
Imation Corp.
1 Imation Way
Oakdale, MN 55128
Re:

The Party is Over: The Board Must Answer to Shareholders

Dear Members of the Board:

As we1 continue to explore how to best create value at Imation Corp. (Imation or the Company),
Board compensation relative to performance remains a key issue. On November 25, 2014, the Company
announced that the Board of Directors had made certain changes to Directors compensation. This
follows on the heels of our letter to shareholders dated November 6, 2014 in which we pointed out the
absurdity of the current level of Board compensation. As the following research will show, the meager
changes made are just too little too late and are frankly insulting to shareholders. This utter
cluelessness leads us to believe the Board by and large needs to be replaced.
To be clear, the announced changes amount to slightly more than a 10% potential reduction in total
Board compensation after the changes take effect in May 2015. By comparison, shareholders have lost
33.5% of their value during the first 11 months of this year alone.2 Numbers like these only underscore
the lack of seriousness with which this Company is being run. It would be humorous if it werent for the
unbelievable audacity of making such paltry changes. The Board still does not understand the extent to
which they have mismanaged the Company. It is as though the house is on fire and they are out
weeding the garden.
Board Compensation and Performance
Since the Companys inception, the Board of Directors of Imation has gouged shareholders with Fortune
500 levels of compensation for the Board while consistently delivering negative returns to shareholders.
Rather than focus on the entire life span of the Company, we would like to highlight the Companys
performance and compensation to Board members for the period in which the longest serving Board

1
2

References to Spear Point or we, us or our are references to Spear Point Capital Partners LLC together with its affiliates.
Share price as of December 1, 2014

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member, Mr. L. White Matthews, III, began his tenure on February 5, 2003. The following graph speaks
volumes about the scale and consistency of failure displayed by the Board:

Graph 1 Shareholder returns during L. White Matthews, IIIs tenure on the Board

The Company last paid a dividend of $0.08/per share on December 11, 2008. The stock price began
2008 at $20.39/share, and ended the year at a dismal $13.57/share. The following chart shows Mr.
Matthews total Board compensation relative to the share price of the Company since 20063.

Graph 2 Matthews annual compensation relative to Imation stock price

($US)

Although Mr. Matthews has been on the Board since 2003, the Company did not begin breaking out individual Board member compensation
until the 2006 proxy statement.

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After the Company ceased dividend payments, Mr. Matthews compensation the following year declined
from $314,434 in 2008 to $184,638. However, in 2010 his compensation spiked up despite a continued
erosion of share value. On May 9, 2011, Mr. Matthews was named non-executive Chairman of the
Board, resulting in even higher levels of compensation. In 2013, Mr. Matthews received a whopping
$443,000 in compensation for a NON-EXECUTIVE CHAIRMAN role while the shareholders saw the share
price reach new lifetime lows4. Thus, since 2009 Mr. Matthews Board compensation more than
doubled while shareholders suffered a 77% decline in market value for the Company5.
As depicted in Graph 1 above, the performance is even more dismal if one goes back to the beginning of
Mr. Matthews tenure on the Board in 2003. During that period, shareholders witnessed 92% of the
Companys market value vanish into thin air while Mr. Matthews pocketed more than $2.6 million in
total compensation from the Company. Not bad for a few meetings a year. To put this outrageous
compensation into perspective, for the eight meetings a year he is expected to attend via phone or in
person, Mr. Matthews is paid more than the annual US median household income FOR EACH
MEETING. According to the US Census Bureau, the median US household income in 20126 for a family of
four was $51,371. By comparison, in 2013 Mr. Matthews $443,000 in compensation results in an
average of $55,375 per meeting, assuming eight meetings per year.
Looking at Mr. Matthews compensation another way, the following chart compares his cumulative
compensation since 2006 with the total value of the Company:

Graph 3 Mr. Matthews cumulative compensation compared to Imation market capitalization

(Market Cap in $000,000s, Cumulative Comp in $US)

Sadly, shareholders have seen the value of their Company reduced from $1.58 BILLION when Mr.
Matthews joined the Board, to a woeful $130.6 MILLION as of this writing. During this time, it is

Imations stock price reached a low of $3.41/share on February 8, 2013 and since that has hit a new lifetime low of $2.82/share on September
19, 2014
5
Mr. Matthews became chairman on May 9, 2011, which accounts for most of the gain in compensation
6
Source: US Census Bureau. 2012 is the last period for which there is data. http://www.census.gov/prod/2013pubs/acsbr12-02.pdf

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important to remember that the Board approved spending over $800 million of shareholder money on
numerous acquisitions which have failed to increase shareholder value.
Fortune 500 Pay for Horrible Results
Mr. Matthews compensation is clearly unhinged from performance and dare we say, reality. To prove
the point, we compared Imations Board compensation and performance with three separate peer
groups. The first group consisted of 18 companies listed in the Companys own 2014 proxy statement
that were used to justify executive compensation7. The second group comprised 10 Minnesota based
companies as ranked by revenue by the StarTribune8. The final group consisted of four Fortune 500
companies, including Imations erstwhile parent company 3M. The results are disheartening at best.
Company
Altera
Brocade
Dot Hill Systems
Harman International
Imation
Lexmark
Microchip Technology
Micron Technology
MTS Systems
NetApp
Nvidia
Overland Storage
Plantronics
Qlogic
Quantum
SanDisk
Seagate
Symantec
Western Digital

Ticker
ALTR
BRCD
HILL
HAR
IMN
LXK
MCHP
MU
MTSC
NTAP
NVDA
OVRL
PLT
QLGC
QTM
SNDK
STX
SYMC
WDC

Average

5 Yr Return Mkt Cap

11/24/2014 11/24/2014
65%
11,134
66%
5,050
155%
287
206%
7,629
-63%
132
67%
2,631
59%
8,855
311%
37,281
149%
1,027
30%
13,610
44%
11,185
-64%
70
104%
2,230
-38%
1,030
-43%
393
369%
22,707
296%
21,607
44%
17,805
160%
23,864
113%

10,427

TTM Rev
9/30/2014
1,907
2,211
207
5,605
765
3,693
2,051
16,358
564
6,291
4,575
78
854
482
537
6,620
14,020
6,682
15,269
5,065

Avg. Comp. 2013

Cash Non-Cash Total
67
141
208.3
93
145
237.4
54
104
158.4
102
97
199.2
98
190
287.4
77
135
211.7
77
78
154.7
120
240
359.7
66
89
154.2
82
249
330.9
75
261
335.7
43
50
92.8
74
127
200.8
77
135
212.0
62
111
172.7
88
199
287.1
108
295
402.4
83
202
284.8
184
189
373.1
86

159

245.2

Table 1 - Imation Compared to the Proxy Peer Group

(Market Cap and Revenue in $000,000s, Comp in $000s)

The first thing to note is that the average market capitalization of a comparable company according to
Imation is $10.4 billion and the average revenue is $5.1 billion! On what planet does comparing these
giant companies pose a reasonable peer group for setting compensation at a $130.6 million dollar
company? But the good news is that it is generally easier to produce higher returns on a small capital
base rather than a large one, so clearly one would assume Imation is outperforming the group of
7

It is not clear what comparable companies were used in determining Board compensation, but in our view, if a peer group is good enough to
establish executive compensation, it is good enough for Board compensation. Also, Logitech International was listed as a comparable company
but was not included in our analysis due to non-standardized compensation presentation in its proxy statement.
8
The Star Tribune 100 is a measure of the largest publicly held companies with headquarters in Minnesota ranked by revenue.
http://apps.startribune.com/top_100_business/revenueView.php

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companies. However, the Company posts the second to worst returns of the entire group. Despite the
embarrassing returns, the Board still sees fit to pay themselves more than all but five of the companies
in the peer group. It should be noted that the five companies that exceeded Imations level of
compensation returned an average of 168% to shareholders during the five-year period and have an
average market capitalization of $21.50 BILLION.
Also of note, Imation Board members received the fourth highest average cash component for Board
membership. The four companies paying their board members higher levels of cold, hard cash also
managed to deliver an average of 243% to shareholders, compared to -63% for Imation.
The only company in the peer group to perform worse than Imation was Overland Storage (NASDAQ:
OVRL) with a -64% return. However, at least the Overland board had the decency to pay themselves a
relatively modest fee as they attempted to turn the company around (average of $43,000 in cash and
$50,000 in non-cash compensation).9
Imation Compared to a Peer Group of Minnesota-based Public Companies
The StarTribune publishes an annual list of the largest publicly traded companies in the state of
Minnesota as ranked by revenue at the time of publication. In that list, Imation appeared at number 35.
We took the five companies immediately ahead of Imation and the four behind them on the list and
compared compensation and performance. The results were sadly consistent with the previous
analysis.10 Note, the trailing twelve month revenue listed below is as of the third quarter of 2014. Since
the list was published, Imations revenue has dropped from $860.8 million to $765 million and was the
only company on the list to see revenue decline.
Company
Graco
Allette
Select Comfort
Otter Tail
G&K Services
Imation
Tennant Co
Apogee Enterprises
Arctic Cat
Datalink

Ticker
GGG
ALE
SCSS
OTTR
GK
IMN
TNC
APOG
ACAT
DTLK

Average

5 Yr Return Mkt Cap

11/24/2014 11/24/2014
177%
4,756
48%
2,248
428%
1,423
23%
1,074
174%
1,323
-63%
132
144%
1,283
231%
1,339
372%
444
256%
295
206%

1,576

TTM Rev
9/30/2014
1,187
1,114
1,065
951
911
765
801
857
777
617
920

Avg. Comp. 2013

Cash Non-Cash Total
32.3
163
195.1
59
60
118.8
85
93
177.7
63
62
125.3
71
97
167.8
98
190
287.4
64
90
154.4
76
87
162.6
66
84
150.3
48
71
118.9
63

90

152.3

Table 2 - Imation Compared to a Peer Group of Minnesota-based Public Companies

(Market Cap and Revenue in $000,000s, Comp in $000s)

Imation was also the ONLY company to post negative returns in the last five years, compared to an
average return of 206% for the peer group. Outrageously, Imation far exceeded every company on the
9

On December 1, 2014 Overland merged with Sphere 3D.

Listed in order as presented in the report at the time of publication; see http://apps.startribune.com/top_100_business/revenueView.php

10

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list with regard to Board compensation, posting an average of $287,400 per board member compared to
an average of $152,300 for the peer group. The same was true of the cash component paid to board
members, with Imation averaging $98,000 compared to an average of $63,000. The only company that
came close to Imations regal cash compensation of board members was Select Comfort, which posted a
nifty gain of 428% during the five year period.
Imation Compared to a Selected Group of Fortune 500 Companies
Next we decided to compare the board compensation levels at some of the largest, most well-known
companies in the world with Imations board compensation. We selected Apple Inc. (NASDAQ: AAPL),
because with a market capitalization of $674 billion, we assume their board members would be paid
most handsomely (and deservedly so). We also selected Target Corp. (NYSE: TGT), United Parcel
Service, Inc. (NYSE: UPS) and 3M Company (NYSE: MMM).
Company
Apple
3M
Target
UPS
Imation

Ticker
AAPL
MMM
TGT
UPS
IMN

5 Yr Return Mkt Cap

11/24/2014 11/24/2014
330%
695,716
104%
102,454
57%
45,355
85%
97,094
-63%
132

Average

144%

235,155

TTM Rev
9/30/2014
182,795
31,671
73,704
57,313
765
86,371

Avg. Comp. 2013

Cash Non-Cash Total
87
250
336.9
131
140
271.1
92
22
113.6
100
160
259.7
98
190
287.4
102

143

245.3

Table 3 - Imation Compared to a Selected Group of Fortune 500 Companies

(Market Cap and Revenue in $000,000s, Comp in $000s)

With an average market capitalization of $235 billion, it would seem pointless to compare a tiny
company like Imation with these global behemoths. However, as the table clearly shows, only a board
member of Apple receives annual compensation higher than the elite group at Imation. The comparison
to 3M is particularly telling and would be humorous if it wasnt so pathetic.
We find it shocking that the average board member of 3M, Imations former parent, gets paid less to
guide a $100 billion company. How is this even possible? Clearly, the absurdity of this is lost on the
Board. It is time shareholders fought back.
Recent Changes to Board Compensation
On November 25, 2014, Imation filed an 8-K report noting changes to Board compensation. In addition
to other items, the changes included a reduction in restricted stock grants per Board member from
$175,000 to $150,000 per year and a reduction in the additional cash and restricted stock grants for the
non-Executive Chairman from $87,500 to $75,000 each. We estimate these changes will result in an
annual reduction in total Board compensation from $1,454,000 to $1,304,000, or $150,000 annually in
cash and stock.11 This represents a 10.3% reduction in cost. This is laughable compared to the $63
million lost by shareholders during this year alone.

11

See Table 4 below for calculation of aggregate amounts.

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Kept intact is the $7500/year each Board member receives in matching funds for their charitable
contributions. We applaud giving back to the community, but why should the long suffering
shareholders of Imation match funds from an egregiously overpaid and underperforming Board of
Directors? If the Board could find a way to create shareholder value, the many shareholders of Imation
would be in a position to make charitable contributions of their own choosing rather than providing free
money to make our Board members feel generous and important.
Also left intact is a $1500 fee for Board members when they interview potential Board candidates. Of
course, $1500 per interview doesnt sound like a lot. However, each nominee would probably be
interviewed by every Board member, so it adds up. Also, there are plenty of opportunities to interview
candidates because the turnover on the Board is not insignificant. This year alone, two Board members
abruptly resigned. The latest being Trudy Rautio on August 8, 2014, just weeks after she was re-elected
to another three year term at the Companys shareholder meeting on May 7, 2014. The Board then
replaced her with Mr. Anthony Brausen, who appears to have little relevant expertise for a company
focused on digital storage. In making the appointment, the Board noted his financial expertise and said
he would be an ideal candidate to lead the Companys audit committee.
We do not know Mr. Brausen and we presume he is a fine man. However, in our opinion the Company
should have found someone with both accounting expertise and relevant experience in the digital
storage industry (a skillset sorely lacking on the Board). It appears to us that Mr. Brausens real
qualification for the riches bestowed on Imations Board are that he lives and socializes in the right
circles in Minnesota. The Bloomberg Businessweek web site lists Mr. Brausens qualifications as follows:
December 2011 to the present Senior Vice President of The Mosaic Company, which the
company notes is one of the worlds leading producers and marketers of crop nutrients.
Prior to The Mosaic Company, Mr. Brausen served in a range of senior financial and accounting
roles at Tennant Company, which the company notes is a global leader in manufacturing,
marketing and servicing industrial, commercial and outdoor cleaning equipment.
Finally, Mr. Brausen worked at International Multifoods Corporation, which is a global processor
and distributor of food products for the foodservice and consumer sectors.
It appears to us that none of this experience will be terribly helpful in transforming Imation into a
valuable company. For the money we pay the Board, we should expect Board members that add more
value than simply accounting skills.
For nearly 20 years, the Board appears to have been run mainly like a club for privileged Minnesotans at
the expense of shareholders and Mr. Brausens appointment merely perpetuates that image. We do not
blame Mr. Brausen for wanting to join in the Board fun and make a fortune running a once great
company into the dirt, but we do not believe he is the best qualified person for the position. As such,
we believe he should resign immediately.

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The following table details the miniscule changes made to Board compensation.
Non-employee Director Compensation
Annual Retainer
Annual restricted stock grant
Non-Executive Chairman Fee
Non-Executive Chairman additional restricted stock grant
Nominating and Governance Committee Chairman Fee
Compensation Committee Chairman Fee
Audit and Finance Committee Chairman Fee
Attendance Fee for meetings attended in person
Attendance Fee for Board meetings attended via phone/video
Attendance Fee for Committee meetings attended in person
Attendance Fee for Committee meetings attended via phone/video
Interview of Board Candidates Fee per interview
Matching Gift to qualified charitable institutions

Form
cash
stock
cash
stock
cash
cash
cash
cash
cash
cash
cash
cash
cash

Annual Compensation for 5 Non-Employee Board members *

Amount
$ 50,000
$ 175,000
$ 87,500
$ 87,500
$ 10,000
$ 15,000
$ 25,000
$
1,500
$
1,000
$
1,500
$
1,000
$
1,500
$
7,500
$ 1,575,000

Post May 2015

Per Nov. 25 8K
$
50,000
$
150,000
$
75,000
$
75,000
$
10,000
$
15,000
$
25,000
$
1,500
$
1,000
$
1,500
$
1,000
$
1,500
$
7,500
$ 1,200,000

$
$
$
$

$
$
$
$

40,000
32,000
20,000
12,000

$ 104,000 $

104,000

%
Reduction Change
$
0.0%
$ 25,000 14.3%
$ 12,500 14.3%
$ 12,500 14.3%
$
0.0%
$
0.0%
$
0.0%
$
0.0%
$
0.0%
$
0.0%
$
0.0%
$
0.0%
$
0.0%
23.8%

Attendance Fees:
Board meetings - 8 meetings (assuming all 5 attended by phone)

Audit Comm - 8 meetings, 4 non-employee Dirs (assume all by phone)

Comp Comm - 5 Meetings, 4 non-employee Dirs (assume all by phone)
Nominating - 3 meetings, 4 non-employee Dirs (assume all by phone)

Total Annual Compensation for 5 Non-Employee Board members (1)

40,000
32,000
20,000
12,000

$ 1,679,000 $ 1,304,000

22.3%

* Including Non-Exec. Chairman and Committee Chairman Fees, but excluding attendance and miscellaneous fees.
(1) Excluding matching and other miscellaneous compensation

Table 4 Recent Changes to Imation Board Compensation

These non-material changes will do little to change the course of Imation. Rather than rearranging the
furniture on the Titanic, we need a wholesale change in the personnel, skills, attitude and sense of
urgency at the Board. Rather than hire another good ol boy from Minnesota to head the audit
committee, the Company should find someone with relevant accounting experience AND experience in
what it takes to perform a major turn-around at the Company. The Company must also find Board
members with real-world experience in the digital storage industry. As we have said before, the status
quo has to go.

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Summary
As a shareholder of Imation, we call on the Board to take the following actions:
Ask Mr. L. White Matthews, III and Mr. Anthony Brausen to resign their board seats immediately
Agree to give Spear Point the right to appoint qualified individuals to fill Mr. Matthews and Mr.
Brausens seats that will serve the interests of fellow shareholders
Reduce the cash and non-cash components paid to Board members even further than the
meager cuts recently announced and eliminate some fees altogether. Specifically:
o Reduce annual retainer for all Board member to $30,000 from $50,000
o Reduce annual restricted stock grant to $30,000 from $150,000
o Reduce non-executive chairman fee to $30,000 from $75,000
o Reduce non-executive chairman restricted stock grant to $30,000 from $75,000
o Reduce nominating and governance committee chairman fee from to $5000 from
$10,000
o Eliminate all attendance fees and interview of board candidate fees the annual retainer
IS your attendance fees and interview fee
o Eliminate matching gift for charitable contributions
Eliminate the staggered board structure and allow shareholders to replace the Board en masse if
that is what they want to do
If the Board would adopt our proposed fee structure for members, annual Board compensation would
be reduced from the current level of $1,575,000 to a more reasonable $405,000 per year. Even after
the new changes take effect in May 2015, the total annual cost will be $1,200,000.
We would like an indication of whether the Board will take these steps by December 15, 2014.

Sincerely,

Spear Point Capital Partners LLC

/s/ Rodney A. Bienvenu
___________________________
By: Rodney A. Bienvenu
Its: Managing Member

Notice and Disclaimer: As of the publication date of this letter, Spear Point has a long position in and may own
options on the stock of the Company and stands to realize gains in the event that the price of the stock increases.
On or after the date hereof, Spear Point may transact in the securities of the Company. All content in this letter
represent the opinions of Spear Point. Spear Point has obtained all information herein from sources it believes to be
accurate and reliable. However, such information is presented as is, without warranty of any kind whether express
or implied. Spear Point makes no representation, express or implied, as to the accuracy, timeliness, or completeness
of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to
change without notice, and Spear Point does not undertake to update or supplement this letter or any information
contained herein. This document is for informational purposes only and it is not intended as an official confirmation of
any transaction. All market prices, data and other information are not warranted as to completeness or accuracy and

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are subject to change without notice. The information included in this document is based upon selected public market
data and reflects Spear Points views as of this date, all of which are accordingly subject to change. Spear Points
opinions and estimates constitute a judgment and should be regarded as indicative, preliminary and for illustrative
purposes only. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate
liquidity, and the potential complete loss of principal. This letters estimated fundamental value only represents an
estimate of the potential fundamental valuation of a specific security, and is not expressed as, or implied as,
assessments of the quality of a security, a summary of past performance, or an actionable investment strategy for an
investor. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any
investment, security, or commodity discussed herein or of any of the affiliates of Spear Point. Also, this document
does not in any way constitute an offer or solicitation of an offer to buy or sell any security in any jurisdiction in which
such an offer would be unlawful under the securities laws of such jurisdiction. To the best of Spear Points abilities
and beliefs, all information contained herein is accurate and reliable. Spear Point reserve the rights for their affiliates,
members, officers, and employees to hold cash, long, short or derivative positions in any company discussed in this
document at any time. As of the original publication date of this document, investors should assume that Spear Point
have positions in financial derivatives that reference this security and stand to potentially realize gains in the event
that the market valuation of the companys common equity is higher than prior to the original publication date. These
affiliates, members, officers, and individuals shall have no obligation to inform any investor about their historical,
current, and future trading activities. In addition, Spear Point may benefit from any change in the valuation of any
other companies, securities, or commodities discussed in this document. Individuals who prepared this letter are
compensated based upon (among other factors) the overall profitability of Spear Points operations and their affiliates.
This could represent a potential conflict of interest in the statements and opinions in Spear Points documents. The
information contained in this document may include, or incorporate by reference, forward-looking statements, which
would include any statements that are not statements of historical fact. Any or all of Spear Points forward-looking
assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong. These
forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties
and other factors, most of which are beyond Spear Points control. Investors should conduct independent due
diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and
commodities discussed in this document and develop a stand-alone judgment of the relevant markets prior to making
any investment decision.

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