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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: May 31, 1996
[_] 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 0-16071
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CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(FORMERLY SUMMAGRAPHICS CORPORATION)
DELAWARE 06-0888312
(STATE OF OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2411 W. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92803
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 821-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days. Yes [_] No [X]
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 the Form 10-K or any
amendment to this Form 10-K. Yes [X] No [_]
The aggregate market value as of July 31, 1996, of Common Stock held by non-
affiliates of the Registrant: $8,286,675 based on the last reported sale price
on the National Market System as reported by NASDAQ, Inc.
The number of shares of Common Stock outstanding as of September 3, 1996:
45,398,650
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PART I
ITEM 1. BUSINESS.
CalComp Technology, Inc., formerly Summagraphics Corporation (the
"Company"), was incorporated under Delaware law in 1972. The mailing address
of the Company's principal executive office is 2411 W. La Palma Avenue,
Anaheim, California 92803. The Company's telephone number is (714) 821-2000.
Except where the context indicates otherwise, references to an entity include
its consolidated subsidiaries.
THE EXCHANGE
The Company entered into a Plan of Reorganization and Agreement for the
Exchange of Stock of CalComp Inc. for Stock of Summagraphics Corporation,
dated as of March 19, 1996, as amended April 30, 1996 and June 5, 1996 (the
"Exchange Agreement") pursuant to which the Company issued to Lockheed Martin
Corporation ("Lockheed Martin") 40,742,957 shares of the Common Stock of the
Company, representing 89.7% of the total outstanding shares of Common Stock of
the Company following such issuance, in exchange for all of the outstanding
capital stock of CalComp Inc. ("CalComp") (the "Exchange"). The number of
shares of Common Stock of the Company issued in the Exchange is subject to
adjustment in certain events provided and as described under the Exchange
Agreement in the Company's definitive proxy statement (the "Proxy Statement")
filed with the Securities and Exchange Commission on June 24, 1996 under
Section 14 of the Securities Exchange Act of 1934, as amended. Management of
the Company does not expect that a material adjustment in the number of shares
issued in connection with the Exchange will be required. The closing of the
Exchange occurred on July 23, 1996 (the "Closing") following approval of the
Exchange by the stockholders of the Company. As a result of the Exchange,
Lockheed Martin acquired control of the Company and CalComp became a wholly-
owned subsidiary of the Company. In connection with the Exchange, the Company
also changed its name from Summagraphics Corporation to CalComp Technology,
Inc. For purposes of this report, the Company will hereinafter be referred to
as Summagraphics when identifying the Company as it existed prior to the
Exchange.
As contemplated by the Exchange Agreement, immediately following the
Exchange, each of the then directors and executive officers of Summagraphics
resigned and Lockheed Martin, as the owner of a majority of outstanding shares
of the Common Stock of the Company, adopted a resolution by written consent
increasing the size of the Board of Directors from six to seven members and
electing seven new directors. The Board then appointed officers to fill the
vacant offices.
ADDITIONAL INFORMATION CONCERNING CALCOMP AND THE EXCHANGE IS SET FORTH IN
THE PROXY STATEMENT.
SUMMAGRAPHICS
Summagraphics has engaged in the manufacture and sale of digitizing tablets,
large format plotters, thermal transfer printers, and graphics cutters.
A digitizer is a computer graphics input device, functionally similar to a
keyboard or mouse, consisting of an electronic stylus or cursor and a tablet
containing a grid of sensors which translate engineering drawings, maps and
other graphic information into digital form for entry into a computer.
A pen plotter is a computer graphics output device, functionally similar to
a printer, but used to automatically draw lines, symbols, diagrams and other
graphics output.
An ink jet plotter is a computer graphics output device, functionally
similar to a printer and pen plotter, but using ink jet technology rather than
ink pen technology to automatically draw lines, symbols, diagrams and other
graphics output.
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A thermal transfer printer, capable of interfacing with PostScript(TM) and
other industry standard software, uses certain Summagraphics' patented
techniques to produce brilliantly colored, high quality images up to 249 x 409
for sign-making applications.
A cutter performs a function similar to a plotter, but rather than drawing
an image onto a sheet of paper it accurately cuts on various media (such as
vinyl) along a programmed image employing the same technique as a plotter
except using a knife instead of a pen.
Summagraphics' products are used in applications with high-performance
computer graphics systems, including computer-aided design, manufacturing,
engineering, publishing and graphic arts.
Summagraphics added pen plotters and cutters to its pre-existing digitizer
product lines in May 1990 with the acquisition of the Houston Instrument
Division ("Houston Instrument") of Ametek, Inc. ("Ametek"). This acquisition
broadened Summagraphics' presence in the U.S. market, provided Summagraphics
with a manufacturing facility for cutters in Belgium and expanded
Summagraphics' U.S., European and Far Eastern distribution networks.
Approximately 55% of Summagraphics' net sales for the fiscal year ended May
31, 1996 was attributable to overseas markets.
Summagraphics' products have been sold by its sales force primarily through
distributors and also to OEMs which incorporate Summagraphics' products into
their own computer products. Summagraphics' products may be integrated with
most personal computers, including IBM-compatible personal computers and Apple
personal computers, workstations from Sun Microsystems and Digital Equipment,
and publishing systems from Scitex, and are compatible with most industry
standard CAD and graphics software applications.
Summagraphics' strategy has been to pursue sales and market share growth for
its existing product lines, through product enhancements and new product
introductions; to devote resources to research and development of new
products; and, as and if appropriate opportunities arise, to acquire or
develop one or more complementary product lines or businesses serving the
computer graphics markets.
In March 1992, Summagraphics restructured its North American operation by
combining the management and administrative processes of its digitizer and
Houston Instrument units into a single operating unit; and established an
administrative headquarters in Europe responsible for cutter manufacturing and
sales, distribution and service of all Summagraphics' products for the
European market.
Further restructuring was initiated in May 1993, associated with the arrival
of a new President and Chief Executive Officer who joined Summagraphics in
April 1993. The restructuring included a reduction in workforce, asset write-
downs, consolidation of manufacturing operations into Summagraphics' Austin,
Texas facility, changes in some of Summagraphics' senior executives, and a
redeployment of assets to apply them more effectively. Also, North America and
Asia Pacific sales, manufacturing, and engineering administration were moved
to Austin, Texas.
During fiscal year 1995, in a transaction designed to enhance Summagraphics'
product distribution, Summagraphics purchased CAD Warehouse, Inc., a mail
order dealer of digitizers, plotters and other CAD (Computer Aided Design)
related equipment and software. During fiscal 1995, Summagraphics also changed
its corporate headquarters from Seymour, Connecticut to Austin, Texas, and in
late fiscal year 1995 undertook additional organizational actions which
included a reduction in force and abandonment of the remaining term of
Summagraphics' Connecticut lease.
In fiscal 1996, Summagraphics encountered significant financial difficulties
due to problems with its output products group. Technical problems with its
SummaJet product which was introduced in fiscal 1995, slowed sales of this key
product line causing a large build up of unsold inventory and causing maximum
usage of Summagraphics' credit facilities. Due to continuing losses and
pressure from its lenders and vendors, Summagraphics pursued various
alternatives to raise additional capital including the sale of a part, or all
of Summagraphics. These efforts resulted in the negotiation of the terms of
and subsequent closing of the Exchange.
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DIGITIZERS
Market And Applications. Digitizers accounted for 50%, 42% and 39% of the
sales of Summagraphics for fiscal 1994, 1995 and 1996, respectively.
Summagraphics' primary markets for digitizers are in computer-aided design,
engineering and manufacturing (CAD/CAE/CAM). Digitizers typically are used
with personal computers and workstations and support a broad range of software
applications which include high-end computer aided publishing, construction
management and costing, graphics design and animation, mapping and geographic
information systems (GIS) and geological/seismic analysis. They also are used
frequently with software systems such as AutoCAD. Newspaper publishers, for
example, use Summagraphics' digitizers as part of their complete computer-
aided publishing systems for publication layout. Engineers and architects use
Summagraphics' digitizers in estimating construction costs rapidly and
accurately from blueprints and site plans while in the field. Animation and
graphics design uses for Summagraphics' digitizers vary widely and include use
in cinema productions, colorization of black and white movies and television
weather and sports analysis. Digitizers offer significant benefits of speed
and efficiency to the user in CAD design over other input methodologies such
as computer mice and on-screen menus.
Uses for digitizers include desktop publishing, image processing and pen-
based computing. See "Product Development."
Technology. Digitizers are capable of determining the absolute location of a
stylus or cursor to within several thousandths of an inch on a grid of sensors
imbedded in a tablet. Depending upon the technology used, this is accomplished
by pulsing either the grid or the cursor with an electric current causing a
reciprocal electrical flow in the cursor or the grid. This reciprocal flow is
measured, converted into a set of digital X-Y coordinates (which represent the
position of the cursor relative to the grid) and transmitted to a host
computer for processing.
Digitizers can offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, joystick and touchpanels in graphics
intensive applications due to their high level of precision, greater
functionality and increased productivity. Keyboards are primarily used for
inputting text and numerical information and are not well suited for graphics
applications. Mice are low accuracy, relative pointing devices commonly used
with icon-based operating systems and low- resolution graphics applications.
By contrast, digitizers are capable of inputting X-Y coordinate data to
communicate an absolute position. Absolute positioning allows accurate drawing
and selection of discrete points on the surface of the digitizing tablet. The
latter is critical to high accuracy tasks such as digitizing a map or an
existing CAD drawing.
Summagraphics' digitizer products are primarily based on electromagnetic
technology whereby a cursor or a grid generates an electromagnetic field which
is sensed by built-in electronic circuitry. This technical approach results in
digitizers capable of higher resolution than other commonly-used technologies
(magnetostrictive and resistive). Electromagnetic tablets offer the additional
advantage of being relatively unaffected by temperature, humidity, electrical
noise and conductive materials on the digitizing surface.
Products. Summagraphics offers three series of electromagnetic digitizers:
desktop, industry standard tablets (the SummaSketch(R) Series); low-cost,
large-format tablets (the Summagrid(R) Series); and large-format, high
accuracy tablets (the Microgrid(R) Series). Digitizers are offered in standard
configurations for the distribution market and are customized to meet specific
OEM and foreign market specifications. All are supported by a broad range of
accessory products including styli, cursors, pressure sensitive pens, power
supplies, cabling and software templates. Digitizers may be software or
hardware configured to meet various requirements.
The SummaSketch Series electromagnetic tablets, sold under the trade names
SummaSketch III and SummaSketch III Professional, comprises a majority of
Summagraphics' digitizer sales. These tablets are constructed using a single
printed circuit Board housing the X-Y grid and the control and interface
electronics. Applications include desktop CAD, CAM, CAE, graphic arts design
and general purpose computing.
The Summagrid (SG) Series electromagnetic tablets are constructed of a
single large printed circuit Board containing the X-Y grid and control
interface circuitry housed in a separate chassis common to all sizes. The
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Summagrid Series offers customers a large format tablet with similar accuracy
and resolution to a desktop unit but at a significantly lower cost than the
Microgrid Series. Applications include cost estimation, facilities management
and low-end CAD or mapping. Both the Summagrid and the Microgrid Series of
digitizers are available in backlit versions for high-end medical and tracing
applications.
The Microgrid (MG) Series electromagnetic tablets are constructed of a
single large printed circuit board containing the X-Y grid. Control and
interface electronics are integrated into the tablet in a chassis common to
all sizes of tablets. Applications include high-end CAD, CAE, cartography and
civil and mechanical engineering, which require greater accuracy and line
resolution than desktop models offer. Each Microgrid tablet is tested on
Summagraphics' laser interferometer test bed to guarantee accuracy.
Summagraphics introduced a product enhancement in fiscal year 1993 which
enables users to utilize at their discretion the cursor or stylus as either a
corded or battery powered cordless (convertible) version. Cordless cursors are
an added convenience to users of large tablets where the large tablet surface
otherwise necessitates a long cord. The cordless technology used on Summagrid
represents core technology for Summagraphics which can be applied to new and
existing digitizer products to offer unique customer benefits. Additionally,
Summagraphics introduced its Microgrid Ultra Series large-format tablet which
is an upgrade of Summagraphics' Microgrid Series high-accuracy tablets for
applications requiring precise formatting devices such as GIS mapping,
electronic design and CAD.
In fiscal year 1995, Summagraphics introduced the Summa Expression(TM), a
high performance desktop tablet designed for graphic arts applications such as
drawing, painting, illustration and animation. This tablet features a small 69
x 89 active area footprint and allows drawing with high precision and
flexibility using 256 levels of pressure sensitivity and customizable menu
buttons. The SummaPad(TM) was also introduced in fiscal year 1995. This tablet
features a 49 x 59 active area and also provides pressure sensitivity.
PLOTTERS
Market, Product And Applications. Plotters represented 22%, 21% and 11% of
the sales of Summagraphics for fiscal 1994, 1995 and 1996, respectively.
Summagraphics offers a series of large-format plotters. Summagraphics'
offering of large-format plotters include high performance, high speed CAD pen
plotters. Summagraphics began to market plotters in May 1990 with the
acquisition of Houston Instrument.
Summagraphics introduced the HiPlot 7000 Series of pen plotters in late
fiscal year 1993. The HiPlot Series (in A- to D size and A to E- size
plotters) offers users additional features of faster plot completion, a
primary application requirement and, in addition, improved plotting quality
and a feature called HIQueue(TM), a plot management package for networked
multi-user environments. The ability to effectively manage plot data in a
networked multi-user environment is a strong requirement among users.
Summagraphics' primary markets for plotters are in computer-aided design and
engineering. Its pen plotter products are used extensively by architects and
mechanical, electrical and civil engineers to create complex drawings and
specifications. Pen plotters are also used with computerized mapping,
geographical exploration and geographic information systems, where precise
high quality hard-copy output is required. Summagraphics' plotters are also
used extensively in many other application areas, including medical,
scientific, business and educational presentation graphics. Pen plotters
remain the most cost effective means to create high quality wide format,
permanent line drawings.
Summagraphics introduced in fiscal year 1994, a large-format, color thermal
wax transfer printer-- SummaChrome(TM)--for use in in-house design departments
of corporations and retail chains, advertising agencies, graphic design firms,
and sign, copy and photo shops servicing both businesses and consumers.
Applications include the production of colored signs, presentation materials,
photo enlargements, design renderings, maps, and satellite images. In fiscal
year 1995, Summagraphics re-evaluated the resources required to sell this
product and decided to focus its energy on the segment of the graphics market
where they were already positioned for success--sign-making. Believing there
to be an opportunity to offer the first large-format
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digital printing solution that could print directly on vinyl without any
additional process for UV or water resistance, Summagraphics shifted its
marketing focus to attempt to take advantage of this technology. Summagraphics
already had the sign-making channel in place to support its SummaSign Series
of high performance cutters/plotters. Summagraphics believed that this shift
in market focus was more cost effective to execute. Sales of the
SummaChrome(TM) products have not to date been as strong as expected, and the
Company is currently evaluating its product strategy with respect to the
marketing and sale of SummaChrome(TM) printers.
In fiscal year 1995, Summagraphics introduced its SummaJet(TM) 2 Series of
ink jet plotters for the CAD market. The product is both raster and vector
compatible and intended to address the CAD market with features like replot,
automatic pilot, printing, automatic scaling and mirror functions.
Summagraphics believed that the SummaJet 2 entry was positioned to fill a void
in the existing ink jet market for low cost color printing. Technical problems
with the SummaJet(TM) products and intense competitive pressures resulted in
less than expected sales, and the Company is currently developing a strategy
concerning the integration of the SummaJet products with CalComp's similar
TechJet(R) products.
Technology. All types of plotters function by creating images on hard-copy
media such as paper or polyester film. Pen plotters may be distinguished from
other hard-copy output devices, because pen plotters create hard copy of
vector images, or point-to point lines, while other plotters produce raster
images, which construct an image as a series of dots, a print band at a time.
Pen plotters function by receiving plot commands downloaded from a computer
and, by following these instructions, moving one pen or a selected one of a
group of pens relative to paper, film or other media, thereby generating a
drawing. The media is driven bi-directionally on one axis while the pen is
driven bi-directionally on the other axis.
Both functions are microprocessor controlled, highly responsive, closed-loop
systems that permit accurate and precise graphic creation.
Summagraphics has also developed expertise in relevant software, paper
handling and mechanical design technologies.
CUTTERS
Cutters represented 6%, 16% and 23% of the sales of Summagraphics for fiscal
1994, 1995 and 1996, respectively. Cutters are output devices, similar in
construction to a pen plotter, but employ a knife in place of a pen to cut
vinyl for signs and banners, artfilm for screen printing, and various stencil
materials for etching text and images into glass, wood and stone via an
abrasive etching process. Cutter performance is primarily measured by speed,
acceleration, and guaranteed accuracy. Additional features include knife type,
tool pressure and software compatibility. Speed is measured by how many inches
the knife moves per second. Acceleration is measured by how quickly the knife
reaches its top speed and, therefore, is important since most signs consist of
short lines. Guaranteed accuracy depends on the drive mechanism, either
friction or sprocket, in the cutter. There are currently two types of knife
systems used to cut material: drag and tangential. Drag knife units typically
cost less, have less knife pressure capability, and are used for general sign
applications. Tangential knife units are typically more expensive, with more
knife pressure, greater precision cutting abilities and the ability to cut a
wider variety of material.
Summagraphics markets a line of precision cutters designed to produce low-
cost, computer-generated letters and graphics for sign and display making
applications. During late fiscal year 1993, Summagraphics introduced two new
tangential cutters, the T1000 and the T600. In fiscal year 1994, Summagraphics
introduced three new drag knife cutters, the D610, D750 and the D1300. These
cutters primarily differ in the width of sign media they handle, the type of
knife used and the features they contain. In fiscal year 1995, Summagraphics
introduced the SummaSign cutter (the SummaSign 1010 Plus). This high
performance cutter combines an advanced media handling system, offers both
sprocket drive and friction drive and is therefore capable of handling plain
media as well as half-inch industry-standard punched media. Summagraphics also
introduced the low cost, small-format SummaCut Series of cutters designed for
small, independent sign shops who produce a limited quantity of vinyl signs.
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CAD WAREHOUSE
Summagraphics' CAD Warehouse, Inc. subsidiary ("CAD Warehouse") sells
Summagraphics' computer peripheral products and products of other companies
which it advertises through trade publications and its own catalog. Sales of
CAD Warehouse represented 18% and 21% of the sales of Summagraphics for fiscal
1995 and 1996, respectively.
AFTER MARKET SERVICE AND SUPPORT
Summagraphics' customer service group provides customer support for
Summagraphics' products via depot, on-site or on an exchange basis with
standard warranty protection programs which include Limited Lifetime Warranty,
48-Hour Priority Response(TM) in the first year after purchase, along with
additional warranty options for 24-Hour Priority Response(TM) and multiple
product leasing options. The customer service group also sells a wide range of
plotting media and a variety of pens for use with its plotters. Summagraphics
also offers a library of CAD digitizer templates for use with AutoCAD.
Summagraphics' templates simplify the use of CAD programs and increase
productivity by permitting the user to bypass nested menus and access
necessary commands quickly.
PRODUCT DEVELOPMENT
During fiscal year 1994, 1995 and 1996 Summagraphics' research and
development expenses were $5,631,000, $6,761,000, and $3,745,000,
respectively.
During fiscal year 1993, Summagraphics acquired joint ownership of a broad
patent for incorporating a digitizer into a liquid crystal display (LCD)
without the use of a separate digitizer X-Y grid. This allows for a very cost
effective approach to "writing on the screen" pen computer systems.
Summagraphics has been investigating relationships with LCD manufacturers to
pursue this technology further, and recently entered into a license agreement
with Sharp Corporation to enable Sharp to use this technology to enhance its
product line of combined displays and input panels.
MARKETING AND CUSTOMERS
Summagraphics has sought to offer a broad line of application-compatible
computer peripheral products for graphics input and output and to develop
strong brand recognition. Summagraphics has developed a world-wide sales
network including OEMs, distributors and manufacturers' representatives and
maintains sales offices in the United States, Belgium, France and Germany.
Summagraphics has also maintained a support and technical assistance program
for third-party software developers in emerging markets and has on occasion
entered into several joint marketing support arrangements with developers of
selected applications. No single customer of Summagraphics accounts for ten
percent (10%) or more of Summagraphics' yearly sales.
Summagraphics' network of distributors consists of national, vertical and
regional distributors. National distributors, such as Ingram Micro, Inc. and
Merisel in the United States and Computer 2000 in Europe, sell to retail
accounts and account for a large percentage of Summagraphics' sales. Vertical
distributors sell to retail accounts. These distributors carry a line of
Summagraphics' products and specialize in integrating Summagraphics' standard
products into specialized systems for vertical markets. Regional distributors
focus on an area typically composed of five to seven states and specialize in
applications and accounts which require a greater amount of service and
technical skill in making the sale. Summagraphics attempts in most instances
to have more than one distributor in each foreign country. Summagraphics
believes that by avoiding reliance upon exclusive distributorship arrangements
it broadens the market for its products and fosters constructive competition
among its distributors.
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Summagraphics also sells its products directly to OEMs for incorporation
into systems manufactured by them and indirectly to smaller OEMs through a
network of manufacturers' representatives. Many of these sales are customized
products which are incorporated into the OEMs' design cycles.
For information on Summagraphics' foreign and domestic sales, see Note 7 of
the Notes to the Consolidated Financial Statements of the Company.
Summagraphics maintains domestic sales/service offices in Seymour,
Connecticut; Austin, Texas; and Huntington Beach, California. Summagraphics
has foreign sales subsidiaries located in Brussels, Belgium; London, England;
Munich, Germany; and a foreign sales office located in Paris, France.
Summagraphics' marketing and sales organization consisted of:
product/management, distribution sales, marketing communications, and customer
service. Product management is responsible for market research, new product
planning and pricing strategies. The North America/Asia Pacific sales group,
headquartered in Austin, Texas, includes regional sales managers covering
domestic and foreign territories who are responsible for both direct and
indirect OEM account relationships, and distribution managers who work with
national, regional and vertical distributors. The European sales group is
headquartered in Brussels, Belgium and operates in a manner similar to its
North America/Asia Pacific counterpart. Each of the North America/Asia Pacific
and European sales and service groups has a marketing communications group
responsible for trade shows, advertising, product sales, literature and
customer relations, and a customer service support capability responsible for
customer service and assisting customers with technical issues.
MANUFACTURING OPERATIONS, WAREHOUSING AND DISTRIBUTION, QUALITY CONTROL AND
WARRANTIES
Summagraphics has certain of its manufacturing performed outside the United
States to take advantage of lower manufacturing costs, while allowing
Summagraphics to maintain high standards of quality.
Summagraphics has maintained a manufacturing facility in Gistel, Belgium for
the manufacture of cutters and distribution of all of its products sold in the
European market. In 1996, Summagraphics entered into agreements to outsource
manufacturing of its SummaJet ink jet product line and its large-format
digitizer product line and had a program of investigating the outsourcing of
manufacturing of its remaining products.
Final assembly of products takes place either at the outsourcing
manufacturing locations or at Summagraphics' facilities in Austin, Texas and
Gistel, Belgium where there is also product warehousing and distribution.
Summagraphics also conducted product warehousing and distribution at its
Seymour, Connecticut location through January of 1996.
Summagraphics has generally purchased devices, components and sub-assemblies
from more than one source both domestically and internationally where
alternative sources are available and economical; however, Summagraphics has
used sole suppliers for certain components. Summagraphics believes that it
maintains adequate inventories of sole source items and that alternative
components or sources for those items could be readily incorporated into
Summagraphics' products.
Summagraphics' present manufacturing capacity is adequate to meet its
anticipated production requirements for the foreseeable future. If required,
Summagraphics has the ability to increase purchases under its existing
manufacturing and second source agreements or to manufacture domestically
products currently manufactured offshore.
Summagraphics has maintained quality control procedures for products
manufactured both domestically and offshore. These procedures include quality
testing during design, prototype and pilot stages of production, inspection of
incoming raw materials, inspection of sub-assemblies and testing of finished
product using automatic test equipment. Finished products undergo burn-in
testing to provide for long-term, reliable operation.
Summagraphics warrants its products for periods ranging from ninety days to
the life of the product. Summagraphics makes available extended warranties,
spare parts and out-of-warranty repair service in the United States and
Europe. To date, warranty costs have been insignificant.
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COMPETITION
The markets in which Summagraphics sells its products are highly
competitive. Summagraphics faces actual and potential competition from a
number of established manufacturers, both domestic and international,
including Summagraphics' largest competitors, CalComp (prior to the Exchange)
and Hewlett-Packard Co., which have significantly greater financial,
technical, manufacturing and marketing resources than Summagraphics; and Mutoh
America Corporation, Wacom Company, Ltd., Encad, Inc., and Oce. CalComp
competed primarily with Summagraphics' digitizer and plotter products; Mutoh
and Gerber Scientific compete primarily with Summagraphics' cutter products;
and Hewlett-Packard and Encad compete primarily with Summagraphics' plotter
products. Summagraphics' lower cost products face competition from
manufacturers of mice and tablets, including Logitech, Inc. Summagraphics
recently entered into an OEM agreement with Mutoh for the production and sale
of certain products of each of those companies by the other, to enhance
Summagraphics' product offerings.
Summagraphics believes that its competitive ability also depends on the
quality, pricing, performance and support of its products, manufacturing costs
and Summagraphics' technical capability and successful introduction of new
products and product enhancements. See "Product Development." Summagraphics
believes that it offers a number of important attributes, including its
product price and performance, market presence, technological expertise,
quality of its product line, relationships with certain OEMs and its well-
developed distribution channels. Inability to match product introductions or
enhancements or price/performance of competitors' products could adversely
affect Summagraphics' market position and results of operations.
BACKLOG
Summagraphics manufactures on the basis of its forecast of near-term demand
and maintains inventories of finished products in anticipation of firm orders
from its customers. Summagraphics typically ships within thirty days of
receipt of orders. While certain OEMs and distributors place orders for
scheduled deliveries, most of Summagraphics' customers currently order
products on an as-needed basis. For this reason, and because customers may
cancel or reschedule orders with little or no penalty, or may place orders on
shipment hold, and because Summagraphics may decline to ship to customers for
credit reasons, Summagraphics believes that it has no backlog orders that are
firm, and, in any event, that the level of such orders is not indicative of
sales.
EMPLOYEES
As of May 31, 1996, Summagraphics employed approximately 194 people, 113
domestically and 81 internationally. None of the employees are covered by a
collective bargaining agreement, although Summagraphics' employees in Belgium
are covered by government mandated benefits. Summagraphics believes that
relations with its employees are good. In connection with the Exchange, the
Company has begun to implement certain reductions in workforce domestically
and internationally as part of its efforts to rationalize and integrate
Summagraphics' and CalComp's organizations.
PATENTS AND PROPRIETARY INFORMATION
Summagraphics attaches importance to its portfolio of patents, trademarks,
copyrights, trade secrets and know-how. In the course of research and
development, Summagraphics engineers at times devise inventions which
Summagraphics may elect to patent if it would provide a market advantage,
inhibit competitors or generate a source of licensing revenues. Summagraphics
has approximately fifty patents and twenty patents pending in the United
States and in a number of foreign countries. Summagraphics also relies on
trade secrets, know-how, contracts, copyrights, trademarks and patents to
establish and protect its proprietary rights and to maintain the
confidentiality of trade secrets, proprietary information and creative
developments.
As part of Summagraphics' strategy for protecting its technology and market
position, it would announce certain inventions that it intended to use but did
not intend to patent in order to prevent competitors and others from obtaining
patent protection on such inventions. As a matter of cost control,
Summagraphics would allow
9
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certain patents that it judged to be obsolete to lapse. Summagraphics believed
that its proprietary information was protected to the fullest extent
practicable. There can be no assurance that the confidentiality agreements
upon which Summagraphics relied to protect its trade secrets and know-how will
be upheld by the courts. Moreover, patents relating to particular products do
not necessarily preclude competitors from successfully marketing substitute
products to compete with patented products. The Company believes that the loss
of any particular patent, or group of patents, will not have a material
adverse effect on Summagraphics' financial position or results of operations.
Other companies may also obtain patents covering configurations and processes
relating to Summagraphics' products, which would require Summagraphics to
obtain licenses. There can be no assurance that Summagraphics will be able to
acquire such licenses, if required, on commercially reasonable terms.
CALCOMP
FOR A DISCUSSION OF CALCOMP'S BUSINESS, SEE THE INFORMATION CONTAINED ON
PAGES 87-92 OF THE PROXY STATEMENT, WHICH INFORMATION IS INCORPORATED HEREIN
BY REFERENCE. ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED BY REFERENCE
HEREIN SHALL BE DEEMED TO BE MODIFIED OR REPLACED FOR PURPOSES OF THIS REPORT
TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY
FILED DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE
HEREIN MODIFIES OR REPLACES SUCH STATEMENT. ANY SUCH STATEMENT SO MODIFIED OR
REPLACED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR REPLACED, TO CONSTITUTE
A PART OF THIS REPORT.
RECENT DEVELOPMENTS
Subsequent to the Exchange, the Company has moved its executive offices from
Austin, Texas to Anaheim, California, effected certain reductions in workforce
and has begun implementation of the Company's business plans to reduce
corporate overhead and eliminate duplicative manufacturing operations and
certain unprofitable product lines. The Company has also commenced efforts to
integrate and rationalize CalComp's and Summagraphics' respective development,
administrative, finance, sales, product support, distribution and marketing
organizations, and to integrate each company's product offerings and
development activities. Although management expects that these actions will
result in future cost savings, no assurances can be given that such savings
will be realized.
ITEM 2. PROPERTIES.
Subsequent to the Exchange the Company's executive offices were relocated to
Anaheim, California. Summagraphics' executive offices were located in Austin,
Texas in a leased building having a total of 96,400 square feet of space. The
lease will expire in June 2010. In addition, Summagraphics leases a building
in Seymour, Connecticut (the lease will expire in November 1998), which is
being vacated, and owns a building in Gistel, Belgium, and those buildings
have a total of 84,000 and 43,180 square feet of space, respectively.
Summagraphics also leases office space for selling operations in Huntington
Beach, California and Macedonia, Ohio, and in three foreign countries
(Germany, France and Belgium). Except for the Seymour, Austin and Gistel
facilities, these locations function primarily as sales, training and field
service centers for their regions. For information regarding Summagraphics'
obligations under leases, see Note 9 of Notes to the Company's Consolidated
Financial Statements.
FOR A DISCUSSION OF CALCOMP'S PROPERTIES, SEE THE INFORMATION CONTAINED ON
PAGE 91 OF THE PROXY STATEMENT UNDER THE CAPTION "PROPERTIES," WHICH
INFORMATION IS INCORPORATED HEREIN BY REFERENCE. ANY STATEMENT CONTAINED IN A
DOCUMENT INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR
REPLACED FOR PURPOSES OF THIS REPORT TO THE EXTENT THAT A STATEMENT CONTAINED
HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS DEEMED
TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR REPLACES SUCH STATEMENT.
ANY SUCH STATEMENT SO MODIFIED OR REPLACED SHALL NOT BE DEEMED, EXCEPT AS SO
MODIFIED OR REPLACED, TO CONSTITUTE A PART OF THIS REPORT.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to several legal actions arising in the normal course
of business. The Company believes that the disposition of these matters will
not have a material adverse affect on its financial position or results of
operations taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
The Company's Common Stock currently is traded on the NASDAQ National Market
System under the symbol "CLCP." (Prior to the Exchange the Common Stock was
traded under the symbol "SUGR.") The following table sets forth the high and
low closing bid prices of the Common Stock for the periods indicated as
reported by the NASDAQ National Market System.
<TABLE>
<CAPTION>
HIGH LOW
----- ------
<S> <C> <C>
Fiscal Year Ended May 31, 1995
First Quarter............................................ $ 8 $6 3/8
Second Quarter........................................... 9 1/8 6 3/4
Third Quarter............................................ 8 3/4 6 1/2
Fourth Quarter........................................... 6 5/8 2 5/8
Fiscal Year Ended May 31, 1996
First Quarter............................................ 3 5/8 2 5/8
Second Quarter........................................... 3 3/8 1 1/2
Third Quarter............................................ 3 5/8 1 1/2
Fourth Quarter........................................... 3 5/16 2 5/8
</TABLE>
On May 16, 1996, the Company received an inquiry from the NASDAQ Stock
Market as to whether it continued to meet the listing requirements for the
National Market System. Pursuant to correspondence and subsequent telephone
conversations, the NASDAQ Stock Market agreed to delay their determination
until consummation of the Exchange, and indicated that following the Exchange
the Company would have to meet the initial listing requirements to continue to
trade on the NASDAQ National Market System. Two of the requirements for
initial listing on the National Market System are that a total market
capitalization of common stock held by non-affiliates is equal to or exceeds
$15,000,000 and that the bid price of the listed security is equal to or
exceeds $3.00. On July 15, 1996, at the request of the Company, the NASDAQ
Stock Market waived these requirements and approved the listing of the
Company's Common Stock on the NASDAQ National Market System following the
Exchange. There is, however, no assurance that such listing can be maintained.
In the event that the Common Stock does not continue to be listed on the
NASDAQ National Market System, the trading volume of the Common Stock may
decrease and an active trading market may not be sustained. In the event that
the Common Stock does not continue to be listed on the NASDAQ National Market
System, the Company has indicated that it intends to use reasonable efforts to
cause the Common Stock to be listed on the NASDAQ SmallCap Market.
The quotations set out above represent prices between dealers and do not
include retail mark-up, mark-down or commission. They do not represent actual
transactions. These quotations have been supplied by the National Association
of Securities Dealers, Inc.
As of July 31, 1996 there were 351 record holders of Registrant Common Stock
(which shares are believed to be beneficially owned by approximately 2,000
persons).
The Company has never paid any dividends with respect to its Common Stock.
Any future payment of dividends will be at the discretion of the Board of
Directors and will depend on the financial condition and capital requirements
of the Company, as well as other factors that the Board of Directors deem
relevant. It is currently anticipated that the Company will retain future
earnings, if any, to finance the operation and growth of its business. As long
as Lockheed Martin continues to own 50 percent or more of the Common Stock, it
will be able to elect the entire Board of Directors of the Company and,
therefore, will be able to control all decisions with respect to its dividend
policy.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected statement of operations and balance sheet data for the five
fiscal years ended May 31, 1992, 1993, 1994, 1995 and 1996 are derived from
Summagraphics' audited consolidated financial statements. This selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Summagraphics"
and the Consolidated Financial Statements of Summagraphics and related notes
thereto included elsewhere herein. The following data is presented in
thousands except for per share data.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $77,295 $ 81,404 $ 77,755 $ 78,494 $ 64,273
Operating income (loss)....... 810 (16,750) 2,664 (10,623) (4,691)
Income (loss) before
extraordinary
gain and cumulative effect of
change in accounting method.. (1,231) (16,835) 2,142 (11,599) (5,527)
Extraordinary gain............ -- -- 645 -- --
Cumulative effect of change in
accounting for income taxes.. -- 411 -- -- --
Net income (loss)............. $(1,231) $(16,424) $ 2,787 $(11,599) $ (5,527)
Net income (loss) per common
share:
Income (loss) before
extraordinary
gain and cumulative effect of
change in accounting method.. $ (0.30) $ (3.89) $ 0.47 $ (2.56) $ (1.20)
Extraordinary gain............ -- -- 0.14 -- --
Cumulative effect of change in
accounting for income taxes.. -- 0.09 -- -- --
------- -------- -------- -------- --------
Net income (loss) per common
share........................ $ (0.30) $ (3.80) $ 0.61 $ (2.56) $ (1.20)
======= ======== ======== ======== ========
Weighted average shares used
in
computing net income (loss)
per common share............. 4,113 4,323 4,519 4,537 4,609
<CAPTION>
MAY 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)... $23,982 $ 11,329 $ 11,923 $ 5,613 $ (1,275)
Total assets................ 61,086 52,276 47,336 53,601 43,078
Long-term debt.............. 5,261 3,627 947 1,579 761
Retained earnings
(accumulated
deficit)................... 1,213 (15,661) (13,830) (25,879) (31,406)
Stockholders' equity........ 39,039 22,314 24,077 14,404 7,808
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Report on Form 10-K contains statements which, to the extent that they
are not recitations of historical facts, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward looking statements involve risks and uncertainties. The
forward looking statements in this Report on Form 10-K are intended to be made
subject to the safe harbor protections provided by Sections 27A and 21E.
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<PAGE>
The following table sets forth, for Summagraphics' fiscal years ended May
31, 1996, 1995 and 1994, items in the consolidated statements of operations of
Summagraphics as percentages of net sales. The table and the subsequent
discussion should be read in conjunction with the consolidated financial
statements and related notes thereto of Summagraphics included elsewhere
herein. For more detailed information concerning the Company after
consummation of the Exchange, see Item 1 above and Notes 12 and 13 to the
consolidated financial statements.
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEAR ENDED MAY
31,
------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales.................................................... 100 % 100 % 100 %
Cost of sales................................................ 65 74 76
Gross profit............................................... 35 26 24
Selling, general and administrative.......................... 24 28 27
Research and development..................................... 7 9 6
Restructuring and other charges.............................. -- 3 (1)
Operating income (loss).................................... 3 (14) (8)
Interest income (expense), net............................... * (1) (2)
Miscellaneous, net........................................... * * 1
Income (loss) before income taxes and extraordinary gain..... 3 (15) (9)
Provision for income taxes................................... -- * *
Income (loss) before extraordinary gain...................... 3 (15) (9)
Extraordinary gain........................................... 1 -- --
Net income (loss).......................................... 4 (15) (9)
</TABLE>
- --------
* Not meaningful or less than 1%
COMPARISON OF FISCAL YEARS ENDED MAY 31, 1996 AND 1995
Net sales in fiscal 1996 decreased 18% to $64,273,000 from $78,494,000 in
fiscal 1995. Fiscal 1996 sales decreased in Europe and, to an even greater
extent, in the North America and Asia/Pacific sales regions. The decrease was
due primarily to a decrease in input and output product sales and, in the
North America and Asia /Pacific sales regions, service revenue, and was
partially offset by an increase in cutter sales and European service revenues.
Sales were significantly lower in the third quarter and part of the fourth
quarter of fiscal 1996 due principally to a lack of product availability
precipitated by suppliers' concerns about Summagraphics' liquidity problems.
Interim funding received in March from Lockheed Martin helped increase product
availability; however, the Company believes that fourth quarter revenues
continued to be negatively impacted due to longer vendor lead times in filling
orders and due to vendor concerns related to the Company's liquidity problems.
The decrease in output product sales reflects a decline in sales of pen
plotters and the inability to offset this decline with sales of Summagraphics'
SummaJet(TM) ink jet plotter. The SummaJet(TM) plotter was introduced later
than scheduled and experienced technical problems, hindering efforts to
increase sales of this product in the face of intense competition. The Company
also believes that customer uncertainty, both as to future product plans and
potential selling channel changes, caused by the announcement of
Summagraphics' intention to combine with CalComp had a negative impact on
sales in the third and fourth quarter of fiscal 1996 that cannot be
quantified.
Gross profit margin decreased to 24% in fiscal 1996 compared to 26% in the
prior year. This margin decrease occurred despite the absence of costs,
including severance, of outsourcing the manufacturing of its ink jet product
and inventory charges that negatively impacted margin percentage in fiscal
1995, and was principally due to lower sales volume and continued high fixed
manufacturing costs; reduced selling prices (particularly in the U.S. and
Asia/Pacific due to a change in Summagraphics' pricing/promotion strategy that
lowered many selling prices, while reducing promotional incentives that are
recorded as selling expenses); and price reductions in reaction to competitive
pricing actions particularly on output products.
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<PAGE>
Selling, general and administrative expenses as a percentage of net sales
decreased from 28%, or $21,940,000, in fiscal 1995 to 27%, or $16,994,000, in
fiscal 1996. This decrease was primarily due to abnormally high selling costs
incurred in fiscal 1995 caused by delays in the introduction of Summagraphics'
ink jet plotter product, lower selling costs in fiscal 1996 due to the
elimination of certain promotional programs (which were in part offset with
product price reductions) and continued efforts to reduce expenses in all
areas. In fiscal 1996 $510,000 of expenses related to the Exchange were
included in administrative expense.
Research and development expenditures as a percentage of net sales decreased
from 9% in fiscal 1995 to 6% in fiscal 1996 ($6,761,000 and $3,745,000,
respectively). This reduction reflects cost reduction programs put in place by
Summagraphics as well as the absence of any major development programs for
output products in fiscal 1996.
In the fourth quarter of fiscal 1996 Summagraphics reviewed the reserves
that it had provided in fiscal 1993 and fiscal 1995 related to the write-off
and abandonment of its Connecticut leased facility, determined that it had
over-accrued the anticipated remaining rent and operating costs for this
facility and, accordingly, reversed $346,000 of reserves.
Interest expense (net) increased to $1,267,000 for fiscal 1996 compared to
$588,000 in the prior year. This increase reflects the increase in average
short-term debt outstanding from the prior period as well as higher interest
rates on its U.S. borrowings as a result of renegotiated credit arrangements
in the U.S.
Other miscellaneous income and expense reflected income of $431,000 in
fiscal 1996 compared to expense of $201,000 in the prior year. This change in
miscellaneous income and expense is primarily due to currency transaction
gains and losses.
Summagraphics had a pre-tax loss of $5,527,000 in fiscal 1996 compared to a
pre-tax loss of $11,412,000 in the prior year. The decrease in operating
losses is primarily attributable to the absence of various non-
recurring/unusual charges which had been incurred by Summagraphics in the
fourth quarter of fiscal 1995.
Summagraphics did not record a tax provision in fiscal 1996 as a result of
the current period losses.
COMPARISON OF THE FISCAL YEARS ENDED MAY 31, 1995 AND 1994
Net sales increased 1% from fiscal 1994 to fiscal 1995. The net sales
increase reflects record European net sales, positive results of new
distribution alliances in Asia, and an increase in sales by CAD Warehouse.
These increases were offset by a decline in Summagraphics' North American
region, due to the accelerating erosion of the large format pen plotter
market, a later-than-planned introduction of the SummaJet(TM) ink jet plotter,
the loss of certain digitizer OEM business and the final sell out of large
format scanners, which were discontinued in fiscal 1994.
Summagraphics' gross profit margin decreased to 26% in fiscal 1995 from 35%
in fiscal 1994, due to high startup and manufacturing costs related to the new
large format ink jet plotter, as well as lower selling prices for
Summagraphics' older line of pen plotters. The reduction in gross margin also
reflects the costs, including severance, of outsourcing the manufacturing of
its ink jet product, which was completed during the first quarter of fiscal
1996 as well as significant charges for reserves for obsolete and excess
inventories.
Selling, general and administrative expenses as a percentage of net sales
increased from 24% or $18,934,000 in fiscal 1994 to 28% or $21,940,000 in
fiscal 1995. This increase reflects increased promotional costs related to the
delayed introduction of the SummaJet(TM) ink jet plotter and the lower than
expected sales volume generated by the product. Additional selling costs were
also incurred on other products in order to offset the lower revenues of the
ink jet product.
Summagraphics' research and development expenses, as a percentage of net
sales, increased from 7% in fiscal 1994 to 9% in fiscal 1995 principally due
to the increased spending associated with the development of the
14
<PAGE>
new large format ink jet plotters introduced in fiscal 1995, new digitizer
products and the conversion of its SummaChrome product from primarily a paper
printer to a vinyl media printer targeted at the sign making market where
Summagraphics' cutter products are sold.
In the fourth quarter of fiscal 1995, Summagraphics incurred various non-
recurring/unusual charges, including charges related to lease abandonment,
manufacturing outsourcing, unusual new product introduction costs and excess
inventory allowances.
A lease abandonment charge of approximately $2.2 million was incurred
related to Summagraphics' decision to move substantially all remaining
activities at its Connecticut facility to Austin, Texas. This charge reflects
the remaining lease obligations, leasehold improvement and operating costs
associated with the lease which expires in November 1998.
Summagraphics incurred approximately $1.4 million in charges, primarily for
severance, related to the outsourcing of its ink jet and large format
digitizer manufacturing and general down-sizing of its North American
operations.
Delays in the initial introduction and subsequent manufacturing of the
SummaJet(TM) product resulted in approximately $2.2 million in charges in the
fourth quarter of fiscal 1995 for air freighting of materials required for
production and for delivery to customers where orders were fulfilled later
than requested, price credits to distributors for in-stock inventories related
to competitive price reductions to which Summagraphics responded in the fourth
quarter, rework related to adding a product feature to aid in the marketing of
the product, additional promotional expenses to relaunch the product after the
delayed introduction and write-downs of superseded parts inventories.
Summagraphics recorded write-downs for unused fixed assets and for excess
and obsolete parts and products inventories of approximately $3.2 million
primarily related to discontinued and/or excess plotter product lines and for
parts and supplies for its large format thermal wax printer that are not
required for the vinyl sign making application to which the product now
targeted.
As a result of the factors described above, Summagraphics had an operating
loss of $10,623,000 in fiscal 1995 compared to operating income of $2,664,000
in fiscal 1994.
Interest expense increased from $421,000 in fiscal 1994 to $609,000 in
fiscal 1995. This increase reflects an increase in average outstanding debt in
fiscal 1995 as compared to fiscal 1994. The increased debt is related
primarily to the increased inventory levels maintained by Summagraphics in
fiscal 1995.
Summagraphics had pre-tax loss of $11,412,000 in fiscal 1995 versus income
of $2,142,000 in fiscal 1994.
Summagraphics recorded a deferred tax provision of $187,000 related to one
of Summagraphics' Belgium subsidiaries which was profitable in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1996, Summagraphics' sources of liquidity consisted of on-hand
cash balances, a $4,000,000 revolving credit facility in Belgium, the loan
from Lockheed Martin pursuant to the Exchange Agreement, vendor credit and
cash generated from operations. Summagraphics' availability under its Belgian
bank credit is calculated based upon percentages, as determined by the bank,
of certain eligible receivables and to a lesser extent inventories. At that
time, Summagraphics did not have any availability under its then current
domestic credit facility. As of May 31, 1996, cash and short-term investments
totaled $1,752,000, and $781,000 was available under the Belgian revolving
credit line.
During fiscal 1996, Summagraphics utilized its cash balances and credit
facilities to fund operations, working capital, capital expenditures and
restructuring costs. Cash charges against the restructuring reserve
established in 1993 and the lease abandonment reserve established in 1995,
both related to the former corporate office lease space in Connecticut, were
$1,041,000. Additionally, $346,000 of these reserves were reversed back to
income in the fourth quarter of 1996 because the reserves exceeded the sum of
the remaining lease payments and maintenance costs.
15
<PAGE>
As a result of its U.S. operating losses during early fiscal 1996,
Summagraphics violated certain financial covenants contained in a credit
agreement with its U.S. bank, the lease covering its Texas facility and a
capital expenditure loan agreement. In September 1995, all parties to these
agreements agreed to waive all events of default and to revise the respective
agreements. The amendment to the U.S. bank credit agreement was executed in
January, 1996. Significant new provisions of this agreement included an
extension of the agreement until September 30, 1996, repayment of the loan
based on remittance of certain percentages of daily cash collections, no new
loan advances except for one minor exception, additional loan repayments
required to be made based upon any proceeds from asset sales or equity
proceeds, an increased borrowing rate, new financial covenants and the
granting to the bank of warrants to purchase 37,500 shares of Summagraphics
Common Stock at $1.75 per share.
Subsequent to the signing of the amended bank credit agreement,
Summagraphics reported a net loss of approximately $1.6 million in the third
quarter ended February 29, 1996. This loss was caused primarily by
Summagraphics' inability to finance inventory purchases during the quarter due
to a severe tightening of vendor credit in the U.S., the bankruptcy of a key
European cutter supplier late in the quarter and the discontinuance of a
contract manufacturing relationship in the third quarter that resulted in
delayed and reduced product deliveries. As a result of this loss,
Summagraphics breached certain financial covenants under the amended bank
credit agreement. In a further modification to the credit agreement made in
March 1996, concurrent with the execution of the Exchange Agreement, the bank
agreed to forebear against declaring default with respect to certain financial
covenants for the period ending February 29, 1996 until the maturity of the
debt, the date of which was variable, depending upon certain circumstances.
This debt matured on July 23, 1996 and was repaid in full on that date in
connection with the closing of the Exchange. All claims against Summagraphics
by the bank were released as of the Closing date.
A revision to the Texas lease agreement was also executed in March 1996
modifying certain financial covenants to accommodate Summagraphics' losses.
Other new provisions of the lease include a rent reduction through September
30, 1996 and the granting of warrants to purchase 15,000 shares of
Summagraphics' Common Stock at a price of $2.00 per share. As of May 31, 1996,
Summagraphics was not, and the Company may not currently be, in compliance
with the revised terms and conditions of the amended lease agreement. The
Company expects that discussions with the landlord of the lease concerning
lease related issues, will result in an agreement that will be satisfactory to
both parties.
The capital expenditure credit line was also amended in March 1996 to
accommodate the third quarter losses. As of May 31, 1996, as a result of
continued losses in the fourth quarter, Summagraphics was in violation of
certain covenants under the line; however, all borrowings under this agreement
were repaid on the Closing date and all claims by the lender against
Summagraphics were released.
During fiscal 1996, as part of Summagraphics' efforts to address its
significant losses and liquidity constraints, Summagraphics retained the
services of Broadview Associates (an investment banking firm) to assist it
with matters relating to Summagraphics' strategic direction. As a result,
Summagraphics entered into the Exchange Agreement with Lockheed Martin as
described in the Proxy Statement, in connection with which, Lockheed Martin
agreed to loan Summagraphics $2.5 million to help alleviate Summagraphics'
lack of liquidity (the "Interim Financing"). The Interim Financing was
completed and funded in the fourth quarter and was used primarily to finance
inventory purchases and to pay vendor liabilities, enabling Summagraphics to
alleviate some of its product availability problems.
Pursuant to the Exchange Agreement, in connection with the closing of the
Exchange, Lockheed Martin and the Company entered into the following
intercompany agreements effective upon the Closing: (i) a Registration Rights
Agreement pursuant to which the Exchange Shares to be issued to Lockheed
Martin in connection with the Exchange have certain "demand" and "piggyback"
registration rights; (ii) an Intercompany Services Agreement pursuant to which
Lockheed Martin provides certain services to the Company which Lockheed Martin
had previously provided to CalComp; (iii) a Cash Management Agreement pursuant
to which Lockheed Martin manages, on a daily basis, the cash receipts and
disbursements of the Company and provides up to $2 million in credit; (iv) a
Tax Sharing Agreement pursuant to which Lockheed Martin and the Company
16
<PAGE>
will allocate their respective tax liabilities and tax attributes and
establish procedures to be followed for tax years for which the Company and
its subsidiaries will be included in consolidated Federal income tax returns
of Lockheed Martin's consolidated group; (v) a Revolving Credit Agreement
pursuant to which Lockheed Martin provided borrowings in an aggregate
principal amount of approximately $28 million to the Company for payment of
certain indebtedness outstanding at closing, including, but not limited to
amounts outstanding under the Interim Financing, for costs incurred to
integrate CalComp and Summagraphics and for general working capital purposes;
and (vi) a Corporate Agreement pursuant to which Lockheed Martin and the
Company agreed, among other things, that for so long as Lockheed Martin owns
at least 50% of the Common Stock of the Company, at least two-thirds of the
members of the Board of Directors will consist of Lockheed Martin designees
and at least two directors will be "independent" of both Lockheed Martin and
the Company, and that the Company will not take any actions which would
violate, or cause an event of default by Lockheed Martin under provisions of
applicable law or regulation, any credit agreement or other material agreement
of Lockheed Martin, or any judgment, order or decree of a governmental body or
court. See the discussion in the Proxy Statement under "Relationship with
Lockheed Martin."
The Company believes that a key benefit to be realized from the Exchange
will be the cost savings from reduction in corporate overhead and elimination
of duplicative manufacturing operations and certain unprofitable product
lines. The anticipated benefits of the Exchange will not be achieved unless
the Company is successful in combining the Summagraphics and CalComp
operations in a smooth, timely and efficient manner. Subsequent to the
Exchange, the Company has proceeded with the integration and rationalization
of each company's development, administrative, finance, sales, product
support, distribution and marketing organizations, as well as the integration
of each company's product offerings and development activities. The Company
expects that the transition to a combined company will continue on into the
next calendar year and will require substantial attention from the new
management team, some members of which have not worked together previously and
have limited experience in integrating companies. Of particular significance
to successful integration of the combining companies' businesses will be
reassuring both companies' customers that product support and distribution
will continue uninterrupted. The requirements for management attention and the
costs incurred and difficulties encountered in the transition process may, at
least in the short term, have an adverse impact upon the Company's operations.
Since the Exchange, operating losses with respect to the operations of the
combined companies have continued and are expected to continue through at
least the third and fourth quarters of calendar 1996. In response, management
has undertaken and continues to consider actions to reduce operating expenses
and continues to focus on planned new product introductions scheduled for the
third and fourth quarters of calendar 1996.
In connection with the Exchange, the Company will have continuing access to
funding from Lockheed Martin. Cash shortfalls of up to $2 million will be
funded by Lockheed Martin on an overnight basis pursuant to the Cash
Management Agreement. In addition, up to $28 million will be available from
Lockheed Martin pursuant to the Revolving Credit Agreement. The proceeds of
the Revolving Credit Agreement will be utilized generally to repay certain
borrowings of Summagraphics and to fund costs associated with the integration
of CalComp and Summagraphics. As anticipated, following the Closing, the
Company's liquidity requirements have been higher than in previous periods
primarily as a result of costs incurred to integrate Summagraphics operations
with and into those of CalComp. However, management believes that cash
generated from operations and funds available under the Revolving Credit and
Cash Management Agreements with Lockheed Martin should be sufficient to fund
the Company's anticipated operating needs for the foreseeable future.
FOREIGN CURRENCY EXCHANGE RATES
Because the Company sources a substantial portion of its production from Far
East manufacturers, the cost of imported product can be affected by
fluctuations in the value of the U.S. dollar and import duties or
restrictions. Summagraphics does a substantial portion of its business
internationally. Summagraphics' products are priced in U.S. dollars in all
North American, Latin American, Asian and Pacific Rim countries. In Europe,
17
<PAGE>
the Company prices its products in local currencies in Germany, England,
France, Belgium and in U.S. dollars in other European and Middle Eastern
countries. Approximately 50% of sales are denominated in local currencies and
50% in U.S. dollars. The European operations incur approximately the same
percentages of their expenses in either local currencies or dollars.
Accordingly, Summagraphics believes that it effectively matches cash inflows
and outflows and is not subject to material cash flow impacts due to currency
fluctuations.
NEW ACCOUNTING STANDARDS
During March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company is
required to adopt Statement 121 in the period beginning June 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company has not completed all of the
analyses required to estimate the impact of the new statement. As a result of
the consummation of the Exchange, any effect of Statement 121 will be
reflected as part of CalComp's purchase price allocation with respect to the
Summagraphics acquisition, since CalComp has adopted this accounting standard
effective January 1, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995. Companies are permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25. "Accounting for Stock Issued
to Employees," but will be required to disclose in a note to the financial
statements pro forma net earnings and earnings per share as if the company had
applied the new method of accounting, as outlined in SFAS No. 123. The Company
will continue to account for such transactions according to APB 25.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports of Independent Auditors.......................................... 19-20
Consolidated Balance Sheets--May 31, 1995 and 1996....................... 21
Consolidated Statements of Operations--Years ended May 31, 1994, 1995 and
1996.................................................................... 22
Consolidated Statements of Stockholders' Equity--Years ended May 31,
1994, 1995 and 1996..................................................... 23
Consolidated Statements of Cash Flows--Years ended May 31, 1994, 1995 and
1996.................................................................... 24
Notes to Consolidated Financial Statements............................... 25-40
</TABLE>
The consolidated financial statements contain pro forma statements of
operations for the six month periods ended June 25, 1995 and June 30, 1996,
giving effect to the Exchange. Additional pro forma disclosures, including a
pro forma balance sheet as of March 31, 1996, and detailed descriptions of the
pro forma adjustments are set forth on pages 51-57 of the Proxy Statement,
which information is incorporated herein by reference. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified
or replaced for purposes of this report to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or replaces such
statement. Any such statement so modified or replaced shall not be deemed,
except as so modified or replaced, to constitute a part of this report.
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated balance sheet of Summagraphics
Corporation and Subsidiaries as of May 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As more fully described in Note 12 to the financial statements, on July 23,
1996 Summagraphics Corporation entered into an agreement to exchange shares of
its common stock for all the outstanding shares of CalComp Inc., a wholly-
owned subsidiary of Lockheed Martin Corporation. As a result of the exchange,
Lockheed Martin Corporation acquired control of Summagraphics Corporation and
CalComp Inc. became a wholly-owned subsidiary of Summagraphics Corporation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summagraphics
Corporation and Subsidiaries at May 31, 1996, and the consolidated results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
August 23, 1996
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Summagraphics Corporation:
We have audited the accompanying consolidated balance sheet of Summagraphics
Corporation and Subsidiaries as of May 31, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended May 31, 1995. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Summagraphics Corporation and Subsidiaries as of May 31, 1995, and the results
of their operations and their cash flows for each of the years in the two-year
period ended May 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Austin, Texas
June 27, 1995, except as to notes 5 and 9 which are as of September 20, 1995
20
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 560,000 $ 1,752,000
Accounts receivable (less allowance for doubtful
accounts of $954,000 in 1995 and $1,080,000 in
1996)........................................... 18,039,000 15,871,000
Inventories:
Materials........................................ 9,881,000 5,954,000
Work-in-process.................................. 2,504,000 1,334,000
Finished goods................................... 6,998,000 4,800,000
------------ ------------
19,383,000 12,088,000
Prepaid expenses and other current assets........ 1,136,000 741,000
------------ ------------
Total current assets........................... 39,118,000 30,452,000
Fixed assets:
Land............................................. 344,000 311,000
Building......................................... 1,616,000 1,497,000
Machinery and equipment.......................... 13,861,000 13,501,000
Furniture and fixtures........................... 1,241,000 909,000
Leasehold improvements........................... 1,044,000 840,000
Construction-in-progress......................... 389,000 58,000
------------ ------------
18,495,000 17,116,000
Less accumulated depreciation and amortization... (13,188,000) (13,485,000)
------------ ------------
Net fixed assets............................... 5,307,000 3,631,000
Goodwill, net of accumulated amortization.......... 8,452,000 8,315,000
Other intangible and other assets, net of
accumulated amortization (Note 3)................. 724,000 680,000
------------ ------------
Total assets................................... $ 53,601,000 $ 43,078,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 12,500,000 $ 11,603,000
Accrued liabilities (notes 2 and 4).............. 10,619,000 6,589,000
Notes payable (note 5)........................... 9,548,000 12,378,000
Current portion of long-term debt (note 5)....... 561,000 864,000
Current obligations under capital leases (note
9).............................................. 277,000 293,000
------------ ------------
Total current liabilities...................... 33,505,000 31,727,000
Long-term liabilities, less current portion:
Long-term debt (note 5).......................... 1,579,000 761,000
Capital lease obligations (note 9)............... 282,000 80,000
Deferred gain on sale of building................ 476,000 442,000
Deferred tax liability (note 8).................. 498,000 788,000
Restructuring, lease abandonment and other
charges (note 2)................................ 2,857,000 1,472,000
------------ ------------
Total long-term liabilities.................... 5,692,000 3,543,000
Commitments and contingencies (note 9)
Stockholders' equity (note 6):
Preferred stock, $.01 par value, authorized
5,000,000 shares................................ -- --
Common stock, $.01 par value, authorized
20,000,000 shares, issued 4,645,000 shares in
1995 and 4,688,000 shares in 1996............... 46,000 47,000
Additional paid-in capital....................... 39,111,000 39,274,000
Retained earnings (accumulated deficit).......... (25,879,000) (31,406,000)
Cumulative translation adjustment................ 1,601,000 368,000
------------ ------------
14,879,000 8,283,000
Less: Treasury stock, at cost--49,000 shares in
1995 and 1996................................... (465,000) (465,000)
Stockholder note receivable.................... (10,000) (10,000)
------------ ------------
Total stockholders' equity....................... 14,404,000 7,808,000
------------ ------------
Total liabilities and stockholders' equity..... $ 53,601,000 $ 43,078,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------------------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Net sales.............................. $77,755,000 $ 78,494,000 $64,273,000
Cost of sales.......................... 50,526,000 58,188,000 48,571,000
----------- ------------ -----------
Gross profit......................... 27,229,000 20,306,000 15,702,000
Selling, general and administrative.... 18,934,000 21,940,000 16,994,000
Research and development............... 5,631,000 6,761,000 3,745,000
Restructuring, lease abandonment and
other charges (note 2)................ -- 2,228,000 (346,000)
----------- ------------ -----------
Operating income (loss).............. 2,664,000 (10,623,000) (4,691,000)
----------- ------------ -----------
Other income (expense):
Interest income...................... 105,000 21,000 18,000
Interest expense..................... (421,000) (609,000) (1,285,000)
Miscellaneous, net................... (206,000) (201,000) 431,000
----------- ------------ -----------
(522,000) (789,000) (836,000)
----------- ------------ -----------
Income (loss) before income taxes and
extraordinary gain.................. 2,142,000 (11,412,000) (5,527,000)
Provision for income taxes (note 8).... -- 187,000 --
----------- ------------ -----------
Income (loss) before extraordinary
gain................................ 2,142,000 (11,599,000) (5,527,000)
Extraordinary gain..................... 645,000 -- --
----------- ------------ -----------
Net income (loss).................... $ 2,787,000 $(11,599,000) $(5,527,000)
=========== ============ ===========
Net income (loss) per common share:
Income (loss) before extraordinary
gain................................ $ 0.47 $ (2.56) $ (1.20)
Extraordinary gain................... 0.14 -- --
----------- ------------ -----------
Net income (loss) per common share... $ 0.61 $ (2.56) $ (1.20)
=========== ============ ===========
Weighted average shares used in
computing net income (loss) per common
share................................. 4,519,000 4,537,000 4,609,000
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
RETAINED TREASURY
ADDITIONAL EARNINGS CUMULATIVE STOCK AND
NUMBER PAID-IN (ACCUMULATED TRANSLATION STOCKHOLDER STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT NOTE EQUITY
--------- ------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993. 4,481,000 $45,000 $38,397,000 $(15,661,000) $ 7,000 $(475,000) $ 22,313,000
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 11,000 -- 42,000 -- -- -- 42,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 47,000 -- 165,000 -- -- -- 165,000
Awards granted pursuant
to the 1987 stock plan. 7,000 -- 35,000 -- -- -- 35,000
Net income.............. -- -- -- 2,787,000 -- -- 2,787,000
Unrealized translation
loss................... -- -- -- -- (309,000) -- (309,000)
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (956,000) -- -- (956,000)
--------- ------- ----------- ------------ ----------- --------- ------------
Balance at May 31, 1994. 4,546,000 45,000 38,639,000 (13,830,000) (302,000) (475,000) 24,077,000
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 59,000 1,000 304,000 -- -- -- 305,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 37,000 -- 150,000 -- -- -- 150,000
Awards granted pursuant
to the 1987 stock plan. 3,000 -- 18,000 -- -- -- 18,000
Net loss................ -- -- -- (11,599,000) -- -- (11,599,000)
Unrealized translation
gain................... -- -- -- -- 1,903,000 -- 1,903,000
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (450,000) -- -- (450,000)
--------- ------- ----------- ------------ ----------- --------- ------------
Balance at May 31, 1995. 4,645,000 46,000 39,111,000 (25,879,000) 1,601,000 (475,000) 14,404,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 29,000 1,000 47,000 -- -- -- 48,000
Awards granted pursuant
to the 1987 Employee
Stock Plan............. 14,000 -- 37,000 -- -- -- 37,000
Issuance of warrants.... -- -- 79,000 -- -- -- 79,000
Net loss................ -- -- -- (5,527,000) -- -- (5,527,000)
Unrealized translation
loss................... -- -- -- -- (1,233,000) -- (1,233,000)
--------- ------- ----------- ------------ ----------- --------- ------------
Balance at May 31, 1996. 4,688,000 $47,000 $39,274,000 $(31,406,000) $ 368,000 $(475,000) $ 7,808,000
========= ======= =========== ============ =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------------------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ 2,787,000 $(11,599,000) $(5,527,000)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Gain on retirement of debt........... (645,000) -- --
Depreciation and amortization........ 3,580,000 3,629,000 2,349,000
Restructuring, lease abandonment and
other charges....................... -- 2,228,000 (346,000)
(Gain) loss on sale of fixed assets.. (4,000) 14,000 64,000
Compensation in form of stock........ 35,000 18,000 116,000
Accounts receivable................ 34,000 864,000 1,618,000
Inventories........................ 644,000 (6,985,000) 6,806,000
Prepaid expenses and other current
assets............................ (8,000) 56,000 (781,000)
Accounts payable................... 4,465,000 2,670,000 (684,000)
Accrued liabilities................ (4,828,000) 883,000 (4,168,000)
Other liabilities.................. (321,000) 18,000 (455,000)
----------- ------------ -----------
Net cash provided by (used in)
operating activities................ 5,739,000 (8,204,000) (1,008,000)
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. (1,528,000) (1,927,000) (325,000)
Proceeds from sale of fixed assets... 55,000 10,000 81,000
Intangible assets.................... 38,000 644,000 96,000
----------- ------------ -----------
Net cash used in investment
activities.......................... (1,435,000) (1,273,000) (148,000)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to stockholders
of CAD Warehouse, Inc............... (956,000) (450,000) --
Proceeds from long-term borrowings... -- 855,000 --
Proceeds from short-term borrowings.. -- 9,323,000 3,131,000
Proceeds from sales of common stock.. 208,000 455,000 48,000
Repayment of short-term debt......... (2,805,000) -- --
Repayment of long-term debt and
capital lease obligations........... (2,623,000) (466,000) (675,000)
----------- ------------ -----------
Net cash provided by (used in)
financing activities................ (6,176,000) 9,717,000 2,504,000
----------- ------------ -----------
Effect of exchange rate changes on
cash.................................. 42,000 (499,000) (156,000)
----------- ------------ -----------
Net change in cash..................... (1,830,000) (259,000) 1,192,000
Cash at beginning of year.............. 2,649,000 819,000 560,000
----------- ------------ -----------
Cash at end of year.................... $ 819,000 $ 560,000 $ 1,752,000
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1995, AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements included the accounts of Summagraphics
Corporation and its Subsidiaries, all of which are wholly owned (collectively
referred to as the "Company"). All significant intercompany balances and
transactions have been eliminated.
DESCRIPTION OF BUSINESS
The Company is primarily engaged in the manufacture and sale of digitizing
tablets (computer input devices), and plotters (computer output devices).
These products are used in applications with high performance computer
graphics systems such as computer-aided design ("CAD"). The Company engages in
the manufacture and sale of cutters. The Company also owns a mail-order
distributor of CAD related equipment and software. The Company's products are
sold by its sales force primarily through distributors and also to original
equipment manufacturers ("OEMs") which incorporate the Company's products into
their own computer products. The Company has a world-wide sales network
including OEMs, distributors and manufacturers' representatives and maintains
sales offices in the United States, Belgium, France and Germany.
USE OF ESTIMATES
The development and use of estimates is inherent in the preparation of
financial statements that are presented in accordance with generally accepted
accounting principles. Significant estimations are made relative to the
valuation of accounts receivable, inventories, income taxes and certain
accrued liabilities, including among others, those for warranties and
contingent liabilities where an unfavorable outcome is considered probable and
the amount of the loss is estimable. Actual results may differ from amounts
estimated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the date of acquisition to be cash equivalents. The Company
had no cash equivalents at May 31, 1995 and 1996.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is applied on a
first-in, first-out (FIFO) basis; market is determined on the basis of
estimated net realizable value. The Company reserves for inventory that is
determined to be obsolete or substantially in excess of forecasted demand.
FIXED ASSETS
Fixed assets acquired are stated at cost. Equipment and furniture under
capital leases are stated at the lower of the present value of future minimum
lease payments or fair value at the inception of the lease.
Building depreciation is provided on the straight-line method over a period
of fifteen (15) years, depreciation of furniture and fixtures and machinery
and equipment (including amortization of assets covered by capital leases) is
provided on the straight-line method based on estimated useful lives ranging
from three (3) to ten (10) years. Amortization of leasehold improvements is
provided over the lesser of the estimated useful life of the improvement or
the life of the related lease. Maintenance and repairs are charged to
operations as incurred; significant betterments are capitalized.
25
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
INTANGIBLE ASSETS
Goodwill represents the amount by which the cost to purchase Houston
Instrument exceeded the fair market value of the related net assets. The
Company assesses the recoverability of its intangible assets by determining
whether the amortization of the intangible asset balance over its remaining
life can be recovered through projected future operating cash flows before
interest over the remaining amortization period. As a result of this ongoing
review, the Company reduced the original life of the goodwill from forty (40)
to twenty-five (25) years in 1995.
Other acquired identifiable intangible assets are amortized using the
straight-line method over lives not exceeding seven and one-half (7.5) years.
WARRANTY RESERVE
The Company provides warranties on its products for various periods. The
Company reserves for future warranty costs based on historical failure rates
and repair costs.
REVENUE RECOGNITION
The Company recognizes revenue when product is shipped to customers. Under
contract, certain customers may return a small percentage of the prior
quarter's net purchases provided the product is in resale condition and a new
order of equal value is placed for delivery within thirty (30) days. The
Company carries reserves for these and other returns based on historical
trends.
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
PER SHARE DATA
Net income (loss) per common and common equivalent share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
stock options and warrants, calculated by using the Treasury Stock method.
FOREIGN EXCHANGE
Assets and liabilities of foreign subsidiaries generally are translated into
U.S. Dollars at exchange rates in effect at the end of the year whereas
revenues and expenses are translated using average exchange rates that
prevailed during the year. Gains and losses that result from this process are
shown as an adjustment in stockholders' equity. Exchange gains and losses
resulting from foreign currency transactions (transactions denominated in a
currency other than that of the entity's primary cash flow) are included in
operations in the period in which they occur.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenditures
for the years 1994, 1995 and 1996 were $4,429,000, $5,435,000 and $3,119,000,
respectively.
26
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared to
give retroactive effect to the merger with CAD Warehouse, Inc., an S-
Corporation, on November 10, 1994 in exchange for 510,000 shares of the
Company's common stock. The merger was accounted for using the pooling of
interest method.
NEW ACCOUNTING STANDARDS
During March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." Summagraphics
is required to adopt Statement 121 in the period beginning June 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Summagraphics has not completed all of the
analyses required to estimate the impact of the new statement. As a result of
the consummation of the Exchange (see Note 12), any effect of Statement 121
will be reflected as part of CalComp's purchase price allocation with respect
to the Summagraphics acquisition, since CalComp has adopted this accounting
standard effective January 1, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995. Companies are permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25 (APB 25) "Accounting for
Stock Issued to Employees," but will be required to disclose in a note to the
financial statements pro forma net earnings and earnings per share as if the
company had applied the new method of accounting, as outlined in SFAS No. 123.
Summagraphics will continue to account for such transactions according to APB
25.
NOTE 2: RESTRUCTURING, LEASE ABANDONMENT AND OTHER CHARGES
In the fourth quarter of 1995, the Company decided to completely abandon its
leased facility in Connecticut, and accordingly recorded an additional
liability of $2,228,000 related to the Company's consolidation of operations
to Austin, Texas (in 1993, the Company recorded a liability of $2,606,000 for
the partial abandonment of this facility). This abandoned lease liability
relates to the remaining lease costs associated with the Company's Connecticut
facility. This liability will be funded over the approximately three (3) years
remaining on the lease.
In the fourth quarter of 1996, the Company reviewed the reserves that had
been recorded in 1993 and 1995 relating to the Connecticut lease and
determined that the reserves exceeded the sum of the remaining lease payments
and maintenance costs of the lease by $346,000 and accordingly reversed these
excess reserves.
NOTE 3: INTANGIBLE AND OTHER ASSETS
Significant components of intangible and other assets at May 31, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Goodwill.......................................... $9,912,000 $10,059,000
Other acquired intangibles........................ 2,941,000 3,168,000
---------- -----------
12,853,000 13,227,000
Less accumulated amortization..................... 3,903,000 4,392,000
---------- -----------
8,950,000 8,835,000
Other assets...................................... 226,000 160,000
---------- -----------
$9,176,000 $ 8,995,000
========== ===========
</TABLE>
27
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
NOTE 4: ACCRUED LIABILITIES
Significant components of accrued liabilities at May 31, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Payroll and other compensation.................... $ 1,223,000 $1,143,000
Federal, state, foreign, and payroll withholding
taxes............................................ 444,000 1,213,000
Sales returns and allowances...................... 3,026,000 677,000
Restructuring and lease abandonment costs......... 1,039,000 428,000
Other............................................. 4,887,000 3,128,000
----------- ----------
$10,619,000 $6,589,000
=========== ==========
</TABLE>
NOTE 5: INDEBTEDNESS
A. LONG-TERM DEBT
Long-term debt at May 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Long-term debt...................................... $2,140,000 $1,625,000
Less current portion................................ 561,000 864,000
---------- ----------
$1,579,000 $ 761,000
========== ==========
The aggregate maturities of long-term debt are as follows:
1997................................................ $ 864,000
1998................................................ 95,000
1999................................................ 95,000
2000................................................ 95,000
2001 and thereafter................................. 476,000
----------
$1,625,000
==========
</TABLE>
Components of long-term debt are as follows:
(i) In December 1994, the Company entered into a loan agreement (Loan
Agreement) that provided financing for capital expenditures through May 31,
1995, to a maximum amount of $2,500,000. The Company received funding under
the Loan Agreement in the amount of $1,153,000, through May 31, 1995, which
is payable over a period of three (3) years at a rate based on London
InterBank Offered Rate (LIBOR). At May 31, 1996 there was $769,000
outstanding under the Loan Agreement. The capital expenditure credit line
was amended in March 1996 to accommodate the third quarter losses. As of
May 31, 1996, as a result of continued losses in the fourth quarter, the
Company was in violation of certain covenants, which the lender waived. All
borrowings under the Loan Agreement were repaid on July 23, 1996 using the
proceeds of the Revolving Credit agreement provided by Lockheed Martin as a
result of the Exchange (see Note 12), and all claims by the lender against
the Company were released.
(ii) An $856,000 mortgage due in the year 2005, on the subsidiary's
facility in Gistel, Belgium.
At May 31, 1996 interest rates on long-term debt ranged from 7.55% to 10%
per annum.
28
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
B. NOTES PAYABLE
Note Payable to Belgian Bank
On October 12, 1992, one of the Company's Belgian subsidiaries entered into
a $4,000,000 Credit Agreement. This agreement has no defined expiration date
and requires the bank to give six (6) months notice of termination, if no
defaults exist. Borrowings under this agreement may be in the form of various
bank instruments, in various currencies and at various rates, at the Company's
option, and are secured by essentially all of the subsidiary's assets except
real property. Under the terms of the agreement, the subsidiary is subject to
certain covenants and restrictions. At May 31, 1996, $3,219,000 was
outstanding under this agreement, leaving $781,000 available to the Company.
Note Payable to U.S. Bank
In July, 1994, the Company entered into an $8,000,000 Credit Agreement (U.S.
Credit Agreement) with a bank. Under the terms of the agreement, the Company
is subject to certain covenants and restrictions. Borrowings under this
agreement may be in the form of various bank instruments at rates based on the
bank's base rate and are secured by substantially all of the Company's North
American assets.
On September 18, 1995 the bank agreed to amend the U.S. Credit Agreement due
to existing covenant violations. This amendment was finalized in January 1996.
Significant new provisions of the amendment included waiving existing
defaults, reducing the borrowing limit to $7,000,000, new financial covenants
and extension of the maturity date to September 30, 1996. Additionally, the
amendment required repayment of the loan based on daily collections and
suspended new borrowings. In consideration for the amendment, the Company
granted the bank warrants to purchase 37,500 shares of Summagraphics Common
Stock at $1.75 per share (market value at the date of issuance) and agreed to
apply a portion of proceeds from certain cash inflows outside the ordinary
course of business, if any, to outstanding principal.
As a result of its U.S. operating losses during the quarter ended February
29, 1996, Summagraphics breached certain financial covenants under the U.S.
Credit Agreement. The U.S. Credit Agreement was again modified in March 1996,
concurrent with the execution of the Exchange Agreement with Lockheed Martin,
and the bank agreed to forebear against declaring default with respect to the
breach of certain financial covenants until the maturity of the debt, the date
of which became variable under the modification. This debt matured on July 23,
1996 and was repaid in full on that date using the proceeds of the Revolving
Credit agreement provided by Lockheed Martin as a result of the Exchange. All
claims against the Company by the lender were released as of the repayment
date.
As of May 31, 1996, $6,643,000 was outstanding under this agreement, and no
new borrowings were available.
Other Notes Payable
Other notes payable of $16,000 were outstanding as of May 31, 1996.
Because the long-term debt and notes payable agreements are at variable
rates, the carrying value of those debt agreements approximates fair value.
29
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
C. MERGER AGREEMENT AND INTERIM FINANCING
In connection with the execution of the Exchange Agreement (see Note 12),
Lockheed Martin provided Summagraphics with a loan of up to $2.5 million to
fund Summagraphics' operations pending the Closing of the Exchange (the
"Interim Financing"). The Interim Financing was provided pursuant to a secured
convertible debenture (the "Convertible Debenture") bearing interest at 9-1/4%
per annum that is convertible upon an Event of Default (as defined therein)
into shares of common stock (the "Conversion Shares") at a conversion price of
$2.00 per share, unless the Exchange Agreement is terminated as a result of a
material breach by Lockheed Martin, in which case the conversion rate is
increased to $3.00 per share of common stock. The Convertible Debenture is
secured by a lien on certain of Summagraphics' assets. The maturity of the
Convertible Debenture was at the earlier of (i) the Closing, (ii) the
termination of the Exchange Agreement by either party under certain
circumstances, or (iii) July 31, 1996; provided that, if the Exchange
Agreement is terminated as a result of a material breach by Lockheed Martin,
the maturity date is extended to the first anniversary of the termination. In
connection with the issuance of the Convertible Debenture, Summagraphics
entered into a registration rights agreement with Lockheed Martin relating to
the Conversion Shares (the "Debenture Registration Rights"). Subject to
certain limitations, the Debenture Registration Rights entitle Lockheed Martin
(or its assignees) to cause Summagraphics to include Conversion Shares in any
registration statement filed by Summagraphics or to cause Summagraphics to
file and use its best efforts to cause to become effective a registration
statement under the Securities Act of 1933, as amended, in connection with any
public offering of Conversion Shares by Lockheed Martin. This loan matured on
July 23, 1996 and was repaid to Lockheed Martin on that day, using the
proceeds of the Revolving Credit agreement provided by Lockheed Martin as a
result of the Exchange. The loan is a short term debt instrument whose
carrying value approximates fair value.
NOTE 6: STOCKHOLDERS' EQUITY
A. COMMON STOCK RESERVED
The following shares of common stock are reserved for issuance at May 31,
1996:
<TABLE>
<S> <C>
Stock option plans:
Employee stock plan........................................... 1,198,000
Non-employee director stock option plan....................... 75,000
Performance unit plan......................................... 50,000
---------
1,323,000
Warrants........................................................ 202,500
Employee stock purchase plan.................................... 6,000
---------
1,531,500
=========
</TABLE>
B. STOCK OPTION PLANS
The Company's 1987 Stock Option Plan provides for the granting to directors,
consultants, officers, and other employees of options to purchase a total of
1,350,000 shares of common stock.
The Company's 1988 Non-Employee Director Stock Option Plan ("Directors'
Plan") for outside directors provides for the issuance of options for 75,000
shares of common stock exercisable for a period of ten (10) years from the
date of option grant. Under the Directors' Plan, each member of the Board of
Directors ("Board") who is neither an employee nor an officer of the Company
will be automatically granted on October 31 of each year an option to purchase
3,000 shares of the Company's common stock.
30
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
In addition to these two plans, the Board may also grant qualified and non-
qualified options, stock purchase rights, and stock awards.
Any options, awards, etc., granted under these plans are required to be at
prices which are not less than the fair market value per share of common stock
on the date of grant. The options, awards, etc., shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in
such installments as the Board may specify. Each option shall expire on the
date specified by the Board, subject to earlier termination provisions, but
not more than, under 1987 Stock Plan, ten (10) years and one day and, under
the Directors' Plan, ten (10) years, from the date of grant.
A summary of changes in stock issuable under employee and non-employee
option plans follows:
<TABLE>
<CAPTION>
RANGE OF
SHARES EXERCISE PRICES
-------- ----------------
<S> <C> <C> <C> <C>
Outstanding at May 31, 1993................... 626,000 $3.75 - $13.25
Granted..................................... 543,000 .01 - 7.13
Exercised................................... (18,000) 3.50 - 7.13
Canceled.................................... (202,000) 3.13 - 11.50
-------- ----- ------
Outstanding at May 31, 1994................... 949,000 .01 - 13.25
-------- ----- ------
Granted..................................... 182,000 3.13 - 8.63
Exercised................................... (62,000) 3.13 - 8.00
Canceled.................................... (225,000) 3.13 - 13.25
-------- ----- ------
Outstanding at May 31, 1995................... 844,000 .01 - 9.00
-------- ----- ------
Granted..................................... 199,000 2.38 - 3.50
Exercised................................... (14,000) 2.38 - 2.38
Canceled.................................... (268,000) 2.75 - 9.00
-------- ----- ------
Outstanding at May 31, 1996................... 761,000 $ .01 - $ 9.00
======== ===== ======
</TABLE>
At May 31, 1996, 422,000 options were exercisable at prices ranging from
$.01 to $9.00 a share.
C. EMPLOYEE STOCK PURCHASE PLAN
The 1988 Employee Stock Purchase Plan, which was approved by stockholders in
1989, provides that eligible employees may authorize payroll deductions
between 2% and 10% of their regular pay to purchase up to a maximum of 2,000
shares of the Company's common stock in a fiscal year. The purchase price of
the stock is the lesser of 85% of the average market price of the Company's
common stock on either the first or last business day of the Payment Period.
Payment Periods begin on June 1 and December 1 each year. The aggregate number
of shares which may be purchased under this plan is 250,000, of which 244,000
have been purchased as of May 31, 1996. Subsequent to May 31, 1996 this Plan
was suspended.
D. PERFORMANCE UNIT PLAN
The 1989 Performance Unit Plan, which was approved by stockholders in fiscal
1990, provides that officers and key employees of the Company may be granted
performance units by the Board or a committee comprised of at least three (3)
Board members (no such committee has been appointed). Performance units, which
are the equivalent of $100 each, may be granted either in cash, shares of
common stock or any combination thereof,
31
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
to participants upon the attainment of certain objectives as established by
the Board. No performance units have been granted as of May 31, 1996.
E. WARRANTS
The terms of warrants to acquire shares of common stock are as follows:
<TABLE>
<CAPTION>
MAY 31, 1996 PRICE EXPIRATION DATE
------------ ----- ---------------
<S> <C> <C>
150,000 $9.00 May 1, 1997
15,000 $2.00 March 7, 2006
37,500 $1.75 December 6, 2000
-------
202,500
=======
</TABLE>
NOTE 7: FOREIGN AND DOMESTIC OPERATIONS, EXPORT SALES, AND MAJOR CUSTOMERS
Sales, operating income (loss), and identifiable assets of the Company by
geographical area are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
Years Ended May 31, ----------- ------------ -----------
<S> <C> <C> <C>
Net sales to unaffiliated
customers:
United States................. $42,175,000 $ 34,228,000 $29,017,000
Europe........................ 21,435,000 27,381,000 24,536,000
Other......................... 14,145,000 16,885,000 10,720,000
----------- ------------ -----------
$77,755,000 $ 78,494,000 $64,273,000
=========== ============ ===========
Operating income (loss):
United States................. $ 1,426,000 $ (9,647,000) $(4,508,000)
Europe........................ 954,000 2,208,000 1,482,000
Other......................... 284,000 (3,184,000) (1,665,000)
----------- ------------ -----------
$ 2,664,000 $(10,623,000) $(4,691,000)
=========== ============ ===========
<CAPTION>
1994 1995 1996
Balance at May 31, ----------- ------------ -----------
<S> <C> <C> <C>
Identifiable assets:
United States................. $35,082,000 $ 34,898,000 $22,634,000
Europe........................ 18,751,000 21,987,000 20,783,000
Elimination................... (6,497,000) (3,284,000) (339,000)
----------- ------------ -----------
$47,336,000 $ 53,601,000 $43,078,000
=========== ============ ===========
</TABLE>
During 1994, 1995, and 1996, export sales were $14,145,000, $16,885,000, and
$10,720,000, respectively. No one customer accounted for greater than ten
percent (10%) of net sales in any of these years.
32
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
NOTE 8: INCOME TAXES
A $187,000 provision for income taxes was recorded in 1995 (none was
recorded in 1994 or 1996). The provision (benefit) for income taxes consists
of the following for 1994, 1995, and 1996:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
Year Ended May 31, 1994 --------- -------- ---------
<S> <C> <C> <C>
Federal................................... $ -- $ -- $ --
State..................................... -- -- --
Foreign................................... -- -- --
--------- -------- ---------
Total................................... $ -- $ -- $ --
========= ======== =========
<CAPTION>
CURRENT DEFERRED TOTAL
Year Ended May 31, 1995 --------- -------- ---------
<S> <C> <C> <C>
Federal................................... $(400,000) $ -- $(400,000)
State..................................... -- -- --
Foreign................................... 21,000 566,000 587,000
--------- -------- ---------
Total................................... $(379,000) $566,000 $ 187,000
========= ======== =========
<CAPTION>
CURRENT DEFERRED TOTAL
Year Ended May 31, 1996 --------- -------- ---------
<S> <C> <C> <C>
Federal................................... $ -- $ -- $ --
State..................................... -- -- --
Foreign................................... 51,000 (51,000) --
--------- -------- ---------
Total................................... $ 51,000 $(51,000) $ --
========= ======== =========
</TABLE>
The components of the net deferred tax asset (liability) as of May 31, 1995
and 1996 were as follows:
<TABLE>
<CAPTION>
U.S. FEDERAL
& STATE FOREIGN
As of May 31, 1995 ------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 3,598,000 $2,361,000
Inventory and warranty reserves.............. 1,792,000 --
Restructuring accruals....................... 2,283,000 51,000
Accounts receivable and return reserves...... 1,201,000 --
Tax credit carryforwards..................... 1,689,000 --
Other assets................................. 944,000 153,000
Valuation allowance.......................... (10,518,000) (79,000)
------------ ----------
Total deferred tax asset................... 989,000 2,486,000
------------ ----------
Deferred tax liabilities:
Property, plant, and equipment............... 989,000 --
Tax deductible goodwill...................... -- 2,984,000
------------ ----------
Total deferred tax liability............... 989,000 2,984,000
------------ ----------
Net deferred tax asset (liability)............. $ -- $ (498,000)
============ ==========
</TABLE>
33
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
U.S. FEDERAL
& STATE FOREIGN
As of May 31, 1996 ------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 8,353,000 $1,503,000
Inventory and warranty reserves.............. 1,728,000 --
Restructuring accruals....................... 853,000 93,000
Accounts receivable and return reserves...... 405,000 --
Tax credit carryforwards..................... 1,476,000 --
Other assets................................. 820,000 288,000
Valuation allowance.......................... (13,243,000) (98,000)
------------ ----------
Total deferred tax asset................... 392,000 1,786,000
------------ ----------
Deferred tax liabilities:
Property, plant, and equipment............... 310,000 --
Other liabilities............................ 82,000 --
Tax deductible goodwill...................... -- 2,574,000
------------ ----------
Total deferred tax liability............... 392,000 2,574,000
------------ ----------
Net deferred tax asset (liability)............. $ -- $ (788,000)
============ ==========
</TABLE>
The valuation allowance for deferred tax assets as of June 1, 1995 was
$10,597,000. The net change in the valuation allowance for the year ended May
31, 1996 was an increase of $2,744,000. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets as of May 31, 1996
will be allocated as follows:
<TABLE>
<S> <C>
Income tax benefit that would be reported in the
consolidated statement of operations........................ $13,087,000
Goodwill..................................................... 254,000
-----------
$13,341,000
===========
</TABLE>
34
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
The provision (benefit) for income taxes varies from the amounts computed by
applying the U.S. Federal Income Tax rate of thirty-four percent (34%) as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
AMOUNT % AMOUNT % AMOUNT %
--------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Income tax computed at
federal statutory rate. $ 947,000 34.0 $(3,880,000) (34.0) $(1,879,000) (34.0)
Increase (reduction)
resulting from:
Benefit of Subchapter S
Corporation status..... (333,000) (11.9) (156,000) (1.4) -- --
Change in the beginning
of the year balance of
the valuation allowance
for deferred tax assets
allocated to income tax
expense................ (690,000) (24.8) 2,256,000 19.8 2,744,000 49.6
Differing foreign tax
rates.................. 57,000 2.0 104,000 0.9 86,000 1.6
Contingency resolution.. -- -- -- -- (341,000) (6.2)
Benefit of foreign
eliminations........... -- -- -- -- (167,000) (3.0)
Benefit due to revisions
in deferred
tax balances........... -- -- -- -- (448,000) (8.1)
Amortization of
goodwill............... 26,000 .9 2,099,000 18.4 40,000 .7
Other differences....... (7,000) (.2) (236,000) (2.1) (35,000) (.6)
--------- ----- ----------- ----- ----------- -----
$ -- -- $ 187,000 1.6 $ -- --
========= ===== =========== ===== =========== =====
</TABLE>
At May 31, 1996, the Company had available NOL carryforwards of
approximately $24,567,000 and $3,741,000 for U.S. and foreign tax reporting
purposes, respectively. The NOL carryforwards for tax reporting purposes
expire in varying amounts in the U.S. through the year 2011. The NOLs in
foreign jurisdictions generally carryforward indefinitely. Further, the
Company has general business credit carryforwards of approximately $854,000
which expire through the year 2008, foreign tax credits of $296,000 which
expire through the year 2000, and alternative minimum tax carryforwards of
$326,000 which have no expiration dates. As a result of a change in ownership
of the Company on July 23, 1996, the ultimate utilization of the Company's NOL
carryforwards and tax credits could be limited.
U.S. and foreign income (loss) from operations before federal, state, and
foreign income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ------------ -----------
<S> <C> <C> <C>
U.S................................. $2,326,000 $(13,034,000) $(6,927,000)
Foreign............................. 461,000 1,622,000 1,400,000
---------- ------------ -----------
$2,787,000 $(11,412,000) $(5,527,000)
========== ============ ===========
</TABLE>
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
Federal income tax returns. There have been no material deficiencies asserted
by the Internal Revenue Service for the audit to date.
NOTE 9: COMMITMENTS AND CONTINGENCIES
A. LEASES
In May, 1992, the Company concluded a sale and leaseback of its Austin,
Texas facility. The Company recorded a $612,000 gain on the sale which was
deferred and is being amortized over the lease term. The lease is an eighteen
(18) year operating lease expiring in the year 2010. The lease provides for a
fixed rental charge, plus additional rent based on increases in the Consumer
Price Index. Under the terms of the agreement, the Company is subject to
certain covenants and restrictions. At May 31, 1995, the Company was in
default with certain of the covenants. On September 20, 1995, the lessor
committed to waive defaults at May 31, 1995 and to
35
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
forbear against exercising remedies to financial covenant violations in
exchange for commitments to specific performance by the Company through August
31, 1996. A revised Texas lease agreement was executed in March 1996 and also
contains revisions to certain financial covenants to accommodate the losses.
New provisions of this agreement include a rent reduction through September
30, 1996 and the granting of warrants to purchase 15,000 shares of Common
Stock at a price of $2.00 per share (market value at date of issuance) as well
as revised financial covenants. As of May 31, 1996 Summagraphics was not, and
the Company may not currently be, in compliance with the revised terms and
conditions of the amended lease agreement. However, the Company expects that
discussions with the landlord of the lease concerning lease related issues
will result in an agreement that will be satisfactory to both parties.
The Company leases various assets used in its operations, primarily
buildings and equipment. Substantially all of the leases provide that the
Company pay for maintenance and insurance.
Future minimum lease payments for leased capital assets total $394,000, of
which $21,000 represents interest. Capital leases and non-cancelable operating
leases, exclusive of the Connecticut facility, at May 31, 1996 require the
following annual minimum lease payments:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
1997................................................. $310,000 $ 1,082,000
1998................................................. 66,000 965,000
1999................................................. 18,000 913,000
2000................................................. -- 878,000
2001................................................. -- 863,000
Later years.......................................... -- 7,763,000
-------- -----------
$394,000 $12,464,000
======== ===========
</TABLE>
Rental expense on operating leases for 1994, 1995, and 1996 was $1,530,000,
$1,686,000 and $1,131,000, respectively. The original cost and net book value
of furniture and equipment under capital lease at May 31, 1996 was $828,000
and $22,000, respectively.
B. EMPLOYEE 401 (K) PLAN
The Company's 401(k) Plan covers all full-time employees who have completed
six (6) months of continuous employment and are eighteen (18) years of age or
older. Under the terms of the plan an employee may contribute up to twenty
percent (20%) of annual compensation, up to five percent (5%) of which may be
matched by the Company at 25%, 50%, 75% or 100% of the employee contribution
depending on years of service. Employee contributions vest fully upon
contribution while employer contributions vest twenty percent (20%) per year.
There were no employer contributions for 1994, 1995, or 1996. Additional
contributions may be authorized by the Board of Directors predicated on
Company performance.
C. LITIGATION
The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the normal course of business. The
Company believes that the disposition of these matters will not have a
material adverse effect on its financial position, results of operations or
cash flows taken as a whole.
36
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
NOTE 10: SUPPLEMENTARY CASH FLOW INFORMATION AND OTHER DATA
For the years ended May 31, 1994, 1995, and 1996 certain supplementary cash
flow information follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.................................. $421,000 $609,000 $1,233,000
Income Taxes.............................. -- -- --
Non-Cash financing and investing activities,
capital leases............................. 175,000 15,000 83,000
</TABLE>
NOTE 11: VALUATION AND QUALIFYING ACCOUNTS
For the years ended May 31, 1994, 1995, and 1996 certain supplementary
information regarding valuation and qualifying accounts follows:
<TABLE>
<CAPTION>
BALANCES
AT CHARGED TO BALANCES
BEGINNING COST AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ----------- ----------
ALLOWANCE FOR DOUBTFUL RECEIVABLES:
<S> <C> <C> <C> <C>
1994 $1,119,000 $ 124,000 $ (130,000) $1,113,000
1995 $1,113,000 $ 35,000 $ (194,000) $ 954,000
1996 $ 954,000 $ 324,000 $ (198,000) $1,080,000
RESERVES FOR EXCESS & OBSOLETE INVENTORY:
1994 $4,195,000 $ 637,000 $ (606,000) $4,226,000
1995 $4,226,000 $1,497,000 $(1,009,000) $4,714,000
1996 $4,714,000 $ 385,000 $(1,291,000) $3,808,000
</TABLE>
NOTE 12: SUBSEQUENT EVENTS
On July 23, 1996, the Company consummated the transaction contemplated in
the Plan of Reorganization and Agreement for the Exchange of Stock of CalComp
Inc. for Stock of Summagraphics Corporation (the "Exchange Agreement")
pursuant to which the Company issued to Lockheed Martin Corporation ("Lockheed
Martin") 40,742,957 shares of the Common Stock of the Company, representing
89.7% of the total outstanding shares of Common Stock of the Company following
such issuance, in exchange for all of the outstanding capital stock of CalComp
Inc. ("CalComp") (the "Exchange"). The number of shares of Common Stock of the
Company issued in the Exchange is subject to adjustment, as provided in the
Exchange Agreement, based on the equity and backlog of the Company and the
equity of CalComp as of July 23, 1996. In connection with the Exchange, the
name of the Company was changed to CalComp Technology, Inc. ("CalComp
Technology").
Prior to the Exchange, the number of authorized shares of common stock of
the Company was increased to 60,000,000. Concurrent with the exchange, the
CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees (with Stock
Appreciation Rights) was approved, which provides for the issuance of
2,000,000 stock options and 2,000,000 rights. Additionally, several
intercompany agreements between CalComp Technology and Lockheed Martin were
entered into, including a Registration Rights agreement, an Intercompany
Services agreement, a Tax Sharing agreement, a Corporate agreement, a Cash
Management agreement, and a Revolving Credit agreement, providing a $28
million line of credit. All borrowings from the Company's U.S. bank, the
Convertible Debenture payable to Lockheed Martin, and the amounts due under
the Loan Agreement for capital expenditures were repaid in full on July 23,
1996 with proceeds from the Revolving Credit agreement, and the related
borrowing agreements were terminated.
37
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
As a result of the Exchange, Lockheed Martin acquired control of the Company
and CalComp became a wholly owned subsidiary of the Company. The Exchange will
be accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16 "Business Combinations". Because the Exchange is a reverse
acquisition for accounting purposes, CalComp is considered to be the acquirer
and the net assets of the Company will be revalued to their estimated fair
market values.
NOTE 13: PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited condensed financial information gives effect to the
Exchange. Since CalComp is considered the acquirer for accounting purposes,
the statements reflect the adoption of CalComp's year end, which is based on a
52/53 week fiscal year ending on the last Sunday in December. The unaudited
results of operations for CalComp are for the six months ended June 25, 1995
and June 30, 1996. The unaudited results of operations for the Company are for
the six months ended May 31, 1995 and 1996. Pro forma adjustments have been
made to reflect the financial impact of purchase accounting and other items
which would have been effected if the Exchange had taken place on December 26,
1994. Such adjustments include additional goodwill amortization offset in part
by a reduction in depreciation expense for assets that will be disposed.
Additionally, interest charges allocated to CalComp by Lockheed Martin, and
included in selling, general and administrative expenses, have been reversed
in a pro forma adjustment. Such interest had been allocated based on Lockheed
Martin's net investment in each of its subsidiaries. Future interest charges
to CalComp Technology will be based on average borrowings under a revolving
credit agreement between CalComp Technology and Lockheed Martin.
The pro forma statements of operations included in the Company's Proxy
Statement, dated June 24, 1996, disclosed that management of CalComp
Technology intended to dispose of the Company's CAD Warehouse subsidiary.
Management is re-evaluating such plans, and at this time, the disposal of such
entity is not certain. Accordingly, the results of operations for CAD
Warehouse remain in the pro forma results of operations for the six month
periods ended June 25, 1996 and June 30, 1996.
In connection with the Exchange, Summagraphics will record in its operating
results for the period ended July 23, 1996, reserves and allowances of
approximately $2.5 million, $8.0 million and $1.5 million for accounts
receivable, inventory, and warranty obligations, respectively. These reserves
and allowances are necessary because the plans of the new management of
CalComp Technology call for the discontinuance of certain product lines.
38
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
The pro-forma results are based on historical data and may not be indicative
of the future results of CalComp Technology.
Six Months Ended June 25, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA
CALCOMP SUMMAGRAPHICS ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.................... $ 141,276 $ 39,422 $ 180,698
Cost of sales................ 100,464 32,893 133,357
---------- --------- ----------
Gross profit............... 40,812 6,529 47,341
Selling, general and
administrative expenses..... 40,310 12,216 $(1,395) 51,131
Research and development..... 8,794 3,490 12,284
---------- --------- ----------
Operating loss............... (8,292) (9,177) (16,074)
Other income and expenses:
Interest income............ -- 8 8
Interest expense........... (12) (465) (477)
Miscellaneous, net......... 1,362 (2,465) (1,103)
---------- --------- ----------
Loss before income taxes..... (6,942) (12,099) (17,646)
Income tax provisions........ 2,007 187 2,194
---------- --------- ----------
Net loss..................... $ (8,949) $ (12,286) $ (19,840)
========== ========= ==========
Weighted average number of
common shares outstanding... 1,000 4,570,000 45,313,000
Net loss per common share.... $(8,949.00) $ (2.69) $ (0.44)
========== ========= ==========
</TABLE>
Six Months ended June 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA
CALCOMP SUMMAGRAPHICS ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................... $ 102,806 $ 30,241 $ 133,047
Cost of sales............... 80,668 23,080 103,748
----------- --------- ----------
Gross profit.............. 22,138 7,161 29,299
Selling, general and
administrative expenses.... 36,456 8,321 $(1,395) 43,382
Research and development.... 10,098 1,576 11,674
----------- --------- ----------
Operating loss.............. (24,416) (2,736) (25,757)
Other income and expenses:
Interest income........... 729 10 739
Interest expense.......... -- (733) (733)
Miscellaneous, net........ 14 323 337
----------- --------- ----------
Loss before income taxes.... (23,673) (3,136) (25,414)
Income tax provisions....... 618 -- 618
----------- --------- ----------
Net loss.................... $ (24,291) $ (3,136) $ (26,032)
=========== ========= ==========
Weighted average number of
common shares outstanding.. 1,000 4,618,000 45,361,000
Net loss per common share... $(24,291.00) $ (0.68) $ (0.57)
=========== ========= ==========
</TABLE>
39
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
CalComp's revenues for the six months ended June 30, 1996 declined $38.5
million from the six months ended June 25, 1995, and gross margin decreased
from 29% to 22%. Product revenues and gross margin were adversely impacted
primarily by competitive actions and by continuing difficulties associated
with a new product introduction. Additionally, service revenues in the first
quarter of 1996 continued to decline resulting from the transition to lower
cost products, and a lower rate of service contract renewals as older
generation products are retired from service.
The companies that participate in the industry are highly competitive.
Reduced unit selling prices and shortened product life cycles are expected to
continue to place pressure on CalComp's revenue and margin. As a result of
such pressures, CalComp experienced a loss of $3.6 million in July of 1996.
Losses are expected to continue through at least the third and fourth quarters
of 1996. In response, management has undertaken and continues to consider
actions to reduce operating expenses and continues to focus on planned new
product introductions scheduled for the third and fourth quarters of calendar
1996.
CalComp's general and administrative expenses decreased by $3.9 million as
compared to the six months ended June 25, 1995 primarily because the 1995
period included $4.5 million of expenses related to facilities closures and
workforce reductions. This decrease was offset by increased goodwill
amortization of $0.8 million resulting from the decision to shorten CalComp's
original goodwill amortization period of 40 years to 15 years prospectively
effective January 1, 1996. Product development expenses increased $1.3 million
compared with the six month period ended June 25, 1995 as a result of ongoing
new product development.
CalComp's interest income of $0.7 million recognized in the six months ended
June 30, 1996 relates to a refund received as a result of a favorable
determination by U.K. taxing authorities that CalComp is entitled to interest
on amounts refunded and recognized as a benefit in its provision for foreign
income taxes for the year ended December 31, 1995. Miscellaneous, net,
decreased by $1.3 million for the six months ended June 30, 1996 compared to
the 1995 period as a result of a reduction in foreign currency gains and a
reduction in the profitability of CalComp's minority interest in its Japanese
joint venture, which is accounted for on the equity method in other income.
Income taxes of $0.6 million for the six months ended June 30, 1996 resulted
from provision of foreign income taxes for profitable foreign CalComp
locations.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has no disagreements on accounting or financial disclosure
matters with its independent auditors. Subsequent to the completion of the
"Exchange," the Company appointed Ernst & Young LLP as its independent
auditors replacing KPMG Peat Marwick LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information concerning directors and executive officers of the Company
required under this item is incorporated herein by this reference to the
information in the Proxy Statement captioned "Management of New CalComp After
the Exchange" on pages 93 through 95. Each of the individuals listed therein
have been elected directors and/or appointed executive officers of the Company
as anticipated thereby. In addition, John J. Millerick was appointed Senior
Vice President, Chief Financial Officer and Treasurer of the Company on
August 12, 1996. Mr. Millerick, age 48, previously served as Vice President-
Finance for Digital Equipment Corporation's Personal Computer Business Unit
from December of 1994 until August of 1995. Before joining Digital, Mr.
Millerick served 12 years at Wang Laboratories in several management
positions, leaving as Vice President-Corporate Controller and Acting Chief
Financial Officer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent (10%) of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Executive officers, directors and greater than ten-
percent (10%) stockholders are required by regulation promulgated by the
Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) forms they file.
To Summagraphics' knowledge, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent (10%)
beneficial owners have been complied with.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning Executive Compensation required under this item is
incorporated herein by this reference to the information in the Proxy
Statement captioned "Interests of Certain Persons in the Exchange" on page 42,
"Compensation of Directors" on page 94, "Compensation of Directors" on
page 102 and "Summagraphics Executive Compensation and Other Information" on
pages 104 through 108.
41
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of Company Common Stock as of July 31, 1996 by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each current director and each named executive
officer of the Company, and (iii) all current directors and current executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes that the current beneficial owners of Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
---------------------
NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OF SHARES
- --------------------------------------- ---------- ----------
<S> <C> <C>
Lockheed Martin Corporation(2) ........................... 40,742,957 89.7%
6801 Rockledge Drive
Bethesda, Maryland 20817
Peter B. Teets............................................ -- --
Gary R. Long.............................................. -- --
Gary P. Mann.............................................. -- --
Terry F. Powell........................................... -- --
Gerald W. Schaefer........................................ -- --
Neil A. Knox.............................................. -- --
Kenneth R. Ratcliffe...................................... -- --
Michael S. Bennett(3)(6).................................. 126,168 *
David G. Osowski(4)(6).................................... 74,500 *
Robert B. Sims(5)(6)...................................... 71,999 *
Dennis Jolly(6)........................................... 20,000 *
Darius C. Power(6)........................................ -- --
All current directors and executive officers as a group... -- --
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted, each person or group named in the table has
sole investment and voting power with respect to all shares of Common
Stock shown as beneficially owned by such person or group.
(2) Pursuant to the Exchange Agreement, the Company issued to Lockheed Martin
Corporation 40,742,957 shares of its Common Stock. The number of such
shares are subject to adjustment for certain events discussed in the Proxy
Statement. The Company does not believe that such adjustments, if any,
will materially effect Lockheed Martin's interest in the Company.
(3) Includes 121,249 shares which Mr. Bennett has the right to acquire
pursuant to the exercise of stock options which are exercisable on July
31, 1996 or within sixty days thereafter. Such options expire on July 23,
1998.
(4) Includes 67,499 shares which Mr. Osowski has the right to acquire pursuant
to the exercise of stock options which are exercisable on July 31, 1996 or
within sixty (60) days thereafter. Such options expire on July 23, 1998.
(5) Consists solely of options to purchase 71,999 shares which are exercisable
on July 31, 1996 or within sixty (60) days thereafter. Such options expire
on July 23, 1998.
(6) Messrs. Bennett, Osowski, Sims, Jolly and Power resigned as executive
officers of the Company in connection with the Exchange.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by this
reference to the information in the Proxy Statement captioned "Interests of
Certain Persons in the Exchange" on pages 42 and 43, "Relationship with
Lockheed Martin" on pages 71 through 76 and "Certain Relationships and Related
Transactions" on page 109.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
The following consolidated financial statements of the Company and the
reports of independent auditors' are on pages 19 through 40 hereof.
Reports of Independent Auditors
Consolidated Balance Sheets--May 31, 1995 and 1996
Consolidated Statements of Operations--Years ended May 31, 1994, 1995 and
1996
Consolidated Statements of Stockholders' Equity--Years ended May 31, 1994,
1995 and 1996
Consolidated Statements of Cash Flows--Years ended May 31, 1994, 1995 and
1996
Notes to Consolidated Financial Statements
The consolidated financial statements contain pro forma statements of
operations for the six month periods ended June 25, 1995 and June 30, 1996,
giving effect to the Exchange. Additional pro forma disclosures, including a
pro forma balance sheet as of March 31, 1996, and detailed descriptions of the
pro forma adjustments are set forth on pages 51-57 of the Proxy Statement,
which information is incorporated herein by reference. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified
or replaced for purposes of this report to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or replaces such
statement. Any such statement so modified or replaced shall not be deemed,
except as so modified or replaced, to constitute a part of this report.
All Financial Statement Schedules have been omitted because they are not
applicable or because the applicable disclosures have been included in the
Consolidated Financial Statements or in the Notes thereto.
(2) Lists of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among
Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a
California corporation, and Summagraphics Corporation, a Delaware
corporation, as amended.
Fourth Amended and Restated Certificate of Incorporation of the
3.1 Company.
3.2 Bylaws of the Company.
4.1 8% Convertible Subordinated Note due May 1, 1995 of Summagraphics
Corporation (filed as
Exhibit 2 to the Company's Current Report on Form 8-K, dated May 14,
1990, and incorporated herein by this reference).
10.1 Lease between 330 Realty Associates and the Company dated May 28, 1987
(filed as Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.2 1985 Employee Stock Purchase Plan (filed as Exhibit 10.04 to the
Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.3 1984 Executive Stock Purchase Plan, as amended (filed as Exhibit 10.05
to the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.4 Form of Stock Purchase Agreement under 1984 Executive Stock Purchase
Plan (filed as Exhibit 10.06 to the Company's Registration Statement
on Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.5 1987 Stock Plan, as amended (filed as Exhibit 10.12 to the Company's
Form 10-K for fiscal year 1994 and incorporated herein by reference).
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.6 1989 Performance Unit Plan (filed as Exhibit 10.11) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1989
(File No. 0-16071) and incorporated herein by this reference).
10.7 Form of Employment Agreement between Summagraphics Corporation and
senior executive officers (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0- 16071) and incorporated herein by this
reference).
10.8 Management Bonus Plan letter (filed as Exhibit 10.09 to the Company's
Registration Statement on Form S-1 (No. 33-15658) and incorporated
herein by this reference).
10.9 The Cash or Deferral Profit Sharing Plan (filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.10 Amended and Restated Shareholders' Agreement, as amended (filed as
Exhibit 10.14 to the Company's Registration Statement on Form S-1 (No.
33-15658) and incorporated herein by this reference).
10.11 Second Amendment to Amended and Restated Shareholders' Agreement, as
amended (Exhibit 10.13) (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended
May 31, 1988 (File No. 0-16071) incorporated herein by this
reference).
10.12 Agreement of Sale, dated as of March 14, 1990, by and between Ametek
and Summagraphics Corporation (filed as Exhibit 1 to the Company's
Current Report on Form 8-K, dated May 14, 1990, and incorporated
herein by reference).
10.13 Registration Rights Agreement, dated as of May 1, 1990, between the
Company and Ametek, Inc. (filed as Exhibit 3 to the Company's Current
Report on Form 8-K, dated May 14, 1990, as amended on
July 13, 1990 and August 15, 1990 and incorporated herein by this
reference).
10.14 Termination Agreement dated as of May 31, 1994 to terminate the
Registration Rights Agreement dated May 1, 1990, between Ametek, Inc.
and Summagraphics Corporation (filed as Exhibit 10.21 to the Company's
Form 10-K for fiscal year 1994 and incorporated herein by reference).
10.15 Registration Rights Agreement, dated as of May 25, 1994, between
Ametek, Inc. and Summagraphics Corporation (filed as Exhibit 10.22 to
the Company's Form 10-K for fiscal year 1994 and incorporated herein
by reference).
10.16 Lease Agreement dated as of May 28, 1992 by and between QRS 10-12
(TX), Inc. and QRS 11-5 (TX), Inc., as landlord, and Summagraphics
Corporation, as tenant, on premises located at 8500 Cameron Road,
Austin, Texas in connection with the sale and leaseback of that
property (filed as Exhibit 10.24 to the Company's Annual Report for
the fiscal year ended May 31, 1992
(File No. 0-16071) and incorporated herein by this reference).
10.17 Employment Agreement, dated April 16, 1993, between the Company and
Michael S. Bennett (filed as an Exhibit to the Company's Annual 10-K
for the fiscal year ended May 31, 1993
(File No. 0-16071) and incorporated herein by this reference).
10.18 Letter of Credit Agreement dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.19 Deed of Pledge of Business dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.20 Acceptance of Subordination dated October 12, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.21 Amendment No. 1 to the Lease Agreement, dated as of August 27, 1993,
between QRS 10-12 (TX), Inc. and QRS (TX), Inc. as landlord and
Summagraphics Corporation, as tenant (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1993
(File No. 0-16071) and incorporated herein by this reference).
10.22 Employment Modification Agreement dated as of April 25, 1995, by and
between the Company and Michael S. Bennett (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1995 (File No. 0-16071) and incorporated herein by reference).
10.23 Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank (filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995 (File No.
0-16071) and incorporated herein by reference).
10.24 Security Agreement dated as of December 13, 1994 between the Company
and Heller Financial, Inc. (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-16071) and incorporated herein by reference).
10.25 Amendment dated as of June 1, 1995 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
(filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 (File No. 0-16071) and incorporated
herein by reference).
10.26 Asset Purchase Agreement dated as of November 10, 1994 among the
Company, CAD Warehouse, Inc. (a Nevada corporation), CAD Warehouse,
Inc. (a Delaware corporation), John G. Panutsos, Rosemary Wollet, and
David C. Hoffer (filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
10.27 Amendment No. 1 to Form S-3 Registration Statement under the
Securities Act of 1933 dated April 3, 1995 relating to the
registration of 133,323 shares of the Company's Common Stock (filed as
an Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995
(File No. 0-16071) and incorporated herein by reference).
10.28 Form 8 Amendment No.1 to Form 8-K Report of the Company (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995 (File No. 0-16071) and incorporated herein by
reference).
10.29 Amendment No. 2 dated as of April 12, 1995 of the Lease Agreement
dated as of May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS
11-5 (TX), Inc. and the Company (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(File No.
0-16071) and incorporated herein by reference).
10.30 Manufacturing Agreement dated as of September 13, 1995 between the
Company and Harvard Manufacturing Ventures, LLC (filed as an Exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 (File No. 0-16071) and incorporated herein by reference).
10.31 License Agreement dated as of July 31, 1995 between the Company and
Sharp Corporation (filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
10.32 Amendment dated as of March 7, 1996 of the Lease Agreement dated as of
May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS 11-5 (TX),
Inc. and the Company.
10.33 Waiver dated as of March 15, 1996 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
10.34 Loan Document Modification Agreement dated December 6, 1995 to the
Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.35 First Amendment dated March 20, 1996 to the Loan Document Modification
Agreement dated December 6, 1995 by and between the Company and
Silicon Valley Bank.
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
99 Proxy Statement of the Company filed on June 24, 1996.
</TABLE>
REPORTS ON FORM 8-K
Reports on Form 8-K filed by the Company during the fourth quarter of the
Company's fiscal year ended May 31, 1996 were as follows:
See Forms 8-K dated:
March 26, 1996 filed on April 1, 1996 (Item 5. Other Events)
May 11, 1996 filed on May 21, 1996 (Item 5. Other Events)
46
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, CALCOMP TECHNOLOGY, INC. HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CALCOMP TECHNOLOGY, INC.
/s/ Gary R. Long
By: ________________________________
GARY R. LONG
President and Chief Executive
Officer
September 11, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF CALCOMP TECHNOLOGY,
INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gary R. Long President, Chief Executive September 11,
____________________________________ Officer, Director (Principal 1996
GARY R. LONG Executive Officer)
/s/ John J. Millerick Chief Financial Officer September 11,
____________________________________ (Principal Financial and 1996
JOHN J. MILLERICK Accounting Officer)
/s/ Peter B. Teets Chairman of the Board of September 11,
____________________________________ Directors 1996
PETER B. TEETS
/s/ Gary P. Mann Director September 11,
____________________________________ 1996
GARY P. MANN
/s/ Terry F. Powell Director September 11,
____________________________________ 1996
TERRY F. POWELL
/s/ Gerald W. Schaefer Director September 11,
____________________________________ 1996
GERALD W. SCHAEFER
/s/ Neil A. Knox Director September 11,
____________________________________ 1996
NEIL A. KNOX
/s/ Kenneth R. Ratcliffe Director September 11,
____________________________________ 1996
KENNETH R. RATCLIFFE
</TABLE>
47
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among
Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a
California corporation, and Summagraphics Corporation, a Delaware
corporation, as amended.
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company.
3.2 Bylaws of the Company.
4.1 8% Convertible Subordinated Note due May 1, 1995 of Summagraphics
Corporation (filed as
Exhibit 2 to the Company's' Current Report on Form 8-K, dated May 14,
1990, and incorporated herein by this reference).
10.1 Lease between 330 Realty Associates and the Company dated May 28, 1987
(filed as Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.2 1985 Employee Stock Purchase Plan (filed as Exhibit 10.04 to the
Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.3 1984 Executive Stock Purchase Plan, as amended (filed as Exhibit 10.05
to the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.4 Form of Stock Purchase Agreement under 1984 Executive Stock Purchase
Plan (filed as Exhibit 10.06 to the Company's Registration Statement
on Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.5 1987 Stock Plan, as amended (filed as Exhibit 10.12 to the Company's
Form 10-K for the fiscal year 1994 and incorporated herein by this
reference).
10.6 1989 Performance Unit Plan (filed as Exhibit 10.11) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1989
(File No. 0-16071) and incorporated herein by this reference.
10.7 Form of Employment Agreement between Summagraphics Corporation and
senior executive officers (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0-16071) and incorporated herein by this
reference).
10.8 Management Bonus Plan letter (filed as Exhibit 10.09 to the Company's
Registration Statement on Form S-1 (No. 33-15658) and incorporated
herein by this reference).
10.9 The Cash or Deferral Profit Sharing Plan (filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.10 Amended and Restated Shareholders' Agreement, as amended (filed as
Exhibit 10.14 to the Company's Registration Statement on Form S-1 (No.
33-15658) and incorporated herein by this reference).
10.11 Second Amendment to Amended and Restated Shareholders' Agreement, as
amended (Exhibit 10.13) (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1988
(File No. 0-16071) incorporated herein by this reference).
10.12 Agreement of Sale, dated as of March 14, 1990, by and between Ametek
and Summagraphics Corporation (filed as Exhibit 1 to the Company's
Current Report on Form 8-K, dated May 14, 1990, and incorporated
herein by reference).
10.13 Registration Rights Agreement, dated as of May 1, 1990, between the
Company and Ametek, Inc. (filed as Exhibit 3 to the Company's Current
Report on Form 8-K, dated May 14, 1990, as amended on July 13, 1990
and August 15, 1990 and incorporated herein by this reference).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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10.14 Termination Agreement dated as of May 31, 1994 to terminate the
Registration Rights Agreement dated May 1, 1990, between Ametek, Inc.
and Summagraphics Corporation (filed as Exhibit 10.21 to the Company's
Form 10-K for the fiscal year 1994 and incorporated herein by this
reference).
10.15 Registration Rights Agreement, dated as of May 25, 1994, between
Ametek, Inc. and Summagraphics Corporation (filed as Exhibit 10.22 to
the Company's Form 10-K for the fiscal year 1994 and incorporated
herein by this reference).
10.16 Lease Agreement dated as of May 28, 1992 by and between QRS 10-12
(TX), Inc. and
QRS 11-5 (TX), Inc., as landlord, and Summagraphics Corporation, as
tenant, on premises located at 8500 Cameron Road, Austin, Texas in
connection with the sale and leaseback of that property (filed as
Exhibit 10.24 to the Company's Annual Report for the fiscal year ended
May 31, 1992
(File No. 0-16071) and incorporated herein by this reference).
10.17 Employment Agreement, dated April 16, 1993, between the Company and
Michael S. Bennett (filed as an Exhibit to the Company's Annual 10-K
for the fiscal year ended May 31, 1993
(File No. 0-16071) and incorporated herein by this reference).
10.18 Letter of Credit Agreement dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.19 Deed of Pledge of Business dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071).
10.20 Acceptance of Subordination dated October 12, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.21 Amendment No. 1 to the Lease Agreement, dated as of August 27, 1993,
between QRS 10-12 (TX), Inc. and QRS (TX), Inc. as landlord and
Summagraphics Corporation, as tenant (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1993
(File No. 0-16071) and incorporated herein by this reference).
10.22 Employment Modification Agreement dated as of April 25, 1995, by and
between the Company and Michael S. Bennett. (Filed as an Exhibit to
the Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1995 (File No. 0-16071) and incorporated herein by reference).
10.23 Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank. (Filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995 (File No.
0-16071) and incorporated herein by reference).
10.24 Security Agreement dated as of December 13, 1994 between the Company
and Heller Financial, Inc. (Filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-16071) and incorporated herein by reference).
10.25 Amendment dated as of June 1, 1995 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
(Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 (File No. 0-16071) and incorporated
herein by reference).
10.26 Asset Purchase Agreement dated as of November 10, 1994 among the
Company, CAD Warehouse, Inc. (a Nevada corporation), CAD Warehouse,
Inc. (a Delaware corporation), John G. Panutsos, Rosemary Wollet, and
David C. Hoffer. (Filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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10.27 Amendment No. 1 to Form S-3 Registration Statement under the
Securities Act of 1933 dated April 3, 1995 relating to the
registration of 133,323 shares of the Company's Common Stock. (Filed
as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1995 (File No. 0-16071) and incorporated
herein by reference).
10.28 Form 8 Amendment No.1 to Form 8-K Report of the Company. (Filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995 (File No. 0-16071) and incorporated herein by
reference).
10.29 Amendment No. 2 dated as of April 12, 1995 of the Lease Agreement
dated as of May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS
11- 5 (TX), Inc. and the Company. (Filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1995 (File No.
0-16071) and incorporated herein by reference).
10.30 Manufacturing Agreement dated as of September 13, 1995 between the
Company and Harvard Manufacturing Ventures, LLC. (Filed as an Exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 (File No. 0-16071) and incorporated herein by reference).
10.31 License Agreement dated as of July 31, 1995 between the Company and
Sharp Corporation. (Filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
10.32 Amendment dated as of March 7, 1996 of the Lease Agreement dated as of
May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS 11-5 (TX),
Inc. and the Company.
10.33 Waiver dated as of March 15, 1996 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
10.34 Loan Document Modification Agreement dated December 6, 1995 to the
Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank.
10.35 First Amendment dated March 20, 1996 to the Loan Document Modification
Agreement dated December 6, 1995 by and between the Company and
Silicon Valley Bank.
10.36 Subordination Agreement dated as of March 20, 1996 among the Company,
Lockheed Martin Corporation and Silicon Valley Bank.
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KMPG Peat Marwick LLP.
99 Proxy Statement of the Company filed on June 24, 1996.
</TABLE>
<PAGE>
EXHIBIT 2
PLAN OF REORGANIZATION
and
AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
by and among
LOCKHEED MARTIN CORPORATION,
a Maryland corporation,
CALCOMP INC.,
a California corporation
and
SUMMAGRAPHICS CORPORATION,
a Delaware corporation
dated as of March 19, 1996
<PAGE>
Table of Contents
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<TABLE>
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Page
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ARTICLE I
THE EXCHANGE
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1.1 The Exchange............................................. 1
1.2 Closing.................................................. 2
1.3 Determination of Summagraphics Exchange Shares........... 2
1.4 Employee Benefits........................................ 3
1.5 Board of Directors....................................... 3
1.6 Officers................................................. 4
1.7 Name Change.............................................. 4
1.8 Treatment of Stock Options/Severance/Incentive
Compensation............................................. 4
1.9 Certain Definitions...................................... 4
ARTICLE II
CERTAIN EVENTS PRECEDING CLOSING
2.1 Proxy Statement.......................................... 5
2.2 Interim Financing........................................ 6
2.3 Transfer of AGT Holdings, Inc. Stock..................... 6
2.4 Additional Filings....................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Summagraphics.......... 6
(a) ORGANIZATION AND AUTHORITY....................... 6
(b) CAPITAL STRUCTURE................................ 7
(c) AUTHORITY........................................ 7
(d) SUBSIDIARIES..................................... 8
(e) FINANCIAL STATEMENTS............................. 8
(f) ABSENCE OF UNDISCLOSED LIABILITIES............... 8
(g) NO MATERIAL ADVERSE CHANGES...................... 9
(h) TAX MATTERS...................................... 9
(i) PROPERTY......................................... 10
(j) LITIGATION....................................... 10
(k) CONTRACTS AND COMMITMENTS........................ 10
(l) ACCURACY OF INFORMATION SUPPLIED................. 11
(m) SUMMAGRAPHICS' EMPLOYEE BENEFIT PLANS............ 12
(n) ENVIRONMENTAL MATTERS............................ 14
(o) EMPLOYEES; DIRECTORS AND OFFICERS................ 16
(p) COMPLIANCE WITH LAWS............................. 16
(q) INSURANCE........................................ 17
(r) APPLICABLE TAKEOVER LAWS......................... 17
</TABLE>
(i)
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<TABLE>
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(s) PRODUCT AND SERVICE WARRANTY...................... 17
(t) SUMMAGRAPHICS COMMON STOCK TO BE ISSUED........... 18
(u) LABOR DISPUTES.................................... 18
(v) TECHNOLOGY........................................ 18
(w) OPINION OF FINANCIAL ADVISOR...................... 19
(x) BOOKS AND RECORDS................................. 19
(y) FULL DISCLOSURE................................... 19
(z) INVESTMENT REPRESENTATION......................... 20
(aa) BANKS AND FINANCIAL INSTITUTIONS.................. 20
(bb) BACKLOG........................................... 20
3.2 Representations and Warranties of CalComp.................. 20
(a) ORGANIZATION, STANDING AND POWER.................. 20
(b) CAPITAL STRUCTURE................................. 21
(c) AUTHORITY......................................... 21
(d) SUBSIDIARIES...................................... 21
(e) FINANCIAL STATEMENTS.............................. 22
(f) ABSENCE OF UNDISCLOSED LIABILITY.................. 22
(g) NO MATERIAL ADVERSE CHANGE........................ 22
(h) LITIGATION........................................ 23
(i) ACCURACY OF INFORMATION SUPPLIED.................. 23
(j) ENVIRONMENTAL MATTERS............................. 23
(k) COMPLIANCE WITH LAWS.............................. 24
(l) TECHNOLOGY........................................ 24
3.3 Representations and Warranties of Lockheed Martin.......... 25
(a) ORGANIZATION AND STANDING......................... 25
(b) AUTHORITY......................................... 25
(c) LITIGATION........................................ 25
(d) OWNERSHIP OF CALCOMP EXCHANGE SHARES.............. 26
(e) INVESTMENT REPRESENTATION......................... 26
(f) TAX MATTERS....................................... 26
(g) ACCURACY OF INFORMATION SUPPLIED.................. 27
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
4.1 Conduct of the Business of Summagraphics and its
Subsidiaries' Prior to the Closing......................... 27
4.2 Forbearance................................................ 27
4.3 No Solicitation............................................ 29
4.4 Termination Fee............................................ 30
4.5 Compliance with Tax-Free Provisions........................ 30
4.6 Access and Information; Cooperation........................ 30
4.7 Confidentiality............................................ 31
4.8 Public Announcements....................................... 32
4.9 Consents................................................... 32
4.10 Meeting of Summagraphics Stockholders...................... 32
</TABLE>
(ii)
<PAGE>
ARTICLE V
ADDITIONAL COVENANTS OF SUMMAGRAPHICS
<TABLE>
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5.1 Issuance of Stock.......................................... 33
5.2 Intercompany Agreements.................................... 33
5.3 Amendment and Restatement of Articles of
Incorporation.............................................. 33
5.4 Preparation of Proxy Statement............................. 34
5.5 Additional Listing Application............................. 34
5.6 Filing of Form 10-C........................................ 34
5.7 Hart-Scott-Rodino.......................................... 34
5.8 Stock Option Plan.......................................... 34
ARTICLE VI
COVENANTS OF CALCOMP AND LOCKHEED MARTIN
6.1 Transfer of CalComp Exchange Shares........................ 34
6.2 Intercompany Agreements.................................... 34
6.3 Preparation of Proxy Statement............................. 34
6.4 Hart-Scott-Rodino.......................................... 34
6.5 CalComp Financial Statements............................... 35
6.6 Pre-Closing Assistance..................................... 35
ARTICLE VII
CONDITIONS PRECEDENT TO CALCOMP'S
AND LOCKHEED MARTIN'S OBLIGATIONS HEREUNDER
7.1 Representations, Warranties, Covenants..................... 35
7.2 No Adverse Changes......................................... 36
7.3 Due Diligence Audit of Summagraphics and its
Subsidiaries............................................... 36
7.4 Legal Opinion.............................................. 36
7.5 No Adverse Proceedings..................................... 36
7.6 Intercompany Agreements.................................... 36
7.7 Approval by Stockholders of the Agreement, the
Stock Option Plan and Amendment and Restatement of
Summagraphics' Articles of Incorporation................... 36
7.8 Additional Listing Application............................. 37
7.9 Secretary's Certificate.................................... 37
7.10 Compliance With Laws/Government Approvals.................. 37
7.11 Backlog.................................................... 37
ARTICLE VIII
CONDITIONS PRECEDENT TO SUMMAGRAPHICS' OBLIGATIONS HEREUNDER
8.1 Representations, Warranties, Covenants..................... 37
8.2 No Adverse Proceedings or Events........................... 38
</TABLE>
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<TABLE>
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8.3 No Adverse Changes......................................... 38
8.4 Legal Opinion.............................................. 38
8.5 Fairness Opinion........................................... 38
8.6 Stockholder Approval....................................... 38
8.7 Secretary's Certificate.................................... 38
8.8 Intercompany Agreements.................................... 38
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Update Disclosure; Breaches................................ 38
9.2 Tax Returns................................................ 39
9.3 Best Efforts and Further Assurances........................ 39
9.4 Payoff of Outstanding Indebtedness......................... 39
9.5 Directors and Officers Liability Insurance................. 39
9.6 CalComp Taxes.............................................. 40
ARTICLE X
TERMINATION, AMENDMENT, SURVIVAL OF
REPRESENTATIONS AND MISCELLANEOUS
10.1 Amendment.................................................. 40
10.2 Termination................................................ 40
10.3 Survival of Representations and Covenants.................. 42
10.4 Expenses................................................... 42
10.5 Notices.................................................... 42
10.6 Entire Agreement in Effect................................. 43
10.7 General.................................................... 43
10.8 Governing Law.............................................. 43
10.9 Counterparts............................................... 43
</TABLE>
(iv)
<PAGE>
<TABLE>
List of Schedules and Exhibits
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Schedule 1.3 Determination of Exchange Shares
Schedule 1.8 Treatment of Stock
Options/Severance/Incentive Compensation
Schedule 3.1(a) Organization and Authority
Schedule 3.1(b)(1) Capital Structure
Schedule 3.1(c) Summagraphics Corporation - Corporate
Authority
Schedule 3.1(d) Summagraphics Corporation - Subsidiaries
Schedule 3.1(e) Summagraphics Corporation - Financial
Statements
Schedule 3.1(f) Summagraphics Corporation - Absence of
Undisclosed Liabilities
Schedule 3.1(i)(1)(v) Summagraphics Corporation - Property
(Encumbrances)
Schedule 3.1(j) Summagraphics Corporation - Litigation
Schedule 3.1(k) Summagraphics Corporation - Contracts and
Commitments
Schedule 3.1(m) Summagraphics Corporation - Employee
Benefit Plans
Schedule 3.1(m)(vii) Summagraphics Corporation - No Violations
of Plan
Schedule 3.1(n)(ii) Summagraphics Corporation - Violations
Schedule 3.1(n)(iii) Summagraphics Corporation - Environmental
Proceedings
Schedule 3.1(n)(v) Summagraphics Corporation - Environmental
Permits
Schedule 3.1(n)(vi) Summagraphics Corporation - Environmental
Spills
Schedule 3.1(n)(vii) Hazardous Waste Handling
Schedule 3.1(o) Summagraphics Corporation - Employees;
Directors and Officers
Schedule 3.1(p) Summagraphics Corporation - Compliance
With Laws
Schedule 3.1(s) Summagraphics Corporation - Product and
Service Warranty
Schedule 3.1(u) Summagraphics Corporation - Labor Disputes
Schedule 3.1(v) Summagraphics Corporation -Technology
Schedule 3.1(w) Summagraphics Corporation - Opinion of
Financial Advisor
Schedule 3.1(aa) Summagraphics Corporation - Banks and
Financial Institutions
Schedule 3.2(d) CalComp Inc. - Subsidiaries
Schedule 3.2(e) CalComp Inc. - Financial Statements
Schedule 3.2(j) CalComp Inc. - Environmental Matters
Schedule 3.2(k) CalComp Inc. - Compliance With Laws
Schedule 3.2(l) CalComp Inc. - Technology
Schedule 4.2 Forbearance
</TABLE>
(v)
<PAGE>
<TABLE>
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Exhibit A Secured Convertible Debenture
Exhibit B Intercompany Services Agreement
Exhibit C Cash Management Agreement
Exhibit D Tax Sharing Agreement
Exhibit E Revolving Credit Agreement
Exhibit F Registration Rights Agreement
Exhibit G Corporate Agreement
Exhibit H Fourth Amended and Restated Articles of
Incorporation
Exhibit I Stock Option Plan
</TABLE>
(vi)
<PAGE>
PLAN OF REORGANIZATION AND AGREEMENT FOR THE EXCHANGE OF STOCK
OF CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
THIS PLAN OF REORGANIZATION AND AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION (this "Agreement"), dated
this 19th day of March, 1996, is entered into by and among LOCKHEED MARTIN
CORPORATION, a Maryland corporation ("Lockheed Martin"), CALCOMP INC., a
California corporation ("CalComp") and SUMMAGRAPHICS CORPORATION, a Delaware
corporation ("Summagraphics"). Lockheed Martin, CalComp and Summagraphics
individually are being referred to herein as a "Party" and collectively are
referred to herein as "Parties."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, CalComp has an authorized capital of 1,000 shares of Common
Stock of which 1,000 shares are issued and outstanding as of the date of this
Agreement, all of which are owned by Lockheed Martin;
WHEREAS, Summagraphics has an authorized capital of 20,000,000 shares
of Common Stock, par value $.01 per share, of which 4,623,735 shares are issued
and outstanding as of the date of this Agreement, and 5,000,000 shares of
Preferred Stock, par value $.01 per share, none of which are outstanding as of
the date of this Agreement;
WHEREAS, the boards of directors of each of Lockheed Martin, CalComp
and Summagraphics deem it advisable and in the best interests of the Parties and
their stockholders that Lockheed Martin exchange all of the issued and
outstanding capital stock of CalComp for a number of newly issued shares of
Common Stock of Summagraphics (the "Exchange"), as determined in accordance with
the provisions of Section 1.3 below;
WHEREAS, the Board of Directors of Summagraphics has approved (i) the
transactions contemplated by this Agreement, (ii) the Fourth Amended and
Restated Articles of Incorporation (as defined in Section 5.3) and (iii) the
Stock Option Plan (as defined in Section 5.8) and recommended their submission
to the stockholders of Summagraphics for approval;
WHEREAS, the Parties desire the Exchange to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Parties desire to provide for certain undertakings,
conditions, warranties, representations and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
Parties agree as follows:
ARTICLE I
THE EXCHANGE
1.1 The Exchange. Upon performance of all covenants and obligations
------------
of the Parties contained in this Agreement and upon the
<PAGE>
terms and conditions contained herein, on the Closing Date (as hereinafter
defined) Lockheed Martin agrees to transfer and deliver, or cause to be
transferred and delivered, to Summagraphics all of the issued and outstanding
CalComp Common Stock (the "CalComp Exchange Shares"), and Summagraphics agrees
to issue and deliver to Lockheed Martin (or a direct or indirect wholly owned
subsidiary of Lockheed Martin) such number of shares of Summagraphics Common
Stock as is determined in accordance with the provisions of Section 1.3 below
(the "Summagraphics Exchange Shares"). As a result of the Exchange,
Summagraphics shall own 100% of the issued and outstanding capital stock of
CalComp and Lockheed Martin (or a direct or indirect wholly owned subsidiary)
shall own in the aggregate 89.7% of all of the issued and outstanding shares of
Summagraphics Common Stock outstanding immediately following the Exchange (on a
Fully Diluted Basis).
1.2 Closing. The consummation of the transactions contemplated by
-------
this Agreement (the "Closing") will take place at such time on a date not prior
to May 8, 1996 (the "Closing Date") as shall be mutually agreed to by Lockheed
Martin and Summagraphics but in any case shall be as soon as reasonably
practicable on or after the date of Summagraphics' special meeting of
stockholders called to consider the Exchange. In no event shall the Closing
Date be later than May 31, 1996, provided that if Securities and Exchange
Commission clearance of the Proxy Statement (as hereinafter defined) occurs
after April 26, 1996, the time for the Closing will be extended by a number of
days equal to the number of days after April 26, 1996 that such clearance is
received, but in no event beyond June 15, 1996.
1.3 Determination of Summagraphics Exchange Shares. The number of
----------------------------------------------
Summagraphics Exchange Shares delivered to Lockheed Martin shall equal a number
of shares of Summagraphics Common Stock determined so that immediately after the
Exchange Lockheed Martin owns 89.7% of all of the issued and outstanding capital
stock of Summagraphics determined on a Fully Diluted Basis. For purposes of
this Agreement, "Fully Diluted Basis" shall mean a basis whereby the aggregate
number of shares of Common Stock for such determination includes (i) all
Summagraphics Common Stock then issued and outstanding, (ii) all Summagraphics
Common Stock that would be issued and outstanding upon the exercise, conversion
or exchange of all outstanding warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Summagraphics Common Stock (or
rights to acquire any such warrants, options or other rights), regardless of
whether such warrants, options or other rights are then exercisable, convertible
or exchangeable, (iii) all Summagraphics Common Stock which would be outstanding
upon the exercise, conversion or exchange of all outstanding evidences of
indebtedness, shares of capital stock or other securities (or rights to acquire
any of the foregoing) which are or may be exercisable, convertible or
exchangeable into shares of Common Stock, regardless of whether such evidences
of indebtedness, shares of stock or other securities are then exercisable,
convertible or exchangeable, and (iv) the Summagraphics Exchange Shares issuable
upon such determination but excluding Summagraphics Common Stock issuable upon
conversion of the Secured Convertible Debenture. For purposes of
-2-
<PAGE>
subsections (ii) and (iii) above, the number of shares of Summagraphics Common
Stock issuable pursuant to options, warrants and rights of conversion that will
be deemed to be outstanding will be determined using the "Treasury Stock Method"
of accounting as defined in APB Opinion 15 based on an average of the closing
prices, as reported in the Wall Street Journal -- NASDAQ National Market Issues,
for the five days preceding Closing. An example of the calculation provided
above is attached as Schedule 1.3.
1.4 Employee Benefits. Employees of CalComp and its subsidiaries
-----------------
(each subsidiary of CalComp is hereinafter referred to as a "CalComp Subsidiary"
or collectively as the "CalComp Subsidiaries") immediately prior to the Exchange
will be eligible to continue to participate in all of the employee benefit
programs of CalComp in which such employees were eligible to participate on the
same terms and conditions as were previously applicable; provided, however, that
they continue to meet the eligibility requirements of those programs. Employees
of Summagraphics and its subsidiaries (each subsidiary of Summagraphics is
hereinafter referred to as a "Summagraphics Subsidiary" or collectively as the
"Summagraphics Subsidiaries") who are employees of Summagraphics or a
Summagraphics Subsidiary immediately prior to the Exchange and who are not made
eligible to participate in the employee benefit programs of CalComp following
the Exchange will be eligible to continue to participate in all of the employee
benefit plans of Summagraphics in which such employees were eligible to
participate prior to the Exchange on the same terms and conditions as were
previously applicable; provided, however, that they continue to meet the
eligibility requirements of those programs. In the event that the Parties shall
determine to extend eligibility to participate in the employee benefit programs
of CalComp to employees who are employees of Summagraphics immediately prior to
the Exchange, (i) service with Summagraphics and Summagraphics Subsidiaries
shall be considered service with CalComp for purposes of determining eligibility
and vesting under all such CalComp employee benefit programs and (ii) medical
plans of CalComp will offer Summagraphics' employees full coverage for pre-
existing conditions and credit for deductibles and co-insurance payments to date
during the plan year. Notwithstanding the foregoing, nothing contained in this
Section 1.4 shall be deemed to convey any right or benefit upon any employee of
CalComp or CalComp Subsidiaries or Summagraphics or Summagraphics Subsidiaries
nor shall any such employee be entitled to enforce any provision of this Section
1.4. Nothing contained in this Section 1.4 shall be deemed to prohibit
Summagraphics or CalComp or any of their respective Subsidiaries from
terminating any employment relationship or any employee benefit program or
changing the terms or conditions of employment or any employee benefit program
at any time following the Closing.
1.5 Board of Directors of Summagraphics. At the Closing, Summagraphics
-----------------------------------
shall deliver to Lockheed Martin letters effecting the resignation as of Closing
of each of the then current directors of Summagraphics whose resignation is
requested in writing by Lockheed Martin prior to Closing and Lockheed Martin
shall appoint new directors by written consent. Lockheed Martin shall provide
information with respect to the composition of the board of
-3-
<PAGE>
directors which it will appoint for use in connection with the Proxy Statement
(as hereinafter defined).
1.6 Officers of Summagraphics. At the Closing, Summagraphics shall
-------------------------
deliver to Lockheed Martin letters effecting the resignation as of Closing of
each of the then current officers of Summagraphics whose resignation is
requested in writing by Lockheed Martin prior to Closing and the new Board of
Directors of Summagraphics to be appointed by written consent of Lockheed Martin
under Section 1.5 above shall appoint new officers by written consent.
Notwithstanding such resignations, it is understood and agreed that the officers
are not waiving any rights they otherwise may have under employment and
severance arrangements existing as of February 1, 1996 or any additional
arrangements approved by Lockheed Martin and CalComp.
1.7 Name Change. Effective upon the Closing, Summagraphics shall
-----------
change its name to CalComp Inc. and CalComp shall change its name to CalComp
Technologies, Inc.
1.8 Treatment of Stock Options/Severance/Incentive Compensation. The
-----------------------------------------------------------
manner in which currently outstanding employee stock options, employee severance
payments and employee incentive compensation will be treated is as reflected on
the letter attached to this Agreement as Schedule 1.8.
1.9 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the meanings set forth below:
(a) "material" means material to Summagraphics or CalComp (as the case
may be) and its respective subsidiaries, taken as a whole, and determined in
light of the facts and circumstances of the matter in question; provided, that
any specific monetary amount stated in this Agreement with respect to
materiality shall determine materiality in that instance.
(b) "Material Adverse Effect," with respect to a Party, means an
event, change or occurrence which, individually or in the aggregate, (i) is
reasonably likely to result in a reduction in the consolidated stockholders'
equity of such Party and its subsidiaries, taken as a whole, by the amount equal
to or greater than $2,000,000 for Summagraphics and $15,000,000 for CalComp or
(ii) which has a material adverse impact on the ability of such Party to
consummate the Exchange contemplated by this Agreement, provided that in
determining whether a Material Adverse Effect has occurred under either (i) or
(ii), the effect of foreign currency translations recorded in the Parties equity
in accordance with SFAS 52 for the applicable period shall be disregarded and
the adverse impact of changes in laws or regulations or accounting rules of
general applicability or interpretations thereof shall not be included.
(c) "person" includes an individual, corporation, partnership, limited
liability company, association, trust or unincorporated organization.
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(d) "to the knowledge of" or "to the best of the knowledge of"
Summagraphics or CalComp or similar phrases includes the actual knowledge of the
current directors, the current executive officers (including the knowledge of
the chief executive officer and chief financial officer (or person performing
those functions) after reasonable inquiry) and the general counsel of
Summagraphics or CalComp, as the case may be. For purposes of determining
whether a person has actual knowledge of any fact, event, change or occurrence,
such person shall be deemed to have the knowledge relating to such fact, event,
change or occurrence which would have been gained had such person undertaken a
reasonable inquiry in respect thereto.
(e) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns relating to Taxes.
(f) "Taxes" shall mean all Federal, state, local and foreign taxes,
and other assessments of a similar nature (whether imposed directly or through
withholding) including, but not limited to, income, excise, property, sales,
use, gains, transfer, franchise, payroll, value-added, withholding, employment,
license fees, customs, duties, and other taxes, assessments and charges imposed
by any governmental authority, including any interest, penalties or other
additions to tax with respect to such amounts.
ARTICLE II
CERTAIN EVENTS PRECEDING CLOSING
In addition to the conditions precedent set forth in ARTICLES VII and VIII,
the following events shall occur:
2.1 Proxy Statement. As promptly as practicable after the execution
---------------
and delivery of this Agreement, and in any event on or prior to March 25, 1996,
the Parties shall prepare, and Summagraphics shall file with the Securities and
Exchange Commission (the "SEC"), preliminary proxy materials (in form and
content reasonably satisfactory to Lockheed Martin and CalComp) relating to the
approval of the Fourth Amended and Restated Articles of Incorporation (as
defined in Section 5.3), the Stock Option Plan (as defined in Section 5.8) and
the transactions contemplated hereby by the stockholders of Summagraphics and,
as promptly as practicable following receipt of SEC comments thereon, if any,
Summagraphics shall file definitive proxy materials (the "Proxy Statement") with
the SEC, which comply in form and substance with applicable SEC requirements,
taking into account such comments and mail the Proxy Statement to its
shareholders. The Proxy Statement shall include a recommendation of the Board
of Directors of Summagraphics in favor of the Fourth Amended and Restated
Articles of Incorporation, the Stock Option Plan and the transactions
contemplated by this Agreement which shall not be changed unless the Board of
Directors of Summagraphics, upon receipt of an unsolicited written proposal or
offer which qualifies as an Acquisition Proposal within the meaning of Section
4.4 hereof or upon delivery of a notice by Summagraphics of termination of this
Agreement in accordance with Section 10.2(b) based upon a
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material breach by Lockheed Martin of a representation, warranty, covenant or
agreement contained herein, shall have received an opinion of counsel from
Hughes & Luce, L.P. to the effect that to include such recommendation or not
withdraw such recommendation if it were previously included is reasonably likely
to result in a breach of the Board's fiduciary duty under applicable law.
Lockheed Martin and CalComp shall furnish all information concerning CalComp and
Lockheed Martin as may be reasonably requested by Summagraphics in connection
with the actions contemplated by this Section 2.1.
2.2 Interim Financing. Simultaneously with the execution and delivery
-----------------
of this Agreement, Summagraphics and Lockheed Martin shall execute and deliver
the 9-1/4% Secured Convertible Debenture in the form attached hereto as Exhibit
A (the "Secured Convertible Debenture") pursuant to which Lockheed Martin will
make available borrowings and other forms of credit support in an aggregate
principal amount not to exceed $2,500,000 to Summagraphics for the period
between the execution and delivery of this Agreement and the Closing.
2.3 Transfer of AGT Holdings, Inc. Stock. As soon as practicable
------------------------------------
following May 8, 1996 and prior to Closing, CalComp shall distribute all of the
issued and outstanding capital stock of AGT Holdings, Inc., a California
corporation ("AGT") and wholly owned subsidiary of CalComp, to Lockheed Martin.
The Parties acknowledge and agree that Summagraphics shall obtain no interest in
the shares of AGT (and, consequently, the shares of Access Graphics Inc. owned
by AGT) as a result of the transactions contemplated by this Agreement.
2.4 Additional Filings. As promptly as practicable after the execution
------------------
and delivery of this Agreement, each of the Parties shall prepare and file, or
cause to be filed, any and all filings necessary or appropriate for the
consummation of the transactions contemplated by this Agreement, including
without limitation, any and all foreign filings and any and all filings under
the Hart Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), as
contemplated by Sections 5.7 and 6.4 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Summagraphics. In order to induce
-----------------------------------------------
Lockheed Martin and CalComp to enter into this Agreement and to effectuate the
transactions contemplated hereby, Summagraphics represents and warrants to
Lockheed Martin the following:
(a) ORGANIZATION AND AUTHORITY. Summagraphics is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Each of the Summagraphics Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated. Each of Summagraphics and the Summagraphics
Subsidiaries (as defined in Section 3.1(d)) has all requisite power
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and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Attached hereto as Schedule 3.1(a) for each of
Summagraphics and each Summagraphics Subsidiary are complete and correct copies
of (1) their charters (or other organizational documents) and all amendments
thereto to the date hereof and (2) their bylaws (or other similar governing
documents) as amended to the date hereof.
(b) CAPITAL STRUCTURE.
(1) As of the date of this Agreement, the authorized capital
stock of Summagraphics consists of 20,000,000 shares of Common Stock, $.01 par
value per share, and 5,000,000 shares of Summagraphics Preferred Stock, $.01 par
value per share. As of the date hereof, 4,623,735 shares of Summagraphics Common
Stock are outstanding, all of which are validly issued, fully paid and
nonassessable. Summagraphics has no outstanding Preferred Stock. As of the date
hereof, Summagraphics has outstanding options and warrants to purchase
Summagraphics Common Stock as set forth on Schedule 3.1(b)(1).
(2) Summagraphics has no commitments to issue or sell any shares
of its capital stock or any securities or obligations convertible into or
exchangeable for such shares (other than those stock options and warrants listed
on Schedule 3.1(b)(1)), or giving any person the right to subscribe for or
acquire any such shares and no securities or obligations representing such
rights are outstanding.
(3) Since December 31, 1994, Summagraphics has not adjusted or
amended the exercise price of any stock option previously awarded to any officer
of Summagraphics, whether through amendment, cancellation or replacement grants,
or any other means.
(4) Summagraphics has not issued any stock appreciation right or
any similar right entitling any person to any payment based on the value of
Summagraphics capital stock.
(c) AUTHORITY. The execution of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the Board
of Directors of Summagraphics. Each of the Fourth Amended and Restated Articles
of Incorporation (as defined in Section 5.3) and the Stock Option Plan (as
defined in Section 5.8) have been approved by the Board of Directors of
Summagraphics with the recommendation that, together with the transactions
contemplated by this Agreement, they be submitted to the shareholders of
Summagraphics for approval. This Agreement is the valid and binding obligation
of Summagraphics and no further corporate authorization on the part of
Summagraphics is necessary to consummate the transactions contemplated hereby or
thereby except the approval by the stockholders of Summagraphics of (i) the
Fourth Amended and Restated Articles of Incorporation pursuant to applicable
law, (ii) the Stock Option Plan and (iii) the consummation of the Exchange
pursuant to the requirements of the National Association of Securities Dealers.
Except as otherwise set forth on Schedule 3.1(c), neither the execution and
delivery of this Agreement, the consummation in accordance with the terms of
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this Agreement of the transactions contemplated hereby nor compliance by
Summagraphics or any Summagraphics Subsidiary with any provision hereof or
thereof will (i) conflict with or result in a breach of any provision of their
charters or bylaws (or other governing documents) or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license, agreement
or other instrument or obligation to which Summagraphics or any Summagraphics
Subsidiary is a party or by which Summagraphics or any Summagraphics Subsidiary
or any of their respective properties or assets may be bound, or (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Summagraphics or any Summagraphics Subsidiary or any of their respective
properties or assets. Except as otherwise disclosed on Schedule 3.1(c), no
consent is required in connection with the execution and delivery by
Summagraphics of this Agreement or the consummation of the transactions
contemplated hereby.
(d) SUBSIDIARIES. Except as set forth on Schedule 3.1(d),
Summagraphics owns all the issued and outstanding shares of capital stock of
each of Summagraphics Europe N.V., Summagraphics Belgium, N.V., Summagraphics
Ltd., Summagraphics GmbH and CAD Warehouse, Inc. (collectively, the
"Summagraphics Subsidiaries"). Except as set forth on Schedule 3.1(d), other
than the Summagraphics Subsidiaries, neither Summagraphics nor any Summagraphics
Subsidiary owns any shares of capital stock of any corporation or equity
interests in any other person, nor does Summagraphics or any Summagraphics
Subsidiary have or will have on the Closing Date any other subsidiaries.
(e) FINANCIAL STATEMENTS. Attached hereto as Schedule 3.1(e) are
Summagraphics' Annual Report to Stockholders and Form 10-K for the fiscal year
ended May 31, 1995 and Summagraphics' Quarterly Report on Form 10-Q for the
period ended November 30, 1995 which includes (1) the Unaudited Consolidated
Balance Sheet as of November 30, 1995; (2) the Unaudited Consolidated Statements
of Changes in Stockholders' Equity for the six months ended November 30, 1995
and 1994; (3) the Unaudited Consolidated Statement of Income for the six months
ended November 30, 1995 and 1994 and (4) the Unaudited Consolidated Statements
of Cash Flow for the six months ended November 30, 1995 and 1994 together with
the Notes to those Consolidated Statements (the "Summagraphics Financial
Statements"). Subject to the absence of certain footnote information in the
unaudited statements, the Summagraphics Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated or as more particularly set
forth therein. The Unaudited Consolidated Balance Sheets included as a part of
the Summagraphics Financial Statements present fairly as of their respective
dates the consolidated financial position and assets and liabilities of
Summagraphics. The Unaudited Consolidated Statements of Income present fairly
the consolidated results of operations of Summagraphics for the periods
indicated.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the Summagraphics Financial
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Statements or as disclosed on Schedule 3.1(f), neither Summagraphics nor any
Summagraphics Subsidiary has (i) any liabilities or obligations of any nature or
(ii) any liabilities in the nature of employment contracts with, or agreements
to pay bonuses to any of its directors, officers or employees, other than
liabilities or obligations incurred in the ordinary course of business or
specifically identified in schedules to this Agreement.
(g) NO MATERIAL ADVERSE CHANGES. Since November 30, 1995, there has
been and as of the Closing there will be no material adverse change in the
assets or liabilities or in the business or condition (financial or otherwise)
of Summagraphics or any Summagraphics Subsidiary.
(h) TAX MATTERS.
(1) Summagraphics and each of the Summagraphics Subsidiaries have
filed (or have caused to be filed on their behalf), or will file or cause to be
filed, all Tax Returns required to be filed prior to the Closing, and have paid
all Taxes required to be paid in respect of the periods covered by such Tax
Returns or, where payment of such Taxes is not yet due, have established or will
establish prior to the Closing, an adequate reserve for the payment of all Taxes
which are accruable prior to the Closing. Summagraphics and the Summagraphics
Subsidiaries will not have any material liability for any such Taxes in excess
of the amounts so paid or the reserve so established and Summagraphics and the
Summagraphics Subsidiaries are not delinquent in the payment of any material
assessment of Taxes. No material deficiencies for any assessment of Taxes have
been proposed, asserted or assessed against Summagraphics or the Summagraphics
Subsidiaries which would not be covered by existing reserves and, as of the date
of this Agreement, no requests for waivers of the time to assess any such Taxes
are pending. To the best of its knowledge, Summagraphics and each of the
Summagraphics Subsidiaries, has complied with all IRS requirements regarding the
certification of taxpayer identification numbers of customers and backup
withholding.
(2) There are no liens for any Taxes upon the assets of
Summagraphics or any Summagraphics Subsidiary, other than statutory liens for
Taxes not yet due and payable.
(3) Neither Summagraphics nor any Summagraphics Subsidiary is a
party to, is bound by, or has any obligation under, a tax sharing agreement or
arrangement for the allocation, apportionment, sharing, indemnification, or
payment of Taxes.
(4) Neither Summagraphics nor any Summagraphics Subsidiary is a
party to any agreement, contract or other arrangement that would result,
separately or in the aggregate, in the requirement to pay any "excess parachute
payments" within the meaning of Section 280G of the Code, or any gross-up in
connection with such an agreement, contract or arrangement.
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(i) PROPERTY.
(1) Summagraphics and the Summagraphics Subsidiaries own all
operating real properties reflected as owned by them in the Summagraphics
Financial Statements free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever (collectively, "Encumbrances"), except (i)
liens for current taxes not yet due and payable, (ii) mortgages, deeds of trust
or other Encumbrances reflected in the Summagraphics Financial Statements, (iii)
such imperfections of title, easements and other Encumbrances as do not detract
from or interfere with the present use of such operating real properties subject
thereto or affected thereby, (iv) Encumbrances incurred in the ordinary course
of business after the date of this Agreement with the written consent of
Lockheed Martin, and (v) Encumbrances disclosed on Schedule 3.1(i)(1)(v)
attached hereto.
(2) As of the date of this Agreement, substantially all tangible
real or personal property and assets material to the business operation or
financial condition of Summagraphics and the Summagraphics Subsidiaries on a
consolidated basis which are owned by them or in which any of them has an
interest (other than a security interest) are in good operating condition and
repair, ordinary wear and tear excepted.
(3) All leases material to Summagraphics and the Summagraphics
Subsidiaries on a consolidated basis pursuant to which Summagraphics and the
Summagraphics Subsidiaries lease real property are valid and effective in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, and there is not, under any such
leases, any existing default by Summagraphics or the Summagraphics Subsidiaries
or any event which with notice or lapse of time or both would constitute such a
material default.
(j) LITIGATION. Other than as set forth in Schedule 3.1(j), neither
Summagraphics nor any of the Summagraphics Subsidiaries is a party to any
pending or, to the best of Summagraphics' knowledge, threatened claim, action,
suit, investigation or proceeding, nor is Summagraphics or any of the
Summagraphics Subsidiaries subject to any order, judgment or decree. Except as
set forth on Schedule 3.1(j), neither Summagraphics nor any of the Summagraphics
Subsidiaries is subject to any agreement, memorandum of understanding or similar
arrangement with any regulatory authority restricting its operations or
requiring that certain actions be taken, and, neither Summagraphics nor any of
the Summagraphics Subsidiaries has received any notification from any
governmental or regulatory authority, or the staff thereof, asserting that it is
not in compliance with any statutes, regulations or ordinances which such
authority enforces.
(k) CONTRACTS AND COMMITMENTS. Except as reflected in the
Summagraphics Financial Statements or as set forth on Schedule 3.1(k), neither
Summagraphics nor the Summagraphics Subsidiaries has as of the date hereof and,
except to the extent consented to in writing by Lockheed Martin, neither
Summagraphics
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nor any of the Summagraphics Subsidiaries will have on the Closing Date:
(1) any bonus, stock option or stock appreciation right or
similar plans, deferred compensation plans, profit-sharing, retirement
arrangements or other fringe benefit plans (other than those terminable at will
by Summagraphics or the Summagraphics Subsidiary) nor any outstanding calls,
commitments or agreements of any character requiring the issuance of shares of
its capital stock;
(2) any debt obligations for borrowed money (including guaranties
or agreements to acquire such debt obligations of others);
(3) any outstanding loans to any person;
(4) any agreement for services or for the purchase or disposition
of any equipment or supplies except those incurred in the ordinary course of
business;
(5) any lease of personal property with annual rent aggregating
$50,000 or more;
(6) any agreement or contract with any third party for the
provision of services to Summagraphics or the Summagraphics Subsidiaries which
involves payment by Summagraphics or the Summagraphics Subsidiaries of more than
$10,000 per month and which (i) has more than six months to run from the date of
this Agreement or (ii) may not be canceled by Summagraphics or the Summagraphics
Subsidiaries as appropriate on 180 days notice or less without penalty; or
(7) any outstanding loans to or loan participations with its
officers, directors, significant stockholders (collectively "Insiders"), or to
firms, partnerships or corporations in which any Insiders are partners,
executive officers, directors or significant stockholders or to any Affiliate of
an Insider or any contract, arrangement or understanding with any Insider or any
Affiliate of any Insider requiring Summagraphics or any Summagraphics
Subsidiaries to perform services or make payments in the future.
(l) ACCURACY OF INFORMATION SUPPLIED. As of their respective filing
dates, Summagraphics' Annual Reports on Form 10-K for the fiscal years ended May
31, 1995 and 1994, and any other filings made from and after the date of such
latest Annual Report on Form 10-K with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (such filings being
collectively referred to herein as the "Summagraphics Filings") complied in all
material respects with the regulations of the SEC, and none of the Summagraphics
Filings, as of the respective dates thereof, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein not misleading. The
information that will be included (other than information provided in writing by
Lockheed Martin specifically for inclusion in the
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Proxy Statement) in the Proxy Statement or any amendment or supplement thereto
pertaining to the transactions contemplated hereby that is filed with the SEC,
at the time the Proxy Statement is filed and distributed to stockholders of
Summagraphics, will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein in order to make the
statements not misleading, provided that information as of a later date shall be
deemed to modify information of an earlier date. This representation and
warranty is being made solely for the benefit of Lockheed Martin and CalComp and
is not intended, nor shall it be deemed to, create any rights in any third
party.
(m) SUMMAGRAPHICS' EMPLOYEE BENEFIT PLANS. Attached hereto as
Schedule 3.1(m) is a true, correct and complete list of each employee benefit
plan (each, a "Plan") to which Summagraphics or any Summagraphics Subsidiaries
is a party, together with, as applicable, a true and correct copy of (i) the
most recent annual report (Form 5500, 5500-C or 5500-R, as appropriate) filed
with the IRS including audited financial reports, if any, (ii) each IRS
favorable determination letter or opinion letter for each such Plan (or copies
of any current pending correspondence in respect thereof) (iii) all Plan
documents for each such Plan, (iv) each applicable Summary Plan Description, and
(v) the most recent actuarial report or valuation relating to each tax-qualified
plan, or the equivalent of any of the foregoing under applicable law, if any.
Except as set forth on Schedule 3.1(m):
(1) There are no plans, programs, contracts, understandings or
arrangements of any type (whether oral or written) of Summagraphics or a
"Commonly Controlled Entity" (within the meaning of Sections 414(b), (c), (m),
(n) or (o) of the Code or regulations thereunder) which provide for pension,
profit sharing, savings, executive compensation, incentive compensation, company
cars or car allowances, deferred compensation, severance pay, bonuses, stock
options, stock purchases, welfare, group insurance, medical disability, life,
health, hospitalization, dental, vacation, sick pay, holiday, educational
assistance, or any other form of employee or former employee benefits, whether
established by contract, policy, custom or course of dealing, (including, but
not limited to plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); and neither Summagraphics nor a
Commonly Controlled Entity has previously sponsored or contributed to any such
plan, program, contract, understanding or arrangement other than as listed and
described on Schedule 3.1(m);
(2) Neither Summagraphics nor any Commonly Controlled Entity has
ever maintained a Plan which is subject to Title IV of ERISA;
(3) Neither Summagraphics nor any Commonly Controlled Entity has
ever been a party to any collective bargaining agreement;
(4) Neither Summagraphics nor any Commonly Controlled Entity has
ever maintained a "multi-employer plan" within the meaning of Sections 3(37) and
4001(a)(3) of ERISA, a
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"multiple employer plan" within the meaning of Section 413 of the Code, or a
"multiple employer welfare arrangement" within the meaning of Section 3(40) of
ERISA;
(5) With respect to the Plans which are "welfare plans" within
the meaning of Section 3(1) of ERISA: (i) none of those Plans provide medical or
death benefits (whether or not insured) with respect to current or former
employees beyond their termination of employment other than as required by
applicable law; and (ii) each of those Plans have been operated in material
compliance with the provisions of Section 4980B of the Code and Part 6 of Title
I of ERISA and all other applicable laws concerning continuation or conversion
of coverage; and (iii) none of those Plans have any reserves, assets, surplus or
prepaid premiums;
(6) With respect to each of the Plans: (i) if intended to qualify
under Section 401(a) or 403(a) of the Code, the Plan has been maintained and
administered at all times in full compliance with its terms and applicable laws
and regulations and has been so qualified during the period from its adoption to
date and the trust forming a part thereof is exempt from taxation pursuant to
Section 501(a) of the Code, a favorable determination letter as to qualification
under Section 401 of the Code has been issued and any amendments required for
continued qualification under Section 401 of the Code have been timely adopted
and nothing has occurred subsequent to the date of such determination letter
that could reasonably be expected to adversely affect the qualified status of
such Plan; (ii) no event has occurred and there exists no circumstance under
which Summagraphics could directly, or indirectly through a Commonly Controlled
Entity, incur any liability with respect to any current or former employee (or
any beneficiary of any current or former employee) of Summagraphics or any
Commonly Controlled Entity under ERISA, the Code or otherwise (other than the
normal cost of benefits occurring in the ordinary course under the unfunded
Plans); (iii) there are no actions, suits or claims pending or threatened with
respect to any Plan or against any fiduciary or the assets of any Plan (other
than claims for benefits in the ordinary course) and there are no facts which
could give rise to any such actions, suits or claims, and no Plan is under audit
or investigation by any governmental authority; (iv) no event has occurred with
respect to any Plan or any employee benefit plan sponsored, maintained or
contributed to by Summagraphics or a Commonly Controlled Entity which could be
reasonably expected to subject any Plan, Summagraphics or any Party directly or
indirectly (through indemnification agreement or otherwise) to any liability for
or as a result of a breach of fiduciary duty, a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, or a civil
penalty under Section 502 of ERISA or a tax under Section 4971 of the Code; (v)
no "reportable event" (as defined in Section 4043 of ERISA) has occurred; (vi)
no "accumulated funding deficiency" (as defined in Section 302 of ERISA or
Section 412 of the Code) has occurred; (vii) all contributions required to be
made to, or benefit liabilities arising under, any Plan for all periods prior to
the date hereof and the Closing Date have been, or will as of the Closing Date
be, paid or accrued; (viii) all contributions intended to be deductible have met
the requirements for deductibility under the Code; (ix)
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each Plan is in compliance with the annual reporting requirements under ERISA
and the Code; (x) each Plan has been operated in accordance with its terms and
with all applicable laws, including, but not limited to ERISA, the Code, federal
securities laws and state insurance and health care continuation and conversion
laws.
(7) Except as set forth on Schedule 3.1(m)(vii), consummation of
the transactions contemplated by this Agreement will not (i) entitle any
individual to any bonus, incentive or severance pay or payments, or (ii)
accelerate the time of payment or vesting of any benefit under any Plan,
increase the amount of compensation due to any individual from Summagraphics
prior to, or after the Closing Date, or increase any benefits otherwise payable
under any Plan, (iii) result in the payment of an amount subject to the
provisions of Section 280G of the Code, or (iv) give rise to any liability or
obligation of Summagraphics pursuant to any Plan.
(8) Except as previously consented to in writing by Lockheed
Martin, since November 30, 1995, neither Summagraphics nor a Commonly Controlled
Entity has adopted or communicated to employees of Summagraphics any change to,
or termination of, any Plan or the adoption of a new employee benefit plan or
arrangement affecting the employees of Summagraphics or their dependents.
(9) Except in the normal course of business, neither
Summagraphics nor any Summagraphics Subsidiaries is bound to make, nor has
Summagraphics or any Summagraphics Subsidiary proposed the making of, bonus or
incentive or other similar payments to any employees or consultants at any
future date or an increase to the compensation of any employee or consultant.
None of Summagraphics nor any Summagraphics Subsidiaries will be liable by
reason of this Agreement or any of the transactions contemplated hereby, to make
payments to employees by way of damages or compensation for loss of office or
for redundancy or unfair dismissal or any like payment, other than payments of
severance benefits under Plans disclosed in this Agreement as contemplated by
Section 1.8.
(n) ENVIRONMENTAL MATTERS. (i) For purposes of this Section 3.1(n)
and Section 3.2(j), the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state, local or foreign law
(including case or common law), statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface soil, subsurface soil, plant and animal life or any
other natural resource), or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances. The term "Environmental Law"
includes without limitation (i) the Comprehensive Environmental Response,
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Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C. (S) 9601,
et seq; the Resource Conservation and Recovery Act ("RCRA"), as amended, 42
U.S.C. (S) 6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S) 7401,
et seq; the Federal Water Pollution Control act, as amended, 33 U.S.C. (S)
1251, et seq; the Toxic Substances Control Act, as amended, 15
U.S.C.(S) 9601, et seq; the Emergency Planning and Community Right to Know
Act, 42 U.S.C. (S) 11001, et seq; the Safe Drinking Water Act, 42 U.S.C.
(S) 300f, et seq; the Solid Waste Disposal Act, as amended; and all
comparable state and local laws, and (ii) any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance(s)" means any substance that is toxic, ignitable,
reactive, corrosive, radioactive, or caustic or is regulated as a hazardous
substance, contaminant, toxic substance, toxic pollutant, hazardous waste,
or pollutant, including without limitation, petroleum, its derivatives, by-
products and other hydrocarbons, or is otherwise regulated under or the
subject of applicable Environmental Laws.
"Remedial Action" means the investigation, removal, clean-up or
remediation of contamination, environmental degradation or damage arising
from or related to the generation, use, handling, treatment, storage,
transportation, disposal, discharge, release, threatened release or
emission of Hazardous Substances, including without limitation,
investigations, responses and remedial actions under CERCLA, corrective
action under RCRA 42 U.S.C. (S)(S)3004(u) and (v), 3008(h) and 7003, and
clean-up requirements under Environmental Laws.
(ii) Except as set forth on Schedule 3.1(n)(ii), neither
Summagraphics, any of the Summagraphics Subsidiaries, nor any properties owned
or operated by Summagraphics or any of the Summagraphics Subsidiaries or in
which any such entity has a security interest, has been, or is, in violation of
or liable under any Environmental Law.
(iii) Except as set forth on Schedule 3.1(n)(iii), there are no
actions, suits or proceedings, or demands, claims, notices or investigations
(including without limitation notices, demand letters or requests for
information from any environmental agency) instituted, pending or, to the best
knowledge of Summagraphics, threatened, relating to the liability of any
properties owned or operated by Summagraphics or any of the Summagraphics
Subsidiaries or in which such entity has a security interest under any
Environmental Law.
(iv) The facilities occupied or used by Summagraphics or any of the
Summagraphics Subsidiaries and any other real property presently or formerly
owned by, used by or
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leased to or by Summagraphics or any of the Summagraphics Subsidiaries or any
predecessor of Summagraphics or any of the Summagraphics Subsidiaries
(collectively, the "Property"), the existing and prior uses of such Property and
all operations of the businesses of Summagraphics or any of the Summagraphics
Subsidiaries or any predecessor of Summagraphics or any of the Summagraphics
Subsidiaries comply, and have at all times complied, in all material respects
with all Environmental Laws and each of Summagraphics and the Summagraphics
Subsidiaries is not in violation of nor has it violated, in connection with the
ownership, use, maintenance or operation of such Property or the conduct of its
business, any Environmental Law.
(v) Except as set forth on Schedule 3.1(n)(v), each of
Summagraphics and the Summagraphics Subsidiaries has all material permits,
registrations, approvals and licenses required by any governmental agency under
any Environmental Law.
(vi) Except as set forth on Schedule 3.1(n)(vi), there has been
no spill, discharge, leak, emission, injection, disposal, escape, dumping or
release of any kind on, beneath or above such Property or into the environment
surrounding such Property of any Hazardous Substances in violation of
Environmental Laws or requiring Remedial Action.
(vii) Except as set forth on Schedule 3.1(n)(vii), there
has been no past, and there is no current or anticipated storage, disposal,
generation, manufacture, refinement, transportation, production or treatment of
any Hazardous Materials at, upon or from such Property. No asbestos-containing
materials, underground storage tanks or polychlorinated biphenyls (PCBs) are
located on such Property.
(viii) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or, to the
best knowledge of Summagraphics, threatened, by any governmental entity or any
foreign governmental entity or third party with respect to the business or any
in connection with any actual or alleged failure to comply with any requirement
of any Environmental Law.
(o) EMPLOYEES; DIRECTORS AND OFFICERS. Schedule 3.1(o) sets forth a
true, correct and complete list of all employees of Summagraphics and each
Summagraphics Subsidiary together with current annual or hourly compensation.
In addition, Schedule 3.1(o) identifies each director and officer of
Summagraphics and each of the Summagraphics Subsidiaries.
(p) COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.1(p),
neither Summagraphics nor any Summagraphics Subsidiaries (i) is in violation of
any law, order or permit applicable to its business or (ii) has received any
notification or communication from any agency or federal, state or local
government or any regulatory authority or the staff thereof (a) asserting that
either Summagraphics or any of the Summagraphics Subsidiaries is not in
compliance with any law or order; or (b) threatening to revoke any material
permits, or (c) requiring either Summagraphics
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or any Summagraphics Subsidiaries (1) to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding or (2) to adopt any Board resolution or similar
undertaking which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its management, or the payment of
dividends.
(q) INSURANCE. Summagraphics and the Summagraphics Subsidiaries are
presently insured, and since December 31, 1993 have been insured, for reasonable
amounts with financially sound and reputable insurance companies, against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. All of the insurance policies and
bonds maintained by Summagraphics and the Summagraphics Subsidiaries are in full
force and effect, Summagraphics and the Summagraphics Subsidiaries are not in
material default thereunder, and all material claims thereunder have been filed
in due and timely fashion. Summagraphics and the Summagraphics Subsidiaries
have no knowledge of any material inaccuracy in any application for such
policies or binders, any failure to pay premiums when due or any similar state
of facts that might form the basis for termination of any such insurance.
Summagraphics and the Summagraphics Subsidiaries have no knowledge of any state
of facts or of the occurrence of any event that is reasonably likely to form the
basis for any claim against it not fully covered (except to he extent of any
applicable deductible) by the policies or binders referred to above.
(r) APPLICABLE TAKEOVER LAWS. Summagraphics has taken all necessary
action to exempt (i) the transactions contemplated by this Agreement (including,
without limitation, the issuance of the Secured Convertible Debenture and the
Summagraphics Exchange Shares) and (ii) any transaction between or among
Lockheed Martin and any other Party after the Closing (to the extent that
applicable law permits the exemption of any such transaction therefrom), from
any applicable anti-takeover laws including, without limitation, the provisions
of Section 203 of the Delaware General Corporation Law to the extent applicable.
In addition, Summagraphics has taken all action necessary or appropriate so that
the entering into this Agreement and the consummation of the transactions
contemplated by this Agreement will be exempt from any change of control or
anti-takeover provisions of the Articles of Incorporation, Bylaws, or other
governing instruments of Summagraphics or any Summagraphics Subsidiaries and
will not restrict or impair the ability of Lockheed Martin to vote, or otherwise
to exercise the rights of a stockholder with respect to, shares of Summagraphics
or any Summagraphics Subsidiaries that may be acquired or controlled by Lockheed
Martin.
(s) PRODUCT AND SERVICE WARRANTY. Except as set forth on Schedule
3.1(s), no product manufactured, sold, leased or delivered by Summagraphics or
any Summagraphics Subsidiaries nor any service rendered by Summagraphics or any
Summagraphics Subsidiaries, is subject to any guaranty, warranty, or other
indemnity. Each product manufactured, sold, leased, or delivered by
Summagraphics, and each service rendered by Summagraphics, has conformed with
all applicable contractual commitments and all
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express and implied warranties. Neither Summagraphics nor any Summagraphics
Subsidiary has any liability and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against any of Summagraphics or any Summagraphics Subsidiary that would
be reasonably likely to give rise to any liability or claim for replacement or
repair thereof or other damages in connection therewith. There is no basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against Summagraphics or any Summagraphics
Subsidiaries that could reasonably be expected to give rise to any liability
arising out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by Summagraphics or any of its Subsidiaries or any service rendered by
Summagraphics or any of its Subsidiaries.
(t) SUMMAGRAPHICS COMMON STOCK TO BE ISSUED. Each share of
Summagraphics Common Stock to be issued to Lockheed Martin in connection with
the consummation of the transactions contemplated by this Agreement, when
issued, will be validly authorized and issued, fully paid and non-assessable.
Immediately following Closing, Lockheed Martin will own 89.7% of the issued and
outstanding capital stock of Summagraphics on a Fully Diluted Basis. There are
no existing options, subscriptions, warrants, rights, contracts, commitments,
understandings, arrangements, or agreements of any nature to which Summagraphics
or any Summagraphics Subsidiaries are a party or by which any of them are bound,
relating to the issuance, sale, delivery or transfer of the Summagraphics
Exchange Shares other than this Agreement.
(u) LABOR DISPUTES. There is neither pending nor, to the best
knowledge of Summagraphics, threatened, any labor dispute, strike or work
stoppage which adversely affects or which may adversely affect Summagraphics'
business or the business of any Summagraphics Subsidiaries or which may
interfere with the continued operation of Summagraphics' business or the
business of any Summagraphics Subsidiaries after Closing. Except as set forth
on Schedule 3.1(u) attached hereto, neither Summagraphics nor any agents,
representatives or employees of Summagraphics, in connection with its business,
has committed any unfair labor practice as defined in the National Labor
Relations Act of 1947, as amended, and there is not now pending nor, to the
knowledge of Summagraphics, threatened any unfair labor practice charge against
Summagraphics or any Summagraphics Subsidiaries within the jurisdiction of the
National Labor Relations Board or any representative thereof or the jurisdiction
of any similar state, local or foreign authority. Except as set forth on
Schedule 3.1(u), (i) there are no employment agreements, collective bargaining
agreements or other agreements relating to employment between Summagraphics or
any Summagraphics Subsidiaries and any of their respective employees, and (ii)
no employee of Summagraphics has any contractual right to continued employment
with Summagraphics or any Summagraphics Subsidiaries following consummation of
the transactions contemplated by this Agreement.
(v) TECHNOLOGY. Summagraphics owns, or is licensed or otherwise
entitled to use or (with respect to such of the following
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which pertain only to Summagraphics' business as conducted or proposed to be
conducted) can obtain on reasonable terms rights to all patents, trademarks,
tradenames, servicemarks, copyrights, schematics, technology, know-how, computer
software programs or applications in tangible or intangible proprietary
information or material that are used or proposed to be used in the business of
Summagraphics or any Summagraphics Subsidiaries as currently conducted or as
presently proposed to be conducted by Summagraphics or any Summagraphics
Subsidiaries (the "Summagraphics Intellectual Property Rights"). Schedule 3.1(v)
lists all patents, patent applications, trademarks, tradenames, and servicemarks
including all registrations for, and pending applications to register, such
trademarks, tradenames and servicemarks, included in the Summagraphics
Intellectual Property Rights, together with a list of all Summagraphics'
currently marketed software products and an indication as to which, if any, of
such software products have been registered for copyright protection with the
United States Patent & Trademark Office. Except as set forth on Schedule 3.1(v),
no claims with respect to the Summagraphics Intellectual Property Rights have
been asserted, or to the knowledge of Summagraphics, are threatened by any
person nor does Summagraphics or any Summagraphics Subsidiary know of any valid
grounds for any bona fide claim (i) to the effect that the manufacture, sale or
use of any product or process as now used or offered or proposed for use or sale
by Summagraphics or any Summagraphics Subsidiary infringes on any patents of any
person, (ii) against the use by Summagraphics or any Summagraphics Subsidiary of
any trademarks, tradenames, trade secrets, copyrights, technology, know-how,
processes or computer software programs and applications used in the business of
Summagraphics and the Summagraphics Subsidiaries as currently conducted or
presently proposed to be conducted or (iii) challenging the ownership, validity
or effectiveness of any of the Summagraphics Intellectual Property Rights. To
Summagraphics' knowledge, all granted and issued patents and all registered
trademarks listed on Schedule 3.1(v) and all copyrights held by Summagraphics
are valid and existing. To Summagraphics' knowledge, there is no unauthorized
use, infringement or misappropriation of any of the Summagraphics Intellectual
Property Rights by any third party, employee or former employee.
(w) OPINION OF FINANCIAL ADVISOR. Summagraphics has been advised in
writing by its financial advisor, Needham & Company, Inc., that in its opinion,
as of the date hereof, the terms of the transactions described herein are fair,
from a financial point of view, to Summagraphics and its stockholders. A copy
of that opinion is attached hereto as Schedule 3.1(w).
(x) BOOKS AND RECORDS. The books of account, stock records, minute
books and other records of Summagraphics and the Summagraphics Subsidiaries are
complete and correct in all material respects and have been maintained in
accordance with good business practices, and the matters contained therein are
appropriately and accurately reflected in the Summagraphics Financial
Statements.
(y) FULL DISCLOSURE. No statement contained in any certificate or
schedule furnished or to be furnished by Summagraphics to Lockheed Martin or
CalComp in, or pursuant to the
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provisions of, this Agreement contains or shall contain any untrue statement of
a material fact or omits or shall omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
(z) INVESTMENT REPRESENTATION. Summagraphics is aware that the
CalComp Exchange Shares are not registered under the Securities Act of 1933 (the
"Securities Act"). Summagraphics possesses such knowledge and experience in
business matters that it is capable of evaluating the merits and risks of its
investments hereunder. Summagraphics has been provided access to all information
and personnel as Summagraphics deems necessary or advisable in connection with
its investment decision hereunder. Summagraphics is acquiring the CalComp
Exchange Shares for its own account, for investment purposes only and not with a
view to distribution thereof. Summagraphics agrees not to sell, transfer, offer
for sale, pledge, hypothecate or otherwise dispose of the CalComp Exchange
Shares, without registration under the Securities Act, except pursuant to a
valid exemption from registration under the Securities Act.
(aa) BANKS AND FINANCIAL INSTITUTIONS. Schedule 3.1(aa) sets forth a
true, correct and complete list of each bank or financial institution from which
Summagraphics currently has outstanding indebtedness together with the aggregate
amount outstanding as of the date of this Agreement. Attached to schedule
3.1(aa) is a true, correct and complete copy of each agreement listed thereon.
(bb) BACKLOG. At and as of May 31, 1996, Summagraphics shall have
received bona fide purchase orders for sales in the "input" and "cutter"
portions of Summagraphics business ("Backlog") which management of Summagraphics
reasonably believes will result in net sales of not less than $2,750,000 and
which Backlog is reasonably expected to be filled in accordance with the terms
thereof. In the event that the Closing occurs prior to May 31, 1996,
Summagraphics shall have Backlog which, together with prospective orders
expected by May 31, 1996, management reasonably believes will result in Backlog
of not less than $2,750,000 in the aggregate as of May 31, 1996.
3.2 Representations and Warranties of CalComp. In order to induce
-----------------------------------------
Summagraphics to enter into this Agreement and to consummate the transactions
contemplated hereby, CalComp represents and warrants to Summagraphics as
follows:
(a) ORGANIZATION, STANDING AND POWER. CalComp is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and, has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Each of the CalComp Subsidiaries has all requisite power and authority to own,
lease and operate the properties and to carry on its business as now being
conducted.
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(b) CAPITAL STRUCTURE.
(i) As of the date hereof, the authorized capital stock of
CalComp consists of 1,000 shares of Common Stock of which 1,000 shares are
issued and outstanding. As of the date hereof and as of the Closing Date, all
outstanding shares of capital stock of CalComp have been validly issued and are
fully paid and nonassessable. Lockheed Martin owns 100% of the issued and
outstanding shares of capital stock of CalComp.
(ii) CalComp has no commitments to issue or sell any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for such shares, or giving any person the right to subscribe for or
acquire any such shares and no securities or obligations representing such
shares are outstanding.
(c) AUTHORITY. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by each of the Board of Directors and sole stockholder of CalComp and
this Agreement is the valid and binding obligation of CalComp. Except for the
Joint Venture (as defined in Section 3.2(d) below), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by CalComp and the CalComp Subsidiaries with
any of the provisions hereof or thereof will (i) conflict with or result in a
breach of any provision of CalComp's Articles of Incorporation or Bylaws, or
conflict with or result in a default or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions of
any material note, bond, mortgage, indenture, license, agreement or other
instrument, or violate the provisions of any agreement to which CalComp is a
party or by which it or any of its properties or assets may be bound in any
instance in which such right of termination, cancellation, or acceleration if
exercised or such violation would have a Material Adverse Effect, or (ii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to CalComp or any CalComp Subsidiaries or any of its properties or
assets. Except for CalComp's Joint Venture affiliate, no consent or approval by
any governmental authority is required for the execution and delivery by CalComp
of this Agreement and the consummation of the transactions contemplated hereby,
except for the approval of all the applicable regulatory agencies and meeting of
conditions herein set forth.
(d) SUBSIDIARIES. Schedule 3.2(d) sets forth a true, correct and
complete list of each corporation of which CalComp directly or indirectly owns
all of the issued and outstanding shares of capital stock (collectively, the
"CalComp Subsidiaries"). In addition, CalComp owns 1,706 shares (out of a total
of 3,887 shares) of NS CalComp Corporation (Japan) as part of a joint venture
with Nippon Steel Corporation (which owns 1,978 Shares) and Sumitomo Corporation
(which owns 194 Shares) (the "Joint Venture"). Other than the CalComp
Subsidiaries and the Joint Venture, CalComp owns no shares of capital stock of
any other corporation or equity interest in any other person, and has and will
have on the Closing Date no other subsidiaries. The Parties acknowledge that as
of the
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Closing, CalComp will not own and will not have any interest in the following
subsidiaries: AGT Holdings, Inc., Access Graphics, Inc., Advanced Products
Group, Inc. (Georgia), CAD Source, Inc., Access Graphics (U.K.) Ltd., Access
Graphics of Canada Inc., Access Graphics B.V. and Access Graphics S.A. de C.V.
CalComp is currently dissolving CalComp Foreign Sales Corp. (Barbados) and
therefore does not represent that as of the date of signing of this Agreement
nor as of the Closing Date that it does or will own such subsidiary.
(e) FINANCIAL STATEMENTS. Attached hereto as Schedule 3.2(e) are the
Consolidated Balance Sheets of CalComp for each of the fiscal years ended
December 31, 1995 and 1994, the Consolidated Income Statement of CalComp for
each of the years in the three year period ended December 31, 1995, Statement of
Shareholders' Equity for each of the years ended in the three year period ended
December 31, 1995 and the Consolidated Statement of Cash Flow of CalComp for
each of the years in the three year period ended December 31, 1995, each
prepared on a basis which treats the disposition of AGT as if it had occurred
prior to the date of such financial statements. Subject to the absence of
certain footnote information in the financial statements attached as Schedule
3.2(e), those financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated or as more particularly set forth therein. The
Balance Sheets of CalComp for each of the fiscal years ended December 31, 1995
and 1994 present fairly as of their respective dates the consolidated financial
position and assets and liabilities of CalComp. The Consolidated Income
Statement of CalComp for each of the years in the three year period ended
December 31, 1995, present fairly the consolidated results of operations of
CalComp for the periods indicated. The CalComp Financial Statements to be
delivered in accordance with the provisions of Section 6.5 to Summagraphics
will, at the time they are so delivered be prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated, except that the CalComp Financial Statements will be prepared
on a basis to reflect the disposition of AGT as contemplated by Section 2.4.
(f) ABSENCE OF UNDISCLOSED LIABILITY. Except to the extent reflected
or reserved against in the CalComp Financial Statements, neither CalComp nor any
CalComp Subsidiary as of the date of this Agreement has (i) any liabilities or
obligations of any nature or (ii) any liabilities in the nature of employment
contracts with, or agreements to pay bonuses to any of its directors, officers
or employees, other than liabilities or obligations incurred in ordinary course
of business or specifically identified in schedules to this Agreement.
(g) NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has
been and as of the Closing there will be no material adverse change in the
assets or liabilities or in the business or condition (financial or otherwise),
results of operations or prospects of CalComp.
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(h) LITIGATION. There are no actions, proceedings or investigations
pending or, to the best of CalComp's knowledge, threatened against CalComp or
its Subsidiaries which, in the opinion of CalComp's in-house counsel is likely
to have a Material Adverse Effect on the financial conditions or operations of
CalComp and its subsidiaries. Neither CalComp nor any of its Subsidiaries is
subject to any agreement, memorandum of understanding or similar arrangement
with any regulatory authority restricting its operations or requiring that
certain actions be taken, and, neither CalComp nor any of its Subsidiaries has
received any notification from any governmental or regulatory authority, or the
staff thereof, asserting that it is not in compliance with any statutes,
regulations or ordinances which such authority enforces, noncompliance with
which could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the financial conditions of CalComp and its
Subsidiaries.
(i) ACCURACY OF INFORMATION SUPPLIED. The information that will be
provided in writing by CalComp specifically for inclusion in the Proxy Statement
or any amendment or supplement thereto pertaining to the transactions
contemplated hereby that is filed with the SEC, at the time the Proxy Statement
is filed and distributed to stockholders of Summagraphics will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein in order to make the statements not misleading, provided
that information as of a later date shall be deemed to modify information of an
earlier date. This representation and warranty is being made solely for the
benefit of Summagraphics and Lockheed Martin and is not intended, nor shall it
be deemed to, create any rights in any third party.
(j) ENVIRONMENTAL MATTERS. (i) To the best knowledge of CalComp, and
except as set forth on Schedule 3.2(j), neither CalComp, any of the CalComp
Subsidiaries, nor any properties owned or operated by CalComp or any of the
CalComp Subsidiaries or in which any such entity has a security interest, has
been or is in violation of or liable under any Environmental Law.
(ii) Except as set forth on Schedule 3.2(j), there are no
actions, suits or proceedings, or demands, claims, notices or investigations
(including without limitation notices, demand letters or requests for
information from any environmental agency) instituted, pending or threatened
relating to the liability of any properties owned or operated by CalComp or any
of the CalComp Subsidiaries or in which such entity has a security interest
under any Environmental Law.
(iii) To the best knowledge of CalComp, the facilities occupied
or used by CalComp or any of the CalComp Subsidiaries and any other real
property presently or formerly owned by, used by or leased to or by CalComp or
any of the CalComp Subsidiaries or any predecessor of CalComp or any of the
CalComp Subsidiaries (collectively, the "Property"), the existing and prior uses
of such Property and all operations of the businesses of CalComp or any of the
CalComp Subsidiaries or any predecessor of CalComp or any of the CalComp
Subsidiaries comply and have at all times complied in all material respects with
all Environmental Laws
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and each of CalComp and the CalComp Subsidiaries is not in violation of nor has
it violated, in connection with the ownership, use, maintenance or operation of
such Property or the conduct of its business, any Environmental Law.
(iv) Except as set forth on Schedule 3.2(j), each of CalComp and
the CalComp Subsidiaries has all material permits, registrations, approvals and
licenses required by any governmental agency or Environmental Law.
(v) To the best knowledge of CalComp, and except as set forth on
Schedule 3.2(j), there has been no spill, discharge, leak, emission, injection,
disposal, escape, dumping or release of any kind on, beneath or above such
Property or into the environment surrounding such Property of any Hazardous
Substances in violation of Environmental Laws or requiring Remedial Action.
(vi) There are no claims, notices of violations, notice letters,
investigations, inquiries or other proceedings now pending or threatened by any
governmental entity or any foreign governmental entity or third party with
respect to the business or any in connection with any actual or alleged failure
to comply with any requirement of any Environmental Law.
(k) COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.2(k),
neither CalComp nor any CalComp Subsidiaries (i) is in violation of any law,
order or permit applicable to its business or (ii) has received any notification
or communication from any agency or federal, state or local government or any
regulatory authority or the staff thereof (a) asserting that either CalComp or
any of the CalComp Subsidiaries is not in compliance with any law or order; or
(b) threatening to revoke any material permits, or (c) requiring either CalComp
or any CalComp Subsidiaries (1) to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment or memorandum of
understanding or (2) to adopt any Board resolution or similar undertaking which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its management, or the payment of dividends.
(l) TECHNOLOGY. CalComp owns, or is licensed or otherwise entitled to
use or (with respect to such of the following which pertain only to CalComp's
business as conducted or proposed to be conducted) can obtain on reasonable
terms rights to all patents, trademarks, tradenames, servicemarks, copyrights,
schematics, technology, know-how, computer software programs or applications in
tangible or intangible proprietary information or material that are used or
proposed to be used in the business of CalComp or any CalComp Subsidiaries as
currently conducted or proposed to be conducted by CalComp or any CalComp
Subsidiaries (the "CalComp Intellectual Property Rights"). Except as set forth
on Schedule 3.2(l), no claims with respect to the CalComp Intellectual Property
Rights have been asserted, or to the knowledge of CalComp, are threatened by any
person nor does CalComp or any CalComp Subsidiary know of any valid grounds for
any bona fide claim (i) to the effect that the manufacture, sale or use of any
product or process as now used or offered or proposed for use
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or sale by CalComp or any CalComp Subsidiary infringes on any patents of any
person, (ii) against the use by CalComp or any CalComp Subsidiary of any
trademarks, tradenames, trade secrets, copyrights, technology, know-how,
processes or computer software programs and applications used in the business of
CalComp and any CalComp Subsidiaries as currently conducted or proposed to be
conducted or (iii) challenging the ownership, validity or effectiveness of any
of the CalComp Intellectual Property Rights. To CalComp's knowledge, all granted
and issued patents, all registered trademarks, and all copyrights that
constitute part of the CalComp Intellectual Property Rights are valid and
existing. To CalComp's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the CalComp Intellectual Property Rights by any third
party, employee or former employee.
3.3 Representations and Warranties of Lockheed Martin. In order to induce
-------------------------------------------------
Summagraphics to enter into this Agreement and to consummate the transactions
contemplated hereby, Lockheed Martin represents and warrants to Summagraphics as
follows:
(a) ORGANIZATION AND STANDING. Lockheed Martin is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and, has all of the requisite corporate power and authority to
consummate the transactions contemplated by this Agreement.
(b) AUTHORITY. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Lockheed Martin and this Agreement is
the valid and binding obligation of Lockheed Martin. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby, nor compliance by Lockheed Martin with any of the provisions hereof will
(i) conflict with or result in a breach of any provision of Lockheed Martin's
Charter or Bylaws, or result in a default or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license, agreement
or other instrument, or result in a violation of any material agreement to which
Lockheed Martin is a party or by which it or any of its properties or assets may
be bound, or (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Lockheed Martin or any of its properties or assets. No
consent or approval by any governmental authority is required for the execution
and delivery by Lockheed Martin of this Agreement or the consummation of the
transactions to be consummated by Lockheed Martin hereunder, except for the
approval of all the applicable regulatory agencies and meeting of conditions
hereinafter set forth.
(c) LITIGATION. There are no actions, proceedings or investigations
pending or, to the best of Lockheed Martin's knowledge, threatened against
Lockheed Martin or any Lockheed Martin Subsidiary which, if adversely
determined, would have a Material Adverse Effect on the ability of Lockheed
Martin to consummate the transactions contemplated by this Agreement. Neither
Lockheed Martin nor any of its Subsidiaries is subject to
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any agreement, memorandum of understanding or similar arrangement with any
regulatory authority restricting its operations or requiring that certain
actions be taken, and, neither Lockheed Martin nor any of its Subsidiaries has
received any notification from any governmental or regulatory authority, or the
staff thereof, asserting that it is not in compliance with any statutes,
regulations or ordinances which such authority enforces, noncompliance with
which could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the ability of Lockheed Martin to consummate the
transactions contemplated by this Agreement.
(d) OWNERSHIP OF CALCOMP EXCHANGE SHARES. Lockheed Martin owns 100%
of the outstanding capital stock of CalComp of record and beneficially, and, as
of the Closing, free and clear of any Encumbrance. Upon the Closing of the
Exchange and the delivery of the CalComp Exchange Shares to Summagraphics,
Summagraphics will acquire the entire legal and beneficial interest in and to
all of the CalComp Exchange Shares, free and clear of any Encumbrance other than
any Encumbrance which is a result of the terms of any agreement to which
Summagraphics is party, or any order, claim or other charge against
Summagraphics.
(e) INVESTMENT REPRESENTATION. Lockheed Martin is aware that the
Summagraphics Exchange Shares are not registered under the Securities Act.
Lockheed Martin possesses such knowledge and experience in business matters that
it is capable of evaluating the merits and risks of its investments hereunder.
Lockheed Martin agrees not to sell, transfer, offer for sale, pledge,
hypothecate or otherwise dispose of the Summagraphics Exchange Shares, without
registration under the Securities Act, except pursuant to a valid exemption from
registration under the Securities Act.
(f) TAX MATTERS.
(i) CalComp and each of the CalComp Subsidiaries have filed (or
had filed on their behalf), or will file or cause to be filed, all Tax Returns
required to be filed prior to the Closing, and have paid all Taxes required to
be paid in respect of the periods covered by such Tax Returns or, where payment
of such Taxes is not yet due, have established or will establish prior to the
Closing, an adequate reserve for the payment of all Taxes which are accruable
prior to the Closing. CalComp and the CalComp Subsidiaries will not have any
material liability for any such Taxes in excess of the amounts so paid or the
reserve so established and CalComp and the CalComp Subsidiaries are not
delinquent in the payment of any material assessment of Taxes. No material
deficiencies for any assessment of Taxes have been proposed, asserted or
assessed against CalComp or the CalComp Subsidiaries which would not be covered
by existing reserves and, as of the date of this Agreement, no requests for
waivers of the time to assess any such Taxes are pending. CalComp, and to the
best of CalComp's knowledge, each of the CalComp Subsidiaries, has complied with
all IRS requirements regarding the certification of taxpayer identification
numbers of customers and backup withholding.
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(ii) There are no liens for any Taxes upon the assets of CalComp
or any CalComp Subsidiary, other than statutory liens for Taxes not yet due and
payable.
(iii) Neither CalComp nor any CalComp Subsidiary is a party to
any agreement, contract or other arrangement that would result, separately or in
the aggregate, in the requirement to pay any "excess parachute payments" within
the meaning of Section 280G of the Code, or any gross-up in connection with such
an agreement, contract or arrangement.
(g) ACCURACY OF INFORMATION SUPPLIED. The information which will be
provided in writing by Lockheed Martin specifically for inclusion in the Proxy
Statement pertaining to the transactions contemplated hereby, at the time such
information is provided will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein in order to
make the statements not misleading, provided that information as of a later date
shall be deemed to modify information of an earlier date. This representation
and warranty is being made solely for the benefit of Summagraphics and is not
intended, nor shall it be deemed to, create any rights in any third party.
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
4.1 Conduct of the Business of Summagraphics and its Subsidiaries' Prior
--------------------------------------------------------------------
to the Closing. During the period from the date of this Agreement to the
- --------------
Closing and except as otherwise expressly provided in the last sentence of
Section 4.4, Summagraphics shall, and Summagraphics shall cause the
Summagraphics Subsidiaries to, conduct their respective operations according to
the ordinary and usual course of business consistent with current practices and
use their reasonable best efforts to maintain and preserve their business
organizations, employees and advantageous business relationships.
Notwithstanding the foregoing, Summagraphics shall not enter into any employee
benefit plan or arrangement with any employee, officer or director without the
prior consent of CalComp and Lockheed Martin.
4.2 Forbearance.
-----------
(a) During the period from the date of this Agreement to the Closing
and except as contemplated by this Agreement (including with respect to Section
4.2(a)(v), (vi) and (viii) below the provisions of the last sentence of Section
4.4) and as set forth on Schedule 4.2, neither Summagraphics nor any
Summagraphics Subsidiaries shall without the prior written consent of CalComp
and Lockheed Martin:
(i) make any changes to their respective Articles of
Incorporation or Bylaws;
(ii) adjust, split, combine or reclassify Summagraphics Common
Stock or make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem,
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purchase or otherwise acquire, any shares of their capital stock or any
securities or obligations convertible into or exchangeable for any shares of
their capital stock, or grant (or revise the terms or conditions of any previous
grant of) any stock options or stock appreciation rights or give any person any
right or warrant to acquire any shares of their capital stock;
(iii) enter any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business;
(iv) increase in any manner the compensation or fringe benefits
of any of their directors, officers, agents or employees or pay any pension or
retirement allowance not required by any existing Plan or agreement to any such
directors, officers, agents or employees or become a party to, amend or commit
itself to any pension, retirement, profit sharing, welfare benefit plan or
agreement or employment agreement with or for the benefit of any employee or
officer or other person other than payments consistent with past practices and
current incentive compensation plans and other increases consented to by
Lockheed Martin and CalComp in writing, which consent shall not be unreasonably
withheld;
(v) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
(vi) merge or consolidate or agree to merge or consolidate with
or into any other person;
(vii) materially change the extent or character of its business
operations;
(viii) dissolve, liquidate (completely or partially), acquire any
capital assets, or grant to any person a right or option to lease, acquire, or
purchase, any material amount of the assets of Summagraphics or any
Summagraphics Subsidiary (including any part thereof or any interest therein),
except in the ordinary course of business and consistent with past practice or
as expressly contemplated by this Agreement;
(ix) issue any shares of its capital stock or any securities
convertible into or exercisable or exchangeable for capital stock;
(x) incur any indebtedness for borrowings (except the Secured
Convertible Debenture, or issue any debt securities or any securities
convertible into debt securities or any options to purchase debt securities or
other rights in respect thereto or assume, indorse, or guarantee, or become a
surety, an accommodation party, or responsible in any other way for, an
obligation or indebtedness of another person;
(xi) discontinue or materially diminish any insurance coverage
applicable to its assets, properties, and business operations;
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<PAGE>
(xii) commit to a labor or employment contract of any kind
whatsoever, or any compensation obligation to any employee that is executory or
requires payment after the Closing Date, except as consented to in writing by
Lockheed Martin and CalComp, which consent shall not be unreasonably withheld;
(xiii) mortgage, pledge or subject to any other lien any of its
assets;
(xiv) cancel or compromise any legal right or claim of or debts
owed to Summagraphics or any Summagraphics Subsidiaries;
(xv) engage in any speculative currency transactions; or
(xvi) agree to do, or acquiesce in, any of the foregoing acts.
(b) During the period from the date of this Agreement to the Closing,
Summagraphics shall maintain itself as a corporation duly incorporated under the
laws of the State of Delaware and conduct and maintain its operations according
to its usual and ordinary course of business in accordance with past practice.
(c) During the period from the date of this Agreement to the Closing,
Summagraphics shall consult with CalComp and Lockheed Martin with respect to
material business decisions affecting Summagraphics' business.
(d) For purposes of seeking consent to any action to be taken in
accordance with the provisions of this Section 4.2, the parties acknowledge and
agree that any such request shall be in writing delivered to David B. Minnick at
Lockheed Martin Corporation (or such other person as is designated in writing by
Lockheed Martin). Upon receipt of a written request from Summagraphics,
Lockheed Martin shall provide or withhold its consent to such request as soon as
reasonably practicable.
4.3 No Solicitation. Summagraphics acknowledges that Lockheed Martin will
---------------
devote substantial time and incur substantial out-of-pocket expenses in
connection with the preparation and negotiation of this Agreement and the
consummation of the transactions contemplated hereby. Unless and until the
sooner of (i) Lockheed Martin notifies Summagraphics that it no longer wishes to
pursue the Transaction, (ii) this Agreement shall have been terminated pursuant
to its terms or (iii) June 15, 1996, neither Summagraphics nor any of its
subsidiaries nor any of their executive officers, directors, agents (including,
without limitation, Broadview Associates, L.P. or Needham & Company, Inc.) or
affiliates of any of the foregoing, shall, directly or indirectly, encourage,
solicit or initiate discussions or negotiations with any person (other than
Lockheed Martin) concerning any Acquisition Proposal (as hereinafter defined) or
disclose, directly or indirectly, to any person in connection with an
Acquisition Proposal any information not customarily disclosed to the public
concerning Summagraphics or any of the Summagraphics'
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<PAGE>
Subsidiaries, afford to any other person access to the properties, books or
records of Summagraphics or any of the Summagraphics Subsidiaries in connection
with an Acquisition Proposal or otherwise assist any person preparing to make or
who has made such an Acquisition Proposal, or enter into any agreement with any
third party providing for a business combination transaction, equity investment
or a sale of all or any significant amount of assets, except in a situation in
which a majority of the full Board of Directors of Summagraphics has determined
in good faith, upon advice of counsel, that such Board has a fiduciary duty to
consider and respond to a bona fide Acquisition Proposal by a third party (which
Acquisition Proposal was not directly or indirectly solicited by Summagraphics
or the Summagraphics Subsidiaries or any of their respective officers,
directors, representatives, agents or affiliates in violation of this Agreement)
and provides written notice of its intention to consider such Acquisition
Proposal. Summagraphics will promptly communicate to Lockheed Martin the
identity of the offeror and the terms of any Acquisition Proposal which it may
receive in respect to any of the foregoing transactions.
4.4 Termination Fee. In the event that (i) the Closing does not occur
---------------
because of a breach of this Agreement by Summagraphics and within twelve months
thereafter Summagraphics enters into an agreement with respect to an Acquisition
Proposal or the consummation of the transactions contemplated by any Acquisition
Proposal occurs or (ii) Summagraphics breaches the provisions of Section 4.3,
Summagraphics (or the survivor of any transaction contemplated by the
Acquisition Proposal, which shall include any purchaser of a substantial portion
of the assets of Summagraphics or any Summagraphics Subsidiary) shall
immediately pay to Lockheed Martin by wire transfer of immediately available
funds the sum of $1,250,000 (the "Termination Fee"). For purposes of this
Agreement, "Acquisition Proposal" shall mean any third party proposal concerning
any merger, share exchange, consolidation, sale of any substantial portion of
the assets of Summagraphics and the Summagraphics Subsidiaries, tender offer,
sale of control or similar transaction involving Summagraphics or any
Summagraphics Subsidiaries. The term "Acquisition Proposal" shall not include,
among other things, any third party proposal to acquire Summagraphics' CAD
Warehouse business or Summajet or Summachrome product lines or to secure license
rights to such products; provided, however, Summagraphics shall obtain written
approval from Lockheed Martin prior to entering into any agreement in respect to
any of the foregoing, which approval shall not be unreasonably withheld.
4.5 Compliance with Tax-Free Provisions. Summagraphics shall not take any
-----------------------------------
action prior to or after the Closing which would disqualify the Exchange (and
the other transactions contemplated hereby) as a tax free reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
4.6 Access and Information; Cooperation. Summagraphics and the
-----------------------------------
Summagraphics Subsidiaries will permit reasonable access to Lockheed Martin and
CalComp and their respective representatives, during normal business hours to
verify the accuracy from time to
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<PAGE>
time of the representations and warranties contained herein. Such investigation
may include an examination of all of Summagraphics' business affairs, contracts,
personnel records, premise files, accounts receivable and accounts payable, tax
returns, agreements, schedule of assets owned, and all other items deemed
necessary by Lockheed Martin to make such examination thereof and to conduct
such other investigation as they deem appropriate to verify the representations
and warranties of Summagraphics contained herein. Summagraphics and CalComp
will each give to the officers, accountants, counsel and authorized
representatives of the other Party access to its properties, books and records
and those of its subsidiaries (including its audit work papers) and will furnish
the other Party with such additional financial and operating data and other
information as to its business and properties and those of its subsidiaries as
the other Party may from time to time reasonably request. In addition, each
shall promptly deliver to the other each internally prepared monthly balance
sheet from November 30, 1995 in the case of Summagraphics and December 31, 1995
in the case of CalComp, if any, through Closing and all other internally
prepared financial information prepared since November 30, 1995 or December 31,
1995, as the case may be. The Parties will cooperate with each other in the
preparation of any documents or other materials which may be required in
connection with the preparation of the Proxy Statement as filed with the SEC or
in connection with any other documents or materials required by any governmental
agency, stock exchange or association of securities dealers. CalComp will
cooperate with and furnish such information to, and cause its directors and
officers and those of its subsidiaries to cooperate with and furnish such
information to, Summagraphics as Summagraphics may reasonably request in
connection with the preparation of the Proxy Statement for the special meeting
of the stockholders of Summagraphics to consider the transactions contemplated
hereby.
4.7 Confidentiality. Each of the Parties shall cause its advisers and
---------------
agents to maintain the confidentiality of all confidential information furnished
to it by the other party concerning its and its Subsidiaries' businesses,
operations, and financial positions, and shall not use such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Closing, each Party
shall promptly return all documents and copies thereof, and return or destroy
all work papers containing confidential information received from the other
Party. In the event that any Party violates any of the terms of this paragraph,
they agree that the Party who is not in violation would have an inadequate
remedy at law for such violation and may, therefore, seek an injunction without
the necessity of bond, to prevent or halt any violation hereof and the parties
hereto agree not to raise any defense that the Party who is not in violation of
this paragraph has an adequate remedy at law. The Parties further acknowledge
and agree that in the event of a violation of the terms and conditions of this
paragraph that the party who is not in violation shall have any and all remedies
available at law or equity and shall not be limited to the remedy of injunctive
relief. The confidentiality provisions of this Section 4.7 are in addition to
and shall not be deemed to supersede the agreements contained in
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(i) the letter, dated October 12, 1995, from Broadview Associates, L.P. to
Lockheed Martin and (ii) the letter agreement, dated December 20, 1995, between
Lockheed Martin Corporation and Summagraphics (the "Confidentiality
Agreements"). In addition, CalComp agrees that, in the event that this Agreement
is terminated for any reason prior to Closing, CalComp shall not for a period of
one year from the date hereof, directly or indirectly, recruit any non-clerical
employee of Summagraphics with whom CalComp has had contact in connection with
CalComp's investigation of Summagraphics from the date hereof to the Closing;
provided however, that the foregoing restriction shall not preclude CalComp or
Lockheed Martin from employing any such employee who seeks employment with
CalComp or Lockheed Martin in response to a general advertisement or other
similar method and not in response to any direct solicitation efforts made by
CalComp or Lockheed Martin. Any provisions of this Section 4.7 shall survive the
Closing or the termination of this Agreement.
4.8 Public Announcements. The Parties will consult with each other before
--------------------
issuing any press release relating to this Agreement or the transactions
contemplated herein and shall not issue any such press release without the prior
written consent of the other Party, except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange.
4.9 Consents.
--------
(a) From the date of this Agreement to the Closing, Summagraphics will
use its reasonable best efforts (which efforts shall not include the payment of
any money to any third party without the prior consent of Lockheed Martin, other
than ordinary filing fees) to obtain the written consents or approvals of all
third parties whose consent or approval is required with regard to the
transactions contemplated to be performed by Summagraphics by the terms of this
Agreement, whether under the terms of any lease, mortgage, indenture or other
agreement to which Summagraphics or any of the Summagraphics Subsidiaries is a
party or by which any of their assets is bound or otherwise.
(b) From the date of this Agreement to the Closing, each of Lockheed
Martin and CalComp will use their respective reasonable best efforts (which
efforts shall not include the payment of any money to any third party, other
than ordinary filing fees) to obtain the written consents or approvals of all
third parties whose consent or approval is required with regard to the
transactions contemplated to be performed by Lockheed Martin or CalComp, as the
case may be, by the terms of this Agreement, whether under the terms of any
lease, mortgage, indenture or other agreement to which Lockheed Martin or
CalComp or any of their respective Subsidiaries is a party or by which any of
their assets is bound or otherwise.
(c) The Parties agree to reasonably cooperate with each other in
connection with obtaining the consents contemplated by Section 4.9.
4.10 Meeting of Summagraphics Stockholders. Summagraphics will duly call
-------------------------------------
and within the time set forth in its Bylaws will
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convene a special meeting of its stockholders to act upon the transactions
contemplated hereby, the Board of Directors of Summagraphics (subject to Section
2.1) will recommend approval of this Agreement and the Fourth Amended and
Restated Articles of Incorporation to its stockholders, and will use its
reasonable best efforts to obtain a favorable vote thereon. The calling and
holding of such meetings and all transactions, documents and information related
thereto will be in compliance with all applicable laws (including, without
limitation, applicable securities laws). The Proxy Statement for the
stockholders' meeting of Summagraphics will be in form and content reasonably
satisfactory to Lockheed Martin.
ARTICLE V
ADDITIONAL COVENANTS OF SUMMAGRAPHICS
5.1 Issuance of Stock. Summagraphics will issue and deliver or cause to
-----------------
be delivered the Summagraphics Exchange Shares to Lockheed Martin (or its
designee) as called for by Paragraph 1.1 of this Agreement.
5.2 Intercompany Agreements. At the Closing, Summagraphics shall execute
-----------------------
and deliver to Lockheed Martin each of the following documents (collectively,
the "Intercompany Agreements"):
(a) an intercompany services agreement in the form attached hereto as
Exhibit B (the "Services Agreement");
(b) a cash management agreement in the form attached hereto as Exhibit
C (the "Cash Management Agreement");
(c) a tax sharing agreement in the form attached hereto as Exhibit D
(the "Tax Sharing Agreement");
(d) a revolving credit agreement in the form attached hereto as
Exhibit E (the "Revolving Credit Agreement");
(e) a registration rights agreement in the form attached hereto as
Exhibit F (the "Registration Rights Agreement"); and
(f) a corporate agreement in the form attached hereto as Exhibit G
(the "Corporate Agreement").
5.3 Amendment and Restatement of Articles of Incorporation. Prior to
------------------------------------------------------
Closing, Summagraphics shall take all actions necessary or appropriate
(including approval of its stockholders) to cause to be filed with the Secretary
of State of the State of Delaware an amendment and restatement to its Articles
of Incorporation in the form attached as Exhibit H (the "Fourth Amended and
Restated Articles of Incorporation") pursuant to which:
(a) Summagraphics shall change its name to CalComp Inc.;
(b) Summagraphics shall agree to the allocation of business
opportunities by and between it and Lockheed Martin set forth therein; and
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(c) Summagraphics shall increase the number of authorized shares of
capital stock to 60,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock.
5.4 Preparation of Proxy Statement. In accordance with the provisions of
------------------------------
Section 2.1, Summagraphics shall prepare, file in definitive form and deliver to
each of its stockholders the Proxy Statement.
5.5 Additional Listing Application. At or prior to Closing, Summagraphics
------------------------------
shall take all action necessary or appropriate to cause the Summagraphics
Exchange Shares to be listed for trading on the NASDAQ Interdealer Quotations
System.
5.6 Filing of Form 10-C. Within 10 days of Closing, Summagraphics shall
-------------------
prepare and have filed with the SEC its report on Form 10-C-Report By Issuer of
Securities Quoted on NASDAQ Interdealer Quotations System in respect of the
Summagraphics Exchange Shares.
5.7 Hart-Scott-Rodino. As soon as practicable following the execution of
-----------------
this Agreement and no later than 10 days after the execution of this Agreement,
Summagraphics shall make its filing of a Notification and Report Form pursuant
to, and shall thereafter promptly make any required submissions under the HSR
Act with respect to the transactions contemplated by this Agreement. In
addition, Summagraphics shall cooperate with Lockheed Martin in connection with
Lockheed Martin's filing under the HSR Act in respect of the transactions
contemplated by this Agreement.
5.8 Stock Option Plan. Summagraphics shall use its reasonable best
-----------------
efforts to cause the stock option plan in the form attached hereto as Exhibit I
(the "Stock Option Plan") to be approved by its shareholders.
ARTICLE VI
COVENANTS OF CALCOMP AND LOCKHEED MARTIN
6.1 Transfer of CalComp Exchange Shares. At the Closing, Lockheed Martin
-----------------------------------
will, or will cause its subsidiary to, transfer and deliver the CalComp Exchange
Shares to Summagraphics as called for by Section 1.1 of this Agreement.
6.2 Intercompany Agreements. At the Closing, Lockheed Martin shall
-----------------------
execute and deliver to Summagraphics each of the Intercompany Agreements.
6.3 Preparation of Proxy Statement. Each of Lockheed Martin and CalComp
------------------------------
shall use reasonable efforts to cooperate with Summagraphics in the preparation
of the Proxy Statement.
6.4 Hart-Scott-Rodino. As soon as practicable following the execution of
-----------------
this Agreement and no later than 10 days after the execution of the Agreement,
Lockheed Martin shall make its filing of a Notification and Report Form pursuant
to, and shall thereafter promptly make any required submissions under, the HSR
Act with
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respect to the transactions contemplated by this Agreement. In addition,
Lockheed Martin shall cooperate with Summagraphics in connection with the
preparation and filing of a Notification and Report Form in respect of the
transactions contemplated by this Agreement under the HSR Act by Summagraphics.
6.5 CalComp Financial Statements. As soon as practicable following the
----------------------------
execution of this Agreement but in no event after March 25, 1996, CalComp shall
deliver to Summagraphics for inclusion in the Proxy Statement the following
financial statements, audited, with an unqualified opinion by Ernst & Young LLP,
CalComp's independent auditors; the consolidated balance sheet of CalComp for
each of the fiscal years ended December 31, 1995 and 1994, the consolidated
income statement of CalComp for each of the years in the three year period ended
December 31, 1995, the statement of shareholders' equity for each of the years
ended in the three year period ended December 31, 1995 and the consolidated
statement of cash flow of CalComp for each of the years in the three year period
ended December 31, 1995 (collectively, the "CalComp Financial Statements"). The
CalComp Financial Statements shall be prepared on a basis which treats the
disposition of AGT as if it had occurred prior to the CalComp Financial
Statements.
6.6 Pre-Closing Assistance. Lockheed Martin acknowledges that changes may
----------------------
occur in the business of Summagraphics and the Summagraphics Subsidiaries
resulting from employee resignations and the deterioration or termination of
vendor or customer relations which are a direct result of the announcement or of
the transactions contemplated by this Agreement and Lockheed Martin will use
reasonable efforts to work with Summagraphics to remedy such occurrences, it
being understood that if such occurrences (together with all other events,
changes or occurrences) result in a Material Adverse Effect despite Lockheed
Martin's efforts, Lockheed Martin would be entitled pursuant to Section 10.2(b)
to terminate this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO CALCOMP'S
AND LOCKHEED MARTIN'S OBLIGATIONS HEREUNDER
Unless waived in writing by Lockheed Martin, in its sole discretion, all
obligations of CalComp or Lockheed Martin, as the case may be, hereunder to
effect the Exchange shall be subject to the fulfillment prior to or at the
Closing of the following conditions:
7.1 Representations, Warranties, Covenants. The representations and
--------------------------------------
warranties of Summagraphics herein contained shall be true in all material
respects as of the Closing, shall be deemed made again at and as of the Closing
and shall be true in all material respects as if so made again; Summagraphics
shall have performed all of the obligations and complied with all of the
covenants required by this Agreement to be performed or complied with by it in
all material respects on or prior to the Closing Date and Lockheed Martin shall
receive from Summagraphics officers' certificates in such detail as Lockheed
Martin may reasonably
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request dated the Closing Date and signed by the chief executive officer,
president or secretary of Summagraphics to the foregoing effect.
7.2 No Adverse Changes. There shall not have been any material adverse
------------------
changes in the financial position, results of operations, assets, liabilities or
business of Summagraphics and the Summagraphics Subsidiaries, taken as a whole,
from November 30, 1995, the date of the Summagraphics Financial Statements
referred to in Paragraph 3.1(e) above, to the Closing Date, which changes,
individually or in the aggregate, have or could reasonably be expected to have a
Material Adverse Effect.
7.3 Due Diligence Audit of Summagraphics and its Subsidiaries. The tax
---------------------------------------------------------
portion of the due diligence audit of Summagraphics and its Subsidiaries
conducted pursuant to Paragraph 4.6 shall have confirmed the accuracy of the
representations and warranties set forth in Section 3.1(h) and 3.1(n) and the
final review of accountant's work papers relating to Summagraphics' Belgium
operation shall be reasonably satisfactory to Lockheed Martin.
7.4 Legal Opinion. Lockheed Martin shall have received a written opinion,
-------------
dated as of the Closing Date, from Hughes & Luce, L.P., counsel to
Summagraphics, in form reasonably satisfactory to Lockheed Martin, which shall
cover matters customary in transactions of this nature.
7.5 No Adverse Proceedings. There shall be no order restraining or
----------------------
prohibiting the transaction contemplated hereby and no action or proceeding
against any of the Parties or their respective Subsidiaries in respect of the
consummation of the transactions contemplated by this Agreement shall have been
instituted or threatened or any investigations or inquiries undertaken that, in
the reasonable judgment of the affected party, could result in substantial
damages or as a result of which the affected party could be deprived of any of
the material benefit of the contemplated transactions.
7.6 Intercompany Agreements. Summagraphics shall have executed and
-----------------------
delivered to Lockheed Martin each of the Intercompany Agreements referred to in
Section 5.2.
7.7 Approval by Stockholders of the Agreement, the Stock Option Plan and
--------------------------------------------------------------------
Amendment and Restatement of Summagraphics' Articles of Incorporation. This
- ---------------------------------------------------------------------
Agreement, the Fourth Amended and Restated Articles of Incorporation and the
Stock Option Plan shall have been submitted to the stockholders of Summagraphics
at a special meeting of stockholders duly called and held and each of the
transactions contemplated by this Agreement, the Fourth Amended and Restated
Articles of Incorporation and the Stock Option Plan shall have been approved, in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware (the "DGCL") and the Certificate of
Incorporation and Bylaws of Summagraphics, by an affirmative vote of the holders
of at least a majority of all the outstanding shares of Summagraphics Common
Stock entitled to vote and, with respect to the Exchange and
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<PAGE>
the Stock Option Plan by the affirmative vote of the holders of a majority of
the shares present and entitled to vote at the meeting. Summagraphics shall have
duly authorized the filing of, and shall have filed and caused to be accepted of
record by the Secretary of State of the State of Delaware, the Fourth Amended
and Restated Articles of Incorporation.
7.8 Additional Listing Application. Summagraphics shall have caused the
------------------------------
Summagraphics Exchange Shares to be listed on the NASDAQ Interdealer Quotation
System.
7.9 Secretary's Certificate. At the Closing, Summagraphics shall cause to
-----------------------
be delivered to Lockheed Martin, a secretary's certificate in a form reasonably
satisfactory to Lockheed Martin.
7.10 Compliance With Laws/Government Approvals. All applicable
-----------------------------------------
securities, antitrust and other laws shall have been complied with in connection
with the transactions contemplated hereby. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any governmental authorities necessary for the consummation
of the transactions contemplated by this Agreement, including, but not limited
to, such requirements under applicable state securities laws, the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the HSR Act, shall
have been filed, occurred or been obtained. All other material consents of
third parties shall have been obtained.
7.11 Backlog. The representations and warranties set forth in Section
-------
3.1(bb) shall be true and correct in all respects as of Closing. At the Closing,
Summagraphics shall have caused to be delivered to Lockheed Martin, a
certificate from Michael S. Bennett and Dave Osowski in such detail as Lockheed
Martin may reasonably request, dated the Closing Date, to such effect together
with copies of purchase orders evidencing such Backlog.
ARTICLE VIII
CONDITIONS PRECEDENT TO SUMMAGRAPHICS' OBLIGATIONS HEREUNDER
Unless waived in writing by Summagraphics, in its sole discretion, all
obligations of Summagraphics hereunder to effect the Exchange shall be subject
to the fulfillment prior to or at the Closing of the following conditions:
8.1 Representations, Warranties, Covenants. The representations and
--------------------------------------
warranties of each of CalComp and Lockheed Martin herein contained shall be true
in all material respects as of the Closing Date, shall be deemed made again at
and as of the Closing Date and shall be true in all material respects as if so
made again. Each of CalComp and Lockheed Martin shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date in all material
respects and Summagraphics shall have received from Lockheed Martin an officer's
certificate in such detail as Summagraphics may reasonably request dated the
Closing Date and signed by its president, any vice
-37-
<PAGE>
president or other authorized signatory or secretary to the foregoing effect.
8.2 No Adverse Proceedings or Events. There shall be no order restraining
--------------------------------
or prohibiting the transactions contemplated hereby and no action or proceeding
against any of the Parties or their respective Subsidiaries in respect of the
consummation of the transactions contemplated by this Agreement shall have been
instituted or threatened or any investigations or inquiries undertaken that in
the reasonable judgment of Summagraphics, could result in substantial damages or
as a result of which Summagraphics could be deprived of any of the material
benefits of the transactions contemplated by this Agreement.
8.3 No Adverse Changes. There shall not have been any material adverse
------------------
change in the financial position, results of operations, assets, liabilities or
business of CalComp and the CalComp Subsidiaries, taken as a whole, from
December 31, 1995, to the Closing Date, which changes, individually or in the
aggregate, have or constitute a Material Adverse Effect.
8.4 Legal Opinion. Summagraphics shall have received a written opinion,
-------------
dated as of the Closing Date, of in-house counsel to Lockheed Martin, in form
reasonably satisfactory to Summagraphics, which shall cover matters customary in
transactions of this nature.
8.5 Fairness Opinion. The fairness opinion delivered to the Board of
----------------
Directors of Summagraphics by Needham & Company, Inc. in accordance with the
provisions of Section 3.1(w) shall not have been rescinded.
8.6 Stockholder Approval. The transactions contemplated by this Agreement
--------------------
and the Fourth Amended and Restated Articles of Incorporation shall have been
approved and adopted by the affirmative vote of the holders of at least a
majority of the outstanding shares of Summagraphics Common Stock.
8.7 Secretary's Certificate. At the Closing, each of CalComp and Lockheed
-----------------------
Martin shall cause to be delivered to Summagraphics, a secretary's certificate
in a form reasonably satisfactory to Summagraphics.
8.8 Intercompany Agreements. Lockheed Martin shall have executed and
-----------------------
delivered to Summagraphics each of the Intercompany Agreements referred to in
Section 5.2. Sufficient funds shall have been made available to Summagraphics
pursuant to the Revolving Credit Agreement at the Closing to allow Summagraphics
to repay in full its indebtedness to Silicon Valley Bank and Heller Financial.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Update Disclosure; Breaches. From and after the date hereof until the
---------------------------
Closing, each Party shall promptly notify each other Party by written update of
(a) the occurrence, non-
-38-
<PAGE>
occurrence, or any event the occurrence, or non-occurrence, of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate, (b) any failure of a Party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement, and (c) any other matter which may occur from and after the
date of this Agreement which, if existing on the date hereof, would have been
required to be described herein; provided, however, that the delivery of any
such notice shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to or on the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the Party
receiving such notice under this Agreement.
9.2 Tax Returns. The Exchange shall be reported as a "reorganization"
-----------
within the meaning of Section 368(a)(i)(B) of the Code in all federal and, to
the extent permitted, all state and local tax returns filed after the Closing.
Notwithstanding any other provisions of this Agreement, the obligations set
forth in this Section 9.2 shall survive the Closing.
9.3 Best Efforts and Further Assurances. Each of the Parties to this
-----------------------------------
Agreement shall use its best reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
the Closing under this Agreement. Each party hereto, at the reasonable request
of another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
affecting completely the consummation of this Agreement and the transactions
contemplated hereby. If, at any time after the Closing, any such further action
is necessary or desirable to carry out the purposes of this Agreement and to
vest Lockheed Martin with full right, title and possession of the Summagraphics
Exchange Shares or Summagraphics with full right, title and possession of the
CalComp Exchange Shares, the officers and directors of each of Lockheed Martin
and Summagraphics shall take all such lawful and necessary action.
9.4 Payoff of Outstanding Indebtedness. At the Closing, Summagraphics
----------------------------------
shall pay, discharge and satisfy all outstanding indebtedness to Silicon Valley
Bank and Heller Financial described on Schedule 3.1(aa) and shall deliver to
Lockheed Martin evidence satisfactory to Lockheed Martin that such banks or
financial institutions have released all Encumbrances which such bank or
financial institutions then hold against the properties or assets of
Summagraphics or any Summagraphics Subsidiaries. The Parties acknowledge and
agree that Summagraphics shall be entitled to borrow funds from Lockheed Martin
under the Revolving Credit Agreement at Closing to pay off such amounts.
9.5 Directors and Officers Liability Insurance. For a period of six years
------------------------------------------
after the Closing, Lockheed Martin shall use reasonable efforts to cause to be
maintained in effect the current policies of directors and officers liability
insurance maintained by Summagraphics (provided that Lockheed Martin may
substitute therefore policies with reputable and financially sound carriers of
at least the same coverage in amounts containing terms and
-39-
<PAGE>
conditions which are no less advantageous) with respect to claims arising from
or related to facts or events which occurred at or before the Closing; provided,
that Lockheed Martin shall not be obligated to make premium payments for such
insurance to the extent such premiums exceed 150% of the premiums paid as of the
date hereof by Summagraphics for such insurance (the "Maximum Amount"). If the
amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Lockheed Martin and Summagraphics shall
maintain the most advantageous policies of directors, and officers' insurance
obtainable for an annual premium equal to the Maximum Amount.
9.6 CalComp Taxes.
-------------
(a) Lockheed Martin shall reimburse or pay and assume liability for
and indemnify and hold harmless Summagraphics and CalComp against (i) any
Federal or state income or franchise taxes based on income, including any
interest, penalties or other additions to tax with respect to such amounts,
payable by or on behalf of CalComp or any of the CalComp Subsidiaries for any
period ending on or prior to December 31, 1995 (except in each case to the
extent that such liability is properly reflected as an accrued liability in a
balance sheet for such company as at the close of business on December 31,
1995), and (ii) any deficiencies in any taxes described in (i) above payable by
or on behalf of CalComp or any of the CalComp Subsidiaries with respect to any
period ending on or prior to December 31, 1995.
(b) Lockheed Martin shall be entitled to all refunds of any taxes
described in (a)(i) above, together with any interest thereon, with respect to
CalComp or any of the CalComp Subsidiaries for any period ending on or prior to
December 31, 1995, and Summagraphics shall pay or cause to be paid to Lockheed
Martin any such refunds received.
ARTICLE X
TERMINATION, AMENDMENT, SURVIVAL OF
REPRESENTATIONS AND MISCELLANEOUS
10.1 Amendment. This Agreement may not be amended at any time except in
---------
writing signed by each of the Parties.
10.2 Termination. Notwithstanding any other provision to the contrary of
-----------
this Agreement, and notwithstanding the approval of this Agreement by the
stockholders of Summagraphics, this Agreement and the transactions contemplated
hereby may be terminated and the Exchange abandoned (without any obligation
(other than the payment of the fee contemplated by Section 4.4 in the event that
Summagraphics terminates this Agreement) by Lockheed Martin or Summagraphics to
renegotiate the Agreement) at any time prior to the Effective Date:
(a) By mutual consent of Summagraphics and Lockheed Martin; or
-40-
<PAGE>
(b) By Summagraphics or Lockheed Martin (provided that the terminating
Party is not then in material breach of any representation, warranty, covenant,
or other agreement contained in this Agreement) in the event of a material
breach by the other Party of any representation, warranty, covenant or other
agreement contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach; provided, however, that, for purposes of this Section
10.2(b), a material breach of a representation or warranty shall be deemed to
exist only if, when aggregated with all other such breaches, the breach has or
constitutes a Material Adverse Effect; or
(c) By either Party hereto if the Federal Trade Commission or the
Department of Justice, as the case may be, denied approval of the Exchange under
the HSR Act and the time period for all appeals or requests for reconsideration
has run;
(d) By either Summagraphics or Lockheed Martin in the event the
Closing has not occurred on or before June 15, 1996 or such later date as may be
established pursuant to Section 1.2, provided the failure to consummate the
Exchange is not caused by or does not result in any breach of the Agreement by
the Party electing to terminate; or
(e) By the Board of Directors of either Summagraphics or Lockheed
Martin (provided that the terminating Party is not then in material breach of
any representation, warranty, covenant or other agreement contained in this
Agreement) in the event that any of the conditions precedent to the obligations
of such Party to consummate the Exchange cannot be satisfied or fulfilled on or
before June 15, 1996 or such later date as may be established pursuant to
Section 1.2;
(f) By Summagraphics, if Lockheed Martin has not on or before the date
the Proxy Statement is first mailed to stockholders of Summagraphics delivered
written notice to Summagraphics that the conditions set forth in Section 7.3 has
been waived or satisfied;
(g) By Summagraphics if the holders of more than fifty percent of the
outstanding shares of Summagraphics Common Stock fail to vote in favor of the
transactions contemplated by this Agreement or the Fourth Amended and Restated
Articles of Incorporation;
(h) By the Board of Directors of Summagraphics if Summagraphics
receives an Acquisition Proposal which the Board of Directors of Summagraphics
determines in good faith in accordance with Paragraph 4.3 that it must consider,
and which Acquisition Proposal a majority of the full Board of Directors of
Summagraphics further determines to approve and to recommend to the stockholders
of Summagraphics for approval; provided however that, in that event,
Summagraphics pays to Lockheed Martin the fee contemplated by Section 4.4.
In the event of the termination of this Agreement and the abandonment of the
transactions contemplated by this Agreement
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<PAGE>
pursuant to this Paragraph 10.2, other than as otherwise expressly provided
herein, this Agreement shall become void and have no effect, without any
liability on the part of either Party or its directors, officers or
stockholders. Notwithstanding the foregoing, nothing contained in this Paragraph
10.2 shall relieve either Party from liability for any breach of this Agreement.
10.3 Survival of Representations and Covenants. Except for those
-----------------------------------------
provisions of this Agreement that by their terms survive the Closing, the
respective warranties, representations, obligations and agreements of the
Parties hereto shall not survive the Closing.
10.4 Expenses. Except as provided in Section 4.4 each party will pay its
--------
own fees and expenses, including the fees and expenses of accountants,
attorneys, investment advisors and other professionals, incurred in connection
with the negotiation of this Agreement and the consummation of the transactions
contemplated hereby, provided that CalComp shall pay (i) the filing fee
associated with the filings of the Parties under the HSR Act and (ii) the filing
fee of the SEC associated with the Proxy Statement. Notwithstanding the
foregoing, in the event that either Party breaches this Agreement and this
Agreement is thereafter terminated, that Party shall pay the reasonable fees and
expenses of third-party consultants, accountants and attorneys that are actually
incurred (including fees and expenses incurred by Summagraphics relating to the
fairness opinion contemplated by Section 3.1(w) and the filing fees to be paid
by CalComp pursuant to the proviso contained in the preceding sentence) by the
-------
non-terminating party in connection with the preparation and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
Notwithstanding the foregoing, in the event that Lockheed Martin terminates this
Agreement in breach of the terms hereof or Summagraphics terminates this
Agreement pursuant to Section 10.2(b), Lockheed Martin agrees to pay within five
days of receipt of a reasonably detailed statement from Summagraphics, the
reasonable fees and expenses of third party consultants, accountants and
attorneys which are actually incurred by Summagraphics in connection with the
preparation and delivery of this Agreement and the consummation of the
transactions contemplated hereby. The obligations of the Parties under this
Section will survive any termination of this Agreement pursuant to Section 10.2.
10.5 Notices. All notices, requests, demands and other communications
-------
under or connected with this Agreement shall be in writing and (a) if to
Summagraphics shall be addressed to 8500 Cameron Road, Austin, Texas 78754,
Attention: Robert B. Sims, Esquire, General Counsel, with copies to its
counsel, Hughes & Luce, L.L.P., 1717 Main Street, Suite 2800, Dallas, Texas
75201, Attention: Michael W. Tankersley, Esquire, and (b) if to Lockheed Martin
shall be addressed to 6801 Rockledge Drive, Bethesda, Maryland 20817,
Attention: Stephen M. Piper, Esquire, Assistant General Counsel, with a copy to
Lockheed Martin Information & Technology Services, 6801 Rockledge Drive,
Bethesda, Maryland 20817, Attention: Director of Finance and (c) if to CalComp
shall be addressed to 2411 West LaPalma Avenue, Anaheim, California 92801,
Attention: General Counsel.
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<PAGE>
10.6 Entire Agreement in Effect. This Agreement, including the Exhibits
--------------------------
and Schedules hereto (together with the Confidentiality Agreements), is intended
by the Parties to and does constitute the entire agreement of the Parties with
respect to the transactions contemplated hereunder. This Agreement including
the Exhibits and Schedules attached hereto supersedes any and all other prior
understandings and agreements between the Parties hereto (other than the
Confidentiality Agreements) and it may not be changed, waived, discharged or
terminated orally but only in writing by a party against which enforcement of
the change, waiver, or discharge or termination is sought.
10.7 General. The paragraph headings contained in this Agreement are for
-------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and the Exhibits attached
hereto may be executed simultaneously in two or more counterparts, each of which
shall be deemed an original, all of which shall become one and the same
instrument. This Agreement and the Exhibits attached hereto shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors; it shall not be assigned.
10.8 Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Maryland.
10.9 Counterparts. This Agreement and each of the exhibits or schedules
------------
hereto may be executed (by facsimile signature or otherwise) in two or more
counterparts, each of which shall constitute one and the same agreement.
-43-
<PAGE>
IN WITNESS WHEREOF, Lockheed Martin, CalComp and Summagraphics have caused
this Agreement to be duly executed by their respective chairmen or presidents
and their respective seals to be hereunto affixed and attested by their
respective secretaries thereunto duly authorized as of the date first written
above.
LOCKHEED MARTIN CORPORATION
By:___________________________
Peter B. Teets
President - Lockheed
Martin Information &
Technology Services Sector
CALCOMP INC.
By:___________________________
Gary Long
President
SUMMAGRAPHICS CORPORATION
By:___________________________
Michael S. Bennett
President and Chief Executive
Officer
-44-
<PAGE>
AMENDMENT NUMBER 1
to
================================================================================
Plan of Reorganization
and
Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation
by and among
Lockheed Martin Corporation,
a Maryland corporation,
CalComp Inc.,
a California corporation
and
Summagraphics Corporation,
a Delaware corporation
dated as of March 19, 1996
================================================================================
dated as of April 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. Definitions of Terms................................................................. 1
2. Material Adverse Effect.............................................................. 1
3. Backlog.............................................................................. 1
4. Rescission of Backlog and Material Adverse Effect Conditions to Closing.............. 1
5. MAE Variance......................................................................... 1
6. Backlog Variance..................................................................... 1
7. Modified Effect of a Change in Backlog or a Material Adverse Effect by
Summagraphics........................................................................ 2
8. Number of Additional Shares of Stock................................................. 2
9. Additional Obligations of Summagraphics.............................................. 2
A. WARN Notice.................................................................. 2
B. Summagraphics Personnel...................................................... 2
C. Transition Planning Access................................................... 2
D. Summachrome Purchase Orders.................................................. 2
E. Summajet Purchase Orders..................................................... 2
F. Large Format Digitizer Purchase Orders....................................... 2
G. Temporary Employees.......................................................... 2
H. Purchase Order Cancellation.................................................. 3
I. CO-OP Advertising............................................................ 3
10. Name Change.......................................................................... 3
11. Corresponding Changes to Other Agreements............................................ 3
12. All Other Terms Remain in Effect..................................................... 3
</TABLE>
<PAGE>
AMENDMENT NUMBER 1
to
PLAN OF REORGANIZATION AND AGREEMENT FOR THE
EXCHANGE OF STOCK OF CALCOMP INC. FOR STOCK OF
SUMMAGRAPHICS CORPORATION, DATED AS OF MARCH 19, 1996
This Amendment is made and entered into as of April 30, 1996 by and between
Lockheed Martin Corporation, a Maryland corporation; CalComp Inc., a California
corporation; and Summagraphics Corporation, a Delaware corporation.
RECITALS
WHEREAS, Lockheed Martin, CalComp and Summagraphics recognize that ongoing
operations of Summagraphics require modifications to the Plan of Reorganization
entered into by the parties as of March 19, 1996; and
WHEREAS, all parties agree to make and accept the following negotiated
changes to the Plan of Reorganization and related Exhibits and documents;
AND WHEREAS, this Amendment cancels and supercedes any prior Amendment
covering the same subject matter hereof;
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS OF TERMS. Capitalized terms shall have the same meaning as
defined in the Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc for Stock of Summagraphics Corporation by and among the parties
hereto dated as of March 19, 1996 (the "Plan of Reorganization").
2. MATERIAL ADVERSE EFFECT. The definition of Material Adverse Effect, as
defined in Paragraph 1.9(b) of the Plan of Reorganization, is amended by
deleting the words "$2,000,000 for Summagraphics" in line 6 and replacing them
with the words "$3,400,000 for Summagraphics".
3. BACKLOG. Committed Backlog, as used in this Amendment, shall mean the
Summagraphics Backlog (as defined in Paragraph 3.1(bb) of the Plan of
Reorganization) of $2,750,000, but the words "May 31, 1996" shall be deleted and
replaced with the words "the Closing Date."
4. RESCISSION OF BACKLOG AND MATERIAL ADVERSE EFFECT CONDITIONS TO CLOSING.
The parties hereby agree to delete Paragraphs 7.2 and 7.11 to the extent that
Summagraphics (i) failure to achieve a Material Adverse Effect less than the
amount specified in Paragraph 2 above, or (ii) having an actual backlog as of
the Closing Date less than the amount specified in Paragraph 3, above, would
otherwise constitute a Failure of a Condition Precedent to Closing.
5. MAE VARIANCE. The "MAE Variance" will be the amount by which the actual
Material Adverse Effect, as of the Closing, is different from the amount
specified in Paragraph 2. A positive variance is considered to be a variance in
favor of the Purchaser. For example, if the actual Material Adverse Effect is
$3,800,000 and the amount in paragraph 2 is $3,400,000, the MAE Variance is
- -$400,000. If the actual Material Adverse Effect as of the Closing is
$2,500,000, the MAE Variance would be +$900,000.
6. BACKLOG VARIANCE. The Backlog Variance will be the amount by which the
actual Backlog as
<PAGE>
of the Closing is different from the amount specified in Paragraph 3. A
positive variance is considered to be a variance in favor of the Purchaser. For
example, if the actual Backlog as of the Closing is $3,500,000 and the Backlog
Committed is $2,750,000, the Backlog Variance would be +$750,000. If the actual
Backlog as of the Closing is $2,000,000, the Backlog Variance would be
- -$750,000.
7. MODIFIED EFFECT OF A CHANGE IN BACKLOG OR A MATERIAL ADVERSE EFFECT BY
SUMMAGRAPHICS. The parties agree that if the sum of the Backlog Variance and
the MAE Variance is less than $0, any negative amount will result in
Summagraphics issuing additional stock above and beyond any stock issuance
otherwise provided for in the Plan of Reorganization.
8. NUMBER OF ADDITIONAL SHARES OF STOCK. Summagraphics will issue such number
of additional shares as is indicated by dividing the sum of the MAE Variance and
Backlog Variance, if negative, by the average closing prices, as reported in the
Wall Street Journal, -- NASDAQ National Market Issues, for the five days
preceding Closing, as specified in Paragraph 1.3 of the Plan of Reorganization.
The number of shares to be issued (to the nearest whole share) times the share
price above must equal the negative variance (if any), but in the event the sum
of the MAE and Backlog Variances is positive, the number of shares will not be
adjusted.
9. ADDITIONAL OBLIGATIONS OF SUMMAGRAPHICS.
A. WARN NOTICE. Summagraphics will give a WARN Notice to all necessary
recipients when directed by CalComp, but not sooner than May 1, 1996. At
the time of the WARN Notice, Summagraphics employees so notified shall
receive written notification of their full entitlement, including
severance.
B. SUMMAGRAPHICS PERSONNEL. Following the giving of the WARN Notice (unless
earlier agreed to by Summagraphics), Summagraphics will permit
reasonable CalComp access to Summagraphics employees for the purpose of
interviewing possible future employees and to make offers to selected
employees. Such requests will follow a reasonable Summagraphics
protocol.
C. TRANSITION PLANNING ACCESS. Summagraphics agrees to cooperate with
CalComp as reasonably necessary to support the transition planning
actions by CalComp relating to employees, customers, suppliers, lending
institutions, landlords, and others.
D. SUMMACHROME PURCHASE ORDERS. Summagraphics will refrain from issuing any
Purchase Orders effective with the date of this Amendment for support of
Summachrome production except as may be specifically agreed to in
writing by CalComp. This provision is not intended to restrict the
production or sale of such units prior to the Closing.
E. SUMMAJET PURCHASE ORDERS. Summagraphics will refrain from issuing any
Purchase Orders effective with the date of this Amendment for support of
Summajet production except as may be specifically agreed to in writing
by CalComp. This provision is not intended to restrict the production or
sale of such units prior to the Closing.
F. LARGE FORMAT DIGITIZER PURCHASE ORDERS. Summagraphics will refrain from
issuing any Purchase Orders for production after August 31, 1996 for
purchase of Large Format Digitizers except as may be specifically agreed
to in writing by CalComp. This provision is not intended to restrict the
production or sale of such units prior to the Closing.
G. TEMPORARY EMPLOYEES. Summagraphics will eliminate, to the greatest
extent reasonably possible, the use of temporary employees.
2
<PAGE>
H. PURCHASE ORDER CANCELLATION. Summagraphics will negotiate the
cancellation of Purchase Orders for Summajet, Summachrome and Large
Format Digitizers to result in a net savings as great as possible. This
provision is not intended to restrict the production or sale of such
units prior to the Closing.
I. CO-OP ADVERTISING. Summagraphics will eliminate, to the greatest extent
possible, all Co-operative Advertising expenses related to the Summajet
and Summachrome Product Lines. This provision is not intended to restrict
the production or sale of such units prior to the Closing.
10. NAME CHANGE. Effective as of the Closing, the name of Summagraphics
Corporation will be changed to "CalComp Technology, Inc." and the name of
CalComp Inc. will not be changed.
11. CORRESPONDING CHANGES TO OTHER AGREEMENTS. By this Amendment, the parties
hereby declare that all terms and conditions in the Plan of Reorganization, the
Exhibits, or any other agreement between the parties relating to matters covered
by this Amendment are deemed amended as necessary to conform to the provisions
of this Amendment.
12. ALL OTHER TERMS REMAIN IN EFFECT. Except as expressly provided herein, all
other terms and conditions in the Plan of Reorganization, its Exhibits, and all
other agreements between the parties remain unchanged and in effect.
IN WITNESS WHEREOF, Lockheed Martin, CalComp and Summagraphics have caused
this Agreement to be duly executed by their respective chairmen or presidents
and their respective seals to be hereunto affixed and attested by their
respective secretaries thereunto duly authorized as of the date first written
above.
LOCKHEED MARTIN CORPORATION
By:
--------------------------------------
Peter B. Teets
President - Lockheed
Martin Information &
Technology Services Sector
CALCOMP
By:
--------------------------------------
Gary Long
President
SUMMAGRAPHICS CORPORATION
By:
--------------------------------------
Michael S. Bennett
President and Chief Executive Officer
3
<PAGE>
AMENDMENT NUMBER 2
DATED AS OF JUNE 5, 1996
TO
PLAN OF REORGANIZATION
AND
AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
BY AND AMONG
LOCKHEED MARTIN CORPORATION,
A MARYLAND CORPORATION,
CALCOMP INC.,
A CALIFORNIA CORPORATION
AND
SUMMAGRAPHICS CORPORATION,
A DELAWARE CORPORATION
DATED AS OF MARCH 19, 1996
<PAGE>
AMENDMENT NUMBER 2
TO
PLAN OF REORGANIZATION AND AGREEMENT FOR THE
EXCHANGE OF STOCK OF CALCOMP INC. FOR STOCK OF
SUMMAGRAPHICS CORPORATION, DATED AS OF MARCH 19, 1996
This Amendment is made and entered into as of June 5, 1996 by and among
Lockheed Martin Corporation ("Lockheed Martin"), a Maryland corporation; CalComp
Inc. ("CalComp"), a California corporation; and Summagraphics Corporation
("Summagraphics"), a Delaware corporation.
RECITALS
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WHEREAS, on March 19, 1996, Lockheed Martin, CalComp and Summagraphics
(collectively, the "Parties") entered into the Plan of Reorganization and
Agreement for the Exchange of Stock of CalComp Inc. for Stock of Summagraphics
Corporation (the "Plan of Reorganization"); and
WHEREAS, on April 30, 1996, the Parties entered into Amendment Number 1 to
the Plan of Reorganization ("Amendment Number 1"), which amended certain
provisions thereto; and
WHEREAS, the Parties deem it necessary to modify further the Plan of
Reorganization, in light of recent operating results of CalComp and
uncontrollable delays in obtaining clearance of the Proxy and Information
Statement by the Securities and Exchange Commission; and
WHEREAS, the Parties have negotiated and accept the following changes to
the Plan of Reorganization as amended by Amendment Number 1 and the related
documents and Exhibits;
NOW, THEREFORE, the Parties hereby agree as follows:
AGREEMENT
---------
1. CAPITALIZED TERMS. Capitalized terms used herein shall have the
meanings assigned to such terms in the Plan of Reorganization as amended by
Amendment Number 1.
2. MATERIAL ADVERSE EFFECT. The definition of Material Adverse Effect, as
defined in Paragraph 1.9(b) of the Plan of Reorganization and amended by
Amendment Number 1, is hereby further amended by deleting the words "$15,000,000
for CalComp" in Line 6 and replacing them with the words "$25,500,000 for
CalComp."
3. RESCISSION OF MATERIAL ADVERSE EFFECT CONDITION TO CLOSING. The parties
hereby agree to delete paragraph 8.3 to the extent that CalComp's failure to
achieve a Material Adverse Effect
<PAGE>
less than the amount specified in Paragraph 2 above would otherwise constitute a
failure of a condition precedent to Closing.
4. REDUCTION OF SHARES OF SUMMAGRAPHICS COMMON STOCK. The parties hereby
agree that Section 1.10 is added to the Exchange Agreement to read as follows:
------------
"1.10 Reduction of Shares of Summagraphics Common Stock. The number of
-------------------------------------------------
shares of Summagraphics Common Stock to be issued to Lockheed Martin
pursuant to Section 1.3 shall be reduced by the CalComp MAE Variance (as
-----------
defined below) divided by the average closing prices of Summagraphics
Common Stock as reported in the Wall Street Journal -- NASDAQ National
-------------------
Market Issues for the five days preceding the Closing (rounded to the
nearest whole share). For purposes hereof, the term "CalComp MAE Variance"
shall mean the amount of the decrease, if any, in the consolidated
stockholders' equity of CalComp from December 31, 1995 to Closing that
exceeds $25,500,000."
5. TERM OF AGREEMENT. The term of the Plan of Reorganization is extended
through July 31, 1996, conditioned, however, upon Summagraphics obtaining the
consent of Silicon Valley Bank to such extension, which consent shall be on
terms and conditions acceptable to Lockheed Martin and CalComp. Accordingly,
all references to "June 15, 1996" in Paragraphs 1.2, 4.3 and 10.2 of the Plan of
Reorganization (as well as in the Exhibits and other documents related to the
Plan of Reorganization) shall be deleted and replaced with the date "July 31,
1996."
6. CORRESPONDING CHANGES TO OTHER AGREEMENTS. By this Amendment, the
Parties hereby declare that all terms and conditions in the Plan of
Reorganization, the Exhibits, and any other agreement between and among the
Parties relating to matters covered by this Amendment are deemed amended as
necessary to conform to the provisions of this Amendment.
7. EXTENSION OF CONVERTIBLE DEBENTURE. Upon receipt by Lockheed Martin
of a waiver and consent from Silicon Valley Bank in form satisfactory to
Lockheed Martin and CalComp, Lockheed Martin shall extend the date set forth in
Section 3.(iv) of the Convertible Debenture to a date coextensive with the date
set forth in Section 3 above.
8. CHANGES TO THE FOURTH AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF SUMMAGRAPHICS. The parties agree that Fourth Amended and
Restated Certificate of Incorporation of Summagraphics is amended as set forth
in Exhibit A attached hereto.
9. ALL OTHER TERMS REMAIN IN EFFECT. Except as expressly provided herein,
all other terms and conditions in the Plan of Reorganization, its Exhibits, and
all other agreements between and the Parties remain unchanged in effect.
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IN WITNESS WHEREOF, Lockheed Martin, CalComp and Summagraphics have caused
this Agreement to be duly executed by their respective chairmen or presidents
and their respective seals to be affixed hereto and attested by their respective
secretaries thereunto duly authorized as of the date first written above.
LOCKHEED MARTIN CORPORATION
By:___________________________
Peter B. Teets
President - Lockheed Martin
Information & Technology
Services Sector
CALCOMP INC.
By:___________________________
Gary Long
President
SUMMAGRAPHICS CORPORATION
By:___________________________
Michael S. Bennett
President and Chief Executive
Officer
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EXHIBIT 3.1
EXECUTION COPY
================================================================================
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMAGRAPHICS CORPORATION
Dated as of July 23, 1996
================================================================================
<PAGE>
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMAGRAPHICS CORPORATION
Summagraphics Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware, filed its Certificate of
Incorporation with the Secretary of State of the State of Delaware on June 29,
1972 under the name "Scriptographics Corporation". Desiring to amend its
Certificate of Incorporation, as heretofore amended, and to restate the same, as
amended, Summagraphics Corporation does hereby certify:
FIRST: That the Board of Directors of said Corporation, at a meeting
duly called at which a quorum was present and acting throughout, duly adopted a
resolution proposing and declaring advisable the amendment and restatement of
the Certificate of Incorporation of said Corporation as hereinafter set forth.
SECOND: That, thereafter, the stockholders of said Corporation, in a
manner and by the vote prescribed by Section 242 of the General Corporation Law
of the State of Delaware, voted in favor of the amendment and restatement.
THIRD: That this Fourth Amended and Restated Certificate of
Incorporation of Summagraphics Corporation has been duly adopted in accordance
with Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
FOURTH: That the Third Restated Certificate of Incorporation of
Summagraphics Corporation is hereby amended and restated in its entirety as
follows:
ARTICLE 1. The name of the corporation is CalComp Technology, Inc.
(hereinafter the "Corporation").
ARTICLE 2. The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE 3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of
Delaware.
<PAGE>
ARTICLE 4. The total number of shares of stock which the Corporation
shall have authority to issue is Sixty-Five Million (65,000,000), of which
Sixty Million (60,000,000) shares of the par value of one cent ($.01) per
share, amounting in the aggregate to Six Hundred Thousand Dollars
($600,000), shall be Common Stock, and Five Million (5,000,000) shares of
the par value of one cent ($.01) per share, amounting in the aggregate to
Fifty Thousand Dollars ($50,000), shall be Preferred Stock. A description
of the respective classes of stock and a statement of the designations,
preferences, voting powers (or no voting powers), relative participating,
optional or other special rights and privileges and the qualifications,
limitations and restrictions of the Preferred Stock and Common Stock are as
follows:
(a) Preferred Stock
---------------
The Preferred Stock may be issued in one or more series at such
time or times and for such consideration or considerations as the
Board of Directors may determine. Each series shall be so
designated as to distinguish the shares thereof from the shares
of all other series and classes. The Board of Directors is
expressly authorized, subject to the limitations prescribed by
law and the provisions of this Fourth Amended and Restated
Certificate of Incorporation, to provide for the issuance of all
or any shares of the Preferred Stock in one or more series, each
with such designations, preferences, voting powers (or no voting
powers), relative, participating, optional or other special
rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or
resolutions adopted by the Board of Directors to create such
series, and a certificate setting forth said resolution or
resolutions shall be filed in accordance with the General
Corporation Law of the State of Delaware. The authority of the
Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to
provide that the shares of each such series may be: (i) subject
to redemption, at the option of either the holder or the
Corporation or upon the happening of a specified event, at such
time or times and at such price or prices; (ii) entitled to
receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in
preference to, or in such relation
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to, the dividends payable on any other class or classes or any
other series; (iii) entitled to such rights upon the dissolution
of, or upon any distribution of the assets of, the Corporation;
(iv) convertible into, or exchangeable for, at the option of
either the holder or the Corporation or the happening of a
specified event, shares of any other class or classes of stock,
or of any other series of the same or any other class or classes
of stock of the Corporation at such price or prices or at such
rates of exchange and with such adjustments, if any; (v) entitled
to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of
Preferred Stock; or (vi) entitled to such other preferences,
powers, qualifications, rights and privileges, all as the Board
of Directors may deem advisable and as are not inconsistent with
law or the provisions of this Fourth Amended and Restated
Certificate of Incorporation.
(b) Common Stock
------------
Except as otherwise required by law, this Fourth Amended and
Restated Certificate of Incorporation, or as otherwise provided
for in any resolutions of the Board of Directors providing for
the issuance of shares of Preferred Stock in one or more series,
the holders of the Common Stock, voting together as a single
class with the holders of the Preferred Stock, if any, shall
possess all of the voting power. Each holder of Common Stock
shall be entitled to one vote for each share held. The
Corporation shall not have cumulative voting.
ARTICLE 5. The Corporation is to have perpetual existence.
ARTICLE 6. The Board of Directors of the Corporation shall be
comprised of seven members or such other number of members as is determined
by the Board of Directors of the Corporation in accordance with the Bylaws.
ARTICLE 7. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware:
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(a) The Board of Directors of the Corporation is expressly authorized
to adopt, amend or repeal the Bylaws of the Corporation.
(b) Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
(c) The books of the Corporation may be kept at such place within or
without the State of Delaware as the Bylaws of the Corporation
may provide or as may be designated from time to time by the
Board of Directors of the Corporation.
ARTICLE 8. (a) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, any person who was or is made or is threatened to be made a party
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of
the fact that such person, or a person for whom such person is the legal
representative, is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, trust, enterprise
or nonprofit entity, including service with respect to employee benefit
plans (an "indemnitee"), against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such
indemnitee. The Corporation shall be required to indemnify an indemnitee
in connection with a proceeding (or part thereof) initiated by such
indemnitee only if the initiation of such proceeding (or part thereof) by
the indemnitee was authorized by the Board of Directors of the Corporation.
(b) Notwithstanding the foregoing subparagraph (a), a director or
officer of the Corporation shall only be indemnified with respect
to a criminal action or proceeding, if at all, if the director or
officer had no reasonable cause to believe the conduct giving
rise to such action or proceeding was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create the presumption that such person did
not act in good faith and in a manner such person believed to be
in or not opposed to the best interests of the Corporation and,
with respect to a criminal action or proceeding, shall not
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<PAGE>
create the presumption that such person had reasonable cause to
believe that the conduct giving rise to such action or proceeding
was unlawful.
(c) Any and all indemnifications (except those ordered by a court)
shall be made by the Corporation only as authorized in the
specific case upon a determination that the indemnification of
the director or officer is proper under the circumstances. The
determination of the propriety of indemnification in a specific
case shall be made upon the affirmative vote of a majority of the
directors who are not parties to the action, suit or proceeding,
even if such directors comprise less than a quorum. In the event
there are no such directors, or if such directors so direct, the
determination shall be made by independent legal counsel in a
written opinion or by the stockholders.
(d) The Corporation may, in the discretion of the majority of the
Board of Directors who are not parties to the action, suit or
proceeding, to pay expenses and legal fees incurred by a director
or officer in defending any civil, criminal, administrative or
investigative action in advance of its final disposition upon an
undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that the
director or officer is not entitled to be indemnified by the
Corporation.
(e) The Corporation is hereby authorized to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or was serving at
the request of the Corporation as a director, officer, employee
or agent of another corporation or other enterprise against any
liability asserted against the director, officer, employee or
agent and incurred by such person in any such capacity, or
arising out of the director, officer, employee or agent's status
as such, whether or not the Corporation would have the power to
indemnify such person against liability under the law of the
applicable jurisdiction.
ARTICLE 9. (a) Upon the consummation of the Plan of Reorganization
and Agreement for the Exchange of Stock of CalComp Inc. for Stock of
Summagraphics Corporation, as
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amended, pursuant to which Lockheed Martin Corporation ("Lockheed Martin")
will exchange 100% of the issued and outstanding Common Stock of CalComp
Inc. for approximately 89.7% of the then-issued and outstanding Common
Stock of the Corporation, Lockheed Martin will own shares of the
outstanding Common Stock of the Corporation, which represents a controlling
interest in the Corporation. As used herein, "Lockheed Martin" includes
Lockheed Martin and each corporation, partnership, joint venture, limited
liability company, association and other entity in which the Corporation
beneficially owns (directly or indirectly) fifty percent (50%) or more of
the outstanding common stock of such corporation or, if not a corporation,
equity interests entitled to vote generally in the election of the
governing body of such entity. In anticipation that the Corporation and
Lockheed Martin may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities,
and in recognition of (i) the benefits to be derived by the Corporation
through its continued contractual, corporate and business relations with
Lockheed Martin (including service of officers, directors and employees of
Lockheed Martin as directors of the Corporation) and (ii) the difficulties
attendant to any director, who desires and endeavors fully to satisfy such
director's fiduciary duties, in determining the full scope of such duties
in any particular situation, the provisions of this Article 9 are set forth
to regulate, define and guide, to the extent permitted by law, the conduct
of certain affairs of the Corporation as they may involve Lockheed Martin
and its officers, directors and employees, and the powers, rights, duties
and liabilities of the Corporation and its officers, directors, employees
and stockholders in connection therewith; provided, however, except as
expressly set forth herein, nothing contained in this Article 9 shall
limit, restrict or relieve the powers, rights, duties and liabilities of
the Corporation and its officers, directors, employees and stockholders.
(b) To the fullest extent permitted by the General Corporation Law of
the State of Delaware, except as Lockheed Martin may otherwise agree in
writing, Lockheed Martin shall have the right to (i) engage in the same or
similar business activities or lines of business as the Corporation and
(ii) do business with any client or customer of the Corporation, and
Lockheed Martin shall have no duty to refrain from engaging in such
business activities or to refrain from doing business with such clients and
customers. To the fullest extent permitted by the General Corporation Law
of the State of Delaware, neither Lockheed Martin nor any officer, director
or employee thereof (except as provided in subparagraph (c)
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of this Article 9) shall be liable to the Corporation or its stockholders
for breach of any duty which is owed or may be owed to the Corporation by
reason of any such activities of Lockheed Martin or of such person's
participation therein. To the fullest extent permitted by the General
Corporation Law of the State of Delaware, in the event that Lockheed Martin
acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both Lockheed Martin and the Corporation, other
than from the Corporation, Lockheed Martin shall have no duty to
communicate or present such corporate opportunity to the Corporation and
shall not be liable to the Corporation or its stockholders for breach of
any duty as a stockholder of the Corporation by reason of the fact that
Lockheed Martin pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person or entity, or does not
present such corporate opportunity to the Corporation.
(c) In the event that a director, officer or employee of the
Corporation who is also a director, officer or employee of Lockheed Martin
acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both the Corporation and Lockheed Martin, such
director or officer of the Corporation shall act in good faith in a manner
consistent with the following policy:
(i) a corporate opportunity offered to any person who is a
director, officer or employee of the Corporation and who is
also a director but not an officer or employee of Lockheed
Martin shall belong to the Corporation, unless such
opportunity is expressly offered to such person primarily in
his or her capacity as a director of Lockheed Martin, in
which case such opportunity shall belong to Lockheed Martin;
(ii) a corporate opportunity offered to any person who is a
director but not an officer or employee of the Corporation
and who is also a director, officer or employee of Lockheed
Martin shall belong to Lockheed Martin, unless such
opportunity is expressly offered to such person primarily in
his or her capacity as a director of the Corporation or he
or she became aware of it in the course of the performance
of his or her duties on behalf of the Corporation, in which
case such opportunity shall belong to the Corporation; and
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(iii) a corporate opportunity offered to any other person who is
either (A) an officer or employee of both the Corporation
and Lockheed Martin or (B) a director of both the
Corporation and Lockheed Martin (but an officer or employee
of neither the Corporation nor Lockheed Martin) shall belong
to Lockheed Martin or to the Corporation, as the case may
be, if such opportunity is expressly offered to such person
primarily in his or her capacity, or he or she became aware
of it in the course of the performance of his or her duties
on behalf of the Corporation, as an officer, employee or
director of Lockheed Martin or of the Corporation, as the
case may be; otherwise, such opportunity shall belong to
either Lockheed Martin or the Corporation as a majority of
the directors of the Corporation who are not officers or
employees of either Lockheed Martin or the Corporation or
directors of Lockheed Martin shall determine in their good
faith judgment, taking into account all the facts and
circumstances with respect to such opportunity.
(d) For the purposes of this Article 9, "corporate opportunities"
shall not include any business opportunities that the Corporation is not
financially able to undertake, or that are, from their nature, not in the
ordinary business of the Corporation or are of no practical advantage to it
or that are ones in which the Corporation has no interest or reasonable
expectancy. In addition, "corporate opportunities" shall not include any
transactions in which the Corporation or its subsidiaries are permitted to
participate pursuant to any services agreement or any other agreement
(which may be adopted, amended or repealed from time to time by the vote of
a majority of the disinterested directors) between Lockheed Martin and the
Corporation (each such agreement is referred to herein as a "Services
Agreement"), it being acknowledged that the rights of the Corporation under
any such Services Agreement shall be deemed for all purposes to be
contractual rights and shall not be corporate opportunities of the
Corporation for any purpose; provided, however, that the absence of any
such Services Agreement, or the absence of any provisions in a Services
Agreement relating to any particular transactions or types of transactions,
shall not support any inferences or implications or have any effect
whatsoever on transactions not explicitly covered by a Services Agreement.
(e) Any person or entity that currently owns, hereafter purchases or
hereafter otherwise acquires any interest in any
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shares of capital stock of the Corporation shall be deemed to have notice
of and to have consented to the provisions of this Article 9.
(f) For purposes of this Article 9, the "Corporation" shall mean the
Corporation and each corporation, partnership, joint venture, limited
liability company, association and other entity in which the Corporation
beneficially owns (directly or indirectly) fifty percent (50%) or more of
the outstanding common stock of such corporation or, if not a corporation,
equity interests entitled to vote generally in the election of the
governing body of such entity.
ARTICLE 10. (a) In anticipation that (i) the Corporation and Lockheed
Martin or its customers (or other persons acquiring products manufactured
or distributed by Lockheed Martin) may enter into contracts or otherwise
transact business with each other and that the Corporation may derive
benefits therefrom and (ii) the Corporation may from time to time enter
into contractual, corporate or business relations with one or more of its
directors, or one or more corporations, partnerships, associations or other
organizations in which one or more of its directors have a financial
interest or are affiliated with (collectively "Related Entities"), the
provisions of this Article 10 are set forth to regulate and guide certain
contractual relations and other business relations of the Corporation as
they may involve Lockheed Martin or its customers (or other persons
acquiring products manufactured or distributed by Lockheed Martin), Related
Entities and their respective officers and directors, and the powers,
rights, duties and liabilities of the Corporation and its officers,
directors and stockholders in connection therewith. The provisions of this
Article 10 are in addition to, and not in limitation of, the provisions of
the General Corporation Law of the State of Delaware and the other
provisions of this Fourth Amended and Restated Certificate of
Incorporation. Any contract or business relation that does not comply with
procedures set forth in this Article 10 shall not by reason thereof be
deemed void or voidable or result in any breach of any duty or the
derivation of any improper personal benefit but shall be governed by the
provisions of this Fourth Amended and Restated Certificate of
Incorporation, the Bylaws of the Corporation, the General Corporation Law
of the State of Delaware and other applicable law.
(b) Directors of the Corporation who are also directors or officers of
Lockheed Martin or any Related Entity may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a
committee thereof that authorizes, approves or ratifies any contract,
agreement, arrangement or transaction or any arrangements, guidelines or
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standards. Voting shares owned by Lockheed Martin, any Related Entities,
or such interested party may be counted in determining the presence of a
quorum at a meeting of stockholders that authorizes, approves or ratifies
any contract, agreement, arrangement or transaction or any arrangements,
guidelines or standards.
(c) To the fullest extent permitted by law, Lockheed Martin shall not
be liable to the Corporation or its stockholders for breach of any duty by
reason of the fact that Lockheed Martin in good faith takes any action or
exercises any rights or gives or withholds any consent in connection with
any agreement or contract between Lockheed Martin and the Corporation. No
vote cast or other action taken by any person who is an officer, director
or other representative of Lockheed Martin, which vote is cast or action is
taken by such person in his or her capacity as a director of the
Corporation, shall constitute an action of or the exercise of a right by or
a consent of Lockheed Martin for the purpose of any such agreement or
contract.
(d) Any person or entity that currently owns, hereafter purchases or
hereafter otherwise acquires any interest in any shares of capital stock of
the Corporation shall be deemed to have notice of and to have consented to
the provisions of this Article 10.
(e) For purposes of this Article 10, any contract, agreement,
arrangement or transaction with any corporation, partnership, joint
venture, limited liability company, association or other entity in which
the Corporation beneficially owns (directly or indirectly) fifty percent
(50%) or more of the outstanding voting power, or with any officer or
director thereof, shall be deemed to be a contract, agreement, arrangement
or transaction with the Corporation.
ARTICLE 11. A director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended. If the General Corporation Law of the State of
Delaware is amended after the effective date of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or
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protection of a director of the Corporation existing hereunder with respect
to any act or omission occurring prior to such repeal or modification.
ARTICLE 12. The Corporation shall not be governed by the provisions
of Section 203 of the General Corporation Law of the State of Delaware or
by any similar law restricting business combinations with an Interested
Stockholder, as defined in such Section 203.
ARTICLE 13. The Corporation reserves the right to amend or repeal any
provision contained in this Fourth Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon a stockholder herein are granted subject to this
reservation.
IN WITNESS WHEREOF, Summagraphics Corporation has caused this certificate
to be signed by Michael S. Bennett, its duly authorized President and Chief
Executive Officer, and attested by Robert B. Sims, its duly authorized
Secretary, this 23rd day of July, 1996.
ATTEST: CALCOMP TECHNOLOGY, INC.
______________________________ By:___________________________
Robert B. Sims Michael S. Bennett
Secretary President and Chief Executive
Officer
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EXHIBIT 3.2
By-Laws of
CalComp Technology, Inc.
(formerly, Summagraphics Corporation)
A Delaware Corporation
Restated and Amended on:
July 23, 1996
<PAGE>
TABLE OF CONTENTS
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Page
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ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings........................................ 1
Section 2. Annual Meeting........................................... 1
Section 3. Special Meetings......................................... 1
Section 4. Notice of Meetings....................................... 1
Section 5. Voting List.............................................. 2
Section 6. Quorum................................................... 2
Section 7. Adjournments............................................. 2
Section 8. Action at Meetings....................................... 2
Section 9. Voting and Proxies....................................... 2
Section 10. Action Without Meeting................................... 3
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification............... 3
Section 2. Enlargement.............................................. 3
Section 3. Vacancies................................................ 3
Section 4. Resignation and Removal.................................. 4
Section 5. General Powers........................................... 4
Section 6. Chairman of the Board.................................... 4
Section 7. Place of Meetings........................................ 4
Section 8. Regular Meetings......................................... 4
Section 9. Special Meetings......................................... 4
Section 10. Quorum, Action at Meeting, Adjournments.................. 5
Section 11. Action by Consent........................................ 5
Section 12. Telephonic Meetings...................................... 5
Section 13. Committees............................................... 5
Section 14. Compensation............................................. 6
ARTICLE III
OFFICERS
Section 1. Enumeration.............................................. 6
Section 2. Election................................................. 7
Section 3. Tenure................................................... 7
Section 4. President................................................ 7
Section 5. Vice-Presidents.......................................... 7
Section 6. Secretary................................................ 8
Section 7. Assistant Secretaries.................................... 8
Section 8. Treasurer................................................ 8
Section 9. Assistant Treasurers..................................... 9
Section 10. Bond..................................................... 9
</TABLE>
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<TABLE>
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ARTICLE IV
NOTICES
Section 1. Delivery................................................. 9
Section 2. Waiver of Notice......................................... 9
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by or in the Right of
the Corporation.......................................... 10
Section 2. Actions by or in the Right of the Corporation............ 10
Section 3. Success on the Merits.................................... 11
Section 4. Specific Authorization................................... 11
Section 5. Advance Payment.......................................... 11
Section 6. Non-Exclusivity.......................................... 11
Section 7. Insurance................................................ 11
Section 8. Continuation of Indemnification and
Advancement of Expenses................................. 12
Section 9. Severability............................................. 12
Section 10. Intent of Article........................................ 12
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock.................................... 12
Section 2. Lost Certificates........................................ 12
Section 3. Transfer of Stock........................................ 13
Section 4. Record Date.............................................. 13
Section 5. Registered Stockholders.................................. 13
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties..................... 14
Section 2. Quorum................................................... 14
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends................................................ 15
Section 2. Reserves................................................. 15
Section 3. Checks................................................... 15
Section 4. Fiscal Year.............................................. 15
Section 5. Seal..................................................... 15
ARTICLE IX
AMENDMENTS
</TABLE>
<PAGE>
CalComp Technology, Inc.
* * * * *
BY-LAWS
* * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
-----------------
be held at such place within or without the State of Delaware as may be fixed
from time to time by the board of directors or the chief executive officer, or
if not so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
--------------
held on the third Tuesday in April in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time by the board of
directors or the chief executive officer, at which meeting the stockholders
shall elect by a plurality vote a board of directors and shall transact such
other business as may properly be brought before the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient,
which meeting shall be designated a special meeting in lieu of annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes, may, unless otherwise prescribed by statute or by
the certificate of incorporation, be called by the board of directors or the
chief executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning 10% in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
------------------
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
<PAGE>
Section 5. Voting List. The officer who has charge of the stock
-----------
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or town where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. Subject to the provisions of the Certificate of
------
Incorporation, the holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise provided by statute, the certificate of
incorporation or these by-laws.
Section 7. Adjournments. Any meeting of stockholders may be
------------
adjourned from time to time to any other time and to any other place at which a
meeting of stockholders may be held under these by-laws, which time and place
shall be announced at the meeting, by a majority of the stockholders present in
person or represented by proxy at the meeting and entitled to vote, though less
than a quorum, or, if no stockholder is present or represented by proxy, by any
officer entitled to preside at or to act as secretary of such meeting, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any
------------------
meeting, the vote of the holders of a majority of the stock present in person or
represented by proxy and entitled to vote on the question shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of law, the certificate of incorporation or these by-laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 9. Voting and Proxies. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder
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<PAGE>
shall at every meeting of the stockholders be entitled to one vote for each
share of capital stock having voting power held of record by such stockholder.
Each stockholder entitled to vote at a meeting of stockholders, or to express
consent or dissent to corporate action in writing without a meeting, may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
Section 10. Action Without Meeting. Any action required to be taken
----------------------
at any annual or special meeting of stockholders, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. As provided
------------------------------------------
in the Certificate of Incorporation, the number of directors which shall
constitute the whole board shall be seven (7) or such other number of directors
as is determined by resolution of the board of directors or by the stockholders
at the annual meeting or at any special meeting of stockholders. The directors
shall be elected at the annual meeting or at any special meeting of the
stockholders, except as provided in Section 3 of this Article, and each director
elected shall hold office until his successor is elected and qualified, unless
sooner displaced. Directors need not be stockholders.
Section 2. Enlargement. The number of the board of directors may be
-----------
increased at any time by vote of a majority of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directorships
---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, by a
sole remaining director or by the stockholders at the annual or any special
meeting of stockholders or by written consent in lieu thereof, and the directors
so chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. In the event of a vacancy in the
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<PAGE>
board of directors, the remaining directors, except as otherwise provided by law
or these by-laws, may exercise the powers of the full board until the vacancy is
filled.
Section 4. Resignation and Removal. Any director may resign at any
-----------------------
time upon written notice to the corporation at its principal place of business
or to the chief executive officer or secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event. Any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the
--------------
corporation shall be managed by its board of directors, which may exercise all
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
Section 6. Chairman of the Board. If the board of directors appoints
---------------------
a chairman of the board, such chairman shall, when present, preside at all
meetings of the stockholders and the board of directors. He shall perform such
duties and possess such powers as are customarily vested in the office of the
chairman of the board or as may be vested in him by the board of directors.
Section 7. Place of Meetings. The board of directors may hold
-----------------
meetings, both regular and special, either within or without the State of
Delaware.
Section 8. Regular Meetings. Regular meetings of the board of
----------------
directors shall be held quarterly on the third Tuesday of the month following
the calendar quarter end, or at such other time as the board of directors shall
determine. Regular meetings of the board of directors may be held without
notice of the time of such meetings; provided that, if regular meetings are held
at some time other than the third Tuesday of the month following the calendar
quarter end, any director who is absent when the determination of the meeting
time and place is made shall be given prompt notice of such determination. A
regular meeting of the board of directors may be held without notice immediately
after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be
----------------
called by the chief executive officer, secretary, or on the written request of
two or more directors, or by one director in the event that there is only one
director in office. Two days' notice to each director, either personally or by
telegram, cable, telecopy, commercial delivery service, telex or
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<PAGE>
similar means sent to his business or home address, or three days' notice by
written notice deposited in the mail, shall be given to each director by the
secretary or by the chief executive officer or one of the directors calling the
meeting. A notice or waiver of notice of a meeting of the board of directors
need not specify the purposes of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings
---------------------------------------
of the board a majority of directors then in office, but in no event less than
one third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these by-laws; provided, however, that if
less than all the number so fixed of directors were elected, the "entire board"
shall mean the greatest number of directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
-----------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
-------------------
certificate of incorporation or these by-laws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution
----------
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise
-5-
<PAGE>
all the powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws of the corporation; and, unless the resolution
designating such committee or the certificate of incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the board of directors. Each committee shall keep regular
minutes of its meetings and make such reports to the board of directors as the
board of directors may request. Except as the board of directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
by-laws for the conduct of its business by the board of directors.
Section 14. Compensation. Unless otherwise restricted by the
------------
certificate of incorporation or these by-laws, the board of directors shall have
the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid for the performance of their
responsibilities as directors. The directors may be paid a fixed sum for
attendance at each meeting of the board of directors and/or a stated salary as
director. No such payment shall preclude any director from serving the
corporation or its parent or subsidiary corporations in any other capacity and
receiving compensation therefor. The board of directors may also allow
compensation for members of special or standing committees for service on such
committees.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be
-----------
chosen by the board of directors and shall be a president, a secretary and a
treasurer and such other officers with such titles, terms of office and duties
as the board of directors may from time to time determine, including a chairman
of the board, one or more vice-presidents, and one or more assistant secretaries
and assistant treasurers. If authorized by resolution of the board of
directors, the chief executive officer may be empowered to appoint from time to
time assistant secretaries and assistant treasurers. Any number of offices may
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<PAGE>
be held by the same person, unless the certificate of incorporation or these by-
laws otherwise provide.
Section 2. Election. The board of directors at its first meeting
--------
after each annual meeting of stockholders shall choose a president, a secretary
and a treasurer. Other officers may be appointed by the board of directors at
such meeting, at any other meeting, or by written consent.
Section 3. Tenure. Each officer of the corporation shall hold office
------
until his or her successor is chosen and qualifies, unless a different term is
specified in the vote choosing or appointing him or her, or until his or her
earlier death, resignation or removal. Any officer elected or appointed by the
board of directors or by the chief executive officer may be removed at any time
by the affirmative vote of a majority of the board of directors or a committee
duly authorized to do so, except that any officer appointed by the chief
executive officer may also be removed at any time by the chief executive
officer. Any vacancy occurring in any office of the corporation may be filled
by the board of directors, at its discretion. Any officer may resign by
delivering his written resignation to the corporation at its principal place of
business or to the chief executive officer or the secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
Section 4. President. The president shall be the chief operating
---------
officer of the corporation and shall also be the chief executive officer unless
the board of directors otherwise provides. The president shall, unless the
board of directors provides otherwise in a specific instance or generally,
preside at all meetings of the stockholders and the board of directors, have
general and active management of the business of the corporation and see that
all orders and resolutions of the board of directors are carried into effect.
The president shall execute bonds, mortgages, and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
Section 5. Vice-Presidents. In the absence of the president or in
---------------
the event of his inability or refusal to act, the vice-president, or if there be
more than one vice-president, the vice-presidents in the order designated by the
board of directors or the chief executive officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The vice-
presidents shall perform such other duties and have such other powers as the
board
-7-
<PAGE>
of directors or the chief executive officer may from time to time prescribe.
Section 6. Secretary. The secretary shall have such powers and
---------
perform such duties as are incident to the office of secretary. The secretary
shall maintain a stock ledger and prepare lists of stockholders and their
addresses as required and shall be the custodian of corporate records. The
secretary shall attend all meetings of the board of directors and all meetings
of the stockholders and record all the proceedings of the meetings of the
corporation and of the board of directors in a book to be kept for that purpose
and shall perform like duties for the standing committees when required. The
secretary shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
such other duties as may be from time to time prescribed by the board of
directors or chief executive officer, under whose supervision the secretary
shall be. The secretary shall have custody of the corporate seal of the
corporation and the secretary, or an assistant secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by the secretary's signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by such
signature.
Section 7. Assistant Secretaries. The assistant secretary, or if
---------------------
there be more than one, the assistant secretaries in the order determined by the
board of directors, the chief executive officer or the secretary (or if there by
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the secretary or in the event of the secretary's
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors, the chief executive officer or the secretary may from time
to time prescribe. In the absence of the secretary or any assistant secretary
at any meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary or acting secretary to keep a record of the meeting.
Section 8. Treasurer. The treasurer shall perform such duties and
---------
shall have such powers as may be assigned by the board of directors or the chief
executive officer. In addition, the treasurer shall perform such duties and
have such powers as are incident to the office of treasurer. The treasurer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the board of directors. The treasurer shall disburse the funds of the
corporation as may be ordered by the board of directors,
-8-
<PAGE>
taking proper vouchers for such disbursements, and shall render to the chief
executive officer and the board of directors, when the chief executive officer
or board of directors so requires, an account of all transactions as treasurer
and of the financial condition of the corporation.
Section 9. Assistant Treasurers. The assistant treasurer, or if
--------------------
there shall be more than one, the assistant treasurers in the order determined
by the board of directors, the chief executive officer or the treasurer (or if
there by no such determination, then in the order determined by their tenure in
office), shall, in the absence of the treasurer or in the event of his inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors, the chief executive officer or the treasurer may from time to time
prescribe.
Section 10. Bond. If required by the board of directors, any officer
----
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of his or her office and for the restoration to the corporation of
all books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of
--------
the certificate of incorporation or these by-laws, written notice is required to
be given by mail, addressed to such director or stockholder, at his or her
address as it appears on the records of the corporation, with postage thereon
prepaid, such notice shall be deemed to be given at the time when the same shall
be deposited in the United States mail. Unless written notice by mail is
required by law, written notice may also be given by telegram, cable, telecopy,
commercial delivery service, telex or similar means, addressed to such director
or stockholder at his or her address as it appears on the records of the
corporation, in which case such notice shall be deemed to be given when
delivered into the control of the persons charged with effecting such
transmission, the transmission charge to be paid by the corporation or the
person sending such notice and not by the addressee. Oral notice or other in-
hand delivery (in person or by telephone) shall be deemed given at the time it
is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be
----------------
given under the provisions of law or of the certificate of incorporation or of
these by-laws, a waiver
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<PAGE>
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation.
--------------------------------------------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by that person in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The
---------------------------------------------
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection with the defense or settlement of such action or suit
if he or she acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
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<PAGE>
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which the Court of Chancery of the State of
Delaware or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person
---------------------
described in Section 1 or 2 of this Article V has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section
----------------------
1 or 2 of this Article V (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in said Sections. Such determination shall be made (1) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders of the corporation.
Section 5. Advance Payment. Expenses incurred in defending a civil
---------------
or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of any person described in said Section to
repay such amount if it shall ultimately be determined that he or she is not
entitled to indemnification by the corporation as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification and advancement of
---------------
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which those provided
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office.
Section 7. Insurance. The board of directors may authorize, by a
---------
vote of the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
and incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to
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<PAGE>
indemnify that person against such liability under the provisions of this
Article V.
Section 8. Continuation of Indemnification and Advancement of
--------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by, or
- --------
granted pursuant to, this Article V shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 9. Severability. If any word, clause or provision of this
------------
Article V or any award made hereunder shall for any reason be determined to be
invalid, the remaining provisions hereof shall not otherwise be affected thereby
but shall remain in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to
-----------------
provide for indemnification and advancement of expenses to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware. To the
extent that such Section or any successor section may be amended or supplemented
from time to time, this Article V shall be amended automatically and construed
so as to permit indemnification and advancement of expenses to the fullest
extent from time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the
---------------------
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him or her in the corporation. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue. Certificates may be issued
for partly paid shares and in such case upon the face or back of the
certificates issued to represent any such partly paid shares, the total amount
of the consideration to be paid therefor, and the amount paid thereon shall be
specified.
Section 2. Lost Certificates. The board of directors may direct a
-----------------
new certificate or certificates to be issued in place of any certificate or
certificates, theretofore issued by the corporation alleged to have been lost,
stolen or destroyed.
-12-
<PAGE>
When authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to give reasonable evidence of
such loss, theft or destruction, to advertise the same in such manner as it
shall require or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed or the
issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the corporation or
-----------------
the transfer agent of the corporation of a certificate for shares, duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Record Date. In order that the corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty days nor less then ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting. If no record date is fixed, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day before the day on
which notice is given, or, if notice is waived, at the close of business on the
day before the day on which the meeting is held. The record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the board of directors is
necessary, shall be the day on which the first written consent is expressed.
The record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating to such purpose.
Section 5. Registered Stockholders. The corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for
-13-
<PAGE>
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
------------------------------------
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof
which authorizes the contract or transaction or solely because his or her or
their votes are counted for such purpose, if:
(a) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even thought the disinterested
directors be less than a quorum; or
(b) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors,
a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be counted in
------
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
-14-
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
---------
corporation, if any, may be declared by the board of directors at any regular or
special meeting or by written consent, pursuant to law. Dividends may be paid
in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
Section 2. Reserves. The directors may set apart out of any funds of
--------
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
-----------
fixed by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution, adopt a
----
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
ARTICLE IX
AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may
be adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such meeting.
-15-
<PAGE>
EXHIBIT 10.32
(215) 851-8126
March 7, 1996
Summagraphics Corporation
60 Silvermine Road
Seymour, CT 06483
RE: Lease Agreement dated May 28, 1992
between QRS 10-12(TX), Inc. and ORS
11-5(TX), Inc., as Landlord, and
Summagraphics Corporation, as Tenant,
as Modified by Letter Agreements dated
March 16, 1993, August 27, 1993 and
April 12, 1995
--------------------------------------
Gentlemen:
Reference is hereby made to the above-referenced lease (the "Lease").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Lease (including all exhibits thereto).
Effective as of December 1, 1995, the Lease is hereby amended as
follows:
1. Paragraph 1 of Exhibit D to the Lease is amended by adding the
following paragraphs thereto:
"The monthly installments of Basic Rent due and payable for each month
from and including December, 1995 to and including September, 1996 shall be
reduced by $10,000 and shall equal $62,643.50 for each such month. Tenant
acknowledges it has not paid Basic Rent for the months of August and September
1995 due and payable on the Basic Rent Payment Dates of August 1, 1995 and
September 1, 1995. Tenant agrees to pay Landlord in respect of Basic Rent due
for August and September 1995 for such Basic Rent Payment Dates an amount equal
to $50,521, payable as follows: (I) one-half on January 1, 1996 and (II) one-
half on February 1, 1996."
"Tenant acknowledges that failure by it to pay to full amount of Basic
Rent (as adjusted by the preceding paragraph) due on any Basic Rent Payment Date
or as otherwise set forth in the preceding paragraph hereof shall void such
preceding paragraph and Tenant shall thereafter be liable to Landlord for (a)
Basic Rent for the period of December, 1995 to and including September, 1996
<PAGE>
Summagraphics Corporation
March 7, 1996
Page 2
(including those months, if any, in which Tenant has paid the Basic Rent, as
adjusted by the preceding paragraph); and (b) Basic Rent for the Basic Rent
Payment Dates of August 1, 1995 and September 1, 1995, in each case in the
amount that such Basic Rent would have been payable had the Lease not been
modified by the preceding paragraph and in each case to the extent such amounts
have not been paid to Landlord by Tenant."
2. Tenant agrees to issue to Landlord, upon execution of this Amendment
by Tenant, a Warrant to Purchase Shares of Common Stock in the form of Exhibit A
hereto (the "Warrant"). Tenant agrees that a breach by it of the terms of the
Warrant shall constitute an Event of Default under the Lease.
3. Tenant agrees to pay all of Landlord's attorneys' fees and costs in
preparing this letter agreement and Warrant and reviewing and preparing any
modification of the loan documents. Tenant also agrees to pay all fees and
costs of the Landlord's attorneys in effecting the above-described amendment.
4. Assuming payment by Tenant of all amounts required to be paid to
Landlord pursuant to paragraph 1 hereof on the dates and in the amounts as such
payments are due, Landlord waives any default under the Lease due to the failure
of Tenant to pay the Basic Rent on the Basic Rent Payment Dates of August 1,
1995 and September 1, 1995.
5. Section C. (i) of Exhibit E to the Lease is deleted in its entirety
and replaced with amended text as follows:
(i) Minimum Tangible Networth. Permit Consolidated Tangible Net
-------------------------
Worth to be less than the amount set forth below at the end of any fiscal
quarter during the indicated period:
<TABLE>
<CAPTION>
<S> <C>
from 9/1/95 to 5/31/97 $1,000,000
from 6/1/97 to 5/31/98 $3,000,000
from 6/1/98 to 5/31/99 $4,500,000
from 6/1/99 to 5/31/2000 $6,000,000
from 6/1/2000 and thereafter $7,500,000
</TABLE>
6. Section C. (x) of Exhibit E to the Lease is deleted in its entirety
and replaced with amended text as follows:
(x) Indebtedness Ratio. Permit the ratio of Fund Indebtedness (as
------------------
hereinafter defined) to Total Capitalization (as hereinafter defined) to be less
than the ratio set forth below during the indicated period:
<TABLE>
<CAPTION>
<S> <C>
from 9/01/95 to 9/30/97 1.0:1
from 10/1/97 to 5/31/98 .65:1
from 6/1/99 and thereafter .55:1
</TABLE>
<PAGE>
Summagraphics Corporation
March 7, 1996
Page 3
As used herein, "Funded Indebtedness" shall mean (a) all obligations of the
Tenant or its consolidated Subsidiaries for or on account of borrowed money,
whether or not classified as current or long-term obligations in accordance with
GAAP, less any Indebtedness represented by debt instruments ("Convertible Debt")
issued by the Tenant which are convertible to shares of common stock of the
Tenant, plus (b) all capitalized lease obligations of the Tenant or its
consolidated Subsidiaries. As used herein, "Total Capitalization" shall mean
the sum of (a) Consolidated Tangible Net Worth, plus (b) Funded Indebtedness,
plus (c) Convertible Debt.
7. Section C. (xi) of Exhibit E to the Lease is deleted in its entirety
and replaced with amended text as follows:
(xi) Current Ratio. Permit the ratio of (a) current assets of
-------------
the Tenant and its consolidated Subsidiaries determined on the consolidated
basis in accordance with GAAP, to (b) the current liabilities of the Tenant and
its consolidated Subsidiaries determined on the consolidated basis in accordance
with GAAP to be less than 1.0:1 prior to and 9/30/96 and less than 1.25:1
thereafter.
8. Section C. (ix) of Exhibit E of the Lease is deleted in its entirety
and replaced with amended text as follows:
(xi) Fixed Charge Coverage. Permit the Fixed Charge Ratio at the
---------------------
end of any fiscal year to be less than the ratio set forth below at end of the
fiscal year indicated:
5/31/96 .85:1
5/31/97 1.25:1
thereafter 1.50:1
Except as amended hereby, the Lease shall remain in full force and
effect.
<PAGE>
Summagraphics Corporation
March 7, 1996
Page 4
This letter agreement shall not be effective unless and until
Creditanstalt-BankVerein has consented to the Landlord's execution of this
letter agreement.
Very truly yours,
QRS 10-12(TX), INC.
By: /s/ GORDON J. WHITING
---------------------
Gordon J. Whiting
Vice President
QRS 11-5(TX), INC.
By: /s/ GORDON J. WHITING
----------------------
Gordon J. Whiting
Vice President
Accepted and agreed to:
SUMMAGRAPHICS CORPORATION
By: /s/ CLIFFORD MAXWELL
----------------------
Clifford Maxwell CONSENT
Assistant Treasurer -------
Summagraphics Corp.
The undersigned, as the holder of loan documents executed by Landlord to
the undersigned evidencing or securing a loan in the original principal face
amount of $3,700,000, consents to Landlord's execution of the foregoing letter
agreement.
CREDITANSTALT-BANKVEREIN
By: Illegible Signature
----------------------
Title
-------------------
<PAGE>
EXHIBIT 10.33
[HELLER FINANCIAL LETTERHEAD]
March 15, 1996
Mr. Cliff Maxwell
Assistant Treasurer
Summagraphics Corporation
8500 Cameron Road
Austin, Texas 75754
RE: SUMMAGRAPHICS CORPORATION ("SUMMAGRAPHICS")
AND HELLER FINANCIAL, INC. ("HELLER")
Dear Mr. Maxwell:
Heller Financial, Inc. ("Heller"), entered into a Security Agreement
("Security Agreement") with Summagraphics Corporation ("Summagraphics"), on the
13th day of December, 1994. Capitalized terms not otherwise defined herein shall
have the meaning in the Security Agreement.
Summagraphics has advised Heller that it has breached the terms of the
financial covenants provided for in Section 2(v) of the Security Agreement.
Summagraphics had also requested a waiver of compliance with those two
financial covenants and a modification thereto.
Heller has agreed to waive compliance with the Debt Service Coverage Ratio
("DSR") contained in Section 2(v) of the Security Agreement for the measurement
beginning May 31, 1995, and ending May 31, 1996, provided however, Summagraphics
has agreed that new covenants for both DSR and CNW (hereinafter defined) will be
agreed upon within ninety (90) days of Summagraphics year end, May 31, 1996.
Summagraphics will provide appropriate projections to Heller within sixty (60)
days of Fiscal Year End May 31, 1996, in order for Heller to determine new CNW
and DSR covenants before August 31, 1996. Failure to so agree will be a default
under the Security Agreement.
Heller and Summagraphics have agreed to modify Section 2(v) of the Security
Agreement, Consolidated Net Worth ("CNW"), to provide on a going forward basis,
beginning May 31, 1995, that Summagraphics will maintain a Consolidated Net
Worth of not less than $9,500,000.00 through fiscal year end May 31, 1996.
<PAGE>
Summagraphics' compliance with the Debt Service Coverage Ratio will begin
for the measurement period beginning May 31, 1996, and ending on May 31, 1997,
and for each period thereafter on a rolling twelve (12) month basis, measured at
the end of each fiscal quarter.
As a condition precedent to Heller's delivery of this waiver, Summagraphics
represents to Heller as follows:
1) Borrower has the right and power, and has taken all necessary actions to
authorize them to execute, deliver, and perform the terms of this letter;
2) The execution, delivery, and performance of this letter, in accordance
with its terms, does not and will not by the passage of time, the giving of
notice, or otherwise, require any approval;
3) After giving effect to the terms of this waiver and amendment to the
financial covenants, Summagraphics warrants and represents that it is in
compliance with each of the terms and conditions of the Security Agreement and
is not in default with other lenders;
4) This letter shall not be deemed or construed as a satisfaction,
reinstatement, novation, or release of the Security Agreement, or Note, or a
waiver by Heller of any of Heller's rights at law or equity.
Sincerely,
HELLER FINANCIAL, INC.
E. David West
Assistant Vice President
Agreed and Accepted by the undersigned officer of Summagraphics Corporation this
15th day of March, 1996.
/s/ CLIFFORD MAXWELL
- --------------------------
Summagraphics Corporation
Name: CLIFFORD MAXWELL
-------------------
Title: ASSISTANT TREASURER
-------------------
SUMMAGRAPHICS CORP.
<PAGE>
EXHIBIT 10.34
LOAN DOCUMENT MODIFICATION AGREEMENT
------------------------------------
(No. 1 dated as of December 6, 1995)
------------------------------------
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of December 6, 1995 by and
between SUMMAGRAPHICS CORPORATION, a Delaware corporation with its principal
place of business at 8500 Cameron Road, Austin, Texas 78754-3999 (the
"Borrower") and SILICON VALLEY BANK (the "Bank"), a California chartered bank
-------- ----
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054, and with a loan production office located at Wellesley Office
Park, 45 William Street, Wellesley, MA 02181, doing business under the name
"Silicon Valley East".
1. Reference to Existing Loan Documents.
------------------------------------
Reference is hereby made to that Credit Agreement dated July 18, 1994,
between the Bank and the Borrower (with the attached schedules and exhibits, the
"Credit Agreement") and the Loan Documents referred to therein, including
----------------
without limitation that certain Promissory Note of the Borrower dated July 18,
1994, in the principal amount of $8,000,000 (the "Note"), and the Security
------
Documents referred to therein. Unless otherwise defined herein, capitalized
terms used in this Agreement shall have the same respective meanings as set
forth in the Credit Agreement.
2. Effective Date.
--------------
This Agreement shall become effective as of December 6, 1995 (the
"Effective Date"), provided that the Bank shall have received the following on
--------------
or before December 6, 1995 and provided further, however, in no event shall this
Agreement become effective until signed by an officer of the Bank in California.
i. two copies of this Agreement, duly executed by the Borrower;
ii. an amended and restated promissory note in the form enclosed
herewith (the "Amended Note"), duly executed by the Borrower;
--------------
iii. a Warrant to purchase 37,500 shares of your common stock, in the
form furnished to you by the bank (the "Warrant"), duly executed
---------
by you, a copy of the form of the Warrant is attached hereto as
Exhibit 1;
iv. a Stock Pledge Agreement, duly executed by you, a copy of the
form of the Stock Pledge Agreement is attached hereto as
Exhibit 2;
v. the Borrower shall have executed such UCC-1 forms as the Bank
shall have requested;
vi. Borrower and Harvard Manufacturing Ventures, LLC shall have
executed and entered into the Manufacturing Agreement dated
September 13, 1995 attached hereto as Exhibit 2(vi);
<PAGE>
-2-
vii. the favorable opinion of the general counsel of the Borrower,
in form and substance satisfactory to the Bank and its special
counsel;
viii. evidence of the approval by your Board of Directors of this
Agreement, the Amended Note and the Warrant.
Also, as of the Effective Date, the Bank hereby retroactively waives any
Default or Event of Default that may have arisen prior to the Effective Date:
(i) as a result of the failure of the Company to comply with the Obligations; or
(ii) which could have otherwise resulted in an Event of Default. The foregoing
waiver is solely with respect to the aforementioned Events of Default and no
other waiver is hereby extended.
By the signature of its authorized officer below, the Borrower is hereby
representing that, except as modified in Schedule AA attached hereto, the
-----------
representations of the Borrower set forth in the Loan Documents (including those
contained in the Credit Agreement, as amended by this Agreement) are true and
correct as of the Effective Date as if made on and as of such date. In addition,
the Borrower confirms its authorization as to the debiting of its account with
the Bank in the Aggregate amount of $25,000, of which $5,000 shall be debited as
of the Effective Date and an additional $20,000 to be debited on the sixtieth
day thereafter, in order to pay the Bank's facility fee for the period up to and
including the extended Expiry Date. Finally, the Borrower agrees that, as of the
Effective Date, it has no defenses against its Obligations to pay any amounts
under the Credit Agreement, this Agreement and the other Loan Documents.
In consideration for the Bank's agreeing to this Agreement, the Borrower
hereby releases and forever discharges the Bank and its affiliates, officers,
directors, agents, attorneys, employees, successors and assigns of and from all
manner of actions, causes of action, suits, judgments, claims and demands
whatsoever, at law or in equity which have arisen before or as of the Effective
Date whether in connection with the transactions contemplated by the Credit
Agreement, this Agreement or otherwise.
3. Description of Change in Terms.
------------------------------
As of the Effective Date, the Credit Agreement is modified in the following
respects:
a. As described in Schedule AA hereto which is incorporated herein by
reference.
b. The Credit Agreement and the other Loan Documents are hereby amended
wherever necessary or appropriate to reflect the foregoing changes.
4. Continuing Validity.
-------------------
Upon the effectiveness hereof, each reference in each Security Instrument
or other Loan Document to "the Credit Agreement," "thereunder", "thereof",
"therein", or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended hereby. Except as
specifically set forth above, the Credit Agreement shall remain in full force
and effect and is hereby ratified and confirmed. Each of the other Loan
Documents is in full force and effect and is hereby ratified and confirmed. The
amendments set forth above (i) do not constitute a waiver or modification of any
term, condition or covenant of the Credit
<PAGE>
-3-
Agreement or any other Loan Document, other than as expressly set forth herein,
and (ii) shall not prejudice any rights which the Bank may now or hereafter have
under or in connection with the Credit Agreement, as modified hereby, or the
other Loan Documents and shall not obligate the Bank to assent to any further
modifications.
5. Miscellaneous.
-------------
a. This Agreement may be signed in one or more counterparts each of
which taken together shall constitute one and the same document.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
c. THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS LOAN MODIFICATION AGREEMENT, PROVIDED, HOWEVER, THAT IF FOR ANY
REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA.
d. The Borrower agrees to promptly pay on demand all reasonable costs
and expenses of the Bank in connection with the preparation, reproduction,
execution and delivery of this letter amendment and the other instruments and
documents to be delivered hereunder,
[Remainder of page intentionally blank]
<PAGE>
-4-
including, upon execution hereof, the reasonable fees and out-of-pocket expenses
of Sullivan & Worcester in the approximate amount of $23,000 (by certified check
or wire transfer), special counsel for the Bank with respect thereto.
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement to
be signed under seal by their respective duly authorized officers as of the date
set forth above.
Sincerely,
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By: /s/ JAMES MAYNARD
----------------------------
Name: JAMES MAYNARD
Title: Vice President
SILICON VALLEY BANK
By:
----------------------------
Name:
Title:
(signed in Santa Clara, CA)
SUMMAGRAPHICS CORPORATION
By: /s/ DAVID G. OSOWSKI
----------------------------
Name: David G. Osowski
Title: Senior Vice President Finance
<PAGE>
Schedule AA
to Loan Document Modification Agreement
between Summagraphics Corporation ("Borrower")
and Silicon Valley Bank ("Bank")
--------------------------------
The Credit Agreement is, effective as of the Effective Date, hereby amended
as follows:
1. Section 1 of the Credit Agreement is hereby restated in its entirety as
follows:
"Section 1. Loan.
--------- ----
1.1 Amount. During the period July 18, 1994 through the
------
Effective Date, the Bank has lent to Borrower certain monies (the "Tranche A
---------
Loans"). The outstanding aggregate amount of the Tranche A Loans is
- -----
$6,991,430.20. The Borrower has requested the Bank to finance a consultants
feasibility report, the Bank agrees to advance to the Borrower an additional
$50,000, (the "Tranche B Loans," together with the Tranche A Loans shall be
---------------
referred to as the "Loans" or "Extensions of Credit"). All references herein to
----- --------------------
the "Line of Credit Loans" shall instead be a reference to the Loans. The Loans
shall be paid by the Borrower to the Bank pursuant to the terms and conditions
as set forth herein. Except as otherwise payable pursuant to Section 1.4, the
Loans shall be due and payable in full on September 30, 1996 (the "Maturity
--------
Date").
- ----
1.2 Term Note. The Loans shall be evidenced by and payable with
interest in accordance with the promissory note of Borrower in the form attached
hereto as Exhibit A dated the Effective Date (the "Amended Note"). All
--------- ------------
references herein to the Note shall instead be a reference to the Amended Note.
1.3 Section 1.3 of the Credit Agreement shall be deleted in its
entirety.
1.4 Repayment. The Borrower shall pay the Loans and interest
---------
thereon in accordance with the following terms:
(i) if the Borrower shall issue Subordinated Debt from time
to time hereafter, then the first $2,000,000 in proceeds thereof
shall be immediately paid to the Bank to reduce the outstanding
Loans;
(ii) Borrower shall each Banking Day pay to the Bank to be
applied to the outstanding Loans: (a) 1% of the total funds
received from the daily collection of all of CAD's third-party
accounts receivable, and (b) 3% of the total funds received from
the daily collection of Summagraphic North America's third-party
accounts receivable, except to the extent CAD is a customer of
the Borrower and the collection has been accounted for and
payment made pursuant to Subsection 1(ii)(a) above;
(iii) In the event of a sale of CAD and/or the Borrower's
output business division (or a substantial portion of the assets
associated with either
<PAGE>
-2-
CAD and/or the Borrower's output business division), Borrower
shall immediately:
(a) assign and pledge to the Bank any and all
instruments, documents, or evidence of indebtedness received
in consideration of the sale; and (b) pay to the Bank in the
event of a sale of (x) CAD, 100% of the cash proceeds of
sale net of the reasonable cost of disposition; or (y) the
output business division, 50% of the cash proceeds of sale
net of the reasonable cost of disposition;
(iv) In the event the Borrower proceeds with a sale of its
existing raw material inventory of the SummaJet product line (the
"SJ Inventory") to Salisbury Supply Company ("SSC") under the
------------ ---
Borrower's manufacturing agreement with Harvard Manufacturing
Ventures LLC ("HMV") dated September 13, 1995, and together with
---
SSC the first amendment thereto as shall be agreed to at a future
date, then the Borrower shall pay to the Bank (a) an amount
equal to 40% of the first $500,000 of gross proceeds Borrower
receives from SSC. Borrower may sell SJ Inventory to SSC provided
that at no time shall the amount of SJ Inventory sold to SSC
minus the amount of finished SG Inventory purchased by Borrower
from HMV (the "SJ Balance") exceed $500,000. However, the
----------
Borrower proceeding with the aforementioned arrangement with SSC
is conditioned upon the Bank receiving the proceeds in the
proportions noted above, from any financing provided by State of
Maryland and entities related to the State of Maryland, to either
the Borrower or SSC for the purpose of financing the purchase of
SJ Inventory from the Borrower and provided further that the Bank
is secure that its Collateral is not impaired by the Borrower's
transactions with SSC or HMV; and
(v) Interest accruing on the Loans as provided in the
Amended Promissory Note, shall be debited from the Borrower's
accounts maintained at the Bank on the thirtieth (30th) day of
each month. Without limiting the foregoing, all Obligations owed
to the Bank shall in any event be satisfied in full by Borrower
on or before September 30, 1996 (the "Maturity Date").
-------------
2. Each of Section 1.5, Section 1.6, Section 1.7 and Section 1.8 of the
Credit Agreement shall be deleted in their entirety.
3. Section 2.1 of the Credit Agreement is hereby restated in its entirety
as follows:
"2.1 Interest Rates.
--------------
(a) The Borrower agrees to pay interest on the unpaid principal
amount of the Loans for each day from and including the Effective Date
to but excluding the date the principal amount of such Loans is due
(whether at maturity, by acceleration or otherwise), at a fluctuating
rate per annum equal to the Prime Rate plus the Applicable Margin (as
defined below) which interest rate shall change when the Prime Rate
shall change. The "Applicable Margin" shall be four (4) percent (4%) per
-----------------
annum. Such interest shall be payable monthly in arrears on the last day
of each month commencing
<PAGE>
-3-
with the first such date hereafter and when the principal amount of such
Loans is due (whether at maturity, by acceleration or otherwise).
(b) Any overdue principal of the Loans and overdue interest thereon,
shall bear interest (after as well as before judgment), payable on demand,
for each day from and including the date payment was due to but excluding
the date of actual payment, at a fluctuating rate per annum equal to the
rate of interest applicable under Section 2.1(a) immediately prior to the
occurrence of the delinquency."
4. Section 2.4 of the Credit Agreement shall be amended by deleting the
second sentence in its entirety.
5. Section 3.1(b) of the Credit Agreement shall be amended by adding a new
sentence following the phrase "Loan Documents" in the fourth line
thereof, as follows:
"In addition, Borrower agrees to enter into a Stock Pledge Agreement in
favor of the Bank in the form of Exhibit 2 hereto (the "Stock Pledge
--------- ------------
Agreement") and to deliver to the Bank as provided therein certificates
---------
for such respective number and percentage of the outstanding shares of
stock for each of: (i) CAD Warehouse, Inc.; (ii) Summagraphics, N.V.;
(iii) Summagraphics Europe, N.V.; (iv) Summagraphics Ltd.; and (v)
Summagraphics, GmbH.''
6. Sub-paragraph (b) of Section 5.6 shall be amended by deleting the phrase
"February 28, 1994" in each of the second and fifth lines thereof and
substituting in its place the date "August 31, 1994" and is further
amended by deleting the phrase "nine-month" appearing in the third and
sixth lines thereof and substituting the phrase "3-month."
7. Section 5.17 of the Credit Agreement shall be deleted in its entirety.
8. Subparagraph (a) of Section 6.4 of the Credit Agreement is restated in
its entirety as follows:
"(a) within twenty-five (25) days after the end of each calendar month,
the unaudited, consolidated and consolidating balance sheet and income
statement of Summagraphics North America, which shall include the
results of CAD; within twenty-five (25) days after the end of each
calendar month (45 days with respect to the last month of the first
three fiscal quarters of each fiscal year and 90 days with respect to
the last month of the fiscal year), the unaudited consolidated and
consolidating balance sheet and income statement of the Borrower and its
Significant Subsidiaries (if any) as at the end of, and for, such month
(provided, however, that in the case of financial statements for the
last month of any fiscal quarter, such financial statements shall
include an income statement for such fiscal quarter), accompanied by a
certificate of the chief financial officer of the Borrower (or other
Authorized Officer) to the effect that such financial statements fairly
present the consolidated financial condition of the Borrower and its
significant Subsidiaries (if any) as of the end of such month, and the
consolidated results of their operations for such month, in each case in
accordance with GAAP (except for the absence of footnotes) consistently
applied (subject to normal year-
<PAGE>
-4-
end audit adjustments). To the extent that the actual monthly financial
results reported for Summagraphics North America vary by an amount of
10% or more from that of the Borrower's projected revenues and net
profit and loss provided to the Bank by the Borrower on September 13,
1995 and attached hereto as Exhibit 3, then the Borrower shall deliver
to the Bank an explanation of the reasons, effects, and other pertinent
matters in regard to the variance at the time of the delivery of
monthly financial reports.
9. Subparagraph (c) of Section 6.4 of the Credit Agreement shall be
amended by deleting the phrase "monthly" in the first line and
inserting in its place the phrase "quarterly".
10. Subparagraph (d) of Section 6.4 of the Credit Agreement is hereby
restated in its entirety as follows:
"(d) semi-monthly within seven (7) days of each of the fifteenth
day and of the last day of each fiscal month of the Borrower; (i) a
list of the accounts receivable aging for the Borrower; (ii) a
Borrowing Base Certificate signed by the chief financial officer or the
president of the Borrower, or other authorized officer of Borrower, in
each case, as of the end of such period and in such form as the Bank
may prescribe, all in reasonable detail and appropriately completed;
and (iii) a listing of accounts payable."
11. Subparagraph (f) of Section 6.4 of the Credit Agreement is restated in
its entirety as follows:
"(f) a copy of any management letter provided to the Borrower by
the Accountants, promptly following its availability, if any."
12. Section 6.4 of the Credit Agreement is hereby amended by adding a new
sub-paragraph (k) and (l), respectively, as follows:
"(k) The Borrower shall upon the execution hereof and within seven
(7) days following the end of each fiscal quarter of the Borrower
provide the bank with a schedule of names and addresses for each of its
accounts receivable debtors.
(l) On the first Banking Day of each week the Borrower shall
provide the Bank: (i) a report as to the status of its efforts to sell
its assets; and (ii) a rolling six (6) weeks cash flow projection;"
13. Section 6.8 of the Credit agreement is hereby amended by restating in
its entirety the proviso at the end of such section as follows:
"provided, however, the Bank shall not conduct more than one such
inspection of the Borrower's books and records in any fiscal
quarter unless there occurs an Event of Default. Borrower shall
pay for reasonable out-of-pocket cost of such inspection."
<PAGE>
-5-
14. Section 6 of the Credit Agreement is hereby amended by adding a Section
6.14, as follows:
"6.14 Daily Reporting. As of the Effective Date, so long as any
---------------
Obligations remain outstanding under this agreement, Borrower shall
provide to Bank reporting satisfactory to assure that the Loans'
reduction is in correct proportion relative to the collections,
pursuant to Section 1.4, which shall include, without limitation,
reports substantially in the form of Exhibit 4 attached hereto,
evidencing the collection of: (i) accounts receivable allocable to CAD;
(ii) the collection of all non-Affiliate accounts receivable of
Summagraphics North America, exclusive of CAD; and (iii) collection
journals.
15. Section 7.4 of the Credit Agreement is hereby restated in its entirety
as follows:
"7.4 Disposition of Assets. Except as provided at Section 1.4(iii)
---------------------
the Borrower will not, and will not permit any of its Subsidiaries to,
convey, sell, lease, transfer or otherwise dispose of any of its
property, business or assets (including, without limitation, accounts
receivable and leasehold assets), whether now owned or hereafter
acquired, except: (i) the sale of inventory and of obsolete or worn-out
property, in the ordinary course of business; (ii) the sale of SJ
Inventory, with the Bank receiving a portion of all proceeds received
as provided at Section 1.4(iv), and providing further that the Bank's
security interest shall automatically be deemed released upon its
receipt of such payment, but that unless and until such payments are
received by the Bank it shall retain its security interest in the SJ
Inventory; and (iii) with the written consent of the Bank, which shall
not be unreasonably withheld, the sale or other disposition of any
other property, provided that in the event of the sale of an entire
business division of the Borrower's, the Bank shall immediately receive
cash proceeds of sale net of the reasonable cost of disposition equal
to the greater of $4,000,000 or 50% thereof; except that in the event
of the sale of the Borrower's cutter business division the Bank shall
immediately receive the greater of $3,500,000 or 50% thereof, to be
applied to the repayment of the Loans hereunder."
16. Section 7.5 of the Credit Agreement is hereby amended by deleting
subparagraphs (c) and (d) thereof in their entirety, and by restating
subparagraphs (c) and (d) thereof as follows:
"(c) Purchase Money Indebtedness in an amount not to exceed at any
time $50,000 in the aggregate; provided that, giving effect to the
incurrence of such Purchase Money Indebtedness and to the receipt and
application of the proceeds thereof, no Default or Event of Default
shall have occurred and be continuing.
(d) Subordinated Debt incurred by the Borrower after the date
hereof; provided that the first $2,000,000 of the net proceeds of such
--------
Subordinated Debt shall immediately be delivered to the Bank to be
applied to the repayment of the Loans hereunder."
<PAGE>
-6-
17. Section 7.10 of the Credit Agreement shall be restated in its entirety
as follows:
"Quick Ratio. The Borrower will not permit the Quick Ratio of
-----------
Summagraphics North America at the end of any of the following fiscal
quarters to be less than the ratio set forth below opposite such
quarter:
Fiscal Quarter Ending Quick Ratio
--------------------- -----------
2/28/96 and thereafter 0.30:1"
18. Section 7.11 of the Credit Agreement shall be restated in its entirety
as follows:
"The Borrower will not permit Net Loss of Summagraphics North
America for any of the following fiscal quarters to be greater than the
amount set forth below opposite such fiscal quarter:
Fiscal Quarter Ending Maximum Net Loss
--------------------- ----------------
2/28/96 $250,000
In addition, Summagraphics North America shall have a minimum Net
Profit of $150,000 for the quarter ending May 31, 1996."
19. Section 7.12 of the Credit Agreement shall be restated in its entirety
as follows:
"The Borrower will not permit the ratio of Total Senior
Liabilities to Tangible Net Worth of Summagraphics North America
to exceed 3.0 to 1 at the end of any fiscal quarter."
20. Section 7.13 of the Credit Agreement is hereby deleted in its entirety.
21. Section 8.1 of the Credit Agreement is hereby amended by adding a new
sub-paragraph (n), as follows:
"(n) the Borrower or any Subsidiary shall experience a Change in
Control, unless otherwise assented to by the Bank in writing."
22. Section 8.2 of the Credit Agreement should be amended by: (a) deleting
subsection (a) thereof; and (b) deleting the phrase "the Line of Credit
Commitment shall be automatically terminated and" beginning in the
tenth line thereof.
23. Section 9.1 of the Credit Agreement shall be amended as follows:
(i) deleting the phrase and the definition for the phrase
"Commitment Expiration Date";
(ii) deleting the phrase and the definition for the phrase
"Current Ratio."
<PAGE>
-7-
(iii) deleting the phrase "May 31, 1993" from the definition of
"Financial Statements Date" and substituting the date August 31, 1995.
(iv) deleting the phrase and the definition for the phrase "Letter
of Credit Usage";
(v) deleting the phrase and the definition for the phrase "Line of
Credit Commitment"; and
(vii) deleting the phrase and the definition for the phrase "Rate
Reduction Event".
24. Section 9.1 of the Credit Agreement is hereby amended by inserting the
following new definitions in alphabetical order:
"Borrowing Base" means an amount equal to the sum of (A) 80% of
--------------
all Eligible Domestic Accounts Receivable and (B) 80% of Eligible
International Accounts Receivable.
"CAD" means CAD Warehouse, Inc., a Nevada corporation which is a
---
wholly-owned Subsidiary of the Borrower with its principal place
of business at 515 Freeway Drive, Unit D, Macedonia, Ohio 44056.
"Change in Control" shall be deemed to have occurred if (a) any
-----------------
"person" or "group" of persons (within the meaning of Rule 13(d)-5
of the Securities and Exchange Commission as in effect on the date
hereof) (but excluding current members of senior management) shall
own, directly or indirectly, beneficially or of record,
outstanding shares of capital stock of the Borrower representing
more than 30% of the aggregate ordinary voting power represented
by the issued and outstanding stock of the Borrower, unless such
ownership interest shall result from the issuance of Subordinated
Debt pursuant to Section 1.4(i) hereof, in which event an amount
no greater than 50% shall be permissible; (b) a majority of the
seats (other than vacancies) on the board of directors of the
Borrower shall at any time be occupied by persons who were neither
nominated nor appointed by the current senior management of the
Borrower nor appointed by directors so nominated or appointed; or
(c) any person or group shall otherwise directly or indirectly
Control (as defined below) the Borrower. For purposes hereof,
"Control" shall mean the possession, directly or indirectly of the
power to direct or cause the direction of the management or
policies of a person or of the Borrower, whether through the
ownership of owning securities, by contract or otherwise.
<PAGE>
-8-
"Quick Ratio" means, at any time, all cash and accounts
-----------
receivable, less reserves for doubtful accounts, of Summagraphics
North America determined in accordance with GAAP, divided by the
aggregate of all Current Liabilities.
"Summagraphics North America" means the Borrower and CAD.
---------------------------
25. There is hereby inserted at the end of Section 10.1 the following new
sentence:
All financial covenants set forth in Section 7.10 through 7.12
shall be measured consistently with Summagraphics North America's
fiscal quarters and based on the internally prepared financial
statements of Summagraphics North America.
26. There is hereby inserted at the end of Section 10.13 a Section 10.14 as
follows:
"All Schedules referenced herein and attached hereto shall be true
and accurate as of the Effective Date and at such other times as
otherwise provided herein."
<PAGE>
EXHIBIT 10.35
FIRST AMENDMENT TO
LOAN DOCUMENT MODIFICATION AGREEMENT
------------------------------------
This First Amendment to Loan Document Modification Agreement is entered
into as of March 20, 1996, by and between Summagraphics Corporation, Inc.
("Borrower") whose address is 8500 Cameron Road, Austin, Texas 78754 and Silicon
--------
Valley Bank, a California-chartered bank ("Bank"), with its principal place of
----
business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East."
WHEREAS, among other indebtedness which may be owing by Borrower to Bank,
Borrower is indebted to Bank pursuant to, among other documents, the Amended and
Restated Promissory Note dated as of December 6, 1995 in the original principal
amount of Seven Million Forty-One Thousand Four Hundred Thirty Dollars and
Twenty Cents ($7,041,430.20) (the "Note");
WHEREAS, the Note is governed by the terms of the Credit Agreement (the
"Credit Agreement") dated as of July 18, 1994, by and between the Borrower and
----------------
the Bank and the Loan Document Modification Agreement (the "Modification
------------
Agreement") dated as of December 6, 1995, by and between Borrower and Bank (the
- ---------
Credit Agreement together with the Modification Agreement are hereafter
collectively referred to as the "Loan Agreement"). All capitalized terms used
--------------
herein and not otherwise defined shall have the meaning ascribed in the Loan
Agreement.
WHEREAS, repayment of the Obligations is secured by, among other things, a
Security Agreement dated as of July 18, 1994 (the "Security Agreement").
------------------
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Note (and other notes executed by Borrower in
favor of Bank) shall be referred to as the "Security Documents." Hereinafter,
------------------
the Security Documents, together with all other documents evidencing or securing
the Obligations shall be referred to as the "Existing Loan Documents."
-----------------------
WHEREAS, the Borrower and Lockheed Martin Corporation ("Lockheed") will
have contemporaneously herewith entered into the Plan of Reorganization
Agreement for the Exchange of Stock of CalComp Inc. for Stock of Summagraphics
Inc. (the "Plan of Reorganization"), which Plan of Reorganization among other
----------------------
things provides for the payment in full of the Obligations.
<PAGE>
WHEREAS, certain events have occurred that with the passage of time or the
giving of notice or both would give rise to an Event of Default under the Loan
Agreement;
NOW THEREFORE, in consideration of the aforementioned premises the parties
agree as follows:
1. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
(A) Modification(s) to Schedule AA to Modification Agreement.
--------------------------------------------------------
Schedule AA to the Modification Agreement shall contemporaneously with
the delivery of this Agreement by the Borrower be amended, restated
and modified as follows:
(1) Section 1 of Schedule AA referencing Section 1.1 of the Credit
Agreement shall be amended by deleting the last sentence thereto
and inserting in its place the following:
"Except as otherwise payable pursuant to Section 1.4, the
Loans shall be due and payable in full on the earlier of (i)
the Closing of the Plan of Reorganization; (ii) the
termination of the Plan of Reorganization by Borrower for any
reason or by Lockheed pursuant to the terms of Section 10.2(b)
thereof, however, in the event the Borrower terminates the
Plan of Reorganization due to a material breach by Lockheed
under Section 10.2(b) or Lockheed terminates the Plan of
Reorganization while in breach thereof, then the Obligations
shall be due on September 30, 1996; (iii) June 15, 1996 (or
such later date as mutually agreed to by the Borrower,
Lockheed, and the Bank, but in no event beyond September 30,
1996); or (iv) upon the occurrence of an Event of Default (the
"Maturity Date")."
-------------
(2) Section 1 of Schedule AA referencing Section 1.4(i) of the Credit
Agreement shall be amended by adding to the end thereof, the
following:
", with the exception of any monies lent to the Borrower by
Lockheed pursuant to the 9 1/4% Secured Convertible
Debenture, providing Lockheed, the Borrower and the Bank
enter into a subordination agreement in reference to such
indebtedness the terms of
-2-
<PAGE>
which are acceptable in all respects to the Bank."
(3) Section 16 of Schedule AA referencing Section 7.5(d) of the
Credit Agreement shall be amended by adding to the end thereof,
the following:
", with the exception of any monies lent to the Borrower by
Lockheed pursuant to the 9 1/4% Secured Convertible Debenture,
providing Lockheed, the Borrower and the Bank enter into a
subordination agreement in reference to such indebtedness the
terms of which are acceptable in all respects to the Bank."
(B) Amendment to Note
-----------------
The Note shall contemporaneously with the delivery of the Agreement by
the Borrower be amended, restated, and modified to delete the phrase
beginning on the seventh line thereof "but in any event on September
30, 1996" and in substitution thereof insert the following:
"providing that this note is payable in full on the earlier of
(i) the closing of the Plan of Reorganization; (ii) the
termination of the Plan of Reorganization by Borrower for any
reason or by Locked pursuant to the terms of Section 10.2(b)
thereof, however, in the event the Borrower terminates the Plan
of Reorganization due to a material breach by Lockheed under
Section 10.2(b) or Lockheed terminates the Plan of Reorganization
while in breach thereof, then the Obligations shall be due on
September 30, 1996; (iii) June 15, 1996 (or such later date as
may be mutually agreed to by the Borrower, Lockheed, and the
Bank, but in no event beyond September 30, 1996); or (iv) upon
the occurrence of an Event of Default (the "Maturity Date")."
-------------
(C) Forebearance Agreement
----------------------
1. Bank agrees to forebear from calling a default and from exercising
its remedies under the Existing Loan Documents from the date
hereof until the date the Note is payable as provided in Sections
1(A)(1) and 1(B) above (such period being referred to as the
"Forbearance Period"), notwithstanding Borrower's failure to meet
------------------
its financial covenants for the quarter ending
-3-
<PAGE>
February 29, 1996 under Sections 7.10, 7.11, and 7.12 of Schedule
AA to the Modification Agreement. Any new, additional or
unreported breach by Borrower of any of the terms set forth in
the Existing Loan Documents shall result in immediate termination
of the Forbearance Period, whereupon Bank, at its option, without
notice to Borrower, may exercise its rights under the Existing
Loan Documents, as modified by this First Amendment to Loan
Document Modification Agreement, and under applicable law. Without
limiting the generality of the foregoing, during the Forbearance
Period, Bank will not (i) initiate proceedings for the collection
of the amounts owing under the Existing Loan Documents; (ii) file
or join in filing any involuntary petition in bankruptcy with
respect to the Borrower, or otherwise initiate or participate in
similar insolvency reorganization, or moratorium proceedings for
the benefit of creditors of the Borrower; or (iii) repossess or
sell, through judicial proceedings or otherwise, any of the
Collateral pledged under the Security Documents.
By signing below, Borrower acknowledges that its failure to comply
with the financial covenants contained in Sections 7.10, 7.11, and
7.12 of Schedule AA to the Modification Agreement would in the
absence of this Agreement entitle the Bank to exercise its
remedies as provided in the Existing Loan Documents and as
provided under applicable law. Nothing in this agreement in any
way shall constitute Bank's waiver of Borrower's failure to comply
with the foregoing financial covenants under the Existing Loan
Documents.
Upon termination of the Forbearance Period described above,
without any notice to Borrower, Bank may exercise any remedies
available to Bank under the Existing Loan Documents and under
applicable law. In addition, Bank's agreement to forbear from
enforcing its remedies under the Existing Loan Documents
notwithstanding Borrower's existing defaults under the Existing
Loan Documents shall: (a) in no way be deemed an agreement by
Bank to waive Borrower's compliance with all other terms of the
Existing Loan Documents, as modified by this First Amendment to
Loan Document Modification Agreement; and (b) not limit or impair
Bank's right to demand strict performance of all other terms and
covenants as of any date.
-4-
<PAGE>
2. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
3. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
-----------------------
signing below) agrees that, as of this date, it has no defenses against the
obligations to pay any amounts under the Obligations.
4. WAIVER AND RELEASE OF CLAIMS. (a) In consideration for the Bank's
----------------------------
agreeing to this Agreement, the Borrower hereby releases and forever discharges
the Bank and its affiliates, officers, directors, agents, attorneys, employees,
successors and assigns of and from all manner of actions, causes of action,
suits, judgments, claims and demands whatsoever, at law or in equity which have
arisen before or as of the Effective Date whether in connection with the
transactions contemplated by the Credit Agreement, the Modification Agreement,
the Subordination Agreement (between the Borrower, Lockheed, and the Bank), this
Agreement, the Existing Loan Documents or otherwise ("Related Matters").
---------------
(b) Borrower acknowledges that it has not relied, in executing the release
set forth in this section, upon any representations, warranties, or conditions
by Bank or any other entity except as are specifically set forth in this First
Amendment to Loan Document Modification Agreement.
(c) Nothing contained herein shall be construed at any time as an
admission by Bank of any liability to Borrower or any other entity.
(d) Borrower warrants to Bank that it has not purported to transfer,
assign, or otherwise convey any right, title or interest of Borrower in any
Released Matters to any other entity, and that the foregoing constitutes a full
and complete release of all Released Matters.
(e) Borrower hereby waives all rights which it may have under the
provisions of California Civil Code Section 1542, which reads as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
5. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Obligations, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the
-5-
<PAGE>
Existing Loan Documents. Except as expressly modified pursuant to this First
Amendment to Loan Document Modification Agreement, the terms of the Existing
Loan Documents remain unchanged and in full force and effect. Bank's agreement
to modifications to the existing Obligations pursuant to this First Amendment to
Loan Document Modification Agreement in no way shall obligate Bank to make any
future modifications to the Obligations. Nothing in this First Amendment to Loan
Document Modification Agreement shall constitute a satisfaction of the
Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this First Amendment to Loan Document Modification
Agreement. The terms of this Paragraph apply not only to this First Amendment to
Loan Document Modification Agreement, but also to all subsequent amendments
thereto.
6. INTEGRATION. This First Amendment to Loan Document Modification
-----------
Agreement, together with the Existing Loan Documents, constitutes the entire
agreement and understanding among the parties relating to the subject matter
hereof, and supersedes all prior and contemporaneous proposals, negotiations,
agreements, and understandings relating to the subject matter. In entering into
this First Amendment to Loan Document Modification Agreement, Borrower
acknowledges that it is relying on no statement, representation, warranty,
covenant, or agreement of any kind made by the Bank or any employee or agent of
Bank, except for the agreements of Bank set forth herein. No modification,
rescission, waiver, release, or amendment of any provision of this First
Amendment to Loan Document Modification Agreement shall be made, except by a
written agreement signed by Bank and Borrower.
7. By signing below each of the Borrower, CAD Warehouse, Inc., and the
Bank represent and warrant that they have full authority to enter into this
document and that the person executing this Agreement has full authority to bind
each of the respective parties for whom they are acting.
-6-
<PAGE>
This First Amendment to Loan Document Modification Agreement is executed as
of the date first written above.
BORROWER: BANK:
SUMMAGRAPHICS CORPORATION SILICON VALLEY BANK
By: /s/ David G. Osowski By:
-------------------------------- ----------------------------------
Name: David G. Osowski Name:
------------------------------- --------------------------------
Title: Sr. V.P. Finance Title:
------------------------------- --------------------------------
ASSENTED TO:
CAD WAREHOUSE, INC.
By: /s/ Robert B. Sims
------------------------------
Name: Robert B. Sims
-----------------------------
Title: Secretary & Vice President
-----------------------------
-7-
<PAGE>
This First Amendment to Loan Document Modification Agreement is executed as
of the date first written above.
BORROWER: BANK:
SUMMAGRAPHICS CORPORATION SILICON VALLEY BANK
By: By: /s/ Judy Sanchez
-------------------------------- ---------------------------------
Name: Name: Judy Sanchez
------------------------------- --------------------------------
Title: Title: Vice President
------------------------------- --------------------------------
ASSENTED TO:
CAD WAREHOUSE, INC.
By:
------------------------------
Name:
-----------------------------
Title:
-----------------------------
-7-
<PAGE>
EXHIBIT 10.36
SUBORDINATION AGREEMENT
-----------------------
SUBORDINATION AGREEMENT, dated as of March __, 1996 among LOCKHEED MARTIN
CORPORATION, a Maryland corporation (together with its successors and assigns,
the "Subordinated Creditor"), SILICON VALLEY BANK (the "Bank") and SUMMAGRAPHICS
---------------------
CORPORATION, a corporation organized under the laws of Delaware (together with
its successors and assigns, the "Borrower").
--------
The parties hereto agree as follows:
SECTION 1.
A. As used herein the following terms shall have the following meanings:
"Debt": indebtedness for borrowed money or for the deferred purchase price
----
of property. For purposes hereof, "Debt" shall not include (i) the obligations
---- -
evidenced by the Subordinated Note, (ii) trade or other accounts payable in the
--
ordinary course of business, or (iii) capital lease obligations, purchase money
---
obligations or other similar financing arrangements which finance the purchase
price of any equipment purchases, leased or otherwise acquired by the Borrower
for use in the ordinary course of business.
"Senior Debt Default": a default in the payment of any Senior Debt, whether
-------------------
at stated maturity, as a result of acceleration or otherwise, or a default
(other than a payment Default) under any agreement or instrument relating to
Senior Debt beyond any applicable grace period which entitles the holder
thereof to accelerate the maturity of all or a portion of such Senior Debt.
"Payment Blockage Period": as defined in Section 2.3(a).
-----------------------
"Permitted Securities": shares of stock or other securities of the Borrower
--------------------
or another corporation provided for by a plan of reorganization or readjustment
which are subordinated at least to the same extent as the Subordinated
Obligations.
"Remedy Suspension Period": as defined in Section 2.6.
------------------------
"Senior Lender": Silicon Valley Bank or any succeeding financial
-------------
institution which holds the Senior Debt.
"Senior Debt": All obligations of the Borrower in respect of or relating to
-----------
Debt of the Borrower, whether outstanding on the date hereof or hereafter
created, held by the Bank (whether issued pursuant to the Senior Credit
Agreement and evidenced by the Senior Note or otherwise) or by any financial
institution which refinances, restructures or acquires, in whole or in part, any
Senior Debt held by the Bank, including without limitation all obligations of
the
<PAGE>
-2-
Borrower for principal, interest (including post-petition interest, whether or
not allowable), fees, penalties, indemnities, reimbursement obligations and
expenses (including reasonable attorneys' fees) and any other amounts owing in
respect of such Debt, for the payment of which the Borrower is responsible or
liable as an obligor, guarantor, indemnitor, or otherwise (including, without
limitation, all amounts committed or permitted to be advanced pursuant to
agreements in respect of such Debt under which the Borrower is responsible or
liable) and all deferrals, renewals, extensions, amendments, modifications and
refundings thereof.
"Senior Liens" means all liens, collateral assignments, mortgages, pledges
------------
and security interests granted by the Borrower to the holders of the Senior Debt
securing in whole or in part any of the Senior Debt, including, without
limitation, all such liens, collateral assignments, mortgages, pledges and
security interests created in connection with the Senior Debt.
"Senior Credit Agreement" shall mean the Credit Agreement, dated as of July
-----------------------
18, 1994, between the Borrower and the Bank, as amended pursuant to the Loan
Modification Agreement dated as of December 6, 1995, as the same may be further
amended, modified or supplemented from time to time.
"Senior Note" shall mean the promissory note or notes of the Borrower
-----------
outstanding from time to time evidencing the Senior Debt, including without
limitation the promissory note dated as of July 18, 1994 of the Borrower payable
to the Bank, or its order, as amended pursuant to the First Amended and Restated
Promissory Note dated as of December 6, 1995, as the same may be further
amended, modified or supplemented from time to time.
"Subordinated Debt Documents" shall mean the Subordinated Note,
---------------------------
Subordinated Security Agreement, and any other documents evidencing or
referencing the Subordinated Obligations, as the same may be amended, modified
or supplemented form time to time.
"Subordinated Liens" means all liens, collateral assignments, mortgages,
------------------
pledges and security interests granted by the Borrower to the holders of the
Subordinated Note securing in whole or in part any of the Subordinated Debt,
including, without limitation, all such liens, collateral, assignments,
mortgages, pledges and security interest created in connection with the
Subordinated Debt.
"Subordinated Note" shall mean the Secured Convertible Debenture of the
-----------------
Borrower to the Subordinated Creditor dated as of March 18, 1996, as the same
may be amended, modified or supplemented from time to time.
"Subordinated Obligations" shall mean (a) the principal amount of, and
------------------------
accrued interest on (including, without limitation, any interest which accrues
after the commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Borrower) the Subordinated Note,
and (b) all other indebtedness, obligations and liabilities of the Borrower to
the Subordinated Creditor now existing or hereafter incurred or created under
the Subordinated Note or Subordinated Security Agreement, but shall not include
any debt owed to the Subordinated Creditor in consideration for merchandise
provided Borrower, which debt shall be a general unsecured trade debt.
<PAGE>
-3-
"Subordinated Security Agreement" shall mean the Security Agreement, dated
-------------------------------
as of March 18, 1996, between the Borrower and the Subordinated Creditor, as the
same may be amended, modified or supplemented from time to time.
B. The words "hereof", "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of the Agreement, and section, subsection, schedule and
exhibits reference are to this Agreement unless otherwise specified.
SECTION 2.
2.1 The Borrower and the Subordinated Creditor each agree, for itself and
each future holder of the Subordinated Obligations, that the Subordinated
Obligations are, and hereafter will be, to the extent and in the manner set
forth herein; expressly subordinate and junior in right of payment to the prior
payment in full of the Senior Debt.
2.2 Dissolution; Liquidation; Bankruptcy.
------------------------------------
In the event of any bankruptcy, insolvency, reorganization, receivership,
composition, assignment for benefit of creditors or other similar proceeding
initiated by or against the Borrower or any dissolution or winding up or total
or partial liquidation or reorganization of the Borrower, then:
(a) all Senior Debt shall first be paid in full before any payment may be
made on account of the subordinated Obligations, whether in cash or other
property. In the event of a distribution of Permitted Securities any payment
made by the Issuer in respect to the Permitted Securities shall be subject to
the limitations of the immediately preceding sentence.
(b) any payment or distribution of assets of the Borrower, whether in cash
or other property (other than the distribution of Permitted Securities), to
which the Subordinated Creditor would be entitled except for the provisions of
this Section 2.2, shall be paid by the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or other trustee or agent, directly to the
Senior Lender to the extent necessary to make payment in full of all Senior Debt
remaining unpaid; and
(c) in the event that, notwithstanding the foregoing provisions of this
Section 2.2, any payment or distribution described in paragraph (b) above (other
than a payment in Permitted Securities), shall be received by the Subordinated
Creditor before all Senior Debt is paid in full, such payment or distribution
shall be received and held in trust for and shall be promptly paid over to the
Senior Lender for application to the payment of such Senior Debt until all
Senior Debt shall have been paid in full.
To the extent that the Senior lender is entitled under this Agreement or
applicable law to recover for the account of the Senior Debt holders any
dividends, payments and distributions in respect of the Subordinated Creditor,
the Subordinated Creditor hereby agrees to cooperate with the Senior Lender and
follow the reasonable directives of the Senior Lender with respect to the filing
of such proofs of claims on account of the Subordinated Obligations as the
Senior
<PAGE>
-4-
Lender may deem expedient and proper and in voting such claims in any such
proceeding and in receiving and collecting any and all dividends, payments or
other distributions made thereon in whatever form the same may be paid or issued
and in applying the same on account of the Senior Debt; provided however,
----------------
nothing herein shall prevent the Subordinated Creditor from voting such claims
in any manner that does not adversely affect the Senior Lender. The Subordinated
Creditor further agrees to supply such information and evidence, provide access
to and copies of such records of the Subordinated Creditor as may pertain to the
Subordinated Obligations as may be reasonably requested by the Senior Lender.
In the event that the Subordinated Creditor shall have failed to file a proof of
claim after being so directed by the Senior Lender on or before the date
fourteen (14) days prior to the date such proof of claim must be filed pursuant
to law or the order of any court exercising jurisdiction over such proceeding,
the Subordinated Creditor hereby authorizes and directs the Senior Lender to
file a proof of claim for and in the name of the Subordinated Creditor.
2.3 No Payment on Subordinated Obligations in Certain Circumstances. (a)
---------------------------------------------------------------
Upon the occurrence of any Senior Debt Default with respect to Senior Debt, no
payment shall be made by the Borrower on account of any of the Subordinated
Obligations until such Senior Debt Default shall have been cured, waived in
writing by the Senior Lender, or the Senior Debt shall have been paid in full (a
"Payment Blockage Period").
(b) In the event that, notwithstanding the foregoing provisions of this
Section 2.3, a payment or distribution described in paragraph (a) above shall be
received by the Subordinated Creditor on account of the Subordinated
Obligations before all Senior Debt is paid in full, such payment or
distribution shall be received and held in trust for and shall be promptly paid
over to the Senor Lender for application to the payment of such Senior Debt
until all Senior Debt shall have been paid in full.
2.4 Subrogation. Upon the payment in full of all Senior Debt, the
-----------
Subordinated Creditor shall be subrogated to the rights of the Senior Lender to
receive payments or distributions of cash, property or securities of the
Borrower applicable to the Senior Debt, until the Subordinated Creditor shall be
paid in full, and for the purposes of such subrogation, no payments or
distributions to the Senior Lender of any cash or other property to which the
Subordinated Creditor would be entitled except for the provisions of this
Section 2, and no payment over pursuant to the provisions of this Section 2 to
the Senior Lender by such holders shall, as between the Borrower, its creditors
other than the Senior Lender, and the Subordinated Creditor, be deemed to be a
payment by the Borrower to or on account of the Senior Debt. It is understood
that the provisions of this Section 2 are and are intended solely for the
purpose of defining the relative rights of the Subordinated Creditor, on the one
hand, and the Senior Lender, on the other hand.
2.5 Obligations of Borrower Unconditional. Nothing contained in this
-------------------------------------
Agreement is intended to or shall impair, as among the Borrower, its creditors
other than the Senior Lender, and the Subordinated Creditor, the obligation of
the Borrower, which is absolute and unconditional, to pay to the Subordinated
Creditor the principal of and interest on the Subordinated Note and all other
amounts owing hereunder as and when the same shall become due and payable in
accordance with their terms, or to pay all other Subordinated Obligations when
due, or is intended to or shall affect the relative rights of the Subordinated
Creditor and
<PAGE>
-5-
creditors of the Borrower other than the Senior Lender, nor shall anything
herein or therein, as among the Borrower, its creditors other than the Senior
Lender, and the Subordinated Creditor, prevent the holder(s) of the Subordinated
Obligations from exercising all remedies otherwise permitted by applicable law
upon default under the Subordinated Obligations.
2.6 Remedy Suspension Periods. The commencement of a Payment Blockage
-------------------------
Period pursuant to Section 2.3(a) hereof shall, without any other action by any
party, commence a remedy suspension period hereunder (a "Remedy Suspension
-----------------
Period"). So long as any Remedy Suspension Periods is continuing, the
- ------
Subordinated Creditor will not, for any reason or under any circumstances,
commence or take any legal or other similar proceedings (whether at law, in
equity, by arbitration or otherwise) against the Borrower to enforce any of the
rights or remedies of such holder(s) under the Subordinated Note against the
Borrower.
2.7 Notice of Enforcement Action. In no event shall the Subordinated
----------------------------
Creditor take any of the actions described in the second sentence of Section 2.6
unless such holder shall have given the Senior Lender not less than 10 days
prior written notice of the intention of such holder to take such action.
2.8 Payment of Senior Debt. For purposes of this Agreement, payment in full
----------------------
of Senior Debt shall mean payment in full in cash or cash equivalents.
2.9 No amendment. No amendment, modification or supplement of the
------------
Subordinated Note which would have the effect of amending or modifying the
provisions of this Agreement, advancing to an earlier date the time when any
Subordinated Obligations would otherwise be payable or prepayable, or adding any
defaults or covenants, or making any existing defaults or covenants materially
more restrictive shall become effective without the consent of the Senior
Lender.
2.10 Subordinated Lien To Be Junior to Senior Lien. The Subordinated
---------------------------------------------
Creditor and the Borrower each warrant and agree that the Subordinated Liens,
whether pursuant to the Subordinated Security Agreement or otherwise, are and at
all times shall be subordinate and junior to the Senior Liens, regardless of
time of its grant, attachment of perfection. The Subordinated Creditor and each
subsequent holder of the Subordinated Obligations agrees that the Senior Lender
shall have the right, in its sole discretion, to modify, amend, waive or release
any of the terms of the Senior Debt or any document executed in connection with
the Senior Debt or of any other document relative thereto and to exercise or
refrain from exercising any powers or rights which the Senior Lender may have
thereunder and such modification, amendment, waiver, release, exercise or
failure to exercise shall not affect any of the rights of the Senior Lender. The
Subordinated Creditor and each subsequent holder of the Subordinated Obligations
agree that its exercise of its rights and/or remedies under the Subordinated
Debt Documents are subject and subordinate to the rights and remedies of the
Senior Lender in accordance with the provisions hereof and, without limiting the
foregoing, further agrees that Subordinated Creditor and each subsequent holder
shall not take any action that is inconsistent with the provisions hereof;
provided, however, that nothing herein shall affect the rights and remedies of
the Subordinated Creditor to accelerate the Subordinated Debt or to receive the
Permitted Securities after the occurrence of an event of default under the
Subordinated Debt
<PAGE>
-6-
Documents and to exercise all rights and remedies available to it under the
Subordinated Debt Documents or available at law or in equity after the Senior
Debt has been paid in full. The Subordinated Creditor and each subsequent holder
of the Subordinated Obligations shall provide the Senior Lender with a copy of
any notice given by the Subordinated Creditor and each subsequent holder of the
Subordinated Note to the Borrower in connection with the Subordinated
Obligations or under the documents relating to the Subordinated Obligations.
SECTION 3.
The Subordinated Creditor represents and warrants to the Senior Lender
that:
3.1 The Subordinated Note (a) has been issued to it for good and valuable
consideration, (b) is owned by the Subordinated Creditor free and clear of any
security interest, liens, charges or encumbrances whatsoever arising from,
through or under the Subordinated Creditor other than the interest of the Senior
Lender under this Agreement, (c) is payable solely and exclusively to the
Subordinated Creditor or any affiliate which the Subordinated Note may be
assigned and to no other person, firm, corporation or other entity, without
deduction for any defense, offset or counterclaim, and (d) constitutes the only
evidence of the obligations evidenced thereby.
3.2 The Subordinated Creditor has full power, authority and legal right to
execute, deliver and perform this Agreement, and the execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of the Subordinated Creditor, does not require any stockholder
approval or approval or consent of any trustee or holders of any indebtedness or
obligations of the Subordinated Creditor and will not violate any provisions of
law, governmental regulation, order to decree of any provision of the
certificate of incorporation, the by-laws, or any preferred stock of the
Subordinated Creditor or any provision of any indenture, mortgage, contract or
other Agreement to which the Subordinated Creditor is a party or by which it is
bound.
3.3 No consent, license, approval or authorization of, or registration or
declaration with any governmental instrumentality, domestic or foreign, is
required in connection with the execution, delivery and performance by the
Subordinated Creditor of this Agreement.
3.4 This Agreement constitutes a legal, valid and binding obligation of the
Subordinated Creditor enforceable in accordance with its terms.
SECTION 4.
The Senior Lender represents and warrants to the Subordinated Creditor
that:
4.1 The Senior Note (a) has been issued to it for good and valuable
consideration, (b) is owned by the Senior Lender free and clear of any security
interest, liens, charges or encumbrances whatsoever arising from, through or
under the Senior Lender, (c) is payable solely and exclusively to the Senior
Lender and to no other person, firm, corporation or other entity, without
deduction for any defense, offset or counterclaim, and (d) constitutes the only
evidence of the obligations evidenced thereby.
<PAGE>
-7-
4.2 The Senior Lender has full power, authority and legal right to execute,
deliver and perform this Agreement, and the execution, delivery and performance
of this Agreement have been duly authorized by all necessary action on the part
of the Senior Lender does not require any stockholder approval or approval or
consent of any trustee or holders of any indebtedness or obligations of the
Senior Lender and will not violate any provisions of law, governmental
regulation, order or decree of any provision of the certificate of
incorporation, the by-laws, or any preferred stock of the Senior Lender or any
provision of any indenture, mortgage, contract or other Agreement to which the
Senior Lender is a party or by which it is bound.
4.3 No consent, license, approval or authorization of, or registration or
declaration with any governmental instrumentality, domestic or foreign, is
required in connection with the execution, delivery and performance by the
Senior Lender of this Agreement.
4.4 This Agreement constitutes a legal, valid and binding obligation of the
Senior Lender enforceable in accordance with its terms.
SECTION 5.
The Subordinated Creditor consents that, without the necessity of any
reservation of rights against the Subordinated Creditor, and without notice to
or further assent by the Subordinated Creditor, (a) any demand for payment of
any Senior Debt made by the Senior Lender may be rescinded in whole or in part
by the Senior Lender and any Senior Debt may be continued, and the Senior Debt,
or the liability of the Borrower or any other party upon or for any part
thereof, or any collateral security or guaranty therefor, or right of offset
with respect thereto, or any obligation or liability of the Borrower or any
other party under the Senior Credit Agreement, may, from time to time, in whole
or in part, be renewed, extended, modified, accelerated, compromised, waived,
surrendered or released by the Senior Lender, and (b) the Senior Credit
Agreement and the Senior Note and any document or instrument evidencing or
governing the terms of any Senior Debt or any collateral security documents or
guaranties or documents in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Senior Lender may deem
advisable from time to time, and any collateral security at any time held by the
Senior Lender for the payment of any of the Senior Debt may be sold, exchanged,
waived, surrendered or released, in each case all without notice to or further
assent by the Subordinated Creditor, which will remain bound under this
Agreement, and all without impairing, abridging, releasing or affecting the
subordination provided for herein, notwithstanding any such renewal, extension,
modification, acceleration, compromise, amendment, supplement, termination,
sale, exchange, waiver, surrender or release. The Subordinated Creditor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Senior Debt and notice of or proof of reliance by the Senior Lender upon this
Agreement, and the Senior Debt, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon this Agreement, and
all dealings between the Borrower and the Senior Lender shall be deemed to have
been consummated in reliance upon this Agreement. The Subordinated Creditor
acknowledges and agrees that the Senior Lender has relied upon the subordination
provided for herein in consenting to the issuance of the Subordinated Debt by
the Borrower into the Senior Credit Agreement and in making funds available to
the Borrower thereunder. The Subordinated Creditor waives notice of or proof of
reliance on this Agreement and protest, demand for payment and notice of
default.
<PAGE>
-8-
SECTION 6.
The Subordinated Creditor will not (a) sell, assign or otherwise transfer,
in whole or in part, the Subordinated Note or any interest therein to any other
person or entity (a "Transferee") or (b) create, incur or suffer to exist any
security interest, lien, charge or other encumbrance whatsoever upon the
Subordinated Note in favor of any Transferee unless, in either case, such
Transferee expressly acknowledges to the Senior Lender in writing the
subordination provided for herein and agrees to be bound by all of the terms
hereof.
SECTION 7.
7.1 No failure to exercise, and no delay in exercising on the part of the
Senior Lender (or any agent therefor), from time to time, any right, power or
privilege under this Agreement or any of the Senior Debt shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power of
privilege under this Agreement preclude any other or future exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement and in any agreement relating to any of the Senior
Debt and all other agreements, instruments and documents referred to in any of
the foregoing are cumulative and shall not be exclusive of any rights or
remedies provided by law.
7.2 The Subordinated Creditor agrees to execute and deliver such further
documents and to do such other acts and things as the Senior Lender may
reasonably request in order fully to effect the purposes of this Agreement.
7.3 Any notice, request, demand, statement or consent desired or required
to be given hereunder shall be in writing and shall be delivered by hand, sent
by certified mail, return receipt requested, sent by a nationally recognized
commercial overnight delivery service with provisions for a receipt, postage or
delivery charges prepaid, or sent by facsimile transmission, and shall be deemed
given (a) when actually delivered, if delivered by hand, (b) upon receipt, if
sent by certified mail, (c) the next Business Day after being placed in the
possession of an overnight delivery service, if sent by an overnight delivery
service or (d) if sent by facsimile transmission, when electronic indication of
receipt is received, addressed as set forth below the addressee's signature on
the signature pages of this Agreement or to such other address as may hereafter
be notified by the respective parties hereto.
7.4 THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT SHALL BE GOVERNED BY, THE CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
7.5 The subordination provisions contained herein are for the benefit of
the Bank and its successors and assigns as Senior Lender from time to time and
may not be rescinded or cancelled or modified in any way; nor, unless otherwise
expressly provided for herein, may any provision of this Agreement be waived or
changed without the express prior written consent of the Bank or such successor
Senior Lender.
<PAGE>
-9-
7.6 The Subordinated Creditor will cause the Subordinated Note to bear upon
its face a statement or legend to the effect that such Subordinated Note is
subordinate and junior in right of payment to the Senior Debt in the manner and
to the extent herein set forth.
7.7 This Agreement constitutes the entire agreement and understanding among
the parties hereto and supersedes all prior agreements and understandings, oral
and written, relating to the subject matter hereof. This Agreement may be
executed in one or more counterparts, all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
LOCKHEED MARTIN CORPORATION
By Illegible Signature
-------------------------
Name:
Title:
Address:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Telecopy: (301) 897-6651
<PAGE>
-10-
SILICON VALLEY BANK
By
-------------------------------
Name: Judith Sanchez
Title: Vice President
Address:
Silicon Valley Bank
3003 Tasman Drive
Mail Sort NC815
Santa Clara, CA 95054-1191
Telecopy: (408) 496-2412
Attention: Judith Sanchez
Wellesley Office Park
40 William Street
Wellesley, MA 02181
Telecopy: (617) 431-9906
Attention: James Maynard
SUMMAGRAPHICS CORPORATION
By /s/ DAVID G. OSOWSKI
--------------------------
Name: David G. Osowski
Title: Senior Vice President Finance
Address:
8500 Cameron Road
Austin, TX 78754-3999
Telecopy: (512) 835-1916
Attention: President
<PAGE>
-10-
SILICON VALLEY BANK
By /S/ JUDITH SANCHEZ
-------------------------------
Name: Judith Sanchez
Title: Vice President
Address:
Silicon Valley Bank
3003 Tasman Drive
Mail Sort NC815
Santa Clara, CA 95054-1191
Telecopy: (408) 496-2412
Attention: Judith Sanchez
Wellesley Office Park
40 William Street
Wellesley, MA 02181
Telecopy: (617) 431-9906
Attention: James Maynard
SUMMAGRAPHICS CORPORATION
By
--------------------------
Name: David G. Osowski
Title: Senior Vice President Finance
Address:
8500 Cameron Road
Austin, TX 78754-3999
Telecopy: (512) 835-1916
Attention: President
<PAGE>
Exhibit 21
Subsidiaries
<TABLE>
<CAPTION>
Name Country/State Name for Doing Business
- ---- ------------- -----------------------
<S> <C> <C>
CAD Warehouse Nevada Same
CalComp A.B. Sweden Same
CalComp A/S Norway Same
CalComp Asia Pacific Limited Hong Kong Same
CalComp Australia Pty. Limited Australia Same
CalComp B.V. Netherlands Same
CalComp Canada, Inc. Canada Same
CalComp Espana S.A. Spain Same
CalComp Europe B.V. Netherlands Same
CalComp Europe Ltd. United Kingdom Same
CalComp Ges.m.b.H. Austria Same
CalComp GMBH Germany Same
CalComp Graphic Peripherals (China) Limited Hong Kong Same
CalComp Inc. California Same
CalComp Ltd. United Kingdom Same
CalComp Pacific Inc. Nevada Same
CalComp S.A. France Same
CalComp S.p.A. Italy Same
NS CalComp Corp. Japan Same
N.V. CalComp S.A. Belgium Same
Sanders Development Corp. Delaware Same
Summagraphics Ltd. United Kingdom Same
Summagraphics GMBH Germany Same
Summagraphics (Europe) N.V. Belgium Same
Summagraphics N.V. Belgium Same
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-19583, No. 33-25348 and No. 33-26415) pertaining to the
Summagraphics Corporation 1987 Stock Option Plan, 1988 Employee Stock Purchase
Plan and 1988 Non-Employee Director Stock Option Plan, respectively, of our
report dated August 23, 1996, with respect to the consolidated financial
statements of Summagraphics Corporation and Subsidiaries included in the Annual
Report (Form 10-K) of CalComp Technology, Inc. for the year ended May 31, 1996.
ERNST & YOUNG LLP
Orange County, California
September 11, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Summagraphics Corporation:
We consent to incorporation by reference in the registration statement (Nos.
33-19583, 33-25348 and 33-26415) on Form S-8 of Summagraphics Corporation and
subsidiaries of our reports dated June 27, 1995, except as to Notes 5 and 9
which are as of September 20, 1995, relating to the consolidated balance sheets
of Summagraphics Corporation and subsidiaries as of May 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended May 31, 1995, which
report appears in the May 31, 1996 annual report on Form 10-K of Summagraphics
Corporation and subsidiaries.
KPMG Peat Marwick LLP
Austin, Texas
September 9, 1996
<PAGE>
EXHIBIT 99
June 24, 1996
SUMMAGRAPHICS CORPORATION
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "Meeting") of the
stockholders of Summagraphics Corporation ("Summagraphics"), which will be
held on July 23, 1996, at 10:00 a.m., local time, at the Adolphus Hotel, 1321
Commerce Street, Dallas, Texas 75202. At this meeting, you will be asked to
consider and act upon the following proposals:
1. To approve a Plan of Reorganization and Agreement for the Exchange of
Stock of CalComp Inc. for Stock of Summagraphics Corporation (as amended,
the "Exchange Agreement") pursuant to which Summagraphics will issue to
Lockheed Martin Corporation ("Lockheed Martin") a number of shares of its
common stock ("Common Stock") which, after such issuance, will be equal to
89.7% of the issued and outstanding Common Stock of Summagraphics, on a
fully diluted basis and subject to adjustment in certain events, in
exchange for all of the outstanding capital stock of CalComp Inc.
("CalComp") (the "Exchange"). As a consequence of the Exchange, Lockheed
Martin will acquire control of Summagraphics (hereinafter referred to after
the Exchange as "New CalComp") and CalComp will become a wholly owned
subsidiary of New CalComp. The number of shares of Common Stock issuable to
Lockheed Martin in the Exchange may be increased if Summagraphics fails to
meet certain financial objectives or decreased if CalComp fails to meet
certain financial objectives as of the Closing.
2. To approve the Fourth Amended and Restated Certificate of
Incorporation of Summagraphics (the "Restated Charter"), which will, among
other things, (a) change Summagraphics' name to "CalComp Technology, Inc.;"
(b) increase the number of authorized shares of Summagraphics Common Stock
to 60,000,000; (c) provide that (i) Lockheed Martin may, to the fullest
extent permitted by the General Corporation Law of the State of Delaware,
engage in the same or similar business activities as New CalComp and do
business with any client or customer of New CalComp, (ii) Lockheed Martin
may, to the fullest extent permitted by the General Corporation Law of the
State of Delaware, pursue any business opportunities (other than such
opportunities acquired from New CalComp) without presenting them to New
CalComp, and (iii) Lockheed Martin shall have no duty to communicate or
present any such corporate opportunity to New CalComp and shall not be
liable for breach of any duty as a stockholder of New CalComp by reason of
the fact that Lockheed Martin pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another
person or does not present such corporate opportunity to New CalComp; (d)
establish the policy with which any director, officer or employee of New
CalComp who is also a director, officer or employee of Lockheed Martin
shall act in the event that such person acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for both New
CalComp and Lockheed Martin; (e) establish guidelines to be followed in
connection with certain contractual and other business relations of New
CalComp as they involve Lockheed Martin or its customers, certain related
entities and their respective officers and directors, and sets forth the
powers, rights, duties, and liabilities of New CalComp and its directors,
officers and stockholders in connection therewith; (f) provide that, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, Lockheed Martin shall not be liable to New CalComp or its
stockholders for breach of any duty by reason of the fact that Lockheed
Martin in good faith takes any action or exercises any rights or withholds
any consent in connection with any agreement or contract between Lockheed
Martin and New CalComp; and (g) provide that New CalComp will not be
governed by the provisions of Section 203 of the General Corporation Law of
the State of Delaware or any similar law restricting business combinations
with an interested stockholder.
<PAGE>
3. To approve the CalComp Technology, Inc. 1996 Stock Option Plan for Key
Employees (with Stock Appreciation Rights) (the "Stock Option Plan").
4. To transact such other business that may properly come before the
meeting and any adjournments thereof.
Approval of each of the proposals is required in order for the Exchange to
be consummated. None of the proposals will be deemed approved unless all are
approved. Consummation of the Exchange is dependent upon a number of
conditions, as described in the accompanying Proxy and Information Statement.
All currently issued and outstanding shares of Common Stock will remain
outstanding and unchanged after the Exchange. Subject to approval for listing
by the National Association of Securities Dealers, it is anticipated that
shares of Common Stock will continue to trade on the NASDAQ National Market
System, but under the new symbol "CLCP." A summary of the basic terms and
conditions of the Exchange and certain financial and other information
relating to each of Summagraphics and CalComp are set forth in the
accompanying Proxy and Information Statement, which you should read carefully.
After careful consideration of the terms and conditions of the Exchange
Agreement, Summagraphics' operating losses and need for additional capital and
Summagraphics' prospects as an independent company, the Board of Directors of
Summagraphics has determined that the Exchange Agreement and the transactions
contemplated thereby are in the best interests of Summagraphics and its
stockholders. THE BOARD OF DIRECTORS OF SUMMAGRAPHICS HAS UNANIMOUSLY APPROVED
EACH OF THE EXCHANGE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, THE
RESTATED CHARTER AND THE STOCK OPTION PLAN AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" EACH OF THE ABOVE PROPOSALS.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting. If a quorum is present in person or by proxy, the affirmative vote of
a majority of the outstanding shares of Summagraphics Common Stock entitled to
vote is required to approve the Restated Charter, and the affirmative vote of
a majority of the total votes cast at the Meeting is required to approve the
Exchange Agreement and the Stock Option Plan.
The failure to sign and return your proxy will have the same effect as
voting against the proposals stated above. IN ORDER THAT YOUR SHARES OF COMMON
STOCK MAY BE REPRESENTED AT THE MEETING, YOU ARE URGED TO PROMPTLY COMPLETE,
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING. You may, of course, attend the Meeting
and vote in person even if you have returned a proxy.
Sincerely,
Summagraphics Corporation
Michael S. Bennett
President and Chief Executive
Officer
<PAGE>
SUMMAGRAPHICS CORPORATION
8500 CAMERON ROAD
AUSTIN, TEXAS 78754-3999
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Meeting") of the
stockholders of Summagraphics Corporation ("Summagraphics") will be held on
July 23, 1996, at 10:00 a.m. local time, at the Adolphus Hotel, 1321 Commerce
Street, Dallas, Texas 75202 for the following purposes:
(1) To consider and act upon a proposal to approve a Plan of
Reorganization and Agreement for the Exchange of Stock of CalComp Inc. for
Stock of Summagraphics Corporation (as amended, the "Exchange Agreement")
pursuant to which Summagraphics will issue to Lockheed Martin Corporation
("Lockheed Martin") a number of shares of its common stock ("Common Stock")
which, after such issuance, will be equal to 89.7% of the issued and
outstanding Common Stock of Summagraphics, on a fully diluted basis and
subject to adjustment in certain events, in exchange for all of the
outstanding capital stock of CalComp Inc. ("CalComp") (the "Exchange"). As
a consequence of the Exchange, Lockheed Martin will acquire control of
Summagraphics (hereinafter referred to after the Exchange as "New CalComp")
and CalComp will become a wholly owned subsidiary of New CalComp. The
number of shares of Common Stock issuable to Lockheed Martin in the
Exchange may be increased if Summagraphics fails to meet certain financial
objectives or decreased if CalComp fails to meet certain financial
objectives as of the Closing.
(2) To consider and act upon a proposal to approve the Fourth Amended and
Restated Certificate of Incorporation of Summagraphics (the "Restated
Charter"), which will, among other things, (a) change Summagraphics' name
to "CalComp Technology, Inc.;" (b) increase the number of authorized shares
of Common Stock to 60,000,000; (c) provide that (i) Lockheed Martin may, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, engage in the same or similar business activities as New CalComp
and do business with any client or customer of New CalComp, (ii) Lockheed
Martin may, to the fullest extent permitted by the General Corporation Law
of the State of Delaware, pursue any business opportunities (other than
such opportunities acquired from New CalComp) without presenting them to
New CalComp, and (iii) Lockheed Martin shall have no duty to communicate or
present any such corporate opportunity to New CalComp and shall not be
liable for breach of any duty as a stockholder of New CalComp by reason of
the fact that Lockheed Martin pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another
person or does not present such corporate opportunity to New CalComp; (d)
establish the policy with which any director, officer or employee of New
CalComp who is also a director, officer or employee of Lockheed Martin
shall act in the event that such person acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for both New
CalComp and Lockheed Martin; (e) establish guidelines to be followed in
connection with certain contractual and other business relations of New
CalComp as they involve Lockheed Martin or its customers, certain related
entities and their respective officers and directors, and sets forth the
powers, rights, duties, and liabilities of New CalComp and its directors,
officers and stockholders in connection therewith; (f) provide that, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, Lockheed Martin shall not be liable to New CalComp or its
stockholders for breach of any duty by reason of the fact that Lockheed
Martin in good faith takes any action or exercises any rights or withholds
any consent in connection with any agreement or contract between Lockheed
Martin and New CalComp; and (g) provide that New CalComp will not be
governed by the provisions of Section 203 of the General Corporation Law of
the State of Delaware or any similar law restricting business combinations
with an interested stockholder.
(3) To consider and act upon a proposal to adopt the CalComp Technology,
Inc. 1996 Stock Option Plan for Key Employees (with Stock Appreciation
Rights) (the "Stock Option Plan").
(4) To transact such other business that may properly come before the
Meeting and any adjournments thereof.
<PAGE>
Approval of each of the proposals is required in order for the Exchange to
be consummated. None of the proposals will be deemed approved unless all are
approved. The consummation of the Exchange Agreement and the approval and
effectiveness of all three proposals is referred to herein as the "Exchange,"
unless the context requires otherwise.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting. If a quorum is present in person or by proxy, the affirmative vote by
the holders of a majority of the outstanding shares of Common Stock entitled
to vote is required to approve the Restated Charter, and the affirmative vote
of a majority of the total votes cast at the Meeting is required to approve
the Exchange Agreement and the adoption of the Stock Option Plan. The proxies
designated in the form of proxy furnished with this Proxy and Information
Statement will have the authority, if needed, to adjourn the Meeting and seek
additional votes in favor of the Exchange.
Holders of shares of Summagraphics Common Stock do not have dissenters' or
appraisal rights with respect to the Exchange.
Only stockholders of record as of the close of business on June 7, 1996 will
be entitled to notice of the Meeting and to vote at the Meeting and any
adjournment(s) thereof. A list of stockholders of Summagraphics as of the
Record Date will be available for inspection at Summagraphics' principal
offices during normal business hours for ten days prior to the Meeting and at
the Meeting.
By order of the Board of Directors,
Robert B. Sims
Secretary
Austin, Texas
June 24, 1996
YOU ARE URGED TO READ THE ATTACHED PROXY AND INFORMATION STATEMENT, WHICH
CONTAINS INFORMATION RELEVANT TO THE ACTIONS TO BE TAKEN AT THE MEETING. IN
ORDER TO ASSURE THE PRESENCE OF A QUORUM, WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING IN PERSON, EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. A STOCKHOLDER OF SUMMAGRAPHICS WHO EXECUTES AND
RETURNS A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME BEFORE IT IS VOTED BY
PROVIDING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF SUMMAGRAPHICS, BY
SUBMITTING A SUBSEQUENT PROXY OR BY VOTING IN PERSON AT THE MEETING. THE
GIVING OF A PROXY DOES NOT AFFECT A STOCKHOLDER'S RIGHT TO ATTEND AND VOTE IN
PERSON AT THE MEETING. HOWEVER, A STOCKHOLDER'S PRESENCE AT THE MEETING
WITHOUT FURTHER ACTION WILL NOT REVOKE THE STOCKHOLDER'S PROXY.
<PAGE>
PROXY AND INFORMATION STATEMENT
FOR
SUMMAGRAPHICS CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 23, 1996
----------------
This Proxy and Information Statement and the enclosed form of proxy of
Summagraphics Corporation, a Delaware corporation ("Summagraphics"), are being
furnished to holders of Summagraphics' common stock, par value of $.01 per
share ("Common Stock" or "Summagraphics Common Stock"), (i) in connection with
the solicitation of proxies by Summagraphics' Board of Directors (the "Board")
for use at a Special Meeting of Stockholders of Summagraphics (the "Meeting"),
to be held on July 23, 1996, at the Adolphus Hotel, 1321 Commerce Street,
Dallas, Texas 75202, at 10:00 a.m. local time, and any adjournment (or
adjournments) thereof and (ii) in the event that the proposals set forth
herein are approved by the holders of Common Stock, in connection with the
election of members of the Board of Directors of Summagraphics to serve after
the Exchange by written consent of Lockheed Martin.
At the Meeting, the stockholders of Summagraphics will be asked to consider
and act upon proposals to (i) approve a Plan of Reorganization and Agreement
for the Exchange of Stock of CalComp Inc. for Stock of Summagraphics
Corporation, dated March 19, 1996 (the "Exchange Agreement") as amended by
Amendment No. 1 thereto dated April 30, 1996 ("Amendment No. 1") and Amendment
No. 2 thereto dated June 5, 1996 ("Amendment No. 2"), copies of which are
attached as Appendices A-1, A-2 and A-3 to this Proxy and Information
Statement and are incorporated herein by reference, by and among
Summagraphics, CalComp Inc. ("CalComp") and Lockheed Martin Corporation
("Lockheed Martin"), the sole stockholder of CalComp pursuant to which
Summagraphics will issue to Lockheed Martin a number of shares of Common Stock
which, after such issuance, will be equal to 89.7% of all the issued and
outstanding Common Stock of Summagraphics, on a fully diluted basis and
subject to adjustment in certain events (the "Exchange Shares"), in exchange
for all of the outstanding capital stock of CalComp (the "Exchange"), (ii)
approve the Fourth Amended and Restated Certificate of Incorporation of
Summagraphics (the "Restated Charter"), which will, among other things,
(a) change Summagraphics' name to "CalComp Technology, Inc.;" (b) increase the
number of authorized shares of Summagraphics Common Stock to 60,000,000; (c)
provide that (i) Lockheed Martin may, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, engage in the same or
similar business activities as New CalComp and do business with any client or
customer of New CalComp, (ii) Lockheed Martin may, to the fullest extent
permitted by the General Corporation Law of the State of Delaware, pursue any
business opportunities (other than such opportunities acquired from New
CalComp) without presenting them to New CalComp, and (iii) Lockheed Martin
shall have no duty to communicate or present any such corporate opportunity to
New CalComp and shall not be liable for breach of any duty as a stockholder of
New CalComp by reason of the fact that Lockheed Martin pursues or acquires
such corporate opportunity for itself, directs such corporate opportunity to
another person or does not present such corporate opportunity to New CalComp;
(d) establish the policy with which any director, officer or employee of New
CalComp who is also a director, officer or employee of Lockheed Martin shall
act in the event that such person acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for both New CalComp
and Lockheed Martin; (e) establish guidelines to be followed in connection
with certain contractual and other business relations of New CalComp as they
involve Lockheed Martin or its customers, certain related entities and their
respective officers and directors, and sets forth the powers, rights, duties,
and liabilities of New CalComp and its directors, officers and stockholders in
connection therewith; (f) provide that, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, Lockheed Martin shall not be
liable to New CalComp or its stockholders for breach of any duty by reason of
the fact that Lockheed Martin in good faith takes any action or exercises any
rights or withholds any consent in connection with any agreement or contract
between Lockheed Martin and New CalComp; and (g) provide that New CalComp will
not be governed by the provisions of Section 203 of the General Corporation
Law of the State of Delaware or any similar law restricting business
<PAGE>
combinations with an interested stockholder, and (iii) adopt the CalComp
Technology, Inc. 1996 Stock Option Plan for Key Employees (with Stock
Appreciation Rights) (the "Stock Option Plan"). Approval of each of the
proposals is required in order for the Exchange to be consummated. None of the
proposals will be deemed approved unless all are approved. The number of
shares of Common Stock issuable to Lockheed Martin in the Exchange may be
increased if Summagraphics fails to meet certain financial objectives or
decrease if CalComp fails to meet certain financial objectives as of the
Closing.
Upon consummation of the Exchange, Lockheed Martin will own approximately
89.7% of the outstanding shares of Common Stock of Summagraphics, on a fully
diluted basis and subject to adjustment in certain events, CalComp will become
a wholly owned subsidiary of Summagraphics and Lockheed Martin, by virtue of
its majority ownership, will be able to control the vote on all matters
submitted to Summagraphics stockholders. The Exchange will result in the
acquisition of control of Summagraphics by Lockheed Martin.
For purposes of this Proxy and Information Statement, the combined
businesses of Summagraphics and CalComp after the Exchange are referred to as
"New CalComp," unless the context requires otherwise.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting. If a quorum is present in person or by proxy, the affirmative vote by
the holders of a majority of the outstanding shares of Common Stock entitled
to vote is required to approve the Restated Charter, and the affirmative vote
of a majority of the total votes cast at the Meeting is required to approve
the Exchange and the adoption of the Stock Option Plan. Because consummation
of the Exchange is contingent upon approval of each of the proposals, unless a
majority of the outstanding shares of Summagraphics Common Stock vote "FOR"
approval of the Restated Charter, the Exchange will not occur.
This Proxy and Information Statement and the accompanying form of proxy are
first being mailed to the stockholders of Summagraphics on or about June 24,
1996. Only stockholders of record as of the close of business on June 7, 1996
(the "Record Date") will be entitled to vote at the Meeting. Proxies submitted
by persons who are stockholders of record as of the close of business on the
Record Date will be voted unless subsequently revoked.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE
CONSIDERED BY THE STOCKHOLDERS OF SUMMAGRAPHICS WITH RESPECT TO THE MATTERS TO
BE VOTED ON AT THE MEETING.
IN THE EVENT THAT THE PROPOSALS SET FORTH HEREIN ARE APPROVED BY THE HOLDERS
OF COMMON STOCK, LOCKHEED MARTIN IS NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND LOCKHEED MARTIN A PROXY FOR THE ELECTION OF MEMBERS OF
THE BOARD OF DIRECTORS OF SUMMAGRAPHICS AFTER THE EXCHANGE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY AND INFORMATION
STATEMENT AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SUMMAGRAPHICS. THE
DELIVERY OF THIS PROXY AND INFORMATION STATEMENT DOES NOT UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION ABOUT SUMMAGRAPHICS, CALCOMP OR LOCKHEED MARTIN CONTAINED IN THIS
PROXY AND INFORMATION STATEMENT SINCE THE DATE HEREOF. HOWEVER, IF ANY
MATERIAL CHANGE OCCURS DURING THE PERIOD THAT THE PROXY AND INFORMATION
STATEMENT IS REQUIRED TO BE DELIVERED, THE PROXY AND INFORMATION STATEMENT
WILL BE AMENDED AND SUPPLEMENTED ACCORDINGLY. IN THE EVENT THAT THE PERCENTAGE
OWNERSHIP OF COMMON STOCK TO BE ACQUIRED BY LOCKHEED MARTIN IN THE EXCHANGE IS
INCREASED TO 92% OR GREATER PURSUANT TO THE ADJUSTMENT PROVISIONS IN THE
EXCHANGE AGREEMENT, SUMMAGRAPHICS WILL AMEND AND SUPPLEMENT THIS PROXY
STATEMENT AND RESOLICIT PROXIES TO VOTE UPON THE PROPOSALS SET FORTH HEREIN.
ALL INFORMATION REGARDING SUMMAGRAPHICS IN THIS PROXY AND INFORMATION
STATEMENT HAS BEEN SUPPLIED BY SUMMAGRAPHICS AND ALL INFORMATION REGARDING
CALCOMP AND LOCKHEED MARTIN HAS BEEN SUPPLIED BY CALCOMP AND LOCKHEED MARTIN,
RESPECTIVELY.
The date of this Proxy and Information Statement is June 24, 1996
<PAGE>
SUMMAGRAPHICS CORPORATION
PROXY AND INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................. 1
COMBINED SUMMARY PRO FORMA AND HISTORICAL FINANCIAL INFORMATION.......... 10
COMPARATIVE PER SHARE DATA............................................... 12
RISK FACTORS............................................................. 14
THE MEETING.............................................................. 23
PROPOSAL I: THE EXCHANGE AGREEMENT....................................... 26
PROPOSAL II: THE RESTATED CHARTER........................................ 44
PROPOSAL III: THE STOCK OPTION PLAN...................................... 47
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION...................... 51
SELECTED HISTORICAL FINANCIAL INFORMATION................................ 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SUMMAGRAPHICS.......................................... 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CALCOMP................................................ 66
RELATIONSHIP WITH LOCKHEED MARTIN........................................ 71
MARKET PRICE OF SUMMAGRAPHICS COMMON STOCK............................... 77
DIVIDEND POLICY.......................................................... 78
BUSINESS OF SUMMAGRAPHICS................................................ 79
BUSINESS OF CALCOMP...................................................... 87
MANAGEMENT OF NEW CALCOMP AFTER THE EXCHANGE............................. 93
CURRENT MANAGEMENT OF SUMMAGRAPHICS...................................... 101
SUMMAGRAPHICS EXECUTIVE COMPENSATION AND OTHER INFORMATION............... 104
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 109
PRINCIPAL STOCKHOLDERS OF SUMMAGRAPHICS.................................. 110
DESCRIPTION OF SUMMAGRAPHICS/NEW CALCOMP CAPITAL STOCK................... 112
INDEPENDENT AUDITORS..................................................... 114
AVAILABLE INFORMATION.................................................... 114
FORWARD LOOKING STATEMENTS............................................... 115
STOCKHOLDER PROPOSALS.................................................... 115
OTHER BUSINESS........................................................... 115
INDEX TO FINANCIAL STATEMENTS............................................ F-1
APPENDICES
The Exchange Agreement................................................. A-1
Amendment No. 1 to the Exchange Agreement.............................. A-2
Amendment No. 2 to the Exchange Agreement.............................. A-3
Needham Opinion........................................................ B
The Restated Charter................................................... C
The Stock Option Plan.................................................. D
</TABLE>
<PAGE>
SUMMARY
The following is a summary of certain significant matters discussed elsewhere
in this Proxy and Information Statement. This summary is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Proxy and Information Statement and the Appendices hereto. Stockholders
are urged to, and should, read the entire Proxy and Information Statement,
including the Appendices hereto.
THE MEETING
The Meeting will be held on July 23, 1996 at 10:00 a.m., local time, at the
Adolphus Hotel, 1321 Commerce Street, Dallas, Texas 75202. At the Meeting,
stockholders of Summagraphics will be asked to consider and act upon the
following proposals relating to the Exchange: (1) to approve the Exchange
Agreement pursuant to which Summagraphics will issue the Exchange Shares to
Lockheed Martin in exchange for all the outstanding capital stock of CalComp,
after which Lockheed Martin will own 89.7% (subject to adjustment in certain
events) of the outstanding shares of Summagraphics Common Stock, on a fully
diluted basis, (2) to approve the Restated Charter, which will, among other
things, (a) change Summagraphics' name to "CalComp Technology, Inc.;" (b)
increase the authorized number of shares of Common Stock to 60,000,000; (c)
provide that (i) Lockheed Martin may, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, engage in the same or similar
business activities as New CalComp and do business with any client or customer
of New CalComp, (ii) Lockheed Martin may, to the fullest extent permitted by
the General Corporation Law of the State of Delaware, pursue any business
opportunities (other than such opportunities acquired from New CalComp) without
presenting them to New CalComp, and (iii) Lockheed Martin shall have no duty to
communicate or present any such corporate opportunity to New CalComp and shall
not be liable for breach of any duty as a stockholder of New CalComp by reason
of the fact that Lockheed Martin pursues or acquires such corporate opportunity
for itself, directs such corporate opportunity to another person or does not
present such corporate opportunity to New CalComp; (d) establish the policy
with which any director, officer or employee of New CalComp who is also a
director, officer or employee of Lockheed Martin shall act in the event that
such person acquires knowledge of a potential transaction or matter that may be
a corporate opportunity for both New CalComp and Lockheed Martin; (e) establish
guidelines to be followed in connection with certain contractual and other
business relations of New CalComp as they involve Lockheed Martin or its
customers, certain related entities and their respective officers and
directors, and sets forth the powers, rights, duties, and liabilities of New
CalComp and its directors, officers and stockholders in connection therewith;
(f) provide that, to the fullest extent permitted by the General Corporation
Law of the State of Delaware, Lockheed Martin shall not be liable to New
CalComp or its stockholders for breach of any duty by reason of the fact that
Lockheed Martin in good faith takes any action or exercises any rights or
withholds any consent in connection with any agreement or contract between
Lockheed Martin and New CalComp; and (g) provide that New CalComp will not be
governed by the provisions of Section 203 of the General Corporation Law of the
State of Delaware or any similar law restricting business combinations with an
interested stockholder, and (3) to adopt the Stock Option Plan. The number of
shares of Common Stock issuable to Lockheed Martin in the Exchange may be
adjusted in certain circumstances. See "--the Exchange Agreement." Approval of
each of the proposals is required in order for the transactions contemplated by
the Exchange Agreement to be consummated. None of the proposals will be deemed
approved unless all are approved. See "The Meeting."
THE PARTIES
Summagraphics. Summagraphics manufactures and sells input and output computer
graphics peripheral products, including digitizing tablets, large format
plotters, thermal transfer printers and graphic cutters. Summagraphics'
products are sold in the domestic and international markets by its sales force
primarily through distributors and also through OEMs which incorporate
Summagraphics' products into their own computer products. Summagraphics'
products may be integrated with most personal computers, including IBM-
compatible
1
<PAGE>
personal computers and Apple personal computers, workstations from Sun
Microsystems and Digital Equipment, and publishing systems from Scitex, and are
compatible with most industry standard CAD and graphics software applications.
See "Business of Summagraphics."
Summagraphics was incorporated under Delaware law in 1972. The mailing
address of Summagraphics' principal executive office is 8500 Cameron Road,
Austin, Texas 78754-3999. Summagraphics' telephone number is (512) 825-0900.
Except where the context indicates otherwise, references to Summagraphics
include its consolidated subsidiaries.
CalComp. According to information prepared by market analysts and planning
consultants, CalComp is a leading supplier of input and output computer
graphics peripheral products, including large format LED, direct imaging, dry
imaging, vector and ink jet plotters, digitizers, large format scanners and
large format color printers. According to those market analysts and planning
consultants, in 1995 CalComp ranked second globally in both revenues generated
from the sale of digitizers and in the number of digitizer units sold, had the
largest market share of pen plotters, and was ranked second in technical
leadership and user familiarity. CalComp's products are marketed domestically
and internationally to the CAD/CAM and graphic arts markets. CalComp provides
full service product support and technical assistance, sells software and
supplies and provides after-warranty services. CalComp is a wholly owned
subsidiary of Lockheed Martin, one of the nation's largest aerospace and
defense contractors. See "Business of CalComp."
CalComp was incorporated under California law in 1987. The mailing address of
CalComp's principal executive office is 2411 West LaPalma Avenue, Anaheim,
California 92801 and its telephone number is (714) 821-2000. Except where the
context indicates otherwise, references to CalComp include its consolidated
subsidiaries.
SUMMAGRAPHICS TO CHANGE NAME TO CALCOMP TECHNOLOGY, INC.
Upon consummation of the Exchange, Summagraphics will change its name to
"CalComp Technology, Inc." It is anticipated that the Common Stock will
continue to trade on the NASDAQ National Market System, but under the new
symbol "CLCP." See "Summary--Market Price Data" and "Market Price of
Summagraphics Common Stock." For purposes of this Proxy and Information
Statement, the combined businesses of Summagraphics and CalComp after the
Exchange are referred to as "New CalComp."
REASONS FOR THE EXCHANGE
Summagraphics' primary reasons for entering into the Exchange Agreement are
to address its operating losses and need for liquidity in a manner that will
benefit Summagraphics stockholders. Summagraphics has experienced continuing
operating losses in recent quarters which have resulted in defaults under some
of its credit agreements and the lease for its principal U.S. facility (for
which waivers have been received), reduced liquidity and lost sales
opportunities as procurement of inventory has been constrained. To respond to
these developments, Summagraphics has sought proposals to purchase certain of
its non-strategic product lines, or to acquire Summagraphics. CalComp is a much
larger company that manufactures and markets products competitive with or
complementary to many of Summagraphics' products. By combining the businesses
of CalComp with the businesses of Summagraphics through the Exchange, existing
Summagraphics stockholders will own a continuing interest in a larger company
that will have access to financing that is expected to mitigate the liquidity
problems currently being experienced by Summagraphics. Based on preliminary
business plans developed for New CalComp, Summagraphics and CalComp believe
that a key benefit to be realized from the Exchange will be the cost savings
expected to be realized from, among other things, reduction in corporate
overhead and elimination of duplicative manufacturing operations and certain
unprofitable product lines. Management expects that the enumerated actions will
result in annual cost savings of approximately $15,000,000; however, no
assurance can be given that these savings will be realized. For a discussion of
the various factors considered by Summagraphics' Board of Directors in
approving the transactions contemplated by
2
<PAGE>
the Exchange Agreement and the Exchange, see "The Exchange Agreement--Reasons
for the Exchange; Recommendations."
RISK FACTORS
Stockholders of Summagraphics should carefully consider the information
contained in this Proxy and Information Statement, including certain risk
factors set forth below in evaluating the Exchange. Among the principal risks
to be considered by its stockholders are: (i) the substantial dilution of the
percentage ownership of current Summagraphics stockholders and the transfer of
control to Lockheed Martin after the Exchange; (ii) New CalComp's dependence on
Lockheed Martin for working capital and liquidity following the Exchange; (iii)
Summagraphics' operating losses and its need for additional capital; (iv) the
business risks of CalComp, including its recent operating losses; (v) the
dependence of Summagraphics on the future operating results of CalComp for
profitable operations on a consolidated basis following the Exchange; and (vi)
the increased number of shares of Common Stock that will be available for
future sale. See "Risk Factors."
THE EXCHANGE AGREEMENT
On March 19, 1996, Summagraphics, CalComp and Lockheed Martin entered into
the Exchange Agreement. On April 30, 1996, the parties entered into Amendment
No. 1 thereto ("Amendment No. 1"), and on June 5, 1996, the parties entered
into Amendment No. 2 thereto ("Amendment No. 2"). Copies of the Exchange
Agreement, Amendment No. 1 and Amendment No. 2 are included with this Proxy and
Information Statement as Appendices A-1, A-2 and A-3, respectively. For
purposes of this Proxy and Information Statement, the Exchange Agreement,
Amendment No. 1 and Amendment No. 2 are collectively referred to as the
"Exchange Agreement," unless the context indicates otherwise. As a result of
the Exchange, Summagraphics will issue to Lockheed Martin a number of shares of
Summagraphics Common Stock which, after such issuance, will be equal to 89.7%
of the issued and outstanding shares of Summagraphics Common Stock, on a fully
diluted basis and subject to adjustment in certain events, as determined on the
Closing Date taking into account the Exchange Shares to be issued, and Lockheed
Martin will transfer to Summagraphics all of the issued and outstanding common
stock of CalComp, which effectively will result in Summagraphics stockholders
indirectly obtaining a 10.3% interest in New CalComp while Lockheed Martin will
obtain an 89.7% interest in New CalComp. The number of shares of Common Stock
issuable to Lockheed Martin in the Exchange may be increased if Summagraphics
fails to meet certain financial objectives as of the Closing or decreased if
CalComp fails to meet certain financial objectives as of the Closing. In either
event, Lockheed Martin's percentage ownership of New CalComp will increase or
decrease and that of Summagraphics' stockholders will decrease or increase by a
corresponding amount. As a result of the Exchange, Lockheed Martin will acquire
control of Summagraphics and CalComp will become a wholly owned subsidiary of
Summagraphics.
As of March 19, 1996, the number of Exchange Shares issuable to Lockheed
Martin under the Exchange Agreement was 40,733,319, compared to the total of
4,677,293 shares of Common Stock issued and outstanding, on a fully diluted
basis, as of that date assuming a market price of $3.00 per share of Common
Stock, which was the last trade price of Summagraphics Common Stock on March
20, 1996, the date on which the execution of the Exchange Agreement was
announced. In addition, pursuant to the terms of Amendment No. 1, Summagraphics
is required to issue to Lockheed Martin additional shares of Common Stock
immediately after the Closing if there has been any material adverse change in
the financial position, results of operations, assets, liabilities or business
of Summagraphics from November 30, 1995 to the Closing Date, which individually
or in the aggregate is reasonably likely to result in a reduction in
Summagraphics' shareholders' equity by an amount in excess of $3,400,000 (a
"Material Adverse Effect") or if Summagraphics does not have backlog for
certain product lines of not less than $2,750,000 or any combination of the
foregoing. The number of additional shares to be issued will be equal to the
amount of the Material Adverse Effect that exceeds $3,400,000 plus the
difference between the actual amount of backlog and $2,750,000, if such backlog
is less than $2,750,000, divided by the average closing prices of the Common
Stock for the five trading days prior to Closing. Amendment No. 1
3
<PAGE>
does not provide for a minimum or maximum number of additional shares of Common
Stock to be issued to Lockheed Martin; however, had the Closing occurred on May
31, 1996, management of Summagraphics estimates that no additional shares of
Common Stock would have been issued to Lockheed Martin. Management of
Summagraphics does not expect that a material number of additional shares of
Common Stock will be issued to Lockheed Martin if the Closing occurs on or
before July 31, 1996. However, there can be no assurance that the Material
Adverse Effect and Backlog Variances will not increase significantly, and
result in a material number of additional shares of Common Stock being issued
to Lockheed Martin.
Pursuant to the terms of Amendment No. 2, the number of Exchange Shares to be
issued to Lockheed Martin will be reduced if there has been any material
adverse change in the financial position, results of operations, assets,
liabilities or business of CalComp from December 31, 1995 to the Closing Date,
which individually or in the aggregate is reasonably likely to result in a
reduction in CalComp's stockholder's equity by an amount in excess of
$25,500,000 (a "CalComp Material Adverse Effect"). The reduction in the number
of Exchange Shares will be equal to the amount of the CalComp Material Adverse
Effect that exceeds $25,500,000 (the "CalComp Material Adverse Effect
Variance"), divided by the average closing prices of the Common Stock for the
five trading days prior to Closing. Amendment No. 2 does not provide for a
minimum or maximum reduction in the number of Exchange Shares to be issued to
Lockheed Martin; however, had the Closing occurred on May 31, 1996, management
of Lockheed Martin and CalComp estimate that no reduction in the number of
Exchange Shares would have occurred. Management of Lockheed Martin and CalComp
also do not expect a material reduction in the number of Exchange Shares at
Closing. However, there can be no assurance that the CalComp Material Adverse
Effect Variance will not increase significantly, and result in a material
reduction in the number of Exchange Shares that will be issued to Lockheed
Martin. Amendment No. 2 also extended the term of the Exchange Agreement and
related documents to July 31, 1996 and amended certain terms of the proposed
Restated Charter.
All currently issued and outstanding shares of Common Stock will remain
outstanding and unchanged after the Exchange. It is anticipated that shares of
Common Stock will continue to trade on the NASDAQ National Market System, but
under the new symbol "CLCP." See "Summary--Market Price Data" and "Market Price
of Summagraphics Common Stock." The shares of CalComp received by Summagraphics
will be held by New CalComp without restriction, other than restrictions
imposed by operation of law. Lockheed Martin has indicated that it does not
currently intend to acquire the shares of Common Stock held by Summagraphics
stockholders or to make any distribution of the capital stock of CalComp to
Summagraphics stockholders or the public. The Exchange Agreement sets forth the
representations and warranties, covenants and other agreements and conditions
to closing of the parties. See "The Exchange Agreement."
4
<PAGE>
The following chart illustrates the Exchange and the end result thereof
assuming that there is no adjustment.
THE EXCHANGE
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
END RESULT
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Closing Date. The closing ("Closing") of the Exchange is to take place as
soon as practicable after the Meeting and the satisfaction or waiver of all
conditions to Closing of the parties set forth in the Exchange Agreement. The
date of Closing is referred to herein and in the Exchange Agreement as the
"Closing Date."
Conditions to Exchange; Termination. The consummation of the Exchange is
subject to the satisfaction of certain conditions set forth in the Exchange
Agreement, including among other things, (i) approval of the Exchange
Agreement, the Restated Charter and the Stock Option Plan by the requisite
votes of Summagraphics stockholders, (ii) the accuracy of representations and
warranties made by the parties in the Exchange Agreement, (iii) the performance
of all obligations and compliance with all covenants required to be performed
or complied with by the parties prior to the Closing, (iv) the receipt by
Summagraphics, CalComp and Lockheed Martin of certain legal, accounting and
fairness opinions and reports, as the case may be, and (v) the expiration of
any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and under any applicable
foreign antitrust regulations.
The Exchange Agreement may be terminated, at any time prior to the closing of
the Exchange, whether before or after the required approval by the
Summagraphics stockholders, upon the occurrence of any of the following events:
(1) by mutual consent of the parties to the Exchange Agreement; (2) by a non-
breaching party if the other party breaches in any material respect any of its
representations or warranties in, or fails to perform in any material respect
any of its covenants, agreements or obligations under the Exchange Agreement,
which breach or failure to perform cannot be or has not been cured within
thirty days after notice; (3) by the Board of Directors of Summagraphics, if
Summagraphics receives a proposal for another transaction which the Board
5
<PAGE>
determines, in good faith and upon advice of counsel, must be submitted to
Summagraphics stockholders (provided that a termination fee of $1.25 million
will then be payable to Lockheed Martin by Summagraphics); (4) by Summagraphics
if the requisite vote of Summagraphics' stockholders approving each of the
Exchange, the Restated Charter and the Stock Option Plan is not received at the
Meeting; or (5) if the Closing has not occurred on or before July 31, 1996
(which may be extended in certain circumstances pursuant to the Exchange
Agreement).
No-Shop; Termination Fee. The Exchange Agreement provides that neither
Summagraphics nor any of its officers, directors or advisors will directly or
indirectly encourage, solicit or initiate discussions with any person other
than Lockheed Martin with respect to any proposal concerning any merger, share
exchange, consolidation, sale of substantial assets, tender offer, sale of
control or similar transaction involving Summagraphics or its subsidiaries (an
"Acquisition Proposal," as defined in the Exchange Agreement; see "The Exchange
Agreement--Termination Fee"), nor will they disclose to any person in
connection with any of the foregoing non-public information, or enter into any
agreement relating to an Acquisition Proposal, unless the full Board of
Directors of Summagraphics determines in good faith, with the advice of
counsel, that the Board has a fiduciary duty to respond to any such proposal.
If an Acquisition Proposal is received and the Board elects to pursue it as
provided above, Summagraphics may terminate the Exchange Agreement, provided
that Summagraphics pays to Lockheed Martin a $1.25 million termination fee. The
termination fee is also payable to Lockheed Martin if the Closing does not
occur because of a breach of the Exchange Agreement by Summagraphics and within
twelve months thereafter Summagraphics enters into an agreement with respect
to, or closes, an Acquisition Proposal.
OPINION OF FINANCIAL ADVISOR
The Board of Directors of Summagraphics has received a written opinion dated
March 19, 1996, which was updated in a written opinion dated June 6, 1996, from
Needham & Company, Inc. ("Needham") to the effect that, as of the respective
dates of such opinions, the consideration to be paid to Summagraphics by
Lockheed Martin in the Exchange was fair to the stockholders of Summagraphics
from a financial point of view. The full text of the June 6, 1996 written
Needham opinion, which sets forth the assumptions made, matters considered,
limitations on and scope of Needham's review, is attached to this Proxy and
Information Statement as Appendix B. Summagraphics stockholders are urged to,
and should, read the opinion in its entirety. See "The Exchange Agreement--
Opinion of Financial Advisor."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Summagraphics has unanimously approved the Exchange
Agreement, the Restated Charter and the CalComp Technology, Inc. 1996 Stock
Option Plan as being fair to and in the best interests of Summagraphics
stockholders. The Board of Directors recommends that stockholders vote "FOR"
each of the proposals to be considered at the Meeting. See "The Exchange
Agreement--Background of the Exchange" and "--Reasons for the Exchange;
Recommendations."
MANAGEMENT OF NEW CALCOMP AFTER THE EXCHANGE
The Exchange Agreement contemplates that each of the present directors and
certain officers of Summagraphics will resign effective upon the Closing.
Lockheed Martin will then elect new directors by written consent, and the Board
of Directors of New CalComp will then appoint the executive officers of New
CalComp. For a description of the background and experience of each of Lockheed
Martin's director designees and the proposed executive management team, see
"Management of New CalComp After the Exchange." For so long as Lockheed Martin
continues to beneficially own more than 50 percent of the outstanding capital
stock of New CalComp after the Exchange, Lockheed Martin will be able, among
other things, to elect the entire Board of Directors of New CalComp. See "Risk
Factors--Control by Lockheed Martin." Lockheed Martin has agreed for so long as
it owns 50 percent or more of the New CalComp Common Stock, it will use good
faith efforts to cause to be elected to the Board of Directors of New CalComp
at least two individuals who are independent of Lockheed Martin and New
CalComp. See "The Exchange Agreement--Intercompany Agreements."
6
<PAGE>
INTERCOMPANY AGREEMENTS BETWEEN SUMMAGRAPHICS/NEW CALCOMP AND LOCKHEED MARTIN
In connection with the execution of the Exchange Agreement, Summagraphics
issued to Lockheed Martin a 9 1/4% Secured Convertible Debenture (the
"Convertible Debenture") to provide Summagraphics with financing of up to $2.5
million to fund Summagraphics' operations pending the Closing of the Exchange.
This Convertible Debenture bears interest at 9 1/4% per annum and is
convertible upon an Event of Default (as defined in the Convertible Debenture)
into shares of Summagraphics Common Stock at a conversion price of $2.00 per
share, unless the Exchange Agreement is terminated as a result of a material
breach by Lockheed Martin, in which case the conversion rate is increased to
$3.00 per share of Common Stock (the "Conversion Shares"). In connection with
the issuance of the Convertible Debenture, Summagraphics entered into a
registration rights agreement with Lockheed Martin relating to the Conversion
Shares (the "Debenture Registration Rights"). Subject to certain limitations,
the Debenture Registration Rights entitle Lockheed Martin (or its assignees) to
cause Summagraphics to include Conversion Shares in any registration statement
filed by Summagraphics or to cause Summagraphics to file and use its best
efforts to cause to become effective a registration statement under the
Securities Act of 1933, as amended, in connection with any public offering of
Conversion Shares by Lockheed Martin. See "Relationship with Lockheed Martin."
The Exchange Agreement provides that Lockheed Martin and Summagraphics will
enter into the following additional intercompany agreements (collectively, the
"Intercompany Agreements") effective upon the Closing: (i) a Registration
Rights Agreement pursuant to which the Exchange Shares to be issued to Lockheed
Martin in connection with the Exchange will have certain "demand" and
"piggyback" registration rights; (ii) an Intercompany Services Agreement
pursuant to which Lockheed Martin will provide certain services to New CalComp
following the Closing which Lockheed Martin had previously provided to CalComp;
(iii) a Cash Management Agreement pursuant to which Lockheed Martin will manage
the cash receipts and disbursements, on a daily basis, of New CalComp and
provide up to $2 million in credit; (iv) a Tax Sharing Agreement pursuant to
which Lockheed Martin and New CalComp will allocate their respective tax
liabilities and tax attributes and establish procedures to be followed for tax
years for which New CalComp and its subsidiaries will be included in
consolidated Federal income tax returns of Lockheed Martin's consolidated
group; (v) a Revolving Credit Agreement pursuant to which Lockheed Martin will
provide borrowings in an aggregate principal amount of approximately $28
million to New CalComp after the Closing for payment of certain outstanding
indebtedness, including, but not limited to amounts outstanding under the
Convertible Debenture, at Closing and general working capital purposes; and
(vi) a Corporate Agreement pursuant to which Lockheed Martin and New CalComp
will agree, among other things, that for so long as Lockheed Martin owns at
least 50% of the Common Stock of New CalComp, at least two thirds of the
members of the Board of Directors will consist of Lockheed Martin designees and
at least two directors will be "independent" of both Lockheed Martin and New
CalComp, and that New CalComp will not take any actions which would violate, or
cause an event of default by Lockheed Martin under provisions of applicable law
or regulation, any credit agreement or other material agreement of Lockheed
Martin, or any judgment, order or decree of a governmental body or court. See
"Relationship with Lockheed Martin."
INTEREST OF CERTAIN PERSONS IN THE EXCHANGE
The senior management of Summagraphics are parties to various agreements that
provide for substantial payments if their employment is terminated after a
change of control of Summagraphics and that accelerate the vesting of unvested
options and extend the period for exercise of options previously granted. The
Exchange will trigger change of control provisions contained in the employment
agreements of certain members of Summagraphics' management. The Board of
Directors of Summagraphics, with the consent of Lockheed Martin, has approved
certain modifications to existing employment agreements and benefit plans and
has adopted a retention plan that are intended to provide management and key
employees with financial incentives to continue their employment with
Summagraphics at least through Closing of the Exchange, and to treat fairly
employees who may be terminated after the Exchange is consummated.
7
<PAGE>
These arrangements may create a conflict of interest between the affected
employees and Summagraphics. The Board of Directors of Summagraphics was aware
of these arrangements when the Exchange Agreement and related transactions were
approved and does not believe they will have an adverse effect upon
Summagraphics, and in fact, that such arrangements are necessary to provide
reasonable assurance that the business of Summagraphics will continue to
operate in the ordinary course so that the Exchange may be consummated. See
"The Exchange Agreement--Interests of Certain Persons in the Exchange."
VOTING RIGHTS AND PROXIES; REQUIRED VOTE
Quorum. The presence at the Meeting, in person or by proxy, of a majority of
all of the outstanding shares of Common Stock entitled to vote will constitute
a quorum at the Meeting. Shares of record held by a broker or nominee that are
not voted on any matter are treated as shares as to which voting power has been
withheld by the beneficial owners of such shares and, therefore, as shares not
entitled to vote on the proposals and will not be included in determining the
existence of a quorum.
Required Vote. Holders of record of shares of Summagraphics Common Stock as
of the close of business on June 7, 1996 ("Record Date") will be entitled to
cast one vote for each share of Summagraphics Common Stock held by such holder
as of the Record Date. At the Record Date, there were 4,642,395 shares of
Summagraphics Common Stock outstanding and entitled to vote. If a quorum is
present in person or by proxy, the affirmative vote of a majority of the
outstanding shares of Common Stock on the Record Date is required to approve
the Restated Charter, and the affirmative vote of a majority of the total votes
cast is required to approve the Exchange Agreement and the Stock Option Plan.
Despite the lesser vote required for the other proposals, if the proposal to
approve the Restated Charter is not adopted by the requisite vote, the Exchange
will not be consummated. The proxies designated in the form of proxy furnished
with this Proxy and Information Statement will have the authority, if needed,
to adjourn the Meeting and seek additional votes in favor of the Exchange.
The approval of all three proposals is required in order for the Exchange
Agreement to be consummated. Unless all of the proposals are approved by
Summagraphics stockholders at the Meeting, none of the actions described in
this Proxy and Information Statement will be effected.
On January 25, 1996, the Board of Directors of Lockheed Martin approved the
transactions contemplated by the Exchange Agreement. On March 14, 1996, the
Board of Directors of CalComp unanimously approved the Exchange Agreement and
the Exchange contemplated thereby, subject to approval of the Exchange by
Summagraphics stockholders and the other terms and conditions stated in the
Exchange Agreement.
NO APPRAISAL RIGHTS FOR DISSENTERS
No right of appraisal is available to any holder of shares of Summagraphics
Common Stock regardless of, whether such holder votes against the Exchange
under Delaware General Corporation Law, Summagraphics' current Certificate of
Incorporation or the proposed Restated Charter. See "The Meeting--No Appraisal
Rights for Dissenters."
ACCOUNTING TREATMENT
Upon completion of the Exchange, Lockheed Martin will own, in the aggregate,
approximately 89.7% of the outstanding capital stock of Summagraphics, on a
fully diluted basis. For accounting and financial reporting purposes, the
Exchange will be treated as a purchase of Summagraphics by CalComp, and will be
accounted for under the "purchase" method of accounting. As such, the future
financial reports of New CalComp after Closing will reflect the historical
operations of CalComp for all periods prior to the Exchange. The net assets of
Summagraphics will be reflected on the financial statements of New CalComp at
their fair market value pursuant to purchase accounting as of the Closing Date
of the Exchange, whereas the net assets of CalComp will continue
8
<PAGE>
to be reflected at their historical book values. See "The Exchange Agreement--
Accounting Treatment" and "Unaudited Pro Forma Condensed Financial
Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Exchange is intended to qualify as a "tax-free" reorganization under
Section 368(a) of the Code for Federal income tax purposes. Accordingly, no
gain or loss will be recognized for Federal income tax purposes (i) by
Summagraphics or a Summagraphics stockholder, (ii) by Lockheed Martin, or (iii)
by CalComp, as a result of the consummation of the Exchange. See "The Exchange
Agreement--Certain Federal Income Tax Consequences."
REGULATORY FILINGS AND APPROVALS
Consummation of the Exchange is conditioned upon the expiration or
termination of the applicable waiting period under the HSR Act and under
certain foreign antitrust regulations. On March 15, 1996, Summagraphics and
Lockheed Martin, respectively, filed notification reports under the HSR Act
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division"). The applicable waiting period
under the HSR Act expired on April 12, 1996. See "The Exchange Agreement--
Regulatory Filings and Approvals." Clearance from applicable foreign anti-trust
regulatory authorities that require pre-merger notification with respect to the
Exchange also has been received.
MARKET PRICE DATA
On February 2, 1996, the last full trading day prior to the public
announcement of the Exchange, the last sales price of Summagraphics Common
Stock on the NASDAQ National Market System was $2 7/8. On June 14, 1996, the
most recent date for which it was practicable to obtain market price
information prior to the printing of this Proxy and Information Statement, the
last trading price was $3 3/8. It is anticipated that the Common Stock will
continue to trade on the NASDAQ National Market System after the consummation
of the Exchange, but under the new symbol "CLCP." See "Market Price of
Summagraphics Common Stock." On May 16, 1996, Summagraphics received an inquiry
from the NASDAQ Stock Market as to whether Summagraphics continued to meet the
listing requirements for the National Market System. Pursuant to correspondence
and subsequent telephone conversations, the NASDAQ Stock Market has agreed to
delay their determination until consummation of the Exchange, and has indicated
that New CalComp will have to meet the initial listing requirements for New
CalComp Common Stock to continue to trade on the NASDAQ National Market System.
Two of the requirements for initial listing on the National Market System is
that a total market capitalization of common stock held by non-affiliates is
equal to or exceeds $15,000,000 and that the bid price of the listed security
is equal to or exceeds $3.00. Since no public market exists for the stock of
CalComp and no public market will exist for New CalComp Common Stock until such
time as the Exchange is consummated, a determination as to whether the initial
listing requirements will be satisfied cannot be made. Lockheed Martin has
indicated that it intends to use reasonable efforts to cause the Common Stock
to continue to be listed on the NASDAQ National Market System after the
Exchange. In the event that the Common Stock does not continue to be listed on
the NASDAQ National Market System, the trading volume of the Common Stock may
decrease and an active trading market may not develop or be sustained following
the Exchange. In the event that the Common Stock does not continue to be listed
on the NASDAQ National Market System after the Exchange, Lockheed Martin has
indicated that it intends to use reasonable efforts to cause the Common Stock
to be listed on the NASDAQ SmallCap Market.
Lockheed Martin currently owns 100% of the capital stock of CalComp.
Accordingly, there has been no public market for the capital stock of CalComp
prior to the Exchange.
9
<PAGE>
COMBINED SUMMARY PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
The following tables set forth certain unaudited pro forma condensed and
historical financial data for Summagraphics and CalComp. The following data
gives effect to the Exchange under the purchase method of accounting as if
those events had occurred on December 31, 1995 and December 26, 1994 with
respect to the operating data for the quarter ended March 31, 1996 and the year
ended December 31, 1995, respectively, and on March 31, 1996 with respect to
the balance sheet data. For further information on the manner in which the
summary pro forma financial information was derived, see "Unaudited Pro Forma
Condensed Financial Information." The following data should be read in
conjunction with the respective consolidated financial statements and notes
thereto of Summagraphics and CalComp and with the pro forma condensed financial
information regarding the Exchange, all appearing elsewhere in this Proxy and
Information Statement.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that could have occurred if the Exchange had been consummated as of
such dates, nor is it necessarily indicative of future operating results or
financial position.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION OF SUMMAGRAPHICS AND CALCOMP
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS:
Net revenue.............................. $340,556 $66,421
Loss before income taxes................. (20,349) (9,138)
Net loss................................. (24,108) (10,039)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................... $301,136
Long-term liabilities.......................................... 11,808
Stockholders' equity........................................... 184,367
</TABLE>
- --------
THE UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION HAS BEEN PREPARED
BASED ON A NUMBER OF ASSUMPTIONS THAT ARE DIRECTLY ATTRIBUTABLE TO THE EXCHANGE
AND WHICH ARE EXPECTED TO HAVE A CONTINUING IMPACT ON THE OPERATIONS OF NEW
CALCOMP. THIS DATA SHOULD BE READ IN CONJUNCTION WITH THE RESPECTIVE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF SUMMAGRAPHICS AND
CALCOMP AND WITH THE PRO FORMA FINANCIAL INFORMATION REGARDING THE EXCHANGE,
ALL APPEARING ELSEWHERE IN THIS PROXY AND INFORMATION STATEMENT.
10
<PAGE>
SELECTED SUMMAGRAPHICS HISTORICAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, NINE MONTHS ENDED
-------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
-------- ------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 81,404 $77,775 $ 78,494 $61,343 $48,138
Operating income
(loss)................. (16,750) 2,664 (10,623) 1,297 (3,338)
Net income (loss)....... (16,424) 2,787 (11,599) 867 (3,984)
BALANCE SHEET DATA:
Working capital......... $ 11,329 $11,923 $ 5,613 $ 5,613 $ 1,395
Total assets............ 52,276 47,336 53,601 53,601 41,892
Long-term debt
(including current
portion)............... 3,627 947 1,579 2,140 2,091
Stockholders' equity.... 22,314 24,077 14,404 14,404 9,708
</TABLE>
SELECTED CALCOMP HISTORICAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- -------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, MARCH 26, MARCH 31,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $300,151 $294,548 $281,655 $71,576 $55,852
Loss from operations.... (48,622) (23,464) (9,088) (6,492) (8,854)
Net loss................ (46,639) (23,226) (10,718) (6,612) (9,115)
<CAPTION>
MARCH 31, 1996
-------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $257,746 $228,312 $231,564 $235,192
Shareholder's
accounts(1)............ 190,624 162,482 166,743 $168,873
</TABLE>
- --------
(1) CalComp has a net receivable from Lockheed Martin of $24.3 million, at
March 31, 1996. This amount will be treated as a dividend to Lockheed
Martin upon consummation of the Exchange.
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth unaudited data concerning the net loss,
earnings per share and book value per common share for Summagraphics and
CalComp (i) on a combined pro forma basis after giving effect to the Exchange,
(ii) on a historical basis for Summagraphics, and (iii) on a historical basis
for CalComp per equivalent share of Summagraphics to be issued in the Exchange
for the capital stock of CalComp (as though such shares had been issued at the
beginning of the period). Because CalComp is a wholly owned subsidiary of
Lockheed Martin, historical and equivalent pro forma per share data of CalComp
is not presented. The following comparative per share data should be read in
conjunction with the consolidated financial statements of Summagraphics, the
consolidated financial statements of CalComp and the Unaudited Pro Forma
Condensed Financial Information, all appearing elsewhere in this Proxy and
Information Statement.
PRO FORMA COMBINED SUMMAGRAPHICS AND CALCOMP(1)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net loss per share........................ $ (0.53) $ (0.22)
Book value per common share at end of
period................................... $ 4.03 $ 4.07
Tangible book value per common share at
end of period............................ $ 2.07 $ 2.09
Weighted average common and equivalent
shares outstanding....................... 45,250,000 45,280,000
SUMMAGRAPHICS HISTORICAL
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1995 FEBRUARY 29, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net loss per common share................. $ (2.56) $ (0.87)
Book value per common share at end of
period................................... $ 3.13 $ 2.10
Tangible book value per common share at
end of period............................ $ 1.14 $ 0.25
Weighted average common and equivalent
shares outstanding....................... 4,537,000 4,605,000
CALCOMP HISTORICAL PER EQUIVALENT SHARE
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net loss per equivalent share............. $ (0.26) $ (0.22)
Book value per equivalent share at end of
period................................... $ 4.09 $ 4.15
Tangible book value per equivalent share
at end of period......................... $ 2.86 $ 2.93
Equivalent shares of Summagraphics Common
Stock to be issued in exchange for
Capital Stock of CalComp................. 40,733,319 40,733,319
</TABLE>
- --------
(1) Shares used in computing the pro forma combined per share data include the
weighted average common and equivalent shares outstanding for Summagraphics
for the year ended November 30, 1995, and the three months ended February
29, 1996, plus the assumed issuance of 40.7 million shares to Lockheed
Martin as of the beginning of the year, less treasury shares that are
assumed to be retired as a result of the Exchange. See "Notes to Pro Forma
Condensed Financial Statements," included elsewhere in this Proxy and
Information Statement for a description of the estimates made in
determining the number of shares to be issued to Lockheed Martin. This
computation of weighted average common and equivalent shares
12
<PAGE>
outstanding assumes that no additional Summagraphics Exchange Shares will
be issued to Lockheed Martin as a result of net unfavorable Backlog and
Material Adverse Effect Variances and no reduction in the amount of
Exchange Shares to be issued to Lockheed Martin as a result of an
unfavorable CalComp Material Adverse Effect Variance. In the event of net
unfavorable Backlog and Material Adverse Effect Variances, Lockheed Martin
will be issued an amount of additional Common Stock determined by dividing
the sum of the Backlog and Material Adverse Effect Variances by the average
closing prices of the Common Stock, as reported in The Wall Street
Journal--NASDAQ National Market Issues, for the five days preceding
Closing. In the event of an unfavorable CalComp Material Adverse Effect
Variance, the number of shares of Common Stock to be issued to Lockheed
Martin will be reduced by an amount equal to the CalComp Material Adverse
Effect Variance by the average closing prices of the Common Stock, as
reported in The Wall Street Journal--NASDAQ National Market Issues, for the
five days preceding Closing.
13
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully by the
stockholders of Summagraphics in evaluating whether to approve the Exchange
and related proposals. These risk factors should be considered in conjunction
with other information included in this Proxy and Information Statement.
RELATIONSHIP WITH LOCKHEED MARTIN
Control by Lockheed Martin. Upon completion of the Exchange, Lockheed Martin
will own approximately 89.7 percent of the outstanding Common Stock of New
CalComp. Additional shares of Common Stock may be issued to Lockheed Martin,
pursuant to Amendment No. 1, if the sum of the Backlog and Material Adverse
Effect Variances (as defined in Amendment No. 1) is less than zero. The number
of additional shares of stock issuable to Lockheed Martin pursuant to
Amendment No. 1 shall be determined by dividing the sum of Backlog and
Material Adverse Effect Variances, if negative, by the average closing prices,
as reported in The Wall Street Journal--NASDAQ National Market Issues, for the
five days preceding Closing. Amendment No. 1 does not provide for a minimum or
maximum number of additional shares of Common Stock to be issued to Lockheed
Martin; however, had the Closing occurred on May 31, 1996, management of
Summagraphics estimates that no additional shares of Common Stock would have
been issued to Lockheed Martin. Management of Summagraphics does not expect
that a material number of additional shares of Common Stock will be issued to
Lockheed Martin if the Closing occurs on or before July 31, 1996. However,
there can be no assurance that the Material Adverse Effect and Backlog
Variances will not increase significantly, and result in a material number of
additional shares of Common Stock being issued to Lockheed Martin. Pursuant to
the terms of Amendment No. 2, the number of Exchange Shares to be issued to
Lockheed Martin will be reduced if the CalComp Material Adverse Effect
Variance (as defined in Amendment No. 2) is greater than zero. The reduction
in the number of Exchange Shares will be equal to the amount of the CalComp
Material Adverse Effect Variance divided by the average closing prices of the
Common Stock for the five trading days prior to Closing. Amendment No. 2 does
not provide for a minimum or maximum reduction in the number of Exchange
Shares to be issued to Lockheed Martin; however, had the Closing occurred on
May 31, 1996, management of Lockheed Martin and CalComp estimate that no
reduction in the number of Exchange Shares would have occurred. Management of
Lockheed Martin and CalComp also expect no material reduction in the number of
Exchange Shares at Closing. However, there can be no assurance that the
CalComp Material Adverse Effect Variance will not increase significantly, and
result in a material reduction in the number of Exchange Shares that will be
issued to Lockheed Martin. Amendment No. 2 also extended the term of the
Exchange Agreement and related documents to July 31, 1996.
Lockheed Martin will be able to elect all of the members of the New CalComp
Board of Directors and exercise a controlling influence over the business and
affairs of New CalComp, including any determinations with respect to mergers
or other business combinations involving New CalComp, the acquisition or
disposition of assets by New CalComp, the incurrence of indebtedness by New
CalComp, the issuance of any additional Common Stock or other equity
securities, and the payment of any dividends with respect to the Common Stock.
In addition, Lockheed Martin, by virtue of its controlling ownership, will
have the power to approve matters submitted to a vote of New CalComp's
stockholders (or by written consent in lieu of a meeting) without the consent
of New CalComp's other stockholders; will have the power to prevent a change
in control of New CalComp; and could seek to cause New CalComp to pay
dividends, enter into business or financial transactions with Lockheed Martin,
sell assets, or take other actions that might be favorable to Lockheed Martin.
Upon completion of the Exchange, New CalComp will have a Board of Directors
consisting of seven members. Four members of the Board will be officers,
directors or associates of Lockheed Martin and one member will be the current
President and Chief Executive Officer of CalComp. Two members of the Board
will be neither a director, officer nor employee of Lockheed Martin, nor an
officer or employee of New CalComp. Lockheed Martin will agree with New
CalComp to use its good faith efforts to cause at least two of the members of
New CalComp's Board of Directors to be independent of Lockheed Martin and New
CalComp. Subject to this agreement, Lockheed Martin will have the ability to
change the size and composition of New CalComp's Board of Directors and
committees of the Board, although Lockheed Martin has advised Summagraphics
that it
14
<PAGE>
currently has no plans to do so. See "Relationship with Lockheed Martin" and
"Management of New CalComp After the Exchange."
Intercompany Agreements. Pursuant to the Exchange Agreement, Lockheed Martin
has agreed to provide revolving credit and cash facilities for up to $30
million to New CalComp for general corporate purposes. Under agreements with
New CalComp, Lockheed Martin will render certain administrative, financial,
treasury, investment and legal services and will make available certain of its
employee benefit plans to certain of New CalComp's employees after the
Exchange. In addition, upon consummation of the Exchange, Lockheed Martin and
New CalComp will enter into a number of other intercompany agreements,
including tax sharing, registration rights and corporate agreements. See
"Relationship with Lockheed Martin" and "Management of New CalComp After the
Exchange." While the forms of these agreements were reviewed by management of
Summagraphics and approved by the Board of Directors as part of their approval
of the Exchange, the amounts to be charged to New CalComp under the Services
Agreement for the services provided will not be finally determined prior to
the stockholders meeting. Lockheed Martin has informed Summagraphics and
CalComp that it does not expect that the method of determining the amounts to
be charged for such services in 1996 will be materially different from that
used in prior years. When the required data becomes available later in the
year and subsequent to the Closing, Lockheed Martin will determine the amounts
to be charged for services provided under the Services Agreement, recognizing
to the extent practicable (i) Lockheed Martin's percentage ownership of New
CalComp, (ii) New CalComp's requirements for certain services for which
CalComp or Summagraphics was previously charged by Lockheed Martin or other
third parties, and (iii) the cost of obtaining services from third parties
that previously were provided to CalComp by Lockheed Martin. Consistent with
past practices, the method used to determine amounts to be charged to New
CalComp will be in accordance with the requirements of Cost Accounting
Standard 9904.403 ("CAS 403") "Allocation of Home Office Expenses to
Segments." CAS 403 establishes the formulas and criteria for the allocation of
home office expenses to organizational segments and is promulgated by the Cost
Accounting Standards Board and used by contractors to the United States
Government. Lockheed Martin's allocations are reviewed for compliance with the
promulgated standards by the Department of Defense. In 1995, Lockheed Martin
billed CalComp $7.6 million for certain services provided by Lockheed Martin
which are comparable to the services to be provided under the Services
Agreement. The management of Lockheed Martin has informed Summagraphics that
it does not expect that the method of determining the amounts to be charged
for such services in 1996 will be materially different from that used in 1995.
However, there can be no assurance that the amounts charged to New CalComp
under the Services Agreement will not be less favorable to New CalComp than
would be available on arms' length terms from unrelated parties.
Conflicts of Interest. Various conflicts of interest between New CalComp and
Lockheed Martin could arise following completion of the Exchange. If Lockheed
Martin seeks to maintain its ownership percentage of New CalComp, New CalComp
may be constrained in its ability to raise equity capital in the future. Also,
because of limitations relating to Lockheed Martin's indebtedness or policy
decisions on the part of Lockheed Martin to limit or reduce Lockheed Martin's
total indebtedness, New CalComp will be constrained in its ability to incur
indebtedness in the future. In either case, New CalComp's ability to, among
other things, finance operations or make acquisitions could be affected.
New CalComp will be dependent upon Lockheed Martin for credit to fund its
operations after the Closing. The Revolving Credit Agreement between New
CalComp and Lockheed Martin contains certain financial and other covenants
that, among other things, will limit New CalComp's ability to incur
indebtedness for so long as New CalComp is indebted to Lockheed Martin for
borrowings or Lockheed Martin is committed to make loans to New CalComp under
the terms of the Revolving Credit Agreement. The ability of New CalComp to
satisfy the financial covenants contained in the Revolving Credit Agreement
will depend on the combined operations of Summagraphics and CalComp and may be
impacted by the amounts charged by Lockheed Martin under the Services
Agreement. Management of CalComp believes that the financial covenants
contained in the Revolving Credit Agreement are reasonable and no less
favorable than terms that would be available from an unrelated third party.
15
<PAGE>
Under the Corporate Agreement between New CalComp and Lockheed Martin, New
CalComp may not take any action or enter into any commitment or agreement
which could reasonably be anticipated to result in a contravention of (or an
event of default under) Lockheed Martin's charter or bylaws, credit or other
material agreements or under any law, regulation or court order applicable to
Lockheed Martin. Certain of Lockheed Martin's existing debt agreements and the
Corporate Agreement between New CalComp and Lockheed Martin contain covenants
that will limit New CalComp's ability to undertake certain activities or
transactions that it otherwise might pursue, unless the consent of Lockheed
Martin is obtained. See "Relationship with Lockheed Martin--Corporate
Agreement."
By virtue of its controlling ownership and the terms of the Tax Sharing
Agreement, Lockheed Martin will effectively control all of New CalComp's
decisions relating to tax matters. Determinations of the amount of New
CalComp's liability to (or entitlement to payment from) Lockheed Martin under
the Tax Sharing Agreement will be made by Lockheed Martin and may be subject
to conflicts of interest between New CalComp and Lockheed Martin. See
"Relationship with Lockheed Martin--Tax Sharing Agreement." Conflicts of
interest also may arise in connection with an audit by a taxing authority of a
consolidated federal or a consolidated or combined state income tax return of
the Lockheed Martin consolidated tax group for any year in which New CalComp
is a member of such group. In connection with any such audit, Lockheed Martin
might enter into negotiations or settlements that could be beneficial to
Lockheed Martin, but not beneficial to New CalComp. The Tax Sharing Agreement
provides that Lockheed Martin has the sole authority to respond to and conduct
negotiations with respect to any such tax audit, and to file all tax returns
on behalf of New CalComp as long as New CalComp is part of Lockheed Martin's
consolidated group.
The Restated Charter will include certain provisions addressing potential
conflicts of interest between New CalComp and Lockheed Martin and the
allocation between New CalComp and Lockheed Martin of certain transactions
that, absent such allocation, may constitute corporate opportunities of either
or both New CalComp and Lockheed Martin. Any conflict of interest will be
resolved pursuant to the provisions of the Restated Charter by the Board of
Directors of New CalComp, in accordance with their duties and applicable law.
In addition, the Restated Charter includes provisions regulating and defining
the conduct of certain affairs of New CalComp as they may involve Lockheed
Martin and its subsidiaries, directors and officers. See "The Restated
Charter." Neither the Exchange Agreement nor the Restated Charter restricts
the ability of Lockheed Martin to compete with New CalComp. Lockheed Martin
after the Exchange will own AGT Holdings, Inc., the parent company of Access
Graphics, one of the leading distributors of CalComp's products. Sales by
CalComp to Access Graphics for the year ended December 31, 1995 totaled $19.8
million, or 7.0% of CalComp's revenues for such period. See "Relationship with
Lockheed Martin" and "Note 4 of the Notes to the Consolidated Financial
Statements of CalComp Inc." Ownership of both Access Graphics and a
controlling interest in New CalComp could create conflicts of interest for
Lockheed Martin with respect to relative pricing of product sales between the
two companies. Any such conflicts of interest will be resolved by the
respective Boards of Directors of Lockheed Martin, New CalComp and Access
Graphics, in accordance with their respective duties and applicable law.
For benefit plan purposes, New CalComp will be part of the Lockheed Martin
controlled group, which includes Lockheed Martin and its other subsidiaries.
Under the Employee Retirement Income Security Act of 1974 ("ERISA") and
federal income tax law, each member of the group is jointly and severally
liable for funding and termination liabilities as well as certain benefit plan
taxes. In addition, each member of an 80 percent or more direct or indirect
subsidiary in a consolidated group for federal income tax purposes is jointly
and severally liable for the federal income tax liability of each other member
of the consolidated group. Accordingly, New CalComp could be liable under such
provisions in the event any such liability is incurred, and not discharged, by
any other member of the Lockheed Martin controlled or consolidated group.
HISTORY OF LOSSES; SUBSTANTIAL FLUCTUATION IN OPERATING RESULTS; BACKLOG
In recent years, each of Summagraphics and CalComp has incurred net losses.
In the fiscal year ended May 31, 1995, Summagraphics incurred a net loss of
$11.6 million. In addition, for the nine months ended
16
<PAGE>
February 29, 1996, Summagraphics incurred a net loss of $4.0 million. For the
three month period ended March 31, 1996 and the fiscal years ended December
31, 1995, December 25, 1994, and December 26, 1993, CalComp incurred net
losses of $9.1 million, $10.7 million, $23.2 million, and $46.6 million,
respectively, due principally to the negative impact on margins resulting from
the effects of the industry's migration to inkjet technology products
commencing in 1992 and CalComp's late entry into the market as a result of its
first inkjet products not being introduced until early in fiscal 1994. This
resulted in CalComp earning lower overall margins than some of its competitors
since its products could not earn higher margins associated with being first
to market. Additionally, during this period CalComp, along with other computer
peripheral manufacturers, experienced margin erosion due to increased
competition and the emergence of the computer peripheral industry as a mature
business; it also incurred one-time charges to size CalComp's operations to
its revenues and enhance operational efficiencies. As a result of these
cumulative losses in recent years, CalComp has provided a one hundred percent
allowance against its net deferred tax assets since the weight of available
evidence causes management to believe they may not be realized through the
generation of U.S. taxable income during the statutory carryforward period.
Losses have continued into the second quarter with a loss of $4.8 million in
the month of April.
New CalComp is expected to accrue restructuring costs relating to the
integration of the two companies of approximately $25 million as part of the
accounting for the purchase of Summagraphics. The restructuring expenses are
expected to be comprised of costs and write-downs relating to the reduction of
product line and work force redundancies, and the elimination of duplicate
facilities. These assets are not believed by management to be impaired prior
to the Exchange, and as a result, anticipated write-downs are believed to be
solely the result of the proposed integration of the two companies. See
"Unaudited Pro Forma Condensed Financial Information."
Both Summagraphics and CalComp have experienced substantial fluctuations in
quarterly operating results in the past and New CalComp's future operating
results could vary substantially from quarter to quarter. Historically, both
Summagraphics and CalComp have operated with little backlog of orders because
their products are generally shipped as orders are received. As a result,
revenue in any quarter is substantially dependent on orders booked and shipped
in that quarter. Shifts in the timing or filling of purchase orders may have a
significant effect on revenues for any quarter. Revenue is difficult to
forecast due to the fact that the time from initial evaluation of a product to
purchase varies substantially from customer to customer. Because staffing and
operating expenses are based, in large part, on anticipated revenue levels,
and because a high percentage of costs are fixed, timing variations in
recognizing revenues can cause significant variations in operating results
from quarter to quarter.
CONDITIONS TO CLOSING; RISK OF INSOLVENCY IF EXCHANGE NOT CONSUMMATED
The respective obligations of Summagraphics and Lockheed Martin to
consummate the transactions described in the Exchange Agreement are subject to
a number of conditions precedent, and the Exchange Agreement may be terminated
by either or both parties in certain circumstances, as set forth in the
Exchange Agreement. See "The Exchange Agreement--Conditions to the Obligations
of CalComp and Lockheed Martin;--Conditions to the Obligations of
Summagraphics; and --Amendments; Waiver; Termination." While the management of
Summagraphics and Lockheed Martin do not at present have any basis for
believing that any of the stated conditions will not be satisfied or that the
Exchange will not be consummated, no assurance can be given that events will
not occur, many of which are outside the control of the parties, that would
give one or both parties the right to decline to close or to terminate the
Exchange Agreement.
The business uncertainties attendant to the announcement of the Exchange
have adversely affected Summagraphics' relationships with certain employees,
vendors and distributors. Summagraphics has experienced an increase in
employee attrition, which management has sought to limit through incentive
bonuses and severance arrangements described at "The Exchange Agreement--
Interests of Certain Persons in the Exchange." At June 14, 1996, Summagraphics
employed 194 people, compared to 311 employed at May 31, 1995. Lockheed Martin
has agreed to use its reasonable efforts to work with Summagraphics to remedy
these problems. Pursuant to Amendment No. 1, Summagraphics issued notice to
certain of its employees based in its
17
<PAGE>
Austin, Texas facility that their employment at that facility would be
terminated as early as July 15, 1996, assuming consummation of the Exchange.
Management of Summagraphics believes that this notice will increase the rate
of attrition of employees, but has implemented a retention plan for certain
employees that provides for payment of bonuses and favorable severance terms
if those employees continue to work beyond the consummation of the Exchange.
There is no assurance that these actions will be successful in retaining
essential personnel through the Closing or that the operations of
Summagraphics will not be materially impaired if the Closing does not occur
for any reason.
Since May 1995, Summagraphics has encountered material restrictions on its
access to funds under its credit agreements, which have in turn restricted its
liquidity and contributed to continuing difficulties in financing the purchase
of inventory, which has adversely affected sales. These events have required
Summagraphics to negotiate waivers of events of default under its credit lines
on a quarterly basis, and have required that payments to many vendors be
delayed. Under the terms of the waiver of default most recently negotiated
with Summagraphics' principal lender, if the Exchange is not consummated,
Summagraphics will be in default under its credit lines with that lender. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Summagraphics." These difficulties have been alleviated to some
degree by the $2.5 million loan made to Summagraphics by Lockheed Martin
pursuant to the Convertible Debenture, and are expected to be substantially
resolved if the Exchange is consummated. However, if the Exchange is not
consummated, it is likely that Summagraphics will be subjected to continuing
liquidity constraints which could, if not resolved, have a material adverse
effect on the business of Summagraphics or force it to seek protection under
the United States Bankruptcy Code.
ISSUANCE OF ADDITIONAL EXCHANGE SHARES
Pursuant to the terms of Amendment No. 1 to the Exchange Agreement,
Summagraphics is required to issue to Lockheed Martin additional shares of
Common Stock immediately after the Closing if there has been any material
adverse change in the financial position, results of operations, assets,
liabilities or business of Summagraphics from November 30, 1995 to the Closing
Date, which individually or in the aggregate is reasonably likely to result in
a reduction in Summagraphics' stockholders' equity by an amount in excess of
$3,400,000 (a "Material Adverse Effect") and if Summagraphics does not have
backlog for certain product lines of not less than $2,750,000. The number of
shares to be issued will be equal to the amount of Material Adverse Effect
that exceeds $3,400,000 plus the difference between the actual amount of
backlog and $2,750,000, if such backlog is less than $2,750,000, divided by
the average closing prices of the Common Stock for the five trading days prior
to Closing.
Summagraphics' operating loss for the quarter ended February 29, 1996 was
$1.6 million, principally as a consequence of the unavailability of inventory
for shipment at the end of the quarter due to delayed supplier shipments
resulting from a continuing shortage of liquidity. Management believes that a
substantial part of Summagraphics' backlog at February 29, 1996, which was
approximately $2.5 million, can be shipped prior to Closing. Summagraphics
applied the majority of the $2.5 million proceeds of the Convertible Debenture
issued to Lockheed Martin in connection with the execution of the Exchange
Agreement to pay vendors in order to obtain inventory to satisfy this backlog,
but there can be no assurance that all of such backlog can be shipped prior to
Closing.
Management may face a conflict in seeking to ship the maximum possible
amount of inventory prior to Closing so as to avoid the occurrence of a
Material Adverse Effect while at the same time seeking to maintain its backlog
at a level of in excess of $2.75 million. There can be no assurance that
Summagraphics will achieve the required levels of backlog, or that it will not
incur operating losses, that would result in a Material Adverse Effect and
Backlog Variance that would require Summagraphics to issue additional shares
of Common Stock to Lockheed Martin. In the event that the Exchange is
consummated and such additional shares are issued to Lockheed Martin, the
percentage ownership in New CalComp of existing Summagraphics stockholders
will decrease by an amount proportionate to the percentage increase in
Lockheed Martin's ownership. Amendment No. 1 does not provide for a minimum or
maximum number of additional shares of Common Stock to be issued
18
<PAGE>
to Lockheed Martin; however, had the Closing occurred on May 31, 1996,
management of Summagraphics estimates that no additional shares of Common
Stock would have been issued to Lockheed Martin. Management of Summagraphics
does not expect that a material number of additional shares of Common Stock
will be issued to Lockheed Martin if the Closing occurs on or before July 31,
1996. However, there can be no assurance that the Material Adverse Effect and
Backlog Variances will not increase significantly and result in a material
number of additional shares of Common Stock being issued to Lockheed Martin.
Pursuant to the terms of Amendment No. 2, the number of Exchange Shares to
be issued to Lockheed Martin will be reduced if the CalComp Material Adverse
Effect Variance (as defined in Amendment No. 2) is greater than zero. The
reduction in the number of Exchange Shares will be equal to the CalComp
Material Adverse Effect Variance divided by the average closing prices of the
Common Stock for the five trading days prior to Closing. Amendment No. 2 does
not provide for a minimum or maximum reduction in the number of Exchange
Shares to be issued to Lockheed Martin; however, had the Closing occurred on
May 31, 1996, management of Lockheed Martin and CalComp estimate that no
reduction in the number of Exchange Shares would have occurred. Management of
Lockheed Martin and CalComp also expect no material reduction in the number of
Exchange Shares at Closing. However, there can be no assurance that the
CalComp Material Adverse Effect Variance will not increase significantly, and
result in a material reduction in the number of Exchange Shares that will be
issued to Lockheed Martin.
FUTURE SALES OF LARGE AMOUNTS OF COMMON STOCK BY LOCKHEED MARTIN MAY
NEGATIVELY AFFECT PREVAILING MARKET PRICES
Under the terms of the Exchange Agreement, the shares of Summagraphics
Common Stock to be received by Lockheed Martin are not subject to any "lock-
up" agreement or other arrangement restricting Lockheed Martin's ability to
sell such shares after the Exchange. Subject to applicable federal and state
securities laws and the restrictions set forth below, immediately after
completion of the Exchange, Lockheed Martin may sell any and all of the shares
of Common Stock beneficially owned by it. The Registration Rights Agreement
permits Lockheed Martin to require that the shares of Common Stock owned by it
after the Exchange be registered by New CalComp under applicable securities
laws in order to permit the public sale of such shares. Sales by Lockheed
Martin of substantial amounts of Common Stock in the public market may have an
adverse effect upon the market price for New CalComp Common Stock. See
"Relationship with Lockheed Martin--Registration Rights Agreement."
DEPENDENCE UPON SUCCESSFUL INTEGRATION OF THE COMPANIES
Summagraphics and CalComp believe that a key benefit to be realized from the
Exchange will be the cost savings from reduction in corporate overhead and
elimination of duplicative manufacturing operations and certain unprofitable
product lines. The anticipated benefits of the Exchange will not be achieved
unless Summagraphics and CalComp are combined in a smooth, timely and
efficient manner. The Exchange will require integration and rationalization of
each company's development, administrative, finance, sales, product support,
distribution and marketing organizations, as well as the integration of each
company's product offerings and development activities. The transition to a
combined company will require substantial attention from a consolidated
management team, some members of which have not worked together previously and
have limited experience in integrating companies. Of particular significance
to successful integration of the combining companies' businesses will be
reassuring both companies' customers that product support and distribution
will continue uninterrupted. The requirements for management attention and the
costs incurred and difficulties encountered in the transition process may, at
least in the short term, have an adverse impact upon New CalComp's operations.
POTENTIAL CONFLICTS OF INTEREST OF SENIOR MANAGEMENT OF SUMMAGRAPHICS
Members of the senior management of Summagraphics have interests in the
transactions contemplated under the Exchange Agreement that may present them
with potential conflicts of interest. Members of the current senior
19
<PAGE>
management of Summagraphics will receive payments pursuant to "change of
control" provisions under certain employment agreements and benefit plans
which will be triggered by the Exchange if their employment is terminated
after the Closing. Pursuant to such agreements, Messrs. Michael S. Bennett,
David G. Osowski, Robert B. Sims, Dennis Jolly and Darius C. Power will be
entitled to receive payments of up to $859,624, $391,481, $260,672, $225,920
and $181,301, respectively. Similarly, Messrs. Bennett, Osowski, Sims, Jolly
and Power are parties to option agreements pursuant to which previously
unvested options will vest as to 108,334, 15,001, 15,001, 15,000 and 20,000
shares, respectively, upon the Closing. The Board of Directors of
Summagraphics was aware of these potential conflicts at the time of its
consideration and approval of the Exchange. No non-employee members of the
Board of Directors of Summagraphics will receive any compensation as a result
of the Exchange beyond normal directors' fees. See "The Exchange Agreement--
Interests of Certain Persons in the Exchange."
RAPID TECHNOLOGICAL CHANGE; RISK OF OBSOLESCENCE; NEW PRODUCT RISKS
Certain of the markets in which Summagraphics and CalComp compete are
characterized by rapid moves to higher performance and lower priced product
offerings, by intense price and performance competition, by short product
cycles due to rapid technological change, by new software that results in less
specific hardware dependency by customers and by changes in customer
requirements and frequent new product introductions and enhancements. New
CalComp's future success will depend, in a large measure, upon the success of
its products, and upon New CalComp's ability to successfully integrate the
product lines of the combining companies. New CalComp must continue to develop
and introduce new products that keep pace with technological and market
developments, respond to evolving customer requirements and achieve market
acceptance. While management of each company believes that it has sufficient
creative resources and rights in intellectual property to continue to keep
pace with development in its principal markets, there can be no assurance that
efforts to integrate operations and product offerings will be successful in
strengthening sales or in developing new or enhancing current products.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS OF
INFRINGEMENT
New CalComp's future success will depend in part on its access to
proprietary technology. New CalComp will rely upon patent, copyright,
trademark, trade secret and contract law to protect its proprietary
technology. There can be no assurance that such measures are adequate to
protect New CalComp's proprietary technology. Products of New CalComp will be
licensed in foreign countries and the laws of foreign countries treat the
protection of proprietary rights differently from, and may not protect New
CalComp's proprietary rights to the same extent as do, laws in the United
States.
Summagraphics and CalComp generally enter into proprietary information and
confidentiality agreements with their employees and limit access to and
distribution of their software, documentation and other proprietary
information. Summagraphics and CalComp generally do not license or release the
source code for their proprietary software to their customers. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use New CalComp's products or technology without authorization, or to
develop similar technology independently. Because the computer peripherals
industry is characterized by rapid technological change, New CalComp believes
that factors such as the technological and creative skills of its personnel,
new product developments, frequent product enhancements, name recognition and
reliable product maintenance are also important to establishing and
maintaining a technology leadership position.
Although New CalComp does not believe its products infringe the proprietary
rights of any third parties, there can be no assurance that infringement
claims will not be asserted against New CalComp or its customers in the
future. Because of the existence of a large number of patents in the computer
peripherals field and the rapid rate of issuance of new patents, it is not
always economically practical to determine conclusively in advance whether a
product or components infringe upon the patent rights of others. Patents have
been granted recently on fundamental technologies and patents may issue which
relate to fundamental technologies incorporated in New CalComp's products.
Since patent applications in the United States are not publicly
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disclosed until the patent is issued, applications may have been filed which,
if issued as patents, would relate to New CalComp's products.
There can be no assurance that third parties will not assert infringement
claims against New CalComp in the future or that such claims will not be
successful. New CalComp would incur substantial costs and diversion of
management resources with respect to the defense of any such claims which
could have a material adverse effect on New CalComp's business, financial
condition and results of operations. Furthermore, parties making such claims
could secure substantial damages, as well as injunctive or other equitable
relief which could effectively block New CalComp's ability to license its
products in the United States or abroad. Such a judgment could have a material
adverse effect on New CalComp's business, financial condition and results of
operations. If it appears necessary or desirable, New CalComp may seek
licenses to intellectual property that it is allegedly infringing. There can
be no assurance, however, that licenses could be obtained on commercially
reasonable terms, if at all, or that the terms of any offered licenses will be
acceptable to New CalComp. The failure to obtain the necessary licenses or
other rights could have a material adverse effect on New CalComp's business,
financial condition and results of operations.
COMPETITION
The markets in which Summagraphics and CalComp compete are extremely
competitive and rapidly changing. The anticipated benefits of the Exchange
will not be achieved unless New CalComp devotes substantial management time
and effort to ensuring that Summagraphics and CalComp are combined in a
smooth, timely and efficient manner. After the Exchange, New CalComp will
continue to compete with a variety of competitors, including competitors in
some lines of business with larger technical staffs, larger marketing and
sales organizations, and significantly greater financial resources than New
CalComp. New CalComp will be competing primarily with Hewlett-Packard Co.,
Xerox, Encad, Inc., Oce, JDL, JRL and Mutoh America Corporation in the hard-
copy output device market, Wacom Company, Ltd., Seiko and Hitachi in the
digitizer market and Mutoh in the cutter market. New CalComp will also face
additional competition from many smaller competitors such as ACECAD, GTCO and
Graphtec. There can be no assurance that the products of existing or new
competitors will not obtain greater market acceptance than New CalComp's
products or that the required dedication of resources for integrating the
companies will not have an adverse impact on New CalComp's ability to compete.
New CalComp's future success will depend in large part on its ability to
retain and expand its share of target markets and to develop additional
products and product enhancements for existing customers. There can be no
assurance that future competition will not adversely effect the results of New
CalComp.
DEPENDENCE ON QUALIFIED PERSONNEL
Both Summagraphics and CalComp depend on the efforts and abilities of
capable management, sales, support and technical personnel. The success of New
CalComp will depend to a large extent upon its ability to attract and retain
qualified employees. New CalComp's inability to attract or retain qualified
employees could adversely affect its product development and results of
operations. Competition for qualified personnel in the industry is intense,
and there can be no assurance that New CalComp will be successful in
attracting and retaining such personnel.
LIMITED SOURCES OF SUPPLY
Historically, certain components used in Summagraphics' products were
available only from one or a limited number of sources. In addition, CalComp
relies on individual or a limited number of suppliers for components necessary
for many of its product lines, including reliance on an individual supplier
for components for products that represent a significant amount of CalComp's
revenues. Summagraphics and CalComp seek to mitigate these risks by entering
into supply contracts, ordinarily for the duration of the expected life of the
product. New CalComp will continue to rely heavily on one or a few suppliers
of components for certain products. The failure to obtain these components on
a timely basis or to develop alternative sources as needed, whether because of
suppliers terminating production, delays by suppliers in delivering
components, quality
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problems, or otherwise, would have a material adverse effect on New CalComp's
results of operations. Although Summagraphics and CalComp do not expect that
the consummation of the Exchange will disrupt or alter any arrangement or
relationship with their respective suppliers that would have a material
adverse effect on New CalComp's business, financial condition or results of
operations, there can be no assurance that supply contracts on acceptable
terms will continue to be available to New CalComp from key vendors.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of Summagraphics Common Stock has been highly volatile. The
closing bid price between January 1, 1993 and June 14, 1996 has ranged from a
low of $1 1/2 per share to a high of $9 1/8 per share. Upon completion of the
Exchange, the market price of the Common Stock may continue to be highly
volatile. The factors described above in "--Substantial Fluctuations in
Operating Results," which will contribute to fluctuations in New CalComp's
quarterly revenue and net income, announcements of technical innovations or
new or enhanced products by New CalComp or its competitors, and market
conditions in the industry may have a significant impact on the market price
of the Common Stock following the Exchange. In addition, at certain times the
trading volume of the Common Stock has been low, which has resulted in
relatively small trades having a disproportionate effect on the price of the
Common Stock, and in an effective lack of liquidity for stockholders. This may
continue in the future.
As a result of the Exchange, Summagraphics will issue approximately 40.7
million new shares of Summagraphics Common Stock to Lockheed Martin. Lockheed
Martin will be entitled to cause New CalComp to register those shares under
applicable securities laws for sale to the public under certain circumstances
and Lockheed Martin may also sell some or all of those shares pursuant to any
available exemption from applicable securities law registration requirements.
In addition, additional shares of Common Stock will be issuable upon exercise
of currently outstanding stock options and warrants. Following the Exchange,
it is expected that stock options will be granted to the new management team
under the Stock Option Plan. The substantial increase in the number of shares
of Common Stock outstanding after the Exchange, the additional stock options
to be granted following the Exchange and the potential disposition of shares
of Common Stock by Lockheed Martin may contribute to substantial fluctuations
in the price of Common Stock.
NO DIVIDENDS
Summagraphics has never paid any dividends with respect to its Common Stock.
Following the Exchange, the Board of Directors, and at least indirectly,
Lockheed Martin, will control whether any dividends are paid. Lockheed Martin
has indicated to Summagraphics that it currently intends to cause New CalComp
to retain future earnings, if any, to finance the operation and growth of New
CalComp's business.
RELIANCE ON INTERNATIONAL MARKETS
During each of the fiscal years ended May 31, 1993, 1994 and 1995,
international sales and operations represented 45%, 46% and 56%, respectively,
of Summagraphics' net revenues. On a pro forma basis, during 1993, 1994 and
1995, 57%, 56% and 65% of New CalComp's net revenues were derived from
international sales and operations. Following the Exchange, New CalComp
expects to attempt to maintain and expand international markets.
International sales and operations are subject to inherent risks in addition
to those of domestic sales and operations, including unexpected changes in
regulatory requirements, tariffs and trade barriers, burdens associated with
complying with foreign laws, adverse currency fluctuations and the potential
difficulty of repatriating earnings.
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THE MEETING
This Proxy and Information Statement is being furnished to holders of shares
of Summagraphics Common Stock in connection with the solicitation of proxies
by Summagraphics' Board for use at the Meeting of Summagraphics stockholders
to be held on July 23, 1996, at the Adolphus Hotel, 1321 Commerce Street,
Dallas, Texas 75202 at 10:00 a.m., local time, and any adjournment thereof.
This Proxy and Information Statement, the Notice of Meeting and the
accompanying form of proxy are first being mailed to stockholders of
Summagraphics on or about June 24, 1996.
PURPOSE OF THE MEETING
At the Meeting, the stockholders of Summagraphics will be asked to consider
and act upon proposals to (i) approve the Exchange Agreement, pursuant to
which Summagraphics will issue the Exchange Shares to Lockheed Martin in
exchange for all of the outstanding capital stock of CalComp, (ii) approve the
Restated Charter, which will, among other things, (a) change Summagraphics'
name to "CalComp Technology, Inc.;" (b) increase the number of authorized
shares of Common Stock to 60,000,000; (c) provide that (i) Lockheed Martin
may, to the fullest extent permitted by the General Corporation Law of the
State of Delaware, engage in the same or similar business activities as New
CalComp and do business with any client or customer of New CalComp, (ii)
Lockheed Martin may, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, pursue any business opportunities
(other than such opportunities acquired from New CalComp) without presenting
them to New CalComp, and (iii) Lockheed Martin shall have no duty to
communicate or present any such corporate opportunity to New CalComp and shall
not be liable for breach of any duty as a stockholder of New CalComp by reason
of the fact that Lockheed Martin pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person
or does not present such corporate opportunity to New CalComp; (d) establish
the policy with which any director, officer or employee of New CalComp who is
also a director, officer or employee of Lockheed Martin shall act in the event
that such person acquires knowledge of a potential transaction or matter that
may be a corporate opportunity for both New CalComp and Lockheed Martin; (e)
establish guidelines to be followed in connection with certain contractual and
other business relations of New CalComp as they involve Lockheed Martin or its
customers, certain related entities and their respective officers and
directors, and sets forth the powers, rights, duties, and liabilities of New
CalComp and its directors, officers and stockholders in connection therewith;
(f) provide that, to the fullest extent permitted by the General Corporation
Law of the State of Delaware, Lockheed Martin shall not be liable to New
CalComp or its stockholders for breach of any duty by reason of the fact that
Lockheed Martin in good faith takes any action or exercises any rights or
withholds any consent in connection with any agreement or contract between
Lockheed Martin and New CalComp; and (g) provide that New CalComp will not be
governed by the provisions of Section 203 of the General Corporation Law of
the State of Delaware or any similar law restricting business combinations
with an interested stockholder, and (iii) approve the CalComp Technology, Inc.
1996 Stock Option Plan for Key Employees (with Stock Appreciation Rights).
Approval of each of the proposals is required in order for the Exchange to be
consummated. None of the proposals will be deemed approved unless all are
approved. As a result of the Exchange, Lockheed Martin will own 89.7% of the
outstanding Common Stock, on a fully diluted basis. The number of shares of
Common Stock issuable to Lockheed Martin in the Exchange may be adjusted in
certain circumstances. Consummation of the Exchange will result in the
acquisition of control of Summagraphics by Lockheed Martin.
THE BOARD OF DIRECTORS OF SUMMAGRAPHICS HAS UNANIMOUSLY APPROVED THE
EXCHANGE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE EXCHANGE AGREEMENT, THE APPROVAL
OF THE RESTATED CHARTER AND THE APPROVAL OF THE STOCK OPTION PLAN.
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VOTING RIGHTS
Summagraphics' Board has fixed June 7, 1996 as the record date ("Record
Date") for the determination of Summagraphics stockholders entitled to notice
of and to vote at the Meeting. Accordingly, only holders of record of shares
of Common Stock at the close of business on the Record Date will be entitled
to vote at the Meeting. At the close of business on the Record Date, there
were 4,642,395 shares of Common Stock outstanding, each of which is entitled
to one vote on each matter properly submitted to a vote at the Meeting.
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Meeting will constitute a quorum at the Meeting. Shares of Common Stock held
of record by a broker or nominee that are not voted on any matter will be
treated as shares of Common Stock as to which voting power has been withheld
by the beneficial owners of such shares of Common Stock and, therefore, as
shares of Common Stock not entitled to vote on the proposals and will not be
included in determining the existence of a quorum. The affirmative vote of a
majority of the outstanding shares of Summagraphics Common Stock is required
to approve the Restated Charter. The affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the
Meeting and entitled to vote is required to approve the Exchange Agreement and
the Stock Option Plan. Because consummation of the Exchange is contingent upon
approval of each of the proposals, unless a majority of the outstanding shares
of Summagraphics Common Stock vote "FOR" approval of the Restated Charter, the
Exchange will not occur.
Abstentions may be specified on each of the proposals. Summagraphics
stockholders who abstain will be considered present and entitled to vote at
the Meeting but will not be counted as votes cast in the affirmative.
Abstentions on the proposal to approve the Restated Charter will have the
effect of a negative vote because that proposal requires the approval of a
majority of the outstanding shares of Common Stock entitled to vote.
Abstentions on the proposals to approve the Exchange Agreement and to approve
the Stock Option Plan will have the effect of a negative vote because these
proposals require the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at the Meeting and entitled to
vote. If authority is withheld by brokers or nominees holding the shares of
Common Stock in "street name," there will be no effect on the vote as to any
of the proposals because such shares of Common Stock will not be considered
entitled to vote on those matters.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE WITH THE
DIRECTIONS GIVEN, UNLESS PROPERLY REVOKED. PROPERLY EXECUTED PROXIES
CONTAINING NO INSTRUCTIONS REGARDING ANY PARTICULAR MATTER SPECIFIED THEREIN
WILL BE VOTED "FOR" THE APPROVAL OF THAT MATTER.
Each Summagraphics stockholder can vote personally or by proxy; a person
acting as a proxy need not be a stockholder of Summagraphics. The proxies
designated in the form of proxy furnished with this Proxy and Information
Statement will have the authority, if needed, to adjourn the Meeting and seek
additional votes in favor of the Exchange.
SOLICITATION AND REVOCATION OF PROXIES
The Board of Directors of Summagraphics is soliciting proxies from
stockholders by this Proxy and Information Statement. All shares of Common
Stock represented by properly executed proxies will be voted in accordance
with the directions on the proxies, unless such proxies are revoked prior to
the vote. The Board of Summagraphics does not know of any other matters which
may come before the Meeting. If any other matters are properly presented for
action at the Meeting, the named proxies will vote in accordance with the
instructions provided on the Proxy, and, if no instructions are provided, with
their best judgment on such matters. In addition to the use of the mails,
proxies may be solicited by telephone by directors and officers and employees
of Summagraphics who will not be specially compensated for such services.
Summagraphics has engaged D.F. King & Co. to represent them in connection with
the solicitation of proxies at a cost of approximately $5,000 plus expenses.
Summagraphics will request that the Notice of the Special Meeting of
Stockholders, this Proxy and Information Statement, the proxy and related
materials, if any, be forwarded to beneficial owners by banks, brokers and
other persons who are holding shares of Common Stock for such persons.
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A stockholder of Summagraphics who executes and returns a proxy may revoke
it at any time before it is voted. The giving of a proxy does not affect a
stockholder's right to attend and vote in person at the Meeting. A
stockholder's presence at the Meeting, however, will not in itself revoke the
stockholder's proxy. A Summagraphics stockholder giving a proxy pursuant to
this solicitation may revoke such proxy by delivering a written revocation to
the Secretary of Summagraphics at 8500 Cameron Road, Austin, Texas 78754-3999.
No revocation by written notice, however, will be effective unless and until
such notice is received by the Secretary of Summagraphics prior to the date of
the Meeting or by the inspector of election at the Meeting prior to the
closing of the polls.
NO APPRAISAL RIGHTS FOR DISSENTERS
No right of appraisal is available to holders of Summagraphics Common Stock
regardless of how such holders vote on any of the proposals, under the
Delaware General Corporation Law ("DGCL"), Summagraphics' current Certificate
of Incorporation or the proposed Restated Charter.
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PROPOSAL I:
THE EXCHANGE AGREEMENT
GENERAL
The following is a brief summary of certain aspects of the Exchange. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Exchange Agreement, Amendment No. 1 and Amendment No. 2,
copies of which are attached to this Proxy and Information Statement as
Appendices A-1, A-2 and A-3, respectively, and are incorporated herein by
reference. For purposes of this Proxy and Information Statement, the Exchange
Agreement, Amendment No. 1 and Amendment No. 2 are collectively referred to as
the "Exchange Agreement," unless the context indicates otherwise. Stockholders
are urged to, and should, read the Exchange Agreement carefully.
Pursuant to the Exchange Agreement, Summagraphics will issue the Exchange
Shares to Lockheed Martin in exchange for all of the outstanding capital stock
of CalComp, which will result in the acquisition of control of Summagraphics
by Lockheed Martin. Following the Exchange, Lockheed Martin will own
approximately 89.7% of the outstanding capital stock of Summagraphics, on a
fully diluted basis. As of March 19, 1996, the date of the Exchange Agreement,
the number of Exchange Shares issuable to Lockheed Martin under the Exchange
Agreement was 40,733,319, compared to a total of 4,677,293 shares of Common
Stock issued and outstanding, on a fully diluted basis, as of that date
assuming a market price of $3.00 per share of Common Stock which was the last
trade price of Summagraphics Common Stock on March 20, 1996, the date on which
the execution of the Exchange Agreement was announced. On April 30, 1996 and
June 5, 1996, the Exchange Agreement was amended. Additional shares of Common
Stock may be issued to Lockheed Martin, pursuant to Amendment No. 1, if the
sum of the Backlog and Material Adverse Effect Variances (as defined in
Amendment No. 1) is less than zero. The number of additional shares of stock
issuable to Lockheed Martin pursuant to Amendment No. 1 shall be determined by
dividing the sum of Backlog and Material Adverse Effect Variances, if
negative, by the average closing prices, as reported in The Wall Street
Journal--NASDAQ National Market Issues, for the five days preceding Closing.
Amendment No. 1 does not provide for a minimum or maximum number of additional
shares of Common Stock to be issued to Lockheed Martin; however, had the
Closing occurred on May 31, 1996, management of Summagraphics estimates that
no additional shares of Common Stock would have been issued to Lockheed
Martin. Management of Summagraphics does not expect that a material number of
additional shares of Common Stock will be issued to Lockheed Martin if the
Closing occurs on or before July 31, 1996. However, there can be no assurance
that the Material Adverse Effect and Backlog Variances will not increase
significantly, and result in a material number of additional shares of Common
Stock being issued to Lockheed Martin. Pursuant to the terms of Amendment No.
2, the number of Exchange Shares to be issued to Lockheed Martin will be
reduced if the CalComp Material Adverse Effect Variance (as defined in
Amendment No. 2) is greater than zero. The reduction in the number of Exchange
Shares will be equal to the amount of the CalComp Material Adverse Effect
Variance divided by the average closing prices of the Common Stock for the
five trading days prior to Closing. Amendment No. 2 does not provide for a
minimum or maximum reduction in the number of Exchange Shares to be issued to
Lockheed Martin; however, had the Closing occurred on May 31, 1996, management
of Lockheed Martin and CalComp estimate that no reduction in the number of
Exchange Shares would have occurred. Management of Lockheed Martin and CalComp
also expect no material reduction in the number of Exchange Shares at Closing.
However, there can be no assurance that the CalComp Material Adverse Effect
Variance will not increase significantly, and result in a material reduction
in the number of Exchange Shares that will be issued to Lockheed Martin.
Following the Exchange, CalComp will be a wholly owned subsidiary of
Summagraphics, and Summagraphics will change its name to "CalComp Technology,
Inc." The Exchange will result in the acquisition of control of Summagraphics
by Lockheed Martin. The combined business of Summagraphics and CalComp
following the Exchange is referred to herein as "New CalComp." EACH CURRENTLY
ISSUED AND OUTSTANDING SHARE OF SUMMAGRAPHICS COMMON STOCK WILL REMAIN
OUTSTANDING IMMEDIATELY AFTER THE EXCHANGE. CURRENT HOLDERS OF SUMMAGRAPHICS
COMMON STOCK WILL CONTINUE TO HOLD SHARES OF COMMON STOCK AFTER THE EXCHANGE.
CURRENT SUMMAGRAPHICS STOCKHOLDERS ARE NOT BEING ASKED TO TENDER THEIR SHARE
CERTIFICATES IN CONNECTION WITH THE EXCHANGE.
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The ownership percentage to be acquired by Lockheed Martin in the combined
company was the result of arm's-length negotiations between Lockheed Martin
and CalComp, on the one hand, and Summagraphics and Broadview Associates, on
the other hand, and was based on financial analyses conducted by Lockheed
Martin, on its behalf, and Broadview Associates acting on behalf of
Summagraphics. Both Lockheed Martin and Broadview Associates independently
conducted numerous financial analyses to arrive at the percentage of New
CalComp that Lockheed Martin would receive in the Exchange. The analyses
included (i) a contribution analysis which analyzed the pro forma contribution
of each of CalComp and Summagraphics to the combined entity, taking into
consideration certain historical and estimated future operating and financial
information, (ii) a comparable company analysis wherein certain multiples and
ratios derived from selected historical stock price information of certain
companies in the computer peripherals industry that they considered most
comparable to CalComp and Summagraphics, (iii) a discounted cash flow analysis
of both CalComp and Summagraphics which contained estimates of the net present
value of future cash flows for each company, and (iv) other analyses as they
deemed necessary in determining what was believed to be fair, from a valuation
perspective, to each party's respective stockholders.
The preparation of a valuation analysis is a complex process and is not
necessarily susceptible to summary description. Selecting portions of the
analyses or of the summary set forth above, without considering the analysis
as a whole, could create an incomplete view of the processes used by Lockheed
Martin and Broadview Associates in determining their respective valuations of
the businesses. Both Lockheed Martin and Broadview Associates considered the
results of all such analyses. The analyses formed the basis for determining
the value of CalComp and the percentage ownership of Lockheed Martin and
existing Summagraphics' stockholders in New CalComp. See "Reasons for the
Exchange; Recommendations" below.
CLOSING DATE
The closing of the Exchange Agreement and the Exchange, shall take place on
the Closing Date upon the satisfaction, or waiver, of the conditions contained
in the Exchange Agreement. See "The Exchange Agreement--Conditions to the
Obligations of Summagraphics" and "--Conditions to the Obligations of CalComp
and Lockheed Martin."
BACKGROUND OF THE EXCHANGE
The terms of the Exchange Agreement are the result of arm's-length
negotiations between representatives of Summagraphics, on one hand, and
Lockheed Martin and CalComp, on the other. The following is a brief discussion
of the background of these negotiations and the Exchange.
In July 1995, Summagraphics retained Broadview Associates, L.P., an
investment banking firm and financial advisor ("Broadview"), to assist it in
seeking offers to purchase certain of its non-strategic product lines, or to
acquire Summagraphics, as a means to address its recurring operating losses
and need for liquidity. Broadview undertook a study of Summagraphics' business
and began to identify potential sources of interest. Summagraphics paid
Broadview an initial fee of $25,000 at the time of engagement, and owes
Broadview an additional $25,000 in connection with the engagement. If the
Exchange is consummated, Summagraphics will be obligated to pay Broadview an
additional fee of $615,000 plus expenses. On October 6, 1995, Summagraphics
issued a press release announcing that it had retained Broadview to assist it
with matters relating to its strategic direction. Shortly after this
announcement, Summagraphics was contacted by management of Lockheed Martin,
who proposed that the companies evaluate a potential combination of
Summagraphics and CalComp, and by another third party regarding the possible
acquisition of Summagraphics or Summagraphics' digitizer division. After brief
discussions and a preliminary due diligence review of Summagraphics, the third
party withdrew its expressed interest in pursuing a transaction. Contacts with
other potential candidates by Broadview did not generate any material
interest.
On October 16, 1995, Lockheed Martin executed a nondisclosure agreement, and
Summagraphics began providing business information to Lockheed Martin. In
November 1995, Messrs. David B. Minnick, Director of Mergers & Acquisitions of
Lockheed Martin, Gary R. Long, President and Chief Executive Officer of
CalComp, and Ernest J. Baessler, then Chief Financial Officer of CalComp, and
certain other representatives of Lockheed
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Martin and CalComp met with Messrs. Michael S. Bennett, President and Chief
Executive Officer of Summagraphics, David G. Osowski, Senior Vice President,
Controller and Treasurer of Summagraphics and Robert B. Sims, Senior Vice
President, General Counsel and Secretary of Summagraphics in Austin, Texas,
and received a presentation from Mr. Bennett describing Summagraphics'
business. On December 18, 1995, Lockheed Martin delivered to Summagraphics and
Broadview a non-binding indication of interest which outlined the major terms
under which Lockheed Martin would consider a business combination between
CalComp and Summagraphics. The proposal contemplated structuring the
transaction in a stock-for-stock merger that would preserve the public market
trading of Summagraphics Common Stock and would result in Lockheed Martin
owning approximately 90% of the new company. The proposal was conditioned on,
among other things, the satisfactory completion of due diligence and was
subject to the approval of Lockheed Martin's Board of Directors. This proposal
prompted continuing discussions regarding the proposed structure and terms of
the transaction and due diligence efforts among Messrs. Minnick, Long and
Bennett and Mr. Steve Smith of Broadview in which Mr. Bennett indicated
Summagraphics' interest in pursuing discussions with Lockheed Martin. The
Board of Directors of Summagraphics met approximately weekly with Messrs.
Bennett, Osowski, Sims and certain other members of the management of
Summagraphics, Broadview and outside legal counsel during November and
December of 1995 to monitor the status of these discussions, the parties' due
diligence efforts and the continued deterioration of Summagraphics' financial
position. On December 21, 1995, Summagraphics executed a nondisclosure
agreement with Lockheed Martin.
During January 1996, evaluation teams from each of Summagraphics and CalComp
visited the other's facilities to continue due diligence evaluation of the
proposed combination. During the last week of January, Messrs. Minnick, Long,
and Bennett held discussions on the major terms to be addressed in a letter of
intent, including, without limitation, the number of shares to be issued to
Lockheed Martin and Summagraphics' need for working capital. On January 26,
1996, Lockheed Martin delivered a proposed letter of intent to Summagraphics
which set forth certain terms under which Lockheed Martin would be interested
in pursuing the transaction. The letter of intent proposed that Lockheed
Martin would receive a number of shares of Summagraphics Common Stock equal to
89.7% of the issued and outstanding Summagraphics Common Stock in exchange for
the capital stock of CalComp and set forth principal conditions of each party
to the transactions and a "no shop" agreement providing a termination fee of
$1.25 million to Lockheed Martin in the event the Board of Directors of
Summagraphics elected to pursue another transaction. On January 28, 1996,
Messrs. Minnick and Long of Lockheed Martin and CalComp, respectively, on the
one hand, and Messrs. Bennett, Osowski and Sims of Summagraphics, and Mr.
Smith of Broadview, on the other, and each of the parties' respective legal
counsels had a conference call to clarify issues raised by the initial
proposed letter of intent, including the terms of a proposed interim financing
arrangement, the "no shop" clause, the method of calculating the percentage
interest to be received by Lockheed Martin and the various conditions to
closing. Negotiations among Messrs. Minnick, Long, Bennett and their outside
counsels continued on January 29 and January 30 and were incorporated into a
revised letter of intent delivered by Lockheed Martin to Summagraphics on
January 30, 1996. After further discussion among Messrs. Minnick, Long and
Bennett, Lockheed Martin delivered to Summagraphics the final letter of intent
on February 1, 1996.
The issues raised by the initial indication of interest from Lockheed Martin
and the proposed letter of intent, including the percentage ownership of
Summagraphics by Lockheed Martin after the Exchange, were considered by the
Board of Directors at meetings on January 16, February 1, and February 2 with
the advice of Broadview and outside legal counsel and were negotiated by Mr.
Bennett. On February 2, 1996, the Board of Directors authorized the execution
by Summagraphics of the letter of intent based upon the conclusion that the
pursuit of a definitive agreement was in the best interest of Summagraphics'
stockholders considering Summagraphics' current and prospective financial
position and the benefits of a combination with a larger company with greater
resources. A joint press release was prepared describing the letter of intent
and was released on February 5, 1996. The parties then commenced the
preparation of definitive agreements to document the Exchange, which were
executed by the parties on March 19, 1996 and publicly announced on March 20,
1996.
The Exchange Agreement specified that among the conditions to the obligation
of CalComp and Lockheed Martin to close the Exchange were that (i) there has
been no material adverse change in the financial position,
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results of operations, assets, liabilities or business of Summagraphics which,
individually or in the aggregate, has resulted, or is reasonably likely to
result, in a reduction in the stockholders' equity of Summagraphics by more
than $2,000,000 (a "Material Adverse Effect") since November 30, 1995, and
(ii) that Summagraphics have a backlog of at least $2,750,000 at May 31, 1996
with respect to certain specified product lines. During April 1996 management
of Summagraphics became concerned that continuing losses would prevent
Summagraphics from being able to satisfy these conditions at Closing,
presenting the risk that Lockheed Martin and CalComp could decline to close
the Exchange. In response, Messrs. Bennett, Osowski, Long and Baessler
negotiated the terms of Amendment No. 1, which eliminates the above referenced
closing conditions and instead provides that if certain parameters are not
met, additional shares of Common Stock will be issued to Lockheed Martin.
Amendment No. 1 was approved by the Board of Directors of Summagraphics on
April 27, 1996, and the Board concluded that Amendment No. 1 was in the best
interests of the stockholders of Summagraphics. See "The Exchange Agreement--
General." In return, Summagraphics agreed to take certain business actions,
which actions are not intended to affect manufacturing or sales by
Summagraphics prior to Closing, to facilitate the efficient combination of the
business of Summagraphics and CalComp after the Exchange, including the
delivery of notices under the WARN Act to certain employees at Summagraphics'
Austin, Texas facility that operations there, and their employment, would be
terminated shortly, that Summagraphics would use its reasonable efforts to
reduce purchases of certain product lines, would reduce reliance on temporary
employees, and would take certain related cost reducing actions.
On June 5, 1996, the parties entered into Amendment No. 2, which eliminated
the condition to the obligation of Summagraphics to close the Exchange upon a
material adverse change in the financial position, results of operations,
assets, liabilities or business of CalComp which, individually or in the
aggregate, has resulted, or is reasonably likely to result in a reduction in
the stockholder's equity of CalComp by more than $15,000,000, and instead
provided that if such a material adverse change results in a reduction in the
shareholder's equity of CalComp by more than $25,500,000, the number of
Exchange Shares issuable to Lockheed Martin would be reduced. Amendment No. 2
also extended the term of the Exchange Agreement and related documents to July
31, 1996 and amended certain terms of the proposed Restated Charter.
REASONS FOR THE EXCHANGE; RECOMMENDATIONS
The decision of the Summagraphics' Board to approve the Exchange followed
negotiations among Summagraphics, Lockheed Martin and CalComp. Summagraphics
reviewed in detail CalComp's business, results of operations and prospects, as
well as information about Lockheed Martin and CalComp acquired during the
negotiations. Also, Summagraphics' Board independently reviewed with Broadview
certain financial information, including the range of values to Summagraphics
stockholders that might be achievable and the uncertainties inherent in
achieving those values. In light of Summagraphics' fee arrangement with
Broadview, which for the most part is contingent upon the consummation of the
Exchange, the Summagraphics' Board on January 16, 1996 also retained Needham &
Company, Inc. ("Needham") to furnish financial advisory and investment banking
services with respect to the proposed transaction and to render an opinion as
to the fairness, from a financial point of view, to all Summagraphics
stockholders of the consideration to be delivered by Lockheed Martin to
Summagraphics in the Exchange.
In its deliberations, Summagraphics' Board reviewed with Needham certain
projected financial information regarding Summagraphics, CalComp and New
CalComp which Needham derived from its discussions with the respective
management of each of Summagraphics and CalComp and which Summagraphics' Board
determined was reasonable in the context of Needham's preparation and
rendering of its fairness opinion but not material to its decision to approve
the Exchange in light of the continuing losses, liquidity constraints and
competitive challenges facing Summagraphics. Summagraphics' Board also
considered Needham's presentation of a range of implied values per share of
Summagraphics' Common Stock of the portion of New CalComp to be owned by
Summagraphics' stockholders after the Exchange. Because it preceded Amendment
No. 1 and Amendment No. 2, Needham's assessment did not take into account any
adjustment that may be made to Lockheed Martin's percentage ownership of
Summagraphics Common Stock pursuant to Amendment No. 1 or Amendment No. 2. In
addition, Needham did not assume any responsibility for or make or obtain any
independent evaluation,
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appraisal or physical inspection of the assets or liabilities of Summagraphics,
CalComp or Lockheed Martin. Although the Board did not specifically adopt any
of the implied values in the range presented by Needham, the Board found the
range of implied values to be reasonable.
During the course of its deliberations relating to a possible transaction
with Lockheed Martin and CalComp, Summagraphics' Board also considered, without
assigning relative weights to, the following other factors:
(i) the terms and conditions of the Exchange Agreement, including the
amount and form of the consideration, which Summagraphics' Board
believed represented a favorable transaction for Summagraphics
stockholders;
(ii) that the Exchange would allow Summagraphics stockholders the
opportunity to continue their investment and possibly recoup recent
losses in the market price of Summagraphics Common Stock;
(iii) the historical and prospective business of Summagraphics, including
the effects of recent operating losses and needs arising from working
capital constraints, the competitive position of Summagraphics in
each of its product lines and the historical business and results of
CalComp;
(iv) the opinion of Needham to the effect that, subject to certain
qualifications described below at "--Opinion of Financial Advisor,"
the consideration to be paid by Lockheed Martin to Summagraphics
pursuant to the Exchange was fair to Summagraphics stockholders from a
financial point of view;
(v) the opportunity to expand Summagraphics' existing business; and
(vi) the competitive challenges facing Summagraphics and the greater
stability and ability of the combined companies to respond to intense
competition when compared with industry competitors.
On March 19, 1996, Summagraphics' Board unanimously concluded, subject to the
delivery of the written opinion of Needham, which was received on March 19,
1996, that the terms of the Exchange are fair to Summagraphics stockholders
from a financial point of view, and unanimously approved the Exchange Agreement
and recommended that the stockholders of Summagraphics vote "FOR" approval and
adoption of the Exchange Agreement, the Exchange and the other transactions
contemplated thereby. On April 27, 1996 and May 31, 1996, the Board unanimously
approved Amendment No. 1 and Amendment No. 2, respectively, and reaffirmed its
conclusion that the terms of the Exchange, including the issuance of any
additional shares of Common Stock to Lockheed Martin pursuant to Amendment No.
1, was in the best interests of Summagraphics' stockholders and its
recommendation that the stockholders of Summagraphics vote "FOR" approval and
adoption of the Exchange Agreement, the Exchange and the other transactions
contemplated thereby. See "Background of the Exchange."
SUMMAGRAPHICS' BOARD BELIEVES THAT THE EXCHANGE IS IN THE BEST INTERESTS OF
SUMMAGRAPHICS AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS TO STOCKHOLDERS
THAT THEY VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE EXCHANGE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated January 16, 1996, Summagraphics
retained Needham to furnish financial advisory and investment banking services
with respect to the proposed transaction with Lockheed Martin and to render an
opinion as to the fairness, from a financial point of view, to the
Summagraphics stockholders of the consideration to be delivered by Lockheed
Martin to Summagraphics in the Exchange. The consideration to be delivered by
Lockheed Martin in the Exchange was determined through negotiations between
Summagraphics management and Lockheed Martin management and without involvement
by Needham.
At a meeting of the Board of Directors of Summagraphics on March 19, 1996,
Needham delivered its opinion (the "March Needham Opinion"), which Needham
subsequently updated as of June 6, 1996 (the "June Needham Opinion"), that, as
of the dates of such opinions and based upon the matters described therein, the
consideration to be delivered by Lockheed Martin to Summagraphics in the
Exchange is fair to the stockholders of Summagraphics from a financial point of
view. The June Needham Opinion is directed only to the consideration to be
delivered by Lockheed Martin to Summagraphics in the Exchange and does not
constitute a recommendation to any stockholder of Summagraphics as to how such
stockholder should vote at the Meeting. The June Needham Opinion assumes that
no adjustment will be made to Lockheed Martin's percentage ownership of
Summagraphics Common Stock pursuant to Amendment No. 1 or Amendment No. 2.
Needham
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was not requested to, and did not, make any recommendation to the
Summagraphics Board of Directors regarding the underlying business decision by
Summagraphics to engage in the Exchange. Needham is not expressing any opinion
as to the price at which the Common Stock will trade subsequent to the
Exchange. The complete text of the June Needham Opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken
by Needham, is attached to this Proxy and Information Statement as Appendix B,
and the summary of the June Needham Opinion set forth in this Proxy and
Information Statement is qualified in its entirety by reference to the June
Needham Opinion. SUMMAGRAPHICS STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
JUNE NEEDHAM OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE
PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY
NEEDHAM.
In arriving at the June Needham Opinion, Needham reviewed and analyzed,
among other things, (i) the Exchange Agreement, Amendment No. 1 and Amendment
No. 2; (ii) certain other documents relating to the Exchange including
preliminary copies of this Proxy and Information Statement; (iii) certain
publicly available information concerning Lockheed Martin, CalComp and
Summagraphics; (iv) the historical stock prices and trading volumes of
Lockheed Martin's and Summagraphics' Common Stock; (v) certain historical
financial statements and financial forecasts and projections prepared by
CalComp and Summagraphics; (vi) publicly available financial data of companies
whose securities are publicly traded, which Needham deemed generally
comparable to the business of New CalComp; and (vii) the financial terms of
certain other business combinations which Needham deemed generally relevant.
In addition, Needham visited certain of CalComp's and Summagraphics'
facilities and held discussions with members of management of Lockheed Martin,
CalComp and Summagraphics concerning their current and future business
prospects. Needham discussed with certain members of Summagraphics' management
Summagraphics' liquidity position, which has continued to deteriorate and has,
among other things, affected adversely Summagraphics' ability to procure
products from vendors to fulfill customer orders. Needham noted, based upon
such discussions, that Summagraphics' working capital needs for the current
calendar year have been largely dependent upon funds provided by Lockheed
Martin, and that absent such source of liquidity or another source,
Summagraphics' business prospects would worsen materially. Needham performed
and/or considered such other studies, analyses, inquiries and investigations
as it deemed appropriate. Needham assumed and relied upon, without independent
verification, the accuracy and completeness of the information it reviewed for
purposes of its opinion. With respect to Summagraphics' and CalComp's
financial forecasts provided to Needham by their respective managements,
Needham assumed that such forecasts have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of such
managements, at the time of preparation, of the future operating and financial
performance of Summagraphics and CalComp. However, in light of the continuing
losses, liquidity constraints and competitive challenges facing Summagraphics,
and the uncertainties surrounding Summagraphics' ability to achieve its
financial projections, Needham determined the forecasts were not a material
consideration in connection with its rendering of the June Needham Opinion.
Needham did not assume any responsibility for or make or obtain any
independent evaluation, appraisal or physical inspection of the assets or
liabilities of Summagraphics, CalComp or Lockheed Martin. Needham's opinion
states that it was based on economic, monetary and market conditions existing
as of the date of such opinion.
Based on this information, Needham performed a variety of financial and
strategic analyses of Summagraphics, CalComp and New CalComp. The following
paragraphs summarize the significant quantitative and qualitative analyses
performed by Needham in arriving at the June Needham Opinion.
Contribution Analysis. Needham reviewed and analyzed the pro forma
contribution of each of CalComp and Summagraphics to New CalComp's operational
and financial information as of and for the four months ended April 30, 1996
and as of and for the year ended December 31, 1995. Needham reviewed, among
other things, the pro forma contributions to revenues, operating loss, net
loss, cash and cash equivalents, working capital, and stockholders' equity.
The analysis was based upon the pro forma condensed financial statements
included elsewhere in this Proxy and Information Statement and upon pro forma
condensed financial statements as of and for the four months ended April 30,
1996 prepared on the same basis as the pro forma condensed financial
statements included elsewhere in this Proxy and Information Statement, but
without the pro forma
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adjustments set forth therein. Needham noted that both CalComp and
Summagraphics underperformed their respective internal financial projections
for the recent 1996 period and that Summagraphics had prepared current
projections covering only the next fiscal quarter, due in part to its
liquidity constraints. Given the unavailability of Summagraphics' financial
projections covering any future fiscal year and the uncertainty surrounding
Summagraphics' ability to achieve its financial projections, Needham did not
analyze the relative projected contributions to New CalComp's results of
operations by CalComp and Summagraphics for any future operating period. Based
on this analysis, Summagraphics contributed the following percentages to New
CalComp's pro forma revenues, operating loss and net loss: approximately 21%,
55% and 58%, respectively, for the year ended December 31, 1995 and
approximately 21%, 17% and 17%, respectively, for the four months ended April
30, 1996. In addition, Summagraphics contributed the following percentages to
New CalComp's cash and cash equivalents, working capital, and stockholders'
equity: approximately 4%, 5% and 5%, respectively, as of December 31, 1995,
and approximately 9%, -1%, and 3%, respectively, as of April 30, 1996.
Summagraphics' stockholders will own approximately 10% of New CalComp on a
fully diluted basis after the Exchange, excluding for this purpose the shares
issuable to Lockheed Martin upon conversion of the Convertible Debenture and
assuming no adjustment in Lockheed Martin's percentage ownership pursuant to
Amendment No. 1 or Amendment No. 2. Needham noted that, based upon the
foregoing, Summagraphics' stockholders' ownership of New CalComp was less than
Summagraphics' contributions to pro forma revenues of New CalComp, but greater
than Summagraphics' contributions to cash and cash equivalents, working
capital and stockholders' equity of New CalComp.
Comparable Company Analysis. Needham compared selected historical operating
and stock market data and operating and financial ratios for New CalComp to
the corresponding data and ratios of certain other publicly traded computer
peripherals companies, which it deemed generally comparable to New CalComp.
Such data and ratios included total market capitalization to historical
revenue, price per share to historical and projected earnings per share, and
market value to historical book value. Companies deemed to be generally
comparable to New CalComp included Encad, Inc., Gerber Scientific, Inc.,
Howtek, Inc. and Printronix, Inc.
For these companies the multiples of total market capitalization to last
twelve months revenues ranged from 0.8 to 3.9 with a mean of 2.1 and a median
of 1.9; the multiples of total market capitalization to historical fiscal 1995
revenues ranged from 0.8 to 4.2 with a mean of 2.1 and a median of 1.7; the
multiples of market value to the last twelve months net income (loss) ranged
from (7.6) to 20.5 with a mean of 12.4 and a median of 18.3; the multiples of
market value capitalization to projected 1996 net income ranged from 14.5 to
26.6 with a mean of 19.7 and a median of 17.9; and the multiples of market
value to historical book value ranged from 1.7 to 8.9 with a mean of 4.9 and a
median of 4.5. Needham placed relatively less emphasis on this analysis and
noted that it is difficult to draw conclusions from this analysis alone given
Summagraphics' liquidity constraints and the significant losses incurred by
both Summagraphics and CalComp.
Selected Transactions Analysis. Needham also analyzed publicly available
financial information for a number of selected mergers and acquisitions of
companies in the electronics industry. Transactions analyzed included Crane
Co./Eldec Corp.; Investor Group/Ketema Inc.; Computer Associates
International, Inc./ASK Group, Inc.; AEG AG/ElectroCom Automation, Inc.;
Raytheon Co./Xyplex, Inc.; GN Great Nordic Ltd./Laser Precision Corp.; Siebe
PLC/Triconex Corp.; Siemens Nixdorf Info AG/Pyramid Technology Corp.; ALC
Communications Corp./ConferTech International, Inc.; Robotic Vision Systems,
Inc./Acuity Imaging, Inc.; FMC Corporation/Moorco International, Inc.; Apollo
Holding, Inc./Intermetrics, Inc.; General Signal Corporation/Best Power
Technology, Inc.; Johnson Matthey PLC/Advance Circuits, Inc.; and Hyundai
Electronics Industries Co., Ltd./Maxtor Corporation (collectively, the
"Selected Transactions"). Four of these transactions, Investor Group/Ketema
Inc., Computer Associates International, Inc./ASK Group, Inc., Siemens Nixdorf
Info AG/Pyramid Technology Corp., and Hyundai Electronics Industries Co.,
Ltd./Maxtor Corporation (collectively, the "Subgroup Transactions"), involved
acquisitions of companies that had been incurring net losses prior to their
respective acquisitions. In examining these transactions, Needham analyzed
certain income statement and balance sheet parameters of the acquired
companies relative to the consideration offered. Multiples analyzed included
enterprise value to historical net sales, enterprise value to historical
income before interest and taxes,
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enterprise value to historical cash flow, equity value to historical net
income and equity value to historical common equity. In certain cases,
complete financial data was not publicly available for these transactions and
only partial information was used in such instances.
The enterprise value to historical net sales multiples for the Selected
Transactions ranged from 0.36x to 1.88x, with a mean of 1.07x and a median of
1.00x. The enterprise value to historical income before interest and taxes
multiples for the Selected Transactions ranged from 4.67x to 44.40x, with a
mean of 13.56x and a median of 11.64x. The enterprise value to historical cash
flow multiples for the Selected Transactions ranged from 4.17x to 28.10x, with
a mean of 11.26x and a median of 9.55x. The equity value to historical net
income multiples for the Selected Transactions ranged from 9.78x to 76.30x,
with a mean of 22.64x and a median of 18.38x. The equity value to historical
common equity multiples for the Selected Transactions ranged from 0.94x to
14.20x, with a mean of 3.47x and a median of 2.77x. The enterprise value to
historical net sales multiples for the Subgroup Transactions ranged from 0.36x
to 0.97x, with a mean of 0.65x and a median of 0.63x. The enterprise value to
historical cash flow multiples for the Subgroup Transactions ranged from 9.05x
to 23.03x, with a mean of 12.18x and a median of 12.84x. The equity value to
historical common equity multiples for the Subgroup Transactions ranged from
0.94x to 6.61x, with a mean of 2.93x and a median of 2.09x. Needham also
calculated the following multiples for Summagraphics, based upon the closing
price of Summagraphics Common Stock of $3.00 per share on June 5, 1996, the
trading day prior to the delivery of the June Needham Opinion, and upon a
range of prices per share for Summagraphics Common Stock ranging from $2.25 to
$4.25: the multiples of enterprise value to fiscal 1995 revenues and
enterprise value to last twelve months revenues were 0.38x and 0.47x,
respectively, based on the $3.00 closing price, and ranged from 0.34x to 0.46x
and from 0.42x to 0.57x, respectively, based on the aforementioned price
range; the multiple of enterprise value to last twelve months cash flows was
13.55x and ranged from 11.97x to 16.20x; and the multiple of equity value to
tangible book value at April 30, 1996 was 1.97x and ranged from 1.48x to
2.79x.
Because the multiples for the Subgroup Transactions were materially
different from those for all of the Selected Transactions, Needham determined
that it was appropriate to refer to the multiples for the Subgroup
Transactions for purposes of its opinion analysis. Needham applied ranges of
multiples of equity value to book value and enterprise value to last twelve
months revenues to calculate a range of values applicable to the
Summagraphics' stockholders' 10.3% aggregate ownership of New CalComp. Needham
selected ranges of multiples using the medians of the Subgroup Transactions
multiples as the high ends of the ranges. Based on a range of book value
multiples of 1.70x to 2.10x, the implied values of Summagraphics' share of New
CalComp ranged from $37.1 million to $45.9 million, or $8.07 per share to
$9.97 per share. Based on a range of revenue multiples of 0.25x to 0.65x, the
implied values of Summagraphics' share of New CalComp ranged from $8.0 million
to $21.5 million, or $1.74 per share to $4.67 per share. THE RANGE OF IMPLIED
VALUES SHOWN ARE NOT NECESSARILY INDICATIVE OF ACTUAL VALUES, WHICH MAY BE
SIGNIFICANTLY MORE OR LESS FAVORABLE. THE IMPLIED VALUES SET FORTH ABOVE
SHOULD NOT BE RELIED UPON BY STOCKHOLDERS AS AN INDICATION OF THE FUTURE
MARKET VALUE OF NEW CALCOMP COMMON STOCK.
Liquidation Value Analysis. Needham conducted a liquidation value analysis
to analyze possible scenarios in the event the Exchange was not consummated
and additional sources of liquidity were not available to Summagraphics.
Needham's analysis reviewed the possible values of Summagraphics' net assets
in a liquidation based upon three scenarios. These scenarios were based upon
different assumptions with respect to, among other things, the following: the
percentages of the book value of tangible assets on Summagraphics' April 30,
1996 unaudited balance sheet that may be realized upon a liquidation; the
values, based upon discussions with Summagraphics' management, estimated to be
receivable upon liquidation for Summagraphics' intellectual property and other
intangible assets; and transaction expenses as a percentage of values
realized. The results of this analysis showed that amounts received from the
sale of Summagraphics' assets upon liquidation would be insufficient to cover
the book value of Summagraphics' liabilities as of April 30, 1996 in two of
the three scenarios by $9.3 million and $4.5 million, respectively. In the
third possible scenario, the net value estimated to be realized upon
liquidation of Summagraphics' assets, less its liabilities, was $0.6 million.
Stock Trading History. Needham examined the history of trading prices and
volumes for Summagraphics Common Stock and the relationship between movements
of Summagraphics Common Stock and movements in composite indices such as the
Standard & Poor's 500 and NASDAQ Composite.
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Analysis of Summagraphics' stock trading history revealed that Summagraphics
Common Stock traded below $5.00 per share for the prior twelve months and that
the trading volume was relatively low in comparison to the trading volume of
comparably sized technology companies. Needham also noted that Summagraphics
Common Stock underperformed the Standard & Poor's 500 and NASDAQ Composite
indices over the prior twelve months. Needham noted that Summagraphics'
closing price of $3.00 per share on June 5, 1996, the trading day preceding
the delivery of the June Needham Opinion, represented a 33% premium to the
closing price four weeks prior to the date of announcement of the Exchange and
a 4% premium to the closing price on the day prior to the announcement of the
Exchange.
No company or transaction used in any comparable analysis as a comparison is
identical to Summagraphics, CalComp, New CalComp or the Exchange. Accordingly,
these analyses are not mathematical; rather, they involve complex
considerations and judgments concerning differences in the financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies and
transactions to which they are being compared.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Needham believes that its analyses must be
considered as a whole and that considering any portions of such analyses and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
In its analyses, Needham made numerous assumptions with respect to industry
performance, general business and economic and other matters, many of which
are beyond the control of Summagraphics, CalComp or Lockheed Martin. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable. Additionally, analyses relating to the values of
business or assets do not purport to be appraisals or necessarily reflect the
prices at which businesses or assets may actually be sold.
Pursuant to its engagement letter, Summagraphics has agreed to pay Needham a
fee of $150,000. None of Needham's fee is contingent upon the consummation of
the Exchange. Summagraphics has also agreed to reimburse Needham for its out-
of-pocket expenses and to indemnify it against certain liabilities relating to
or arising out of services performed by Needham as financial advisor to
Summagraphics.
Needham is a nationally recognized investment banking firm. As part of its
investment banking services, Needham is frequently engaged in the evaluation
of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. Needham was retained by Summagraphics'
Board of Directors to act as Summagraphics' financial advisor in connection
with the Exchange based on Needham's experience as a financial advisor in
mergers and acquisitions as well as Needham's familiarity with the computer
peripherals industry. In the normal course of its business, Needham may
actively trade the equity securities of Summagraphics or Lockheed Martin for
its own account or for the account of its customers and, therefore, may at any
time hold a long or short position in such securities.
THE EXCHANGE AGREEMENT
The description of the Exchange Agreement set forth below does not purport
to be complete and is qualified in its entirety by reference to the Exchange
Agreement, Amendment No. 1 and Amendment No. 2, copies of which are attached
as Appendices A-1, A-2 and A-3, respectively to this Proxy and Information
Statement and incorporated by reference herein. Stockholders are urged to read
carefully the Exchange Agreement, Amendment No. 1 and Amendment No. 2 in their
entirety.
The Exchange Shares. Pursuant to the Exchange Agreement, Summagraphics has
agreed to issue to Lockheed Martin a number of shares of its Common Stock
which, following the Exchange, will equal
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approximately 89.7% of the issued and outstanding Common Stock, on a fully
diluted basis, in exchange for all of the outstanding capital stock of
CalComp. For purposes of the Exchange, "fully diluted basis" means a basis
whereby the aggregate number of shares of Common Stock for such determination
includes (i) all Common Stock then issued and outstanding, (ii) all Common
Stock that would be issued and outstanding upon the exercise, conversion or
exchange of all outstanding warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Common Stock (or rights to
acquire any such warrants, options or other rights), regardless of whether
such warrants, options or other rights are then exercisable, convertible or
exchangeable, (iii) all Common Stock which would be outstanding upon the
exercise, conversion or exchange of all outstanding evidences of indebtedness,
shares of capital stock or other securities (or rights to acquire any of the
foregoing) which are or may be exercisable, convertible or exchangeable into
shares of Common Stock, regardless of whether such evidences of indebtedness,
shares of stock or other securities are then exercisable, convertible or
exchangeable, and (iv) the Exchange Shares issuable upon such determination
but excluding Common Stock issuable upon conversion of the Convertible
Debenture. For purposes of subsections (ii) and (iii) above, the number of
shares of Common Stock issuable pursuant to options, warrants and rights of
conversion that will be deemed to be outstanding will be determined using the
"Treasury Stock Method" of accounting as defined in APB Opinion 15 based on an
average of the closing prices, as reported in The Wall Street Journal--NASDAQ
National Market Issues, for the five days preceding the Closing Date.
As of March 19, 1996, the date of the Exchange Agreement, the number of
Exchange Shares that would be issuable to Lockheed Martin was 40,733,319,
compared to the total of 4,677,293 shares of Common Stock issued and
outstanding, on a fully diluted basis, as of that date assuming a market price
of $3.00 per share of Common Stock which was the last trade price of
Summagraphics Common Stock on March 20, 1996, the date on which the execution
of the Exchange Agreement was announced. In addition, pursuant to the terms of
Amendment No. 1, Summagraphics is required to issue to Lockheed Martin
additional shares of Common Stock if there has been any material adverse
change in the financial position, results of operations, assets, liabilities
or business of Summagraphics from November 30, 1995 to the Closing Date, which
individually or in the aggregate has resulted, or is reasonably likely to
result, in a reduction in Summagraphics' shareholders' equity by an amount in
excess of $3,400,000 (a "Material Adverse Effect") and if Summagraphics does
not have backlog for certain product lines of not less than $2,750,000. The
number of shares to be issued will be equal to the amount of Material Adverse
Effect that exceeds $3,400,000 plus the difference between the actual amount
of backlog and $2,750,000, if such backlog is less than $2,750,000, divided by
the average closing prices of the Common Stock for the five trading days prior
to Closing. Amendment No. 1 does not provide for a minimum or maximum number
of shares of Common Stock to be issued to Lockheed Martin; however, had the
Closing occurred on May 31, 1996, management of Summagraphics estimates that
no additional shares of Common Stock would have been issued to Lockheed
Martin. Management of Summagraphics does not expect that a material amount of
additional shares of Common Stock will be issued to Lockheed Martin if the
Closing occurs on or prior to July 31, 1996. However, there can be no
assurance given that the Material Adverse Effect and Backlog Variances will
not increase significantly, and result in additional shares of Common Stock
being issued to Lockheed Martin.
Pursuant to the terms of Amendment No. 2, the number of Exchange Shares to
be issued to Lockheed Martin will be reduced if there has been any material
adverse change in the financial position, results of operations, assets,
liabilities or business of CalComp from December 31, 1995 to the Closing Date,
which individually or in the aggregate is reasonably likely to result in a
reduction in CalComp's stockholder's equity by an amount in excess of
$25,500,000 (a "CalComp Material Adverse Effect"). The reduction in the number
of Exchange Shares will be equal to the amount of the CalComp Material Adverse
Effect that exceeds $25,500,000 (the "CalComp Material Adverse Effect
Variance"), divided by the average closing prices of the Common Stock for the
five trading days prior to Closing. Amendment No. 2 does not provide for a
minimum or maximum reduction in the number of Exchange Shares to be issued to
Lockheed Martin; however, had the Closing occurred on May 31, 1996, management
of Lockheed Martin and CalComp estimate that no reduction in the number of
Exchange Shares would have occurred. Management of Lockheed Martin and CalComp
also expect no material reduction in the number of Exchange Shares at Closing.
However, there can be no assurance that the CalComp Material Adverse Effect
Variance will not increase significantly, and result in a material reduction
in the number of Exchange Shares that will be issued to Lockheed Martin.
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All currently issued and outstanding shares of Common Stock will remain
outstanding and unchanged after the Exchange. It is anticipated that shares of
Common Stock will continue to trade on the NASDAQ National Market System, but
under the new symbol "CLCP." On May 16, 1996, Summagraphics received an
inquiry from the NASDAQ Stock Market as to whether Summagraphics continued to
meet the listing requirements for the National Market System. Pursuant to
correspondence and subsequent telephone conversations, the NASDAQ Stock Market
has agreed to delay their determination until consummation of the Exchange.
One of the requirements for listing on the National Market System is that a
total market capitalization of common stock held by non-affiliates exceeds a
minimum threshold and that the price of the listed security exceeds a minimum
threshold. Until such time as the Exchange is consummated, a determination as
to whether the listing requirements will be satisfied cannot be made. Lockheed
Martin has indicated that it intends to use reasonable efforts to cause the
Common Stock to continue to be listed on the NASDAQ National Market System
after the Exchange.
Representations and Warranties. The following is a summary of the
representations and warranties of the parties contained in the Exchange
Agreement.
In the Exchange Agreement, Summagraphics has made representations and
warranties in favor of Lockheed Martin with respect to the following matters:
(1) organization and authority; (2) capitalization; (3) corporate power and
authority to enter into the Exchange Agreement; (4) subsidiaries; (5) accuracy
of financial statements; (6) absence of undisclosed liabilities; (7) absence
of material adverse changes; (8) tax filings and other related tax matters;
(9) properties; (10) litigation matters; (11) contracts and commitments; (12)
accuracy of SEC filings; (13) employee benefit plans; (14) environmental
matters and compliance; (15) employees, directors and officers; (16)
compliance with applicable laws; (17) insurance; (18) non-applicability of
certain anti-takeover laws; (19) product and service warranties; (20) the
Exchange Shares; (21) labor matters; (22) intellectual property rights; (23)
receipt of the favorable opinion of the Financial Advisor; (24) accuracy of
books and records; (25) accuracy of information supplied; (26) investment
representations; (27) bank accounts and other arrangements with financial
institutions; and (28) amount of backlog with respect to certain product lines
as of the Closing.
In the Exchange Agreement, CalComp has made representations and warranties
in favor of Summagraphics with respect to the following matters: (1)
organization, good standing and corporate power; (2) capitalization; (3)
corporate power and authority to enter into the Exchange Agreement; (4)
subsidiaries; (5) accuracy of financial statements; (6) absence of undisclosed
liabilities; (7) no material adverse changes; (8) litigation matters; (9)
environmental matters; (10) compliance with laws; (11) intellectual property
rights; and (12) accuracy of information supplied.
In the Exchange Agreement, Lockheed Martin has made representations and
warranties in favor of Summagraphics with respect to the following matters:
(1) organization and good standing; (2) corporate power and authority to enter
into the Exchange Agreement; (3) litigation matters; (4) ownership of CalComp
capital stock; (5) investment representations; (6) certain tax matters; and
(7) accuracy of information supplied.
All representations and warranties pursuant to the Exchange Agreement
terminate on the Closing Date.
Conduct of Summagraphics' Business Prior to Exchange. Summagraphics has
agreed that, prior to the Exchange, it will conduct its operations only in the
ordinary course of business and will use its reasonable best efforts to
maintain and preserve its business. Summagraphics further agreed that prior to
Exchange, it will not, among other things: (1) change or amend governing
instruments; (2) adjust, split, combine or reclassify Summagraphics Common
Stock or make, declare or pay any dividend or make any other distribution on,
or directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or grant (or revise the
terms or conditions of any previous grant of) any stock options or stock
appreciation rights or give any person any right or warrant to acquire any
shares of its capital stock; (3) enter any contract or commitment or incur or
agree to incur any liability or make any capital expenditures except in the
normal course of business; (4) increase in any
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manner the compensation or fringe benefits of any of its directors, officers,
agents or employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such directors, officers, agents or
employees or become a party to, amend or commit itself to any pension,
retirement, profit sharing, welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee or officer or other person
other than payments consistent with past practices and current incentive
compensation plans; (5) sell, assign, lease or otherwise transfer or dispose
of any property or equipment except in the normal course of business; (6)
merge or consolidate or agree to merge or consolidate with or into any other
person; (7) materially change the extent or character of its business
operations; (8) dissolve, liquidate (completely or partially), acquire any
capital assets, or grant to any person a right or option to lease, acquire, or
purchase, any material amount of the assets of Summagraphics (including any
part thereof or any interest therein), except in the ordinary course of
business and consistent with past practice or as expressly contemplated by the
Exchange Agreement; (9) issue any shares of its capital stock or any
securities convertible into or exercisable or exchangeable for capital stock;
(10) incur any additional indebtedness for borrowings or issue any debt
securities or any securities convertible into debt securities or any options
to purchase debt securities or other rights in respect thereto or assume,
endorse, or guarantee, or become a surety, an accommodation party, or
responsible in any other way for, an obligation or indebtedness of another
person; (11) discontinue or materially diminish any insurance coverage
applicable to its assets, properties, and business operations; (12) commit to
a labor or employment contract of any kind whatsoever, or any compensation
obligation to any employee that is executory or requires payment after the
Closing Date; (13) mortgage, pledge or subject to any other lien any of its
assets; (14) engage in any speculative currency transactions; (15) cancel or
compromise any legal right or claim of or debts owed to Summagraphics; or (16)
except to the extent that such provision may restrict production or sales
prior to Closing, issue any purchase orders effective after April 30, 1996 for
support of production of certain product lines and purchases for certain
products.
Certain Covenants of Summagraphics. Pursuant to the Exchange Agreement,
Summagraphics has agreed that it will, among other things: (1) not solicit or
initiate proposals from, provide information to or hold discussions with any
party concerning a merger, consolidation, business combination, liquidation or
any sale of assets or any capital stock or similar transaction subject to the
fiduciary obligations of the Summagraphics' Board of Directors and the
possibility of having to pay damages for breach of contract in the nature of a
termination fee as contemplated by the Exchange Agreement; (2) not take any
action that would prevent the Exchange from qualifying as a tax free exchange
under Section 368(a)(1)(B) of the Code; (3) give Lockheed Martin and CalComp
reasonable access to Summagraphics' business operations to verify the accuracy
of the representations and warranties made by Summagraphics; (4) consult with
Lockheed Martin and CalComp prior to making any press release regarding the
Exchange and any matters contained in the Exchange Agreement; (5) promptly
inform Lockheed Martin and CalComp of certain events related to the Exchange
Agreement and the transactions contemplated thereby; (6) use its best efforts
to take all necessary actions or cause to be done all things necessary to
consummate the transactions contemplated by the Exchange Agreement as soon as
practicable, including seeking or making all required filings, orders,
consents or authorizations required under applicable law or consents from any
governmental bodies or parties to any material contracts; (7) prepare and file
this Proxy and Information Statement with the SEC; (8) cause a meeting of its
stockholders to be duly called and held to vote on the Exchange and the
various matters related thereto and use its best efforts to obtain stockholder
approval of such; (9) enter into each of the Intercompany Agreements; (10)
consult with Lockheed Martin and CalComp with respect to material business
decisions affecting Summagraphics' business; (11) take all necessary action to
list the Exchange Shares with the NASDAQ National Market System; (12) except
to the extent that such requirement would restrict manufacturing or sales
prior to Closing, give advance notice of facility closing under the WARN Act
to all necessary recipients when directed by CalComp; (13) to the greatest
extent possible, eliminate the use of temporary employees; (14) negotiate the
cancellation of purchase orders for certain product lines; and (15) except to
the extent that such requirement would restrict manufacturing or sales prior
to Closing, to the greatest extent possible, eliminate all co-operative
advertising expenses related to certain product lines.
Certain Covenants of CalComp and Lockheed Martin. Pursuant to the Exchange
Agreement, CalComp and Lockheed Martin have agreed that they will, among other
things: (1) consult with Summagraphics prior to
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making any press release regarding the Exchange and any matters contained in
the Exchange Agreement; (2) promptly inform Summagraphics of certain events
related to the Exchange Agreement and the transactions contemplated thereby;
(3) use their best reasonable efforts to take all necessary actions or cause
to be done all things necessary to consummate the transactions contemplated by
the Exchange Agreement as soon as practicable, including seeking or making all
required filings, orders, consents or authorizations required under applicable
law or consents from any governmental bodies or parties to any material
contracts; and (4) enter into each of the Intercompany Agreements.
Conditions to the Obligations of Summagraphics. The obligation of
Summagraphics to consummate the Exchange is subject to the following
conditions, among others (unless waived where permissible): (1) the
representations and warranties of Lockheed Martin and CalComp are true and
correct in all material respects as of the Closing Date; (2) performance and
compliance by Lockheed Martin and CalComp in all material respects with the
undertakings and covenants required by the Exchange Agreement prior to the
Closing Date; (3) approval of the Exchange by Summagraphics stockholders; (4)
stockholder approval of the Restated Charter; (5) stockholder approval of the
Stock Option Plan; (6) no action or proceeding against the consummation of the
transactions contemplated by the Exchange Agreement shall have been instituted
or threatened or any investigations or inquiries undertaken that in the
reasonable judgment of Summagraphics could result in substantial damages or as
a result of which Summagraphics could be deprived of any of the material
benefits of the transaction contemplated by the Exchange Agreement; (7) the
receipt of the required legal opinion; (8) the receipt of the Needham Opinion;
and (9) the receipt of a secretary's certificate from CalComp in a form
reasonably satisfactory to Summagraphics.
Conditions to the Obligations of CalComp and Lockheed Martin. The obligation
of Lockheed Martin and CalComp to consummate the Exchange is subject to the
following conditions, among other things (unless waived where permissible):
(1) the representations and warranties of Summagraphics are true and correct
in all material respects as of the Closing Date; (2) Summagraphics has
complied in all material respects with the undertakings and covenants required
by the Exchange Agreement prior to the Closing Date; (3) no action or
proceeding against the consummation of the transactions contemplated by the
Exchange Agreement shall have been instituted or threatened or any
investigations or inquiries undertaken that in the reasonable judgment of
Lockheed Martin could result in substantial damages or as a result of which
Lockheed Martin could be deprived of any of the material benefits of the
transactions contemplated by the Exchange Agreement; (4) the receipt of the
required legal opinion; (5) Summagraphics shall have executed and delivered to
Lockheed Martin each of the Intercompany Agreements; (6) the Exchange, the
Restated Charter and the CalComp Technology, Inc. 1996 Stock Option Plan shall
have been approved by the stockholders of Summagraphics and the Restated
Charter shall have been duly filed and accepted of record by the Secretary of
State of the State of Delaware; (7) the Exchange Shares shall have been listed
on the NASDAQ National Market System; (8) receipt of a secretary's certificate
from Summagraphics in a form reasonably satisfactory to Lockheed Martin; (9)
all applicable securities, antitrust and other laws shall have been complied
with in connection with the transactions contemplated by the Exchange
Agreement; and (10) obtaining all consents and approvals necessary to
consummate the Exchange.
Ability to Satisfy Conditions. While the respective managements of
Summagraphics, CalComp and Lockheed Martin do not at present believe that any
of the stated conditions will not be satisfied or that the Exchange will not
be consummated, no assurance can be given that events will not occur, many of
which are outside the control of the parties, that would give any of the
parties the right to decline to close or to terminate the Exchange Agreement.
See "Risk Factors--Conditions to Closing; Risk of Insolvency if Exchange Not
Consummated," "Summary--Market Price Data" and "Market Price of Summagraphics
Common Stock."
The business uncertainties attendant to the announcement of the Exchange
have adversely affected Summagraphics' relationships with certain employees,
vendors and distributors. Lockheed Martin has agreed to use its reasonable
efforts to work with Summagraphics to remedy these problems, but Lockheed
Martin has expressly retained its right to terminate the Exchange Agreement
if, despite such efforts, a Material Adverse Effect results.
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Expenses. Except as discussed under "Termination Fee" below, whether or not
the Exchange is consummated, all costs and expenses incurred in connection
with the Exchange Agreement and the transactions contemplated thereby shall be
paid by the party incurring such costs. CalComp has agreed to pay the Hart-
Scott- Rodino filing fee and the filing fee required by the Securities and
Exchange Commission in connection with the filing of this Proxy and
Information Statement.
Amendments; Waiver; Termination. The Exchange Agreement may be amended by
the parties at any time before or after approval by the stockholders of
Summagraphics, provided that no amendment may be made after stockholder
approval that adversely effects the rights of Summagraphics stockholders
without further approval of the affected stockholders.
The Exchange Agreement also provides that each of Summagraphics, Lockheed
Martin and CalComp may (i) waive any inaccuracies in the representations and
warranties contained therein or any document delivered pursuant to such
Exchange Agreement and (ii) waive compliance with any of the agreements or
conditions contained in the Exchange Agreement. Upon consummating the
Exchange, all conditions will be deemed to have been fulfilled or duly waived
and any rights to assert subsequently that any such conditions were not
fulfilled will be deemed waived. Except for such deemed waivers, all waivers
must be in writing.
The Exchange Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Closing Date: (1) by mutual consent of
Summagraphics and Lockheed Martin; (2) by Summagraphics or Lockheed Martin in
the event of a material breach by the other party of any representation,
warranty, covenant or other agreement contained in the Exchange Agreement
which cannot be or has not been cured within thirty (30) days after the giving
of written notice to the breaching party of such breach; (3) by either party
hereto if the FTC or the Antitrust Division, as the case may be, denied
approval of the Exchange under the HSR Act and the time period for all appeals
or requests for reconsideration has run; (4) by either Summagraphics or
Lockheed Martin in the event the Closing has not occurred by July 31, 1996;
(5) in the event that any of the conditions precedent to the obligations of
such party to consummate the Exchange cannot be satisfied or fulfilled; (6) by
Summagraphics if the holders of more than fifty percent of the outstanding
shares of Summagraphics Common Stock fail to vote for the Exchange; (7) by the
Board of Directors of Summagraphics if Summagraphics receives an Acquisition
Proposal (as defined below) which the Board of Directors of Summagraphics
determines in good faith that it must consider, and which Acquisition Proposal
a majority of the full Board of Directors of Summagraphics further determines
to approve and to recommend to the stockholders of Summagraphics for approval.
Termination Fee. In the event that any of the parties terminates the
Exchange Agreement in breach thereof, the terminating party will pay the
reasonable fees and expenses of third-party consultants, accountants and
attorneys that are actually incurred (including any fees and expenses relating
to fairness opinions) of the non-terminating party in connection with the
Exchange. In addition, in the event that the Exchange is not consummated
because of a breach of the Exchange Agreement by Summagraphics and within
twelve months thereafter Summagraphics enters into an agreement with respect
to an Acquisition Proposal or the consummation of the transactions
contemplated by any Acquisition Proposal occurs or Summagraphics solicits or
initiates proposals from, provides information to or holds discussions with
any person with respect to any Acquisition Proposal, which would be in breach
of the Exchange Agreement, then Summagraphics (or successor corporation,
including the acquiror of any substantial portion of the assets of
Summagraphics or any of its subsidiaries) will pay $1,250,000 to Lockheed
Martin.
As used in this section, an Acquisition Proposal means any third party
proposal concerning any merger, share exchange, consolidation, sale of any
substantial portion of the assets of Summagraphics, tender offer, sale of
control or similar transaction involving Summagraphics, other than a third
party proposal to acquire Summagraphics' CAD Warehouse business or SummaJet or
SummaChrome product lines or to secure license rights to such products.
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DIRECTORS AND OFFICERS LIABILITY INSURANCE
In the Exchange Agreement, Lockheed Martin agreed to use reasonable efforts
to cause to be maintained in effect, for a period of six years following
Closing, the current policies of directors and officers liability insurance
maintained by Summagraphics (provided that Lockheed Martin may substitute
therefor policies with reputable and financially sound carriers of at least
the same coverage and amounts containing terms and conditions which are no
less advantageous) with respect to claims arising from or related to facts or
events that occurred prior to the Closing, provided, that Lockheed Martin will
not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 150% of the annual premiums paid as of the date of
the Exchange Agreement.
MANAGEMENT OF NEW CALCOMP AFTER THE EXCHANGE
As contemplated by the Exchange Agreement, certain of the current officers
and each of the current directors of Summagraphics will resign their positions
on the Closing Date. After the Closing Date, the Board of Directors of New
CalComp will be elected by Lockheed Martin by written consent and will consist
of Messrs. Peter B. Teets, Gary R. Long, Gary P. Mann, Terry F. Powell, and
Gerald W. Schaefer, (the "Lockheed Martin Designees"). In addition, Lockheed
Martin will elect by written consent Messrs. Neil A. Knox and Kenneth R.
Ratcliffe to serve as directors independent of Lockheed Martin and New CalComp
(the "Independent Directors"), as contemplated by the Corporate Agreement. For
a description of the background and experience of the Lockheed Martin
Designees and the Independent Directors see "Management of New CalComp After
the Exchange." After Closing, the executive officers of New CalComp will be
appointed by the Board of New CalComp. See "Risk Factors--Relationship with
Lockheed Martin."
ACCOUNTING TREATMENT
Lockheed Martin will own a majority of the outstanding Summagraphics Common
Stock upon consummation of the Exchange. The Exchange will be accounted for
under the purchase method of accounting with CalComp as the acquiror (such a
transaction is commonly referred to as a reverse acquisition) in accordance
with generally accepted accounting principles and applicable accounting rules
of the Securities and Exchange Commission. Accordingly, the purchase price
will be allocated to the tangible and intangible assets of Summagraphics
purchased, as well as liabilities assumed, based on their respective fair
values. For accounting purposes, the purchase price of Summagraphics will be
determined based on the market price of Summagraphics Common Stock at Closing.
See "Unaudited Pro Forma Condensed Financial Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The discussion of certain federal income tax consequences of the Exchange
set forth below is included for general information purposes only. This
discussion is based on currently existing provisions of the Code, existing
Treasury regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change could alter the
tax consequences to Summagraphics stockholders, Summagraphics, Lockheed Martin
or CalComp. Holders of Summagraphics Common Stock should consult their tax
advisors regarding the particular tax consequences of the Exchange to them,
including any income tax return reporting obligations and the applicability
and effect of foreign, state, local and other laws.
Summagraphics believes that the following are the material federal income
tax consequences of the Exchange, based on oral advice of its tax
professionals. No formal written tax opinion has been requested from
Summagraphics' tax professionals.
Because the Summagraphics' stockholders are not exchanging their
Summagraphics Common Stock and are not directly receiving anything with
respect to such stock, the Exchange will not have any federal income tax
effect on the Summagraphics stockholders. Each Summagraphics stockholder will
hold the same Summagraphics Common Stock immediately after the Exchange as was
held immediately before the Exchange, and the tax basis of the Summagraphics
Common Stock so held will remain the same.
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The Exchange is intended to qualify as a "tax-free" reorganization under
Section 368(a) of the Code for Federal income tax purposes. Accordingly, no
gain or loss will be recognized for Federal income tax purposes (i) by
Summagraphics with respect to the parties to the Exchange, (ii) by Lockheed
Martin, or (iii) by CalComp, as a result of the Exchange.
Specifically, for Federal income tax purposes, Summagraphics will recognize
no gain or loss on the issuance of Common Stock to Lockheed Martin or upon
receipt of the CalComp common stock in the Exchange, and CalComp will
recognize no gain or loss for Federal income tax purposes upon Lockheed
Martin's transfer of CalComp stock to Summagraphics in the Exchange.
Neither Lockheed Martin, CalComp nor Summagraphics intends to seek a ruling
from the Internal Revenue Service (the "IRS") with respect to the tax
consequences of the Exchange. In addition, it is not a condition to the
consummation of the Exchange that either Summagraphics, Lockheed Martin or
CalComp obtain an opinion of counsel that the Exchange will constitute a "tax-
free" reorganization.
SUMMAGRAPHICS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE.
REGULATORY FILINGS AND APPROVALS
Under the Exchange Agreement, the obligations of Summagraphics, Lockheed
Martin and CalComp are conditioned upon the receipt of all necessary and
required approvals of applicable regulatory authorities. There can be no
assurance that any applicable regulatory authority will approve or take other
required action with respect to the Exchange or as to the date of such
regulatory approval or other action. Summagraphics, Lockheed Martin and
CalComp are not aware of any regulatory filings, consents or approvals that
are required in order to consummate the Exchange except those that have
already been made or granted or as described below. Should any other approval
be required, Summagraphics, Lockheed Martin and CalComp have agreed to use
their best reasonable efforts to obtain it. There can be no assurance as to
whether or when any such other approval, if required, could be obtained.
The parties' obligations to close the Exchange are subject to the condition
that the waiting period applicable under the HSR Act and applicable foreign
antitrust regulations have expired and that no action has been instituted by
the FTC or the Antitrust Division challenging or seeking to enjoin the
consummation of the transactions contemplated by the Exchange Agreement.
Summagraphics and Lockheed Martin have submitted their respective applications
under the HSR Act to the FTC and the Antitrust Division, and the applicable
waiting period expired under the HSR Act on April 12, 1996. Clearance from
applicable foreign anti-trust regulatory authorities that require pre-merger
notification with respect to the Exchange also has been received.
Summagraphics has agreed to use its best efforts to file a listing
application with the NASDAQ National Market System covering the Exchange
Shares. Summagraphics has filed the listing application with the NASDAQ
National Market System.
Lastly, the Restated Charter must be filed with the Secretary of State of
the State of Delaware in order to consummate the Exchange.
INTERCOMPANY AGREEMENTS
In connection with the execution of the Exchange Agreement, Summagraphics
issued to Lockheed Martin the Convertible Debenture, which is secured by
certain assets of Summagraphics, to provide Summagraphics with financing of up
to $2.5 million to fund Summagraphics' operations prior to and pending the
Closing of the Exchange. This Convertible Debenture bears interest at 9 1/4%
per annum and is convertible into shares of Summagraphics Common Stock at a
conversion price of $2.00 per share, unless the Exchange Agreement is
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terminated as a result of a material breach by Lockheed Martin, in which case
the conversion rate is increased to $3.00 per share of Common Stock.
In connection with the Exchange, Summagraphics and Lockheed Martin have
agreed to enter into each of the following Intercompany Agreements, which will
govern certain aspects of New CalComp's relationship with Lockheed Martin
effective upon the Closing: (i) a Registration Rights Agreement pursuant to
which the Exchange Shares to be issued to Lockheed Martin in connection with
the Exchange will have certain "demand" and "piggyback" registration rights;
(ii) an Intercompany Services Agreement pursuant to which Lockheed Martin will
provide certain services to New CalComp following the Closing which Lockheed
Martin had previously provided to CalComp; (iii) a Cash Management Agreement
pursuant to which Lockheed Martin will manage the cash receipts and
disbursements, on a daily basis, of New CalComp and provide up to $2 million
of credit; (iv) a Tax Sharing Agreement pursuant to which Lockheed Martin and
New CalComp will allocate their respective tax liabilities and tax attributes,
and establish procedures to be followed for tax years for which New CalComp
and its subsidiaries will be included in consolidated Federal income tax
returns of Lockheed Martin's consolidated group; (v) a Revolving Credit
Agreement pursuant to which Lockheed Martin will provide borrowings in an
aggregate principal amount of approximately $28 million to New CalComp after
the Closing for payment of certain outstanding indebtedness, including, but
not limited to, amounts outstanding under the Convertible Debenture, at
Closing and general working capital purposes; and (vi) a Corporate Agreement
pursuant to which Lockheed Martin and New CalComp will agree, among other
things, that for so long as Lockheed Martin owns at least 50% of the common
stock of New CalComp, at least two thirds of the members of the Board of
Directors will consist of Lockheed Martin designees and at least two directors
will be "independent" of both Lockheed Martin and New CalComp, and that New
CalComp will not take any actions which would violate, or cause an event of
default by Lockheed Martin under, provisions of applicable law or regulation,
any credit agreement or other material agreement of Lockheed Martin, or any
judgment, order or decree of a governmental body or court applicable to
Lockheed Martin.
See "Relationship with Lockheed Martin" for further description of each of
the Intercompany Agreements. In addition, the Restated Charter will contain
certain provisions relating to the allocation of business opportunities that
may be suitable for either Lockheed Martin or New CalComp. See "The Restated
Charter."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
The Board of Directors of Summagraphics, with the consent of Lockheed
Martin, has approved certain modifications to existing employment arrangements
and benefit plans of Summagraphics and has adopted a retention plan, which are
intended to provide certain management and employees with financial incentives
to continue their employment with Summagraphics at least through the Closing
of the Exchange, and to treat fairly employees of Summagraphics whose
employment may be terminated after the Closing of the Exchange. Messrs.
Michael S. Bennett, David G. Osowski, Robert B. Sims, Dennis Jolly and Darius
C. Power are parties to agreements with Summagraphics that include change of
control provisions that will be triggered by the Exchange. In addition,
Summagraphics has entered into severance agreements with certain management
personnel that provide for specified payments to them if their employment is
terminated after the Exchange. These arrangements generally require that the
affected employee continue employment until terminated by New CalComp to
receive payment.
A retention plan (the "Retention Plan") has been adopted that will result in
up to specified maximum payment amounts to specified members of management if
certain specified objectives are met, as determined by the Board of New
CalComp in its sole discretion. Among the objectives are: (i) that the
affected employees assist in providing a smooth transition, including being
reasonably available to consult at the request of New CalComp after the
Exchange is closed; (ii) that May 31, 1996 backlog in certain product lines be
at least $3.0 million; and (iii) that the aggregate Material Adverse Effect
under the Exchange Agreement, including aggregate operating losses but
excluding foreign currency translation adjustments, be less than $2.0 million.
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The existing Summagraphics Stock Option Plans and the outstanding option
agreements thereunder have been modified to allow employees whose employment
terminates after the Exchange to exercise their vested options at any time
prior to November 15, 1996, rather than sixty days after a termination of
employment as would otherwise be the case. This will allow any covered
employees who may be terminated after the Exchange to vest as to one-third of
the options granted on September 28, 1995, which otherwise might have lapsed.
See "Summagraphics Executive Compensation and Other Information" for a
description of the affected plans. In addition, the option agreements held by
members of senior management provide that upon a change of control, the
exercise period after any termination of employment is extended from sixty
days to two years, and that all unvested options will automatically vest.
Certain management employees are entitled under these agreements and plans
to receive benefits beyond regular severance payments upon any termination of
employment after the Closing of the Exchange. Messrs. Michael S. Bennett,
David G. Osowski, Robert B. Sims, Dennis Jolly and Darius C. Power will, if
their employment is terminated after the Closing of the Exchange, be entitled
to receive payments of up to $859,624, $391,481, $260,672, $225,920 and
$181,301, respectively. Similarly, Messrs. Bennett, Osowski, Sims, Jolly and
Power are parties to option agreements pursuant to which previously unvested
options will vest as to 108,334, 15,001, 15,001, 15,000 and 20,000 shares,
respectively, upon the Closing.
These arrangements may create a conflict of interest between the affected
employees and Summagraphics. The Board of Directors of Summagraphics was aware
of these arrangements when the Exchange Agreement and related transactions
were approved and does not believe they will have an adverse effect upon
Summagraphics, and in fact, that such arrangements are necessary to provide
reasonable assurance that the business of Summagraphics will continue to
operate in the ordinary course so that the Exchange may be consummated.
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PROPOSAL II:
THE RESTATED CHARTER
PROPOSAL
The following is a summary of the proposed Fourth Amended and Restated
Certificate of Incorporation of Summagraphics (the "Restated Charter"). This
description does not purport to be complete and is qualified in its entirety
by reference to the text of the Restated Charter, a copy of which is attached
to this Proxy and Information Statement as Appendix C and is incorporated
herein by reference.
Pursuant to the Restated Charter, Summagraphics' name would be changed to
"CalComp Technology, Inc." and the number of shares of authorized Common Stock
would be increased to 60,000,000. The number of shares of authorized preferred
stock would remain at 5,000,000.
The Restated Charter provides that except as Lockheed Martin may otherwise
agree in writing, Lockheed Martin shall have no duty to refrain from (i)
engaging in the same or similar business activities or lines of business as
New CalComp or (ii) doing business with any client or customer of New CalComp.
Accordingly, neither Lockheed Martin nor any officer, director or employee of
Lockheed Martin will be liable to New CalComp or to its stockholders for
breach of any fiduciary duty by reason of any such activities. Lockheed Martin
is not under any duty to present any corporate opportunity to New CalComp that
may be a corporate opportunity for both Lockheed Martin and New CalComp, and
Lockheed Martin will not be liable to New CalComp or its stockholders for
breach of any fiduciary duty as a stockholder of New CalComp by reason of the
fact that Lockheed Martin pursues or acquires such corporate opportunity
(other than from New CalComp) for itself, directs such corporate opportunity
to another person or does not present such corporate opportunity to New
CalComp.
The Restated Charter provides that where corporate opportunities are offered
to persons who are directors, officers or employees of both New CalComp and
Lockheed Martin, such directors, officers or employees of New CalComp shall
act in good faith in a manner consistent with the following policy:
(i) a corporate opportunity offered to any person who is an officer or
employee (whether or not a director) of New CalComp and who is also a
director but not an officer or employee of Lockheed Martin shall belong to
New CalComp, unless such opportunity is expressly offered to such person
primarily in his capacity as a director of Lockheed Martin, in which case
such opportunity shall belong to Lockheed Martin;
(ii) a corporate opportunity offered to any person who is a director but
not an officer or employee of New CalComp and who is also an officer or
employee (whether or not a director) of Lockheed Martin shall belong to
Lockheed Martin unless such opportunity is expressly offered to such person
primarily in his capacity as a director of New CalComp, in which case such
opportunity shall belong to New CalComp; and
(iii) a corporate opportunity offered to any other person who is either
an officer or employee of both New CalComp and Lockheed Martin or a
director of both New CalComp and Lockheed Martin shall belong to Lockheed
Martin or to New CalComp, as the case may be, if such opportunity is
expressly offered to such person primarily in his capacity as an officer,
employee or director of Lockheed Martin or of New CalComp, respectively;
otherwise, such opportunity shall belong to either Lockheed Martin or New
CalComp as a majority of the directors of New CalComp who are not officers
or employees of either Lockheed Martin or New CalComp or directors of
Lockheed Martin shall determine in their good faith judgment, taking into
account all the facts and circumstances with respect to such opportunity.
For the purposes of the Restated Charter, "corporate opportunities" do not
include any business opportunities that New CalComp is not financially able to
undertake, or that are not in the line of New CalComp's business or are of no
practical advantage to it or are opportunities in which New CalComp has no
interest or reasonable expectancy.
The Restated Charter also provides that Lockheed Martin shall not be liable
to New CalComp or its stockholders for breach of any fiduciary duty by reason
of the fact that Lockheed Martin takes any action,
44
<PAGE>
exercises any rights, or gives or withholds any consent to any activity of New
CalComp required to be obtained under the Intercompany Agreements, or under
any other agreement between Lockheed Martin and New CalComp.
The Restated Charter provides that New CalComp shall indemnify and hold
harmless, to the fullest extent permitted by the Delaware General Corporation
Law (the "DGCL"), any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding"), by reason
of the fact that such person, or a person for whom such person is the legal
representative, is or was a director or officer of New CalComp or is or was
serving at the request of New CalComp as a director or officer of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans (an
"indemnitee"), against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such indemnitee. New CalComp shall be
required to indemnify an indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if the initiation of such
proceeding (or part thereof) by the indemnitee was authorized by the Board of
Directors of New CalComp. In addition, the Restated Charter limits the
liability of directors for monetary damages in connection with a breach of
fiduciary duty to the fullest extent permitted by the DGCL.
Section 203 of the DGCL ("Section 203") prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for
a period of three years following the date that such stockholder became an
interested stockholder, unless; (i) prior to such date, the Board of Directors
of the Delaware corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder (as
defined below) owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employees do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. Section 203 defines a business combination to include: (i) any
merger or consolidation involving the interested stockholder; (ii) any sale,
transfer, pledge or other disposition involving the interested stockholder of
10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder;
(iv) any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation. In general, Section 203 defines an "interested stockholder" as
any entity or person owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. A Delaware corporation may elect not to
be subject to Section 203 by having its stockholders approve an amendment to
its certificate of incorporation or bylaws to such effect. The Restated
Charter provides that Section 203 will not apply to New CalComp. In addition,
prior to the time Lockheed Martin became an interested stockholder, the Board
of Directors of Summagraphics approved the Exchange and the transaction
pursuant to which Lockheed Martin will become an interested stockholder, and,
accordingly, Section 203 does not apply to any business combination involving
Lockheed Martin and Summagraphics or New CalComp.
REASON FOR THE PROPOSAL
Approval of the Restated Charter by the Board of Directors and stockholders
of Summagraphics is a condition to the obligation of Lockheed Martin to
consummate the Exchange. Based upon the Board's conclusion that the Exchange
and the related transactions, including adoption of the Restated Charter, are
in the best interests of Summagraphics and its stockholders, the Board of
Directors has approved the provisions of the Restated Charter.
45
<PAGE>
The Board of Directors believes that it is in the best interests of
Summagraphics and its stockholders to authorize additional shares of Common
Stock in order to provide sufficient authorized shares to consummate the
Exchange and provide New CalComp's Board of Directors with the flexibility in
the future to authorize the issuance of shares for financing New CalComp's
business, acquiring other businesses and forming strategic partnerships and
alliances. Of the 20,000,000 currently authorized shares of Common Stock,
4,642,395 shares of Common Stock were outstanding as of the Record Date and of
the 5,000,000 authorized shares of Preferred Stock, no shares were outstanding
as of the Record Date. The Exchange Agreement requires the issuance of
approximately 40.7 million shares of Common Stock. In addition, the increased
number of authorized shares of Common Stock may also be used for stock
dividends, stock splits, director and employee stock option plans and other
employee benefit plans. See "The Stock Option Plan."
The adoption of the Restated Charter will not result in the issuance of any
shares of Common Stock other than in connection with the Exchange. Approval of
the Restated Charter, however, will permit the Board of Directors to issue
additional shares of Common Stock, without further approval of stockholders
and upon such terms and at such times as it may determine unless stockholder
approval is required by the Restated Charter or by applicable law or stock
market or exchange requirements. Although New CalComp may from time to time
review various transactions that could result in the issuance of Common Stock,
the Board of Directors has no present plans to issue additional shares of
Common Stock except for the shares of Common Stock as may be required in
connection with the Exchange and the exercise of existing outstanding warrants
and options. Holders of shares of Summagraphics Common Stock have no
preemptive rights to subscribe for the Exchange Shares issued in connection
with the Exchange or New CalComp's capital stock that may be issued in the
future.
The Board of Directors has determined that the provisions addressing
potential conflicts of interest between New CalComp and Lockheed Martin and
regulating and defining the conduct of transactions of New CalComp as they
involve Lockheed Martin and its subsidiaries, directors and officers are in
New CalComp's best interests in recognition of (i) the benefits to be derived
by New CalComp through its continued contractual, corporate and business
relations with Lockheed Martin (including the service of officers, directors
and employees of Lockheed Martin as directors of New CalComp) and (ii) the
difficulties attendant to any director, who desires and endeavors fully to
satisfy such director's fiduciary duties, in determining the full scope of
such duties inherent in the relationship between New CalComp and Lockheed
Martin after the Exchange.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding shares of Common Stock
is required to approve the Restated Charter. If the Exchange is not
consummated, the Restated Charter will not be adopted notwithstanding
stockholder approval of such proposal. Approval of the Restated Charter by
Summagraphics stockholders is a condition to the consummation of the Exchange.
If the proposal is approved by the stockholders, the Restated Charter will
become effective upon the filing of the Restated Charter with the Delaware
Secretary of State in connection with the Closing of the Exchange.
SUMMAGRAPHICS' BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
RESTATED CHARTER.
46
<PAGE>
PROPOSAL III:
THE STOCK OPTION PLAN
THE PROPOSAL
The following is a summary of the proposed CalComp Technology, Inc. 1996
Stock Option Plan for Key Employees (with Stock Appreciation Rights) (the
"Stock Option Plan"). This description does not purport to be complete and is
qualified in its entirety by reference to the text of the Stock Option Plan, a
copy of which is attached to this Proxy and Information Statement as Appendix
D and is incorporated herein by reference.
General. The Stock Option Plan provides for grants of stock options
("Options") and stock appreciation rights ("Rights") to key salaried employees
of New CalComp. The Stock Option Plan will be administered by a committee (the
"Stock Option Committee") designated by the Board of Directors. The
composition of the Stock Option Committee is intended to comply with the
disinterested administration provisions of Rule 16b-3 under the Exchange Act,
as well as the requirements of Section 162(m) of the Internal Revenue Code and
the regulations promulgated thereunder.
Amendments to the Stock Option Plan. The Board may amend or discontinue the
Stock Option Plan at any time subject to certain restrictions set forth in the
Stock Option Plan. However, in light of applicable securities and tax laws,
Summagraphics anticipates that any amendment that would materially increase
the benefits under the Stock Option Plan, materially increase the number of
securities that may be issued under the Stock Option Plan or materially modify
the eligibility requirements will be submitted to the stockholders for their
approval. No amendment or discontinuance may adversely affect any previously
granted Option or Right without the consent of the recipient thereof.
Shares Issuable through the Stock Option Plan. A total of 2,000,000 Options
and 2,000,000 Rights are authorized to be issued under the Stock Option Plan.
No more than ten percent of the Options and Rights available under the Stock
Option Plan may be granted to a single participant. Proportionate adjustments
will be made to the number of shares of Common Stock subject to the Stock
Option Plan in the event of any recapitalization, stock dividend, stock split,
combination of shares or other change in the Common Stock. Shares of Common
Stock subject to Options or Rights that are canceled, terminated or forfeited
will again be available for issuance under the Stock Option Plan.
Administration of the Stock Option Plan. The Stock Option Committee will
administer the Stock Option Plan and has authority to select the participants
that will be granted Options and Rights, to determine, subject to the
authority of the Board of Directors to terminate the plan or accelerate
vesting of Options and Rights, the nature, extent, timing, exercise price and
duration of Options and Rights, to prescribe all other terms and conditions
consistent with the Stock Option Plan, to interpret the Stock Option Plan, to
establish any rules or regulations relating to the Stock Option Plan that it
determines to be appropriate, to delegate its authority as appropriate, and to
make any other determination that it believes necessary or advisable for the
proper administration of the Stock Option Plan.
Stock Options. The Stock Option Committee may grant non-qualified stock
options or incentive stock options to purchase shares of Common Stock. The
Stock Option Committee will determine the number and exercise price of the
options, provided that the option exercise price may not be less than the fair
market value of the Common Stock on the date of grant. The term of an Option
will also be determined by the Stock Option Committee, provided that the term
of an Option may not exceed 10 years. No Option may be exercised within one
year following the date of grant, subject to acceleration upon a change in
control or amendment by the Board of Directors. The Stock Option Plan provides
that each grant of Options is to be divided into three approximately equal
installments which will vest on the first, second and third anniversaries of
the date of grant.
The option exercise price may be paid in cash, or, if authorized by the
Stock Option Committee, in shares of Common Stock, in a combination of cash
and shares of Common Stock, through a reduction in the number of
47
<PAGE>
shares of Common Stock subject to Options or in the amount payable pursuant to
a Right, or by delivery of a promissory note.
Stock Appreciation Rights. The terms and conditions of the Stock Option Plan
governing the issuance of Rights are generally the same as apply to issuances
of Options, except that a Right represents the right to receive upon exercise
a cash payment equal to the excess of the fair market value of a share of New
CalComp Common Stock on the date of exercise over the fair market value of a
share of New CalComp Common Stock set on the date of the grant. The term of
Rights will be set by the Stock Option Committee, but may not exceed ten
years.
Termination of Employment. If a participant dies or becomes disabled, all
unvested Options and Rights will be automatically vested, and may be exercised
at any time within three years (or their remaining term if less). If a
participant's employment is terminated due to a layoff, or early or normal
retirement, all unvested Options and Rights outstanding 18 months or more will
vest as though the participant had remained in the employ of New CalComp (and,
along with other vested options and rights, may be exercised during the
remaining term), and all other unvested Options and Rights will be forfeited.
In all other cases of a participant's resignation or termination of employment
by New CalComp, all non-vested Options and Rights are forfeited (and any
vested Options and Rights must be exercised within six months).
Change of Control. In the event of a "Change of Control," the vesting date
of all outstanding Options and Rights will be accelerated. For purposes of the
Stock Option Plan, a "Change of Control" means one of the following events:
(i) a tender offer or exchange offer is consummated for the ownership of
securities of New CalComp representing 25% or more of the combined
voting power of New CalComp's then outstanding voting securities
entitled to vote in the election of directors;
(ii) New CalComp is merged, combined, consolidated, recapitalized or
otherwise reorganized with one or more other entities that are not
subsidiaries and, as a result, less than 75% of the outstanding voting
securities of the surviving or resulting corporation are thereafter
owned in the aggregate by the stockholders of New CalComp (directly or
indirectly), determined on the basis of record ownership as of the
date of determination of holders entitled to vote on the action (or in
the absence of a vote, the day immediately prior to the event);
(iii) Any person (as this term is used in Sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934, as amended, but excluding any
person described in and satisfying the conditions of Rule 13d-1(b)(1)
thereunder), becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of New
CalComp representing 25% or more of the combined voting power of New
CalComp's then outstanding securities entitled to vote in the
election of directors;
(iv) At any time within any period of two years after a tender offer,
merger, combination, consolidation, recapitalization, or other
reorganization or a contested election, or any combination of these
events, the "Incumbent Directors" cease to constitute at least a
majority of the authorized number of members of the Board. "Incumbent
Directors" means the persons who were members of the Board immediately
before the first of these events and the persons who were elected or
nominated as their successors or pursuant to increases in the size of
the Board by a vote of at least three-fourths of the Board members who
were then Board members (or successors or additional members so
elected or nominated); or
(v) The stockholders approve a plan of liquidation and dissolution or the
sale or transfer of substantially all of the business and/or assets of
New CalComp as an entirety to an entity that is not a subsidiary of New
CalComp.
Transferability. Options and Rights are not transferable except (a) by will,
or (b) by the laws of descent and distribution.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations and does not
purport to be complete. Reference should be made to the applicable provisions
of the Code. There also may be state and local and foreign income tax
consequences applicable to transactions involving Options or Rights. In
addition, the following description does not address specific tax consequences
applicable to an individual participant who receives an Incentive and does not
address special rules that may be applicable to directors and officers.
Stock Options. Under existing federal income tax provisions, a participant
who receives stock options will not normally realize any income, nor will New
CalComp normally receive any deduction for federal income tax purposes, in the
year such Option is granted.
When a non-qualified stock option granted pursuant to the Stock Option Plan
is exercised, the employee will realize ordinary income measured by the
difference between the aggregate purchase price of the Common Stock as to
which the option is exercised and the aggregate fair market value of the
Common Stock on the exercise date, and New CalComp will be entitled to a
deduction in the year the option is exercised equal to the amount the employee
is required to treat as ordinary income, subject to the limitations imposed by
Section 162(b) of the Code.
An employee generally will not recognize any income upon the exercise of an
incentive stock option, but the excess of the fair market value of the shares
at the time of exercise over the option price will be an item of adjustment,
which may, depending on particular factors relating to the employee, subject
the employee to the alternative minimum tax imposed by Section 55 of the Code.
An employee will recognize capital gain or loss in the amount of the
difference between the exercise price and the sale price on the sale or
exchange of stock acquired pursuant to the exercise of an incentive stock
option, provided the employee does not dispose of such stock within two years
from the date of grant and one year from the date of exercise of the incentive
stock option (the "required holding periods"). An employee disposing of such
shares before the expiration of the required holding periods will recognize
ordinary income equal to the lesser of (i) the difference between the option
price and the fair market value of the stock on the date of exercise, or (ii)
the total amount of gain realized. The remaining gain or loss is treated as
short term or long term gain or loss depending on how long the shares are
held. New CalComp will not be entitled to a federal income tax deduction in
connection with the exercise of an incentive stock option, except where the
employee disposes of the shares of Common Stock received upon exercise before
the expiration of the required holding periods.
If the exercise price of an option is paid by the surrender of previously
owned shares, the basis of the previously owned shares carries over to the
shares received in replacement therefor. If the option is a non-qualified
option, the income recognized on exercise is added to the basis. If the option
is an incentive stock option, the optionee will recognize gain if the shares
surrendered were acquired through the exercise of incentive stock option and
have not been held for the applicable holding period. This gain will be added
to the basis of the shares received in replacement of the previously owned
shares.
Rights. In general, stock appreciation rights are taxed and deductible in
substantially the same manner as nonqualified stock options. Accordingly, a
participant will not recognize income upon the grant of a Right. Upon exercise
of the Right, the holder will recognize ordinary compensation income equal to
the excess of the fair market value of New CalComp common stock on the date
the Right is exercised over the exercise price for such Right. New CalComp
will be entitled to a deduction at the time the holder recognizes income in an
amount equal to the amount of income recognized by the holder.
Excise Tax on Parachute Payments. If, upon a change in control of New
CalComp, the exercisability or vesting of an Option granted under the Stock
Option Plan is accelerated, any excess on the date of the change in control of
the fair market value of the shares or cash issued under Incentives over the
purchase price of such shares, if any, may be characterized as Parachute
Payments (within the meaning of Section 280G of the Code) if
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<PAGE>
the sum of such amounts and any other such contingent payments received by the
employee exceeds an amount equal to three times the "Base Amount" for such
employee. The Base Amount generally is the average of the annual compensation
of such employee for the five years preceding such change in ownership or
control. An Excess Parachute Payment, with respect to any employee, is the
excess of the Parachute Payments to such person, in the aggregate, over and
above such person's Base Amount. If the amounts received by an employee upon a
change in control are characterized as Parachute Payments, such employee will
be subject to a 20% excise tax on the Excess Parachute Payment, and New
CalComp will be denied any deduction with respect to such Excess Parachute
Payment.
NEW PLAN BENEFITS
The Stock Option Plan will only be adopted if the Exchange is consummated.
Any awards that will be made under the Stock Option Plan will be in the
discretion of the Board of Directors (or committee appointed by the Board) of
New CalComp. The Stock Option Committee of New CalComp has not been appointed
and, accordingly, no compensation policy has been formulated. Further, it is
not expected that such a policy will be adopted until the Exchange has
occurred and the new Stock Option Committee is appointed. Until such time, it
is not possible to determine the identity of all of the recipients of awards
under the Stock Option Plan, or of the number of awards that will be made to
any individual or group. Accordingly, none of the benefits or amounts that
actually will be received under the Stock Option Plan are determinable at this
time nor are the amounts that would have been received had the Stock Option
Plan been in effect in the last fiscal year.
REASON FOR PROPOSAL
Approval of the Stock Option Plan by the Board of Directors and stockholders
of Summagraphics is a condition to the obligation of Lockheed Martin to
consummate the Exchange. Based upon the Board's conclusion that the Exchange
and the related transactions, including adoption of the Stock Option Plan, are
in the best interests of Summagraphics and its stockholders, the Board of
Directors has approved the provisions of the Stock Option Plan.
The purpose of the Stock Option Plan is to increase stockholder value and to
advance the interests of Summagraphics and New CalComp by furnishing equity
incentives designed to attract, retain and motivate key employees and to
strengthen the mutuality of interest between such employees and New CalComp
stockholders. It is expected that the existing stock option plans of
Summagraphics will be terminated and no further options issued thereunder
after consummation of the Exchange.
VOTE REQUIRED AND RECOMMENDATION FOR APPROVAL
The affirmative vote of the holders of a majority of the total votes cast
with respect to the Stock Option Plan Proposal is required to approve the
Stock Option Plan Proposal. If the Exchange is not consummated, the Stock
Option Plan will not be adopted, notwithstanding Summagraphics' stockholder
approval of such proposal. Approval of the Stock Option Plan by Summagraphics'
stockholders is a condition to the Exchange.
SUMMAGRAPHICS' BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
STOCK OPTION PLAN.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information gives
effect to the Exchange. The unaudited pro forma condensed financial
information has been prepared utilizing the historical financial statements of
Summagraphics as of and for the twelve months ended November 30, 1995 and the
three months ended February 29, 1996, and the historical financial statements
of CalComp as of March 31, 1996 and for the year ended December 31, 1995 and
the three months ended March 31, 1996. Adjustments have been made to reflect
the financial impact of purchase accounting and other items which would have
been effected had the acquisitions taken place on December 26, 1994 and
January 1, 1996 with respect to the operating data for the year and three
months ended December 31, 1995 and March 31, 1996, respectively and March 31,
1996 with respect to the balance sheet data. The pro forma adjustments are
described in the accompanying notes and are based upon preliminary estimates
and certain assumptions by management of CalComp that are believed to be
reasonable in the circumstances.
The unaudited pro forma condensed financial information is for comparative
purposes only and does not purport to be indicative of the results which would
actually have been obtained had the acquisitions been effected on the pro
forma dates, or of the results which may be obtained in the future.
Because the Exchange is a reverse acquisition for accounting and financial
reporting purposes, CalComp is considered to be the acquiror and the net
assets of Summagraphics are revalued to their estimated fair market values
under Accounting Principles Board Opinion No. 16 ("Business Combinations").
The unaudited pro forma condensed financial information should be read in
conjunction with the historical financial statements of Summagraphics and
CalComp and the notes thereto appearing elsewhere in this Proxy and
Information Statement.
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<PAGE>
NEW CALCOMP AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
----------------------- --------------------------- ---------
CALCOMP SUMMAGRAPHICS DEBIT CREDIT
-------- ------------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 14,161 $ 916 $ 2,666 E, F $ 17,743
Accounts receivable... 55,040 15,672 $ 530 E 70,182
Inventories........... 46,576 11,460 8,463 D, E 49,573
Other current assets.. 4,081 1,049 22 E 5,108
-------- ------- ---------
Total current
assets............. 119,858 29,097 142,606
-------- ------- ---------
Property and equipment,
net.................... 51,724 4,252 2,084 D, E 53,892
Goodwill................ 49,587 7,982 39,768 D 7,982 D 89,355
Investment in CAD
Warehouse.............. 0 0 699 E 699
Other assets............ 14,023 561 14,584
-------- ------- ---------
Total assets........ $235,192 $41,892 $ 301,136
======== ======= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 16,204 $ 9,637 843 E $ 24,998
Accounts payable to
CAD Warehouse........ 0 0 1,265 E 1,921 E 656
Revolving line of
credit payable to
affiliate............ 0 0 14,548 F 14,548
Notes payable to
banks................ 0 9,957 9,957 F 0
Current portion of
long-term debt....... 0 768 768 F 0
Other current
liabilities.......... 41,466 7,340 47 E 16,000 D 64,759
-------- ------- ---------
Total current
liabilities........ 57,670 27,702 104,961
-------- ------- ---------
Other liabilities....... 8,649 3,159 11,808
Long-term debt.......... 0 1,323 1,323 F 0
-------- ------- ---------
Total liabilities... 66,319 32,184 116,769
-------- ------- ---------
Stockholders' accounts:
Common stock.......... 265,650 47 265,243 A 454
Additional paid in
capital.............. 0 39,155 29,484 C 271,029 A, D 280,700
Accumulated deficit... (80,900) (29,863) 24,270 B 29,863 C (105,170)
Cumulative translation
adjustment........... 8,393 844 844 C 8,393
Treasury stock........ 0 (465) 465 C 0
Stockholder note
receivable........... 0 (10) (10)
Net receivable from
parent............... (24,270) 0 24,270 B 0
-------- ------- ---------
Total stockholders'
equity............. 168,873 9,708 184,367
-------- ------- ---------
Total liabilities
and stockholders'
equity............. $235,192 $41,892 $ 301,136
======== ======= =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
statements.
52
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NEW CALCOMP AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
-------------------------- --------------------------- -----------
CALCOMP SUMMAGRAPHICS DEBIT CREDIT
----------- ------------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ 281,655 $ 73,454 $ 14,553 E $ 340,556
Cost applicable to
revenue................ 202,668 58,384 $ 12,997 E 248,055
Selling, product
development, and
general and
administrative
expenses............... 88,075 26,201 3,842 G, J 6,684 E, H, I 111,434
----------- ---------- -----------
Operating loss.......... (9,088) (11,131) (18,933)
Other income and
expense:
Interest income....... 268 13 281
Interest expense...... 0 (1,014) (1,014)
Miscellaneous, net.... 1,674 (2,357) (683)
----------- ---------- -----------
Loss before income
taxes.................. (7,146) (14,489) (20,349)
Income tax provision.... 3,572 187 3,759
----------- ---------- -----------
Net loss................ $ (10,718) $ (14,676) $ (24,108)
=========== ========== ===========
Weighted average number
of common shares
outstanding............ 1,000 4,589,000 45,250,000
Net loss per common
share.................. $(10,718.00) $ (3.20) $ (0.53)
=========== ========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
statements.
53
<PAGE>
NEW CALCOMP AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
---------------------- ------------------------ -----------
CALCOMP SUMMAGRAPHICS DEBIT CREDIT
------- ------------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenue............. $55,852 $ 14,106 $ 3,537 E $ 66,421
Cost applicable to
revenue................ 41,383 10,795 $ 3,113 E 49,065
Selling, product
development, and
general and
administrative
expenses............... 23,323 4,694 564 G 1,658 E,H,I 26,923
------- ---------- ---------- ---------- -----------
Operating loss.......... (8,854) (1,383) (9,567)
Other income and
expense:
Interest income........ 548 6 554
Interest expense....... 0 (328) (328)
Miscellaneous, net..... 92 111 203
------- ---------- -----------
Loss before income
taxes.................. (8,214) (1,594) (9,138)
Income tax provision.... (901) 0 (901)
------- ---------- -----------
Net loss................ $(9,115) $ (1,594) $ (10,039)
======= ========== ===========
Weighted average number
of common shares
outstanding............ 1,000 4,618,000 45,280,000
Net loss per common
share.................. $(9,115) $ (0.35) $ (0.22)
======= ========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
statements.
54
<PAGE>
NEW CALCOMP AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. HISTORICAL
The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements. Because CalComp is considered the acquirer for accounting
purposes, the statements reflect the adoption of CalComp's year end of
December 31. The financial position and results of operations for CalComp are
as of and for the periods indicated. The historical balances of Summagraphics
are as of February 29, 1996 and for the year and quarter ended November 30,
1995 and February 29, 1996, respectively. Summagraphics' statement of
operations for the year ended November 30, 1995 was derived by combining the
results of the four quarters in the period then ended. In the opinion of
Summagraphics' management, the Summagraphics' unaudited financial statements
reflect all adjustments, consisting solely of normal recurring accruals,
necessary to present fairly its financial position and results of operations.
In the opinion of CalComp's management, the CalComp unaudited financial
statements reflect all adjustments, consisting solely of normal recurring
accruals, necessary to present fairly its financial position and results of
operations.
2. EXCHANGE OF STOCK OF CALCOMP FOR STOCK OF SUMMAGRAPHICS
The Exchange of CalComp's shares for shares of Summagraphics will result in
Lockheed Martin having a majority ownership of New CalComp. The Exchange will
be accounted for under the purchase method of accounting, with CalComp treated
as the acquirer (reverse acquisition). The purchase price of Summagraphics
will be determined as of the date of the announcement of the letter of intent.
The estimated total purchase price is $15,494,000, which consists of the
following: (i) the $15,194,000 market value of the outstanding shares of
Summagraphics Common Stock plus assumed issuances of shares for options and
warrants calculated using the treasury stock method (4,675,000 fully diluted
shares multiplied by $3.25 per share, the approximate average closing price of
the Summagraphics Common Shares for a one week period surrounding the date of
the announcement of the letter of intent) and (ii) estimated transaction costs
of $300,000 incurred by CalComp (does not include approximately $1,200,000 of
estimated transaction costs to be incurred by Summagraphics which will be
reflected in operations in the period incurred). The estimated total purchase
price has been allocated to the fair market value of the assets acquired and
liabilities assumed, based on the operating plans of the combined entity. The
pro forma adjustments do not consider deferred taxes in the balance sheet or
the income tax effect of adjustments to the statement of operations because of
the operating losses incurred by the combined entity on a pro forma basis.
The number of shares to be issued and the number of Summagraphics shares
assumed to be outstanding on a fully diluted basis are estimates based on a
market price of $3.25 and an exchange ratio that will result in the ownership
by Lockheed Martin of 89.7% of the outstanding shares on a fully diluted
basis. The actual number of shares to be issued will be determined based on
the number of common shares outstanding at the date of the Exchange, and the
number of options and warrants outstanding at the date of the Exchange, taking
into account their exercise price and the average closing price of the stock
for five days preceding the Exchange.
The following pro forma adjustments are reflected in the balance sheet as if
the Exchange had occurred on March 31, 1996, and in the statement of
operations for the year ended December 31, 1995 as if the Exchange had
occurred on December 26, 1994, and in the statement of operations for the
quarter ended March 31, 1996 as if the Exchange had occurred on January 1,
1996:
(A) The reclassification of $265,243,000 from common stock to additional
paid in capital reflects the recapitalization of CalComp based on the
issuance by Summagraphics of approximately 40.7 million shares at a par
value of $.01 per share.
55
<PAGE>
(B) The reclassification of the net receivable from parent to accumulated
deficit reflects the deemed dividend of CalComp's net receivable to
Lockheed Martin.
(C) The $29,484,000 adjustment to additional paid in capital reflects the
elimination of certain of Summagraphics equity accounts, including an
accumulated deficit of $29,863,000, treasury stock of $465,000 and deferred
gains on the liquidation of foreign operations, represented by a cumulative
translation adjustment of $844,000. These entries reflect a new basis of
accounting, due to the application of purchase accounting.
(D) This entry reflects the preliminary estimate of the revaluation
(aggregating $5,786,000) of Summagraphics' assets, net of liabilities and
existing goodwill, to $15,494,000 (the market value of the Common Stock
outstanding prior to the Exchange on a fully diluted basis) and $300,000 in
costs incurred in connection with the transaction. Additionally, the entry
records the preliminary estimate of certain costs associated with
consolidating operations and exiting certain activities. All costs of
consolidation and exit plans relate to the operations of Summagraphics.
Both of these estimates are subject to change based on the final number of
shares outstanding, calculated on a fully diluted basis, and CalComp's
further assessment of exit costs. The revaluation reflects anticipated
discontinuance of certain product lines and the attendant write-off of
related inventories estimated at $8,000,000, and disposals of certain
property, plant and equipment, estimated at $2,000,000. Additionally,
$6,500,000 in severance, $4,700,000 in lease terminations and $3,300,000 in
facility restorations and other personnel costs are included in amounts
accrued. Calcomp's management expects that the enumerated actions will
result in annual cost savings of approximately $15,000,000. There is no
assurance that these savings will be realized. It is anticipated that such
actions will be funded by operations and the credit facility available from
Lockheed Martin. Amounts accrued also include transaction costs of
$1,200,000 to be incurred by Summagraphics. The excess of the purchase
price over the fair value of the assets and liabilities, representing
goodwill, is recorded at $39,768,000.
(E) Subsequent to the Exchange, New CalComp does not intend to operate
the CAD Warehouse business of Summagraphics. Accordingly, the pro forma
financial information includes an adjustment which assumes that the net
assets of CAD Warehouse will be disposed of for approximately book value,
with no gain or loss on disposal. The entry reclassifies the balances of
CAD Warehouse's assets and liabilities to "Investment in CAD Warehouse." As
a result of the deconsolidation of CAD Warehouse, a balance payable by
Summagraphics to CAD Warehouse of $656,000 is recorded. The operations of
CAD Warehouse, included in the Summagraphics historical data presented for
the year ended December 31, 1995, consist of net revenue of $14,553,000,
costs applicable to revenue of $12,997,000, and selling, general and
administrative expenses of $1,637,000. The net effect of this adjustment to
the pro forma statement of operations for the year ended December 31, 1995
is a reduction of $81,000 in the operating loss incurred. The operations of
CAD Warehouse included in the historical data presented for the three
months ended March 31, 1996, consist of net revenue of $3,537,000, costs
applicable to revenue of $3,113,000, and selling, general and
administrative expenses of $396,000. The net effect of this adjustment to
the pro forma statement of operations for the quarter ended March 31, 1996
is an increase of $28,000 in the operating loss incurred.
(F) In connection with the Exchange, Lockheed Martin has agreed to loan
the combined company up to $28 million under a Revolving Credit Agreement.
See "The Exchange Agreement--Intercompany Agreements." It is anticipated
that currently outstanding debt will be repaid with funds available under
the line of credit. The entry also reflects the proceeds of a loan of
$2,500,000 made to Summagraphics by Lockheed Martin pursuant to the
Convertible Debenture.
(G) Goodwill from the transaction will be amortized over a fifteen year
period, at an annual expense of $2,533,000 (quarterly expense of $663,000).
This entry records amortization of the goodwill arising from the Exchange
and removes annual amortization of goodwill of approximately $396,000
(quarterly amortization of $99,000) that is recorded in Summagraphics'
historical statements of operations.
(H) Entry (D), as described above, contemplates a $2,000,000 reduction in
the carrying amount of certain property and equipment to record such assets
at their fair value. This entry reflects a decrease in annual depreciation
expense of $400,000 (quarterly expense of $100,000) as a result of the
reduction, assuming an average asset life of five years.
56
<PAGE>
(I) Lockheed Martin has billed CalComp $4,647,000 and $1,162,000 for the
year and quarter ended December 31, 1995 and March 31, 1996, respectively,
for interest based on Lockheed Martin's cost of borrowed funds. Future
interest charges will be based on average borrowings under the Revolving
Credit Agreement. See "The Exchange Agreement--Intercompany Agreements"
Therefore, an adjustment has been recorded to remove the allocated interest
charges from Lockheed Martin.
(J) Effective January 1, 1996, CalComp reduced the original life of
goodwill from 40 years to 25 years on a prospective basis. The reduction
conforms the remaining amortization period for CalComp's goodwill to the
life assigned to the goodwill resulting from the Exchange (see entry G).
CalComp's management considered the reduction appropriate in light of the
current operating environment, and the similarities of the businesses of
CalComp and Summagraphics. The effect of the change in amortization period,
reflected in CalComp's historical results, is $426,000 for the quarter
ended March 31, 1996. An adjustment of $1,705,000 is reflected in the pro
forma results for the period ended December 31, 1995.
57
<PAGE>
SUMMAGRAPHICS
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected statement of operations and balance sheet data for the five
fiscal years ended May 31, 1991, 1992, 1993, 1994 and 1995 are derived from
Summagraphics' audited consolidated financial statements. The selected
statement of operations for the nine month periods ended February 28, 1995 and
February 29, 1996 and balance sheet data as of February 29, 1996 set forth
below are derived from the unaudited consolidated financial statements of
Summagraphics and, in the opinion of management, reflect all adjustments
necessary for a fair presentation of its results of operations and financial
condition. All such adjustments are of a normal recurring nature. The results
of operations for an interim period are not necessarily indicative of results
that may be expected for a full year or any other interim period. This
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Summagraphics" and the Consolidated Financial Statements of Summagraphics and
related notes thereto included elsewhere in this Proxy and Information
Statement.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- ------- -------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $80,794 $77,295 $ 81,404 $77,755 $ 78,494 $61,343 $48,138
Operating income
(loss)................. 7,644 810 (16,750) 2,664 (10,623) 1,297 (3,338)
Income (loss) before
extraordinary gain and
cumulative effect of
change in accounting
method................. 4,673 (1,231) (16,835) 2,142 (11,599) 867 (3,984)
Extraordinary gain...... -- -- -- 645 -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- -- 411 -- -- -- --
Net income (loss)....... $ 4,673 $(1,231) $(16,424) $ 2,787 $(11,599) $ 867 $(3,984)
Net income (loss) per
common share:
Income (loss) before
extraordinary gain and
cumulative effect of
change in accounting
method................. $ 1.14 $ (0.30) $ (3.89) $ 0.47 $ (2.56) $ 0.18 $ (0.87)
Extraordinary gain...... -- -- -- 0.14 -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- -- 0.09 -- -- -- --
Net income (loss) per
common share........... $ 1.14 $ (0.30) $ (3.80) $ 0.61 $ (2.56) $ 0.18 $ (0.87)
Weighted average shares
used in computing net
income (loss) per
common share........... 4,116 4,113 4,323 4,519 4,537 4,802 4,605
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
----------------------------------------- FEBRUARY 29,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $16,421 $23,982 $11,329 $11,923 $ 5,613 $ 1,395
Total assets.......... 59,594 61,086 52,276 47,336 53,601 41,892
Long-term debt........ 5,370 5,261 3,627 947 1,579 1,323
Retained earnings
(accumulated
deficit)............. 2,443 1,213 (15,661) (13,830) (25,879) (29,863)
Stockholders' equity.. $39,519 $39,039 $22,314 $24,077 $14,404 $ 9,708
</TABLE>
58
<PAGE>
CALCOMP
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data for CalComp as of December 1994 and
1995 and for each of the three years in the period ended December 31, 1995 has
been derived from CalComp's consolidated financial statements, included
elsewhere herein, which have been audited by Ernst & Young LLP, independent
auditors. The selected historical financial data as of March 31, 1996,
December 1991, 1992 and 1993 and for each of the quarters ended March 26, 1995
and March 31, 1996 and for each of the two years in the period ended
December 27, 1992 have been derived from CalComp's unaudited financial
statements that, in management's opinion, include all adjustments necessary
for a fair presentation of the financial position and results of operations
for the periods presented. This information should be read in conjunction with
CalComp's consolidated financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of CalComp" included
elsewhere herein. The financial information includes the effects of corporate
interest charges from Lockheed Martin that will not be charged to New CalComp
in the future, should the Exchange be consummated. See discussion of interest
charges at "Pro Forma Condensed Statement of Operations." In 1992, CalComp
adopted Statement of Financial Accounting Standard No. 106 "Employers'
Accounting for Postretirement Benefits Other Then Pensions" and No. 109
"Accounting for Income Taxes."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------------- ---------------------
DECEMBER 29, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, MARCH 26, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ --------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............ $328,145 $335,467 $300,151 $294,548 $281,655 $71,576 $ 55,852
Loss from operations... (9,196) (9,180) (48,622) (23,464) (9,088) (6,492) (8,854)
Net loss............... (5,855) (16,585) (46,639) (23,226) (10,718) (6,612) (9,115)
Shares used in
computing per share
amount................ 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Net loss per share..... (5,855) (16,585) (46,639) (23,226) (10,718) (6,612) (9,115)
<CAPTION>
DECEMBER 29, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------ -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... $293,297 $292,183 $257,746 $228,312 $231,564 $235,192
Long-term liabilities.. 7,880 5,409 4,967 8,548 8,720 8,649
</TABLE>
The selected financial data for 1991 excludes the results of operations and
the assets of a division that was transferred to Lockheed Martin at the
beginning of 1992. The division had revenues, operating income, and assets as
of and for the year ended in December 1991 of $95.0 million, $2.5 million, and
$78.1 million, respectively.
CalComp has a net receivable from Lockheed Martin of $24.3 million at March
31, 1996. This amount will be treated as a dividend to Lockheed Martin upon
consummation of the Exchange.
CalComp has paid no cash dividends to Lockheed Martin, its parent
corporation, during the five-year period ended December 31, 1995.
59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SUMMAGRAPHICS
The following table sets forth, for the periods indicated, items in the
consolidated statements of operations of Summagraphics as percentages of net
sales. The table and the subsequent discussion should be read in conjunction
with the consolidated financial statements and related notes thereto of
Summagraphics included elsewhere in this Proxy and Information Statement.
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------------ -------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales................. 100% 100% 100% 100% 100%
Cost of Sales............. 64 65 74 66 75
Gross Profit............ 36 35 26 34 25
Selling, general and
administrative........... 37 24 28 24 25
Research and development.. 10 7 9 8 6
Restructuring and other
charges.................. 10 -- 3 -- --
Operating income
(loss)................. (21) 3 (14) 2 (7)
Interest income (expense),
net...................... * * (1) * (2)
Miscellaneous, net........ * * * * *
Income (loss) before
income taxes,
extraordinary gain and
cumulative effect of
change in accounting
method................... (21) 3 (15) 1 (8)
Provision for income
taxes.................... -- -- * -- --
Income (loss) before
extraordinary gain and
cumulative effect of
change in accounting
method................... (21) 3 (15) 1 (8)
Extraordinary gain........ -- 1 -- -- --
Cumulative effect of
change in accounting for
income taxes............. 1 -- -- -- --
Net income (loss)....... (20) 4 (15) 1 (8)
</TABLE>
--------
* Not meaningful or less than 1%
COMPARISON OF THE NINE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
For the nine months ended February 29, 1996, net sales decreased 22% to
$48,138,000 from $61,343,000 in the prior year. Sales in Europe were up
slightly over last year, while the sales decline occurred in the North America
and Asia/Pacific sales regions. The increased sales in Europe represent an
increase in cutter sales and the introduction of Summagraphics' SummaChrome
Vinyl printer. Summagraphics has continued to experience lower than expected
sales of pen plotters and has not been able to offset this sales decline with
sales of its SummaJet Inkjet printer which was introduced later than scheduled
and has hindered efforts to recover its delayed market opportunity. Sales were
significantly lower in the third quarter due principally to the lack of
product availability precipitated by Summagraphics' liquidity position.
For the nine month period gross margin decreased to 25% compared to 34% in
the prior year due to lower sales volume.
For the nine month period ended February 29, 1996, selling, general and
administrative expenses as a percentage of net sales (25%) increased one
percent from last year ($14,868,000 and $12,198,000, respectively). This
percentage increase was due to lower sales levels during the current fiscal
year and was minimized by continued strong cost controls.
60
<PAGE>
For the nine months ended February 29, 1996, research and development
expenditures as a percentage of net sales decreased from 8% to 6% in the nine
months ended February 28, 1996 ($4,904,000 and $2,992,000, respectively). This
reduction reflects cost reduction programs put in place by Summagraphics as
well as the absence of any major development programs for output products in
the current year.
For the nine months ended February 29, 1996, interest expense increased to
$800,000 compared to $327,000 in the prior year. This increase reflects the
increase in average short-term debt outstanding from the prior period.
For the nine months ended February 29, 1996, other miscellaneous income and
expense reflected income of $220,000 compared to loss of $122,000 in the prior
year. This change in miscellaneous income and expense is primarily due to
currency transaction gains and losses.
For the nine months ended February 29, 1996, Summagraphics had a pre-tax
loss of $3,984,000 compared to pre-tax income of $867,000 in the prior year.
Summagraphics did not record a tax provision for the nine month period ended
February 29, 1996 as a result of the current period losses recorded by
Summagraphics.
COMPARISON OF THE FISCAL YEARS ENDED MAY 31, 1995 AND 1994
Net sales increased 1% from 1994 to 1995. The net sales increase reflects
record European net sales, positive results of new distribution alliances in
Asia, and an increase in sales by CAD Warehouse. These increases were offset
by a decline in Summagraphics' North American region, due to the accelerating
erosion of the large format pen plotter market, a later-than-planned
introduction of Summagraphics' ink jet plotter (SummaJet), the loss of certain
digitizer OEM business and the final sell out of large format scanners, which
were discontinued in 1994.
Summagraphics' gross profit margin declined to 26% in 1995 from 35% in 1994,
due to high startup and manufacturing costs related to the new large format
ink jet plotter, as well as lower selling prices for Summagraphics' older line
of pen plotters. The reduction in gross margin also reflects the costs,
including severance, of outsourcing the manufacturing of its ink jet product,
which is expected to be completed during the first quarter of fiscal 1996 as
well as significant charges for reserves for obsolete and excess inventories.
Summagraphics signed a manufacturing outsourcing contract in September 1995
for its ink jet product which it expects will result in improved gross profit
margins for this product in 1996.
Selling, general and administrative expenses as a percentage of net sales
increased from 24% or $18,934,000 in 1994 to 28% or $21,940,000 in 1995. This
increase reflects increased promotional costs related to the delayed
introduction of Summagraphics' ink jet plotter and the lower than expected
sales volume generated by the product. Additional selling costs were also
incurred on other products in order to offset the lower revenues of the ink
jet product. Summagraphics expects sales and promotional costs to decline in
1996, but still be negatively impacted by continued efforts to increase demand
for its ink jet product.
Summagraphics' research and development expenses, as a percentage of net
sales, increased from 7% in 1994 to 9% in 1995 principally due to the
increased spending associated with the development of the new large format ink
jet plotters introduced in 1995, new digitizer products and the conversion of
its SummaChrome product from primarily a paper printer to a vinyl media
printer targeted at the sign making market where Summagraphics' cutter
products are sold. Summagraphics anticipates that its research and development
costs, as a percentage of net sales, will decline in fiscal 1996 due to a
reduction in major product introductions planned for Summagraphics'
printer/plotter product lines.
FOURTH QUARTER 1995 CHARGES
In the fourth quarter of fiscal 1995, Summagraphics incurred various non-
recurring/unusual charges, including charges related to lease abandonment,
manufacturing outsourcing, unusual new product introduction costs and excess
inventory allowances.
61
<PAGE>
A lease abandonment charge of approximately $2.2 million was incurred
related to Summagraphics' decision to move substantially all remaining
activities at its Connecticut facility to Austin, Texas. This charge reflects
the remaining lease obligations, leasehold improvement and operating costs
associated with the lease which expires in November 1998.
Summagraphics incurred approximately $1.4 million in charges, primarily for
severance, related to the outsourcing of its ink jet and large format
digitizer manufacturing and general downsizing of its North American
operations.
Delays in the initial introduction and subsequent manufacturing of the
SummaJet product resulted in approximately $2.2 million in charges in the
fourth quarter for air freighting of materials required for production and for
delivery to customers where orders were fulfilled later than requested, price
credits to distributors for in-stock inventories related to competitive price
reductions to which Summagraphics responded in the fourth quarter, rework
related to adding a product feature to aid in the marketing of the product,
additional promotional expenses to relaunch the product after the delayed
introduction and write downs of superseded parts inventories.
Summagraphics recorded write-downs for unused fixed assets and for excess
and obsolete parts and products inventories of approximately $3.2 million
primarily related to discontinued and or excess plotter product lines and for
parts and supplies for its large format thermal wax printer that are not
required for the vinyl sign making application to which the product is now
targeted.
As a result of the factors described above, Summagraphics had an operating
loss of $10,623,000 in 1995 compared to operating income of $2,664,000 in
1994.
Interest expense increased from $421,000 in 1994 to $609,000 in 1995. This
increase reflects an increase in average outstanding debt in 1995 as compared
to 1994. The increased debt is related primarily to the increased inventory
levels maintained by Summagraphics in 1995.
Summagraphics had pre-tax loss of $11,412,000 in 1995 versus income of
$2,142,000 in 1994.
Summagraphics recorded a deferred tax provision of $187,000 related to one
of Summagraphics' Belgium subsidiaries which was profitable in 1995.
COMPARISON OF THE FISCAL YEARS ENDED MAY 31, 1994 AND 1993
Net sales declined 4% from 1993 to 1994. The decline in sales resulted
primarily from a change in channel inventory management practices in North
America, continuing erosion of the large format pen plotter market, primarily
as a result of competition from ink-jet plotters, and the discontinuance of
sales of large format scanners.
Summagraphics' gross profit margin declined from 36% in 1993 to 35% in 1994
due to lower sales volume, reduced selling prices and increased freight
charges caused by lower inventory levels, offset by cost reductions
implemented as part of the consolidation of Summagraphics' North American
manufacturing operations and generally tighter spending controls.
Selling, general and administrative expenses as a percentage of net sales
decreased from 37% in 1993 to 24% in 1994 despite the decline in net sales.
Two percent of the decline was due to the elimination of approximately
$1,950,000 of litigation expenses incurred in 1993 as a result of the
favorable settlement of a patent litigation suit against Summagraphics in
early 1994. The favorable settlement, net of related expenses resulted in a
gain of approximately $120,000. The absence of large bad debt and intangible
asset write-offs were achieved through a combination of general personnel
reductions, elimination of personnel and expense redundancies as a result of
the consolidation of certain functions at Summagraphics' Texas facility and
tighter expense controls in all areas. Summagraphics' research and development
expenses, as a percentage of net sales, decreased from 10% in 1993 to 7% in
1994 principally due to general personnel reductions, tighter spending
controls and the absence of major product development expenditures as incurred
in 1993 for products that were introduced late in 1993 and early 1994.
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In 1993, Summagraphics incurred a restructuring charge of $8,487,000. No
like charges were incurred in 1994.
As a result of the factors described above, Summagraphics had operating
income for $2,664,000 in 1994 compared to an operating loss of $16,750,000 in
1993.
Miscellaneous, income and expense decreased from income of $220,000 in 1993
to an expense of $206,000 in 1994. This decrease is primarily due to the
absence of favorable foreign currency transaction gains realized in 1993.
Summagraphics had pre-tax income of $2,142,000 in 1994 versus a loss of
$16,835,000 in 1993.
In the fourth quarter of 1994 Summagraphics realized a $645,000
extraordinary gain on the early retirement of its remaining $2,500,000 of 8%
convertible subordinated debt.
LIQUIDITY AND CAPITAL RESOURCES
Summagraphics' sources of liquidity consist of on-hand cash balances, a
$4,000,000 revolving credit facility in Belgium, vendor credit and cash
generated from operations. Summagraphics' availability under its Belgian bank
credit line is calculated based upon percentages, as determined by the bank,
of certain eligible receivables and to a lesser extent inventories.
Summagraphics does not have any availability under its current domestic credit
facility and is funding operations from operating cash flows. As of November
30, 1995 cash and short-term investments totaled $584,000 and $1,137,000 was
available under its Belgian revolving credit line. As of March 1996,
Summagraphics had drawn $3,719,000 under the Belgian credit line and no
further amount was available.
During the first six months of Summagraphics' fiscal year, Summagraphics
utilized its cash balances and bank credit facilities to fund operations,
working capital, capital expenditures and other costs. Charges against the
restructuring reserve established in 1993 and the lease abandonment reserve
established in 1995, both related to the former corporate office lease space
in Connecticut, for the period ended November 30, 1995 were $523,000.
Summagraphics experienced a significant loss in the first six months of
fiscal 1996 and reported a significant operating loss for the quarter ended
February 29, 1996. As part of its efforts to address its continuing losses,
Summagraphics retained the services of Broadview to assist Summagraphics with
matters relating to its strategic direction, and has entered into the Exchange
Agreement with Lockheed Martin described elsewhere in this Proxy and
Information Statement, in connection with which Lockheed Martin agreed to loan
Summagraphics $2.5 million to help alleviate Summagraphics' lack of liquidity.
As a result of its U.S. operating losses during fiscal 1996, Summagraphics
violated certain financial covenants with its U.S. bank, the landlord of its
Texas facility and a loan agreement for Summagraphics' capital expenditures.
In September 1995, all parties agreed to waive all events of default and to
revise the respective agreements, as previously disclosed in Summagraphics'
Form 10-K for the fiscal year ended May 31, 1995. The U.S. bank agreement was
executed in January 1996. Significant new provisions of this agreement
included an extension of the agreement until September 30, 1996, repayment of
the loan based on remittance of certain percentages of daily cash collections,
no new loan advances except for one minor exception, additional loan
repayments required to be made based upon any proceeds from asset sales or
equity proceeds, an increased borrowing rate, new financial covenants and the
granting to the bank of warrants to purchase 37,500 shares of Summagraphics
Common Stock at $1.75 per share.
Summagraphics reported a net loss of $1.6 million for the third quarter
ended February 29, 1996. This loss was caused primarily by Summagraphics'
inability to finance inventory purchases during the quarter due to a severe
tightening of vendor credit in the U.S., the bankruptcy of a key European
cutter supplier late in the quarter and the discontinuance of a contract
manufacturing relationship in the third quarter that resulted in delayed and
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reduced product deliveries. As a result of this loss, Summagraphics breached
certain financial covenants as revised by an amendment to the credit agreement
effective in December 1995. In a further modification to the credit agreement
made in March 1996, concurrent with the execution of the Exchange Agreement
with Lockheed Martin, the U.S. bank agreed to forebear against declaring
default with respect to certain financial covenants for the period ending
February 29, 1996 until the maturity of the debt, the date of which is
variable, depending upon certain circumstances.
The revised Texas lease agreement was executed in March 1996 and also
contains revisions to certain financial covenants to accommodate the third
quarter loss. New provisions of this agreement include a rent reduction
through September 30, 1996 and the granting of warrants to purchase 15,000
shares of Common Stock at a price of $2.00 per share as well as revised
financial covenants. Summagraphics is currently in compliance with the revised
terms and conditions of the amended lease agreement. The capital expenditure
credit line was also amended in March 1996 to accommodate the third quarter
loss.
In February 1996, Summagraphics announced that it had signed a letter of
intent with Lockheed Martin with respect to the Exchange and on March 19,
1996, Summagraphics and Lockheed Martin signed the Exchange Agreement. The
Exchange Agreement calls for Summagraphics to issue to Lockheed Martin
approximately 40.7 million shares of Summagraphics Common Stock in exchange
for all of the capital stock of CalComp. As a result of this share issuance,
Lockheed Martin will own approximately 89.7% of the outstanding Common Stock
(on a fully diluted basis) of Summagraphics. The Exchange Agreement was
amended by the parties on April 30, 1996, and pursuant to Amendment No. 1,
additional shares of Common Stock may be issued to Lockheed Martin, if the sum
of the Backlog and Material Adverse Effect Variances (as defined in Amendment
No. 1) is less than zero. Pursuant to Amendment No. 2 to the Exchange
Agreement dated June 5, 1996, the number of Exchange Shares may be reduced if
the CalComp Material Adverse Effect Variance (as defined in the Amendment No.
2) is greater than zero. The Exchange Agreement, among other items, includes a
provision for Lockheed Martin to provide $2.5 million of financing to
Summagraphics during the period from the signing of the Exchange Agreement
until the closing of the Exchange. The initial funding under this Agreement
was received by Summagraphics in late March and has been used primarily to
finance inventory purchases in the fourth quarter. Lockheed Martin has agreed
to provide New CalComp with a $28 million revolving credit facility upon the
closing of the Exchange, which Summagraphics believes will mitigate its
liquidity problems. However, if the Exchange is not consummated, it is likely
that Summagraphics will be subjected to continuing liquidity constraints which
could, if not resolved, have a material adverse effect on the business of
Summagraphics or force it to seek protection under the United States
Bankruptcy Code.
Summagraphics expects that the interim financing provided by Lockheed
Martin, the European bank credit facility and internally generated cash will
be sufficient to ensure a reasonable product supply during the fourth quarter.
Additionally, Summagraphics has found a replacement for the bankrupt European
supplier and is in the process of transitioning the manufacturing of large
format digitizers from the previous supplier.
FOREIGN CURRENCY EXCHANGE RATES
Because Summagraphics sources a substantial portion of its production from
Far East manufacturers, the cost of imported product can be affected by
fluctuations in the value of the U.S. dollar and import duties or
restrictions. Summagraphics does a substantial portion of its business
internationally. Summagraphics' products are priced in U.S. dollars in all
North American, Latin American, Asian and Pacific Rim countries. In Europe,
Summagraphics prices its products in local currencies in Germany, England,
France, Belgium and in U.S. dollars in other European and Middle Eastern
countries. Approximately 50% of sales are denominated in local currencies and
50% in U.S. dollars. The European operations incur approximately the same
percentages of their expenses in either local currencies or dollars.
Accordingly, Summagraphics believes that it effectively matches cash inflows
and outflows and is not subject to material cash flow impacts due to currency
fluctuations.
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NEW ACCOUNTING STANDARDS
During March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." Summagraphics
is required to adopt Statement 121 in the fiscal year beginning June 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Summagraphics has not completed all of the
analyses required to estimate the impact of the new statement; however, the
adoption of Statement 121 is not expected to have a material adverse impact on
the Summagraphics' financial position or the results of its operations at the
time of adoption. In the event the Exchange is consummated, any effect of
Statement 121 will be included as part of CalComp's purchase price allocation
of Summagraphics.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995. Companies are permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25. "Accounting for Stock Issued
to Employees," but will be required to disclose in a note to the financial
statements pro forma net earnings and earnings per share as if the company had
applied the new method of accounting, as outlined in SFAS No. 123. Although
Summagraphics has not yet determined the effect the new standard will have on
net earnings and earnings per share, should it elect to make such a change, it
does not anticipate the implementation of SFAS No. 123 will have a material
adverse impact on Summagraphics' financial position or results of operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CALCOMP
The following table sets forth, for the periods indicated, revenue by type
as a percentage of total revenue and cost of revenue as a percentage of the
related revenue. Operating expenses are expressed as a percentage of total
revenue. The table and the subsequent discussion should be read in conjunction
with the Consolidated Financial Statements and Notes to Consolidated Financial
Statements of CalComp contained elsewhere herein.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- -------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, MARCH 26, MARCH 31,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Hardware & Supplies... 75% 74% 67% 73% 68%
Service............... 20 19 20 19 22
Sales to affiliates... 5 7 13 8 10
--- --- --- --- ---
Total Revenues...... 100 100 100 100 100
Cost of Revenues:
Hardware & Supplies... 69 73 74 74 73
Service............... 67 69 66 65 77
Cost of sales to
affiliates........... 68 70 73 75 76
--- --- --- --- ---
Total Cost
applicable to
Revenue............ 68 72 72 72 74
Gross Profit:
Hardware & Supplies... 33 28 28 28 27
Service............... 28 26 28 30 23
Sales to affiliates... 32 30 27 25 24
--- --- --- --- ---
Total Gross Profit.. 32 28 28 28 26
Operating Expenses:
Selling & Marketing... 23 19 16 17 21
Product Development... 10 7 6 6 9
General and
Administrative....... 11 6 6 11 8
Corporate expenses
from Parent.......... 5 4 3 3 4
--- --- --- --- ---
Total Operating
Expenses........... 49 36 31 37 42
Loss from operations.... (16) (8) (3) (9) (16)
Interest income......... 0 0 0 0 1
Other income (expense),
net.................... (1) 0 0 2 0
--- --- --- --- ---
Loss before income
taxes.................. (17) (8) (3) (7) (15)
Provision for (benefit
of) income taxes....... 1 0 (1) (2) (2)
--- --- --- --- ---
Net loss................ (16) (8) (4) (9) (17)
=== === === === ===
</TABLE>
GENERAL
CalComp's products and services compete in several markets including
Computer Aided Design ("CAD"), Presentation Graphics, Graphics Arts, and
Printing and Publishing. Each of these markets has several competitors, some
of them larger than CalComp. CalComp's ability to successfully market its
products requires adapting new technologies and leveraging the channels of
distribution in order to remain competitive.
On March 19, 1996, CalComp and Lockheed Martin, its parent, entered into a
definitive agreement with Summagraphics Corporation, a competitor in several
of CalComp's product lines, whereby Lockheed Martin would exchange all of the
capital stock of CalComp for a number of shares of Summagraphics Common Stock
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which after such issuance, will be equal to 89.7% of the issued and
outstanding Common Stock of Summagraphics, on a fully diluted basis.
Additional shares of Common Stock may be issued to Lockheed Martin, pursuant
to Amendment No. 1, if the sum of the Backlog and Material Adverse Effect
Variances (as defined in Amendment No. 1) is less than zero. The number of
Exchange Shares issuable to Lockheed Martin may be reduced if the CalComp
Material Adverse Effect Variance (as defined in Amendment No. 2) is greater
than zero. The proposed transaction is subject to the approval of
Summagraphics' stockholders and certain regulatory agencies. Management
believes that through this transaction the combined company will be able to
compete more effectively in its markets. New CalComp is expected to accrue
restructuring costs relating to the integration of the two companies of
approximately $25 million as part of the accounting for the purchase of
Summagraphics. The restructuring expenses are expected to be comprised of
costs and write-downs relating to the reduction of product line and work force
redundancies, and the elimination of duplicate facilities. These assets are
not believed by management to be impaired prior to the Exchange, and as a
result, anticipated write-downs are believed to be solely the result of the
proposed integration of the two companies.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 26, 1995
Net Revenues. Net revenues for the three months ended March 31, 1996
declined $15.7 million, or 22%, to $55.9 million from the three months ended
March 26, 1995 with product revenues down 27% and service revenues down 9%.
Product revenues for the first quarter of 1996 were adversely impacted
primarily by competitive actions and by difficulties associated with a new
product introduction. In January 1996, one of CalComp's competitors increased
sales promotion efforts for certain products in anticipation of introducing
its next generation products while another competitor introduced a new product
providing the market increased price performance benefits. The effect of these
competitive actions was principally experienced in reduced United States
product revenues and to a lesser extent international revenues. As a result,
CalComp was required to take pricing actions to remain competitive.
Additionally, in late 1995 CalComp introduced a new inkjet product and sold it
into its distribution channels. Prior to significant sales being made to end-
users, this product was found to contain minor product defects requiring
distributors to return $0.8 million of the product to CalComp in the first
quarter of 1996. These products are being reworked and are expected to be
resold commencing in the second quarter of 1996. Service revenues in the first
quarter of 1996 continued the decline experienced in 1995 resulting from the
transition to lower cost products, which traditionally do not capture the same
level of service contract revenue as higher cost products, and a lower rate of
service contract renewals as older generation products are retired from
service.
The significant pricing pressure experienced in the first quarter is
expected to continue through the remainder of 1996 and until benefits from the
introduction of new products, which traditionally carry higher margins, are
realized. As a result of such pressures, CalComp experienced a loss of $4.8
million in April, 1996. Losses are expected to continue through at least the
second and third quarters of 1996. In response, management has undertaken
actions to reduce operating expenses and continues to focus on planned new
product introductions scheduled for the third and fourth quarters of 1996.
Gross Margin. CalComp's gross margin for the three months ended March 31,
1996 decreased to 26% from 28% for the three months ended March 26, 1995. The
gross margin decline is due principally to a $1.3 million decrease in service
margins, which resulted primarily from decreased service revenues without
corresponding cost reductions. The gross margin percentage for product sales
increased 0.6% in the three months ended March 31, 1996 as compared to the
three months ended March 26, 1995 due to a change in product mix favoring
higher margin products.
The companies that participate in the industry are highly competitive.
Reduced unit selling prices and shortened product life cycles are expected to
continue to place pressure on CalComp margins.
Operating Expenses. Total operating expenses were $23.3 million for the
three months ended March 31, 1996, a 11% reduction from the three months ended
March 26, 1995. Selling expenses increased to 21% of revenues for the three
months ended March 31, 1996 from 17% for the three months ended March 26,
1995, and
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general and administrative expenses decreased $4.1 million or to 8% of
revenues for the three months ended March 31, 1996 from 12% for the three
months ended March 26, 1995. CalComp increased the proportion of each sales
dollar spent on promotional expenditures in the first quarter of 1996 to
respond to the pricing actions of certain competitors discussed above. General
and administrative expenses were lower in the three months ended March 31,
1996 as compared to the three months ended March 26, 1995 because the 1995
period included $4.5 million of expenses related to facilities closures and
workforce reductions. This decrease was offset in part by increased goodwill
amortization of $0.4 million resulting from a decision to shorten on a
prospective basis the original goodwill amortization period from an original
term of 40 years (with approximately 30 years remaining) to 15 years
prospectively effective January 1, 1996. Corporate expenses from Lockheed
Martin increased $0.4 million for the three month period ended March 31, 1996
as a result of changes in the amounts billed to CalComp by Lockheed Martin for
certain allocated corporate general and administrative expenses.
Product development expenses increased $0.8 million or to 9% of revenues for
the three months ended March 31, 1996 from 6% for the three months ended March
26, 1995 as a result of ongoing new product development.
Interest and Other Income (Expenses). Interest income of $0.6 million
recognized in the three months ended March 31, 1996 resulted from a favorable
determination by U.K. taxing authorities that CalComp is entitled to interest
on amounts refunded and recognized as a benefit in its provision for foreign
income taxes for the year ended December 31, 1995. Other income decreased $1.1
million for the three months ended March 31, 1996 from the three months ended
March 26, 1995 primarily as a result of a $0.7 million reduction in foreign
currency gains and a reduction in the profitability of CalComp's minority
interest in its Japanese joint venture, which is accounted for on the equity
method in other income.
Income Taxes. Income taxes of $.9 million for the three months ended March
31, 1996, resulted primarily from provision of foreign income taxes for
profitable foreign CalComp locations. Deferred taxes relate to United States
income. CalComp has provided a valuation allowance for one hundred percent of
its net deferred tax assets based primarily on the requirement of the relevant
accounting standard to give significant weight to the existence of cumulative
losses in recent years in assessing the likelihood of generating sufficient
future U.S. taxable income, within the period such deferred tax assets must be
utilized, to permit the net deferred tax assets to be realized.
COMPARISON OF 1995 TO 1994
Net Revenues. Net revenues for 1995 declined $12.9 million, or 4%, to $281.7
million from the previous year with Hardware and Supplies and Sales to
Affiliates (collectively "Product Revenue") down 4% and Service down 5%. For
purposes of Management's Discussion and Analysis of the Results of Operations,
revenues and gross margins from sales to affiliates have been grouped with
other hardware and supplies revenues and gross margins, since such sales have
been consummated at prices and terms that are consistent with prices and terms
available from unrelated third parties. The decline in Product Revenue
resulted from CalComp's exit during 1993 and 1994 from certain of its printer
product lines and obsolete pen and electrostatic products. Also contributing
to the decline in revenue was CalComp's introduction in 1995 of its
ChannelWorks two-tiered distribution program which focused a majority of
hardware revenues through a limited number of national distributors at larger
discounts. When fully implemented, ChannelWorks should allow CalComp to
improve total revenue by moving more product, more efficiently through the
extensive dealer base and leveraging the logistical capabilities of these
distributors while at the same time reducing CalComp's channel management
expenses. Management estimates approximately $2.0 million of the Product
Revenue decline is due to the ChannelWorks distribution program. This decline
was significantly offset by revenue growth in limited new product offerings in
inkjet and LED technologies including, revenue of $75.0 million recorded in
the last quarter of fiscal 1995 due in part to the introduction of a number of
new products and stocking shipments to the distributors. Service revenue
declines resulted from the drop in after-market service contract sales
resulting from the decline in hardware sales and the transition to lower cost
products, which traditionally do not capture the same level of service
contract revenue as higher cost products.
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Gross Margin. CalComp's 1995 gross margin of 28% remained unchanged from
1994. Management continued its focus on reducing costs through the
implementation of the ChannelWorks initiative and continuing efforts to design
lower cost products. Improved service gross margins were primarily due to the
benefits of 1994 cost saving actions which negatively impacted 1994 costs but
resulted in lower direct costs during 1995.
The companies that participate in the industry are highly competitive.
Reduced unit selling prices and shortened product life cycles are expected to
continue to place pressure on CalComp margins.
CalComp purchases certain components from an affiliate, Lockheed Martin
Commercial Electronics. Purchases amounted to $10.5 million and $9.8 million
for the years ended December 1995 and 1994, respectively. Purchases from
Lockheed Martin Commercial Electronics were made at prices and terms similar
to those available from unrelated vendors.
Operating Expenses. Total operating expenses were $88.1 million in 1995, a
17% reduction from 1994. Selling expenses declined $10.9 million or from 19%
of revenues in 1994 to 16% in 1995. General and administrative expenses
decreased $0.8 million or remaining at 6% of revenue in 1995 and 1994. These
selling, general and administrative expense decreases reflect the benefits of
continued product focus, the decline in costs resulting from facility and
consolidation actions completed in 1995, and the Channel Works distribution
strategy. Corporate expenses from Lockheed Martin decreased $2.2 million as a
result of changes in the amounts billed to CalComp by Lockheed Martin for
certain allocated corporate, general and administrative expenses.
Due to the more focused concentration of product offerings in 1995 and the
continuing transition from pen and electrostatic technologies to inkjet,
CalComp's product development expenses decreased $4.2 million or from 7% of
revenues in 1994 to 6% in 1995. CalComp anticipates maintaining product
development expenditures at current levels as a percentage of revenue.
Other Income (Expense), Net. Other income rose $1.4 million to $1.7 million
in 1995 from 1994, primarily as a result of the increased profitability of
CalComp's minority interest in its Japanese joint venture which is accounted
for on the equity method in other income.
Income Taxes. Income taxes of $3.6 million for 1995 relate primarily to
foreign taxes from CalComp's foreign operations. As CalComp sustained a net
loss in 1995, no federal income tax provision was necessary, nor was a tax
benefit recorded as management determined that it was appropriate to increase
the valuation allowance. It is the intention of management to assess the
continued need for the valuation allowance each quarter. In 1994, CalComp's
provision for income tax was $0.3 million. This provision included a $1.8
million provision for foreign taxes, offset by a benefit of $1.5 million for
state taxes. The state tax benefit resulted from the reversal of state
accruals that were no longer required.
COMPARISON OF 1994 TO 1993
Net Revenues. Net revenues for 1994 declined $5.6 million, or 2%, to $294.5
million from the previous year with Product Revenue down 1% and Service down
6%. Lower printer revenues resulting from CalComp's 1993 decision to exit
certain printer product lines combined with slightly lower plotter sales in
traditional pen and electrostatic products were partially offset by revenue
increases in digitizers, up 17%, supplies, up 5%, and new revenues resulting
from the introduction of ink jet products. Service revenue declined due to the
transition to lower cost products, which traditionally do not capture the same
level of service contract revenue as higher cost products, as well as from
hardware revenue declines which impacted the number of units subject to
service contract capture.
Gross Margin. CalComp's 1994 gross margin decreased to 28% from 32% in 1993
as a result of the revenue shift to lower priced products, an aggressive
pricing strategy on CalComp's entry into the established ink jet market,
competitive service pricing on lower priced products and one time costs,
primarily severance and facilities related, associated with outsourcing some
of CalComp's service capabilities to third party service providers.
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CalComp purchases certain components from an affiliate, Lockheed Martin
Commercial Electronics. Purchases amounted to $9.8 million and $10.7 million
for the years ended December 1994 and 1993, respectively. Purchases from
Lockheed Martin Commercial Electronics were made at prices and terms similar
to those available from unrelated vendors.
Operating Expenses. Total operating expenses were $106.2 million in 1994, a
26% reduction from 1993. Selling expenses declined $12.5 million or from 23%
of total revenues in 1993 to 19% in 1994. General and administrative expenses
declined $14.8 million from 11% of total revenues in 1993 to 6% in 1994.
Corporate expenses from Lockheed Martin decreased $2.9 million as a result of
changes in the amounts billed to CalComp by Lockheed Martin for certain
allocated corporate, general and administrative expenses.
During 1994 and 1993, management undertook a series of actions aimed at
sizing CalComp's operations to its revenues and enhancing its operational
efficiencies. Expenses in 1993 included charges aggregating approximately $17
million related to functional consolidations, headcount reductions and
inventory and product line adjustments. Expenses in 1994 included charges
aggregating $4 million primarily related to the downsizing or elimination of
CalComp sales and service locations and the transition to third party service
providers for some of CalComp's service obligations. These charges made
possible the significant expense reductions achieved in 1994 and CalComp's
participation in lower-cost, lower-margin new technology product markets. The
actions undertaken were substantially complete at the end of 1995.
CalComp's product development expenses decreased $7.6 million or from 10% of
total revenues in 1993 to 7% in 1994. Reduced costs associated with
discontinuing development activity related to certain printer product lines
and transitioning out of pen and electrostatic technologies more than offset
expense increases resulting from the increased product focus in ink jet
development and other products.
Other Income (Expense), Net. Other income rose $3.2 million to $0.3 million
in 1994 from negative $2.9 million in 1993. Other income (expense) in 1993
included approximately $2.5 million of foreign exchange transaction losses
resulting from the strength of the U.S. dollar and its impact on CalComp's
international subsidiaries' U.S. dollar denominated liabilities.
Income Taxes. CalComp's provision for income taxes was $0.3 million in 1994.
This provision included a $1.8 million provision for foreign taxes, offset by
a benefit of $1.5 million for state taxes. The state tax benefit resulted from
the reversal of state tax accruals that were no longer required. As CalComp
sustained a net loss in 1994, no federal income tax provision was necessary,
nor was a tax benefit recorded as management determined that it was
appropriate to increase the valuation allowance. In 1993, CalComp recorded a
benefit provision of $4.3 million. This provision included a $1.6 million
foreign provision and a federal benefit of $6.0 million. The federal benefit
resulted from losses that were able to be carried back for which a benefit was
obtained by CalComp under a tax sharing agreement with Lockheed Martin.
LIQUIDITY AND CAPITAL RESOURCES
When possible, CalComp finances its working capital needs and capital
expenditure requirements from internally generated funds. At March 31, 1996,
CalComp had cash and cash equivalents of $14.2 million, consisting primarily
of foreign cash balances. Lockheed Martin has a centralized domestic cash
management system whereby CalComp's domestic cash surplus is transferred to
Lockheed Martin accounts on a daily basis. Cash disbursements are funded by
Lockheed Martin, as needed, to maintain the disbursement account at a zero
balance. Cash generated from international internally generated funds as well
as CalComp's participation in the Lockheed Martin cash management system has
provided the sole source of liquidity during the three months ended March 31,
1996 and each of the years ended December 1995, 1994 and 1993.
In connection with the Exchange, New CalComp will have continuing access to
funding from Lockheed Martin. Cash shortfalls of up to $2 million will be
funded by Lockheed Martin on an overnight basis pursuant to the Cash
Management Agreement. In addition, up to $28 million of general purpose
financing, including, without
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limitation, financing the working capital needs of New CalComp, will be
available from Lockheed Martin pursuant to the Revolving Credit Agreement. It
is anticipated that immediately following the Closing, New CalComp's liquidity
requirements will be higher than in previous periods as a result of costs
incurred to integrate Summagraphics operations with and into those of CalComp.
However, management believes that cash generated from operations and funds
available under the Revolving Credit and Cash Management Agreements with
Lockheed Martin will be sufficient to fund New CalComp's anticipated operating
needs for the foreseeable future.
During 1996, CalComp has spent $1.1 million through March 31, 1996 and
expects to spend an additional $2.0 million in the development and
implementation of its new information system. At March 31, 1996, CalComp had
no other significant commitments for capital expenditures.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard
was implemented by CalComp effective January 1, 1996. The application of this
standard did not have a material impact on its consolidated financial position
or results of operations.
RELATIONSHIP WITH LOCKHEED MARTIN
Upon the consummation of the Exchange, Lockheed Martin will beneficially own
approximately 89.7% of all the outstanding Common Stock of New CalComp. For so
long as Lockheed Martin continues to beneficially own more than 50% of the
outstanding voting stock of New CalComp, Lockheed Martin will be able, among
other things, to approve any corporate action requiring majority stockholder
approval, including the election of the entire Board of Directors of New
CalComp, and to effect amendments to New CalComp's Restated Charter and Bylaws
or to approve any other matter submitted to a vote of the stockholders without
the consent of the other stockholders of New CalComp. In addition, through its
control of the Board of Directors, Lockheed Martin will be able to control
certain decisions, including decisions with respect to New CalComp's dividend
policy, New CalComp's access to capital (including borrowing from third-party
lenders and the issuance of additional equity securities), mergers or other
business combinations involving New CalComp, the acquisition or disposition of
assets by New CalComp and any change in control of New CalComp. The retention
by Lockheed Martin of more than 50% of the outstanding voting stock of New
CalComp will preclude any change in control of New CalComp not favored by
Lockheed Martin. See "Risk Factors--Relationship with Lockheed Martin" for a
discussion of the potential conflicts that may arise between New CalComp and
Lockheed Martin following the consummation of the Exchange.
In connection with the Exchange, New CalComp and Lockheed Martin have agreed
to enter into each of the Intercompany Agreements, all of which are described
below, which will govern certain aspects of New CalComp's relationship with
Lockheed Martin. In addition, the Restated Charter will contain provisions
relating to the allocation of business opportunities that may be suitable for
either Lockheed Martin or New CalComp. See "The Restated Charter."
Interim Financing. In connection with the execution of the Exchange
Agreement, Lockheed Martin provided Summagraphics with a loan of up to $2.5
million to fund Summagraphics' operations pending the Closing of the Exchange
(the "Interim Financing"). The Interim Financing is provided pursuant to a
secured convertible debenture (the "Convertible Debenture") bearing interest
at 9 1/4% per annum that is convertible upon an Event of Default (as defined
therein) into shares of Common Stock (the "Conversion Shares") at a conversion
price of $2.00 per share, unless the Exchange Agreement is terminated as a
result of a material breach by Lockheed Martin, in which case the conversion
rate is increased to $3.00 per share of Common Stock. The Convertible
Debenture is secured by a lien on certain of Summagraphics' assets. The
maturity of the Convertible Debenture will be at the earlier of (i) the
Closing, (ii) the termination of the Exchange Agreement by either party
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under certain circumstances, or (iii) July 31, 1996; provided that, if the
Exchange Agreement is terminated as a result of a material breach by Lockheed
Martin, the maturity date is extended to the first anniversary of the
termination. In connection with the issuance of the Convertible Debenture,
Summagraphics entered into a registration rights agreement with Lockheed
Martin relating to the Conversion Shares (the "Debenture Registration
Rights"). Subject to certain limitations, the Debenture Registration Rights
entitle Lockheed Martin (or its assignees) to cause Summagraphics to include
Conversion Shares in any registration statement filed by Summagraphics or to
cause Summagraphics to file and use its best efforts to cause to become
effective a registration statement under the Securities Act of 1933, as
amended, in connection with any public offering of Conversion Shares by
Lockheed Martin.
Revolving Credit Agreement. In connection with the Exchange, New CalComp and
Lockheed Martin will enter into a revolving credit agreement (the "Revolving
Credit Agreement") pursuant to which Lockheed Martin will provide, from time
to time, financing of up to $28 million for repayment of specified
indebtedness and general corporate purposes, including, without limitation,
financing the working capital needs of New CalComp and its subsidiaries. The
Revolving Credit Agreement has a term of two years from the date of its
execution, but is terminable after the first anniversary of the date of the
Revolving Credit Agreement, at New CalComp's or Lockheed Martin's option, upon
at least 120 days' prior written notice of termination, which notice may be
given not more than 120 days prior to the first anniversary. There is no
required prepayment or scheduled reduction of availability of loans under the
Revolving Credit Agreement.
Loans outstanding under the Revolving Credit Agreement will bear interest,
at New CalComp's option, either at (i) a rate per annum equal to the higher of
the federal funds rate as published in the Federal Reserve System statistical
release H-15 plus 0.5% or the rate publicly announced from time to time by
Morgan Guaranty Trust Company of New York in New York as its "prime" rate or
(ii) LIBOR plus 1.0%. In addition, New CalComp is required to pay Lockheed
Martin a commitment fee equal to 0.35 % per annum on the amount of the
available but unused commitment under the Revolving Credit Agreement.
The Revolving Credit Agreement sets forth certain negative and affirmative
covenants binding New CalComp. These covenants include, without limitation,
(i) a maximum ratio of debt to the sum of tangible net worth plus debt of 32%;
(ii) a minimum ratio of earnings from continuing operations (before deductions
for interest expense, depreciation, amortization and income taxes) to interest
expense and preferred dividends of 3.5 to 1 for the first full fiscal quarter
following the date of the Revolving Credit Agreement, 3.5 to 1 for the first
two fiscal quarters after the date of the Revolving Credit Agreement, 3.5 to 1
for the first three fiscal quarters from the date of the Revolving Credit
Agreement and commencing with the fourth full fiscal quarter after the date of
the Revolving Credit Agreement and on each March 31, June 30, September 30 and
December 31 thereafter, 4.0 to 1 for the preceding four quarters; (iii) a
minimum ratio of cash, cash equivalents and trade accounts receivable to total
current liabilities (excluding borrowings under the Revolving Credit
Agreement) of at least 0.75 to 1; (iv) a prohibition (subject to certain
exceptions) on liens and sale-leaseback transactions; (v) a prohibition on
mergers, consolidations, other business combinations and bulk asset sales; and
(vi) a requirement of compliance with applicable laws, including ERISA and all
environmental laws. The foregoing restrictions will limit New CalComp's
ability to incur indebtedness, to pay dividends, or to otherwise achieve
corporate objectives.
The Revolving Credit Agreement also sets forth certain events of default.
The events of default include, without limitation, (i) failure to pay interest
or principal when due, (ii) material breach of any representation or warranty,
(iii) failure to perform certain covenants, (iv) failure to pay other
indebtedness when due or breach of any other term contained in other
agreements or instruments relating to other indebtedness, (v) commencement of
bankruptcy or reorganization proceedings, (vi) an event of default under the
Cash Management Facility or (vii) the occurrence of certain events the result
of which could reasonably be expected to have a Material Adverse Effect. In
the case of an Event of Default, Lockheed Martin may, by notice in writing to
New CalComp, terminate the Revolving Credit Agreement and demand payment of
amounts owing thereunder.
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Pursuant to the Revolving Credit Agreement, Lockheed Martin will have the
right to set off, appropriate and apply against any and all cash transferred
from New CalComp to Lockheed Martin in accordance with the Cash Management
Agreement and any and all credits, indebtedness or claims at any time held or
owing by Lockheed Martin to or for the credit or account of New CalComp.
Cash Management Agreement. New CalComp and Lockheed Martin will enter into a
cash management agreement (the "Cash Management Agreement") pursuant to which
Lockheed Martin will provide cash advances to New CalComp. The term of the
Cash Management Agreement will extend from the date of its execution through
June 1, 1998, but will be terminable by either party after one year on 90
days' prior written notice. In accordance with the terms of the Cash
Management Agreement, excess cash balances of New CalComp will first be deemed
to be a repayment of outstanding principal indebtedness under the Revolving
Credit Agreement, with any excess being applied against advances or held as an
investment by Lockheed Martin on an overnight basis. The aggregate principal
amounts of cash invested with Lockheed Martin will bear interest at a rate per
annum equal to the Federal Funds Rate as in effect from time to time. Cash
shortfalls, up to $2 million, will be funded by Lockheed Martin on an
overnight basis, and will bear interest at a rate per annum equal to the
Federal Funds Rate as in effect from time to time. Pursuant to the terms of
the Cash Management Agreement, Lockheed Martin will have the right to set off,
appropriate and apply against any and all cash transferred from New CalComp to
Lockheed Martin under the Cash Management Agreement and any and all credits,
indebtedness or claims at any time held or owing by Lockheed Martin to or for
the credit or account of New CalComp.
Intercompany Services Agreement. New CalComp and Lockheed Martin will enter
into an intercompany services agreement (the "Services Agreement") with
respect to the services to be provided by Lockheed Martin. The Services
Agreement provides that Lockheed Martin will furnish to New CalComp a package
of services in exchange for a services fee, which will be determined by
Lockheed Martin recognizing to the extent practicable, (i) Lockheed Martin's
percentage ownership of New CalComp, (ii) New CalComp's requirements for
certain services for which CalComp or Summagraphics was previously charged by
Lockheed Martin or other third parties and (iii) costs of obtaining services
from third parties that previously were provided to CalComp by Lockheed
Martin. The Services Agreement will expire two years after the date of its
execution, but may be terminated by Lockheed Martin, at its option, upon not
less than 90 days' prior written notice to New CalComp, provided that Lockheed
Martin no longer owns Common Stock representing more than 50% of all of the
issued and outstanding Common Stock of New CalComp. New CalComp may terminate
the Services Agreement by providing not less than 90 days prior written notice
to Lockheed Martin at any time that Lockheed Martin owns less than 25% of all
of the issued and outstanding Common Stock of New CalComp. The amount of the
fees to be paid by New CalComp under the provisions of the Services Agreement
will not be finally determined prior to the stockholders meeting. Consistent
with past practices, the method used to determine amounts to be charged New
CalComp will be in accordance with the requirements of Cost Accounting
Standard 9904.403 ("CAS 403") "Allocation of Home Office Expenses to
Segments." CAS 403 establishes the formulas and criteria for the allocation of
home office expenses to organizational segments and is promulgated by the Cost
Accounting Standards Board and used by contractors to the United States
Government. Lockheed Martin's allocations are reviewed for compliance with the
promulgated standards by the Department of Defense. In each of 1995, 1994 and
1993, Lockheed Martin billed CalComp $7.6 million, $11.0 million and $14.3
million, respectively, for certain services provided by Lockheed Martin in
each of those years. The management of Lockheed Martin has informed
Summagraphics that it does not expect that the method of determining the
amounts to be charged for such services in 1996 will be materially different
from that used in 1995. However, there can be no assurance that the amounts
charged to New CalComp under the Services Agreement will not be less favorable
to New CalComp than would be available on arms' length terms from unrelated
parties. See "Note 4 to the Notes to Consolidated Financial Statements of
CalComp Inc." contained elsewhere in this Proxy and Information Statement.
The services to be provided by Lockheed Martin include certain tax services;
corporate control and audit services; insurance planning and advice; health,
safety and environmental management services; human resources
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and employee relations services; legal services; employee benefit plans
administration and services; and treasury services.
In addition to the identified services, Lockheed Martin has agreed to use
reasonable efforts to cause New CalComp to be covered under Lockheed Martin's
insurance policies including, without limitation, property, casualty,
directors and officers liability and workers' compensation policies. New
CalComp will reimburse Lockheed Martin for the portion of Lockheed Martin's
premium cost and other charges with respect to such insurance that is
attributable to coverage of New CalComp, including an allocation of Lockheed
Martin's overhead costs related to providing such insurance. Either Lockheed
Martin or New CalComp (subject to certain conditions) may terminate any and
all such coverage under Lockheed Martin policies at any time on 90 days' prior
written notice to the other party, subject to the terms of the insurance
coverage.
Also in addition to the identified services, Lockheed Martin has agreed to
allow employees of New CalComp who were employees of CalComp immediately prior
to the Closing and employees hired by New CalComp after the Exchange to
participate in the employee benefit plans sponsored by Lockheed Martin. In
addition to the services fee, New CalComp proposes to reimburse Lockheed
Martin for the direct costs (including any contributions and premium costs,
and administration and management fees of third party providers and internal
personnel) associated with the plans in which CalComp's or New CalComp's
employees participate. Either New CalComp or Lockheed Martin may terminate
participation by New CalComp's or CalComp's employees in any plan sponsored by
Lockheed Martin by giving 180 days' written notice to the other party, except
that the date of termination may be shortened or extended by either party if
the termination of New CalComp's or CalComp's employees' participation would
adversely affect the tax qualification of the plan or its compliance with
regulatory requirements.
New CalComp will agree to indemnify Lockheed Martin, except in certain
limited circumstances, against liabilities that Lockheed Martin may incur that
are caused by or arise in connection with New CalComp's failure to fulfill its
obligations under the Services Agreement.
Corporate Agreement. New CalComp and Lockheed Martin will enter into a
corporate agreement (the "Corporate Agreement"). Under the terms of the
Corporate Agreement, New CalComp will agree that, for so long as Lockheed
Martin continues to own 50 percent or more of the Common Stock of New CalComp,
New CalComp will propose, at each election of directors (including elections
to fill vacancies) a slate of directors or individual directors such that at
least 66 percent of the Board of Directors of New CalComp is comprised of
persons designated by Lockheed Martin. The Corporate Agreement also obligates
Lockheed Martin and New CalComp to use their good faith efforts to cause at
least two individual directors of New CalComp to be independent of both New
CalComp and Lockheed Martin within the meaning of the rules of the New York
Stock Exchange regarding who may serve on the audit committee of a company
listed on such exchange. Subject to these agreements, Lockheed Martin will be
able to elect 100% of the directors for so long as Lockheed Martin owns more
than 50% of the combined voting power of New CalComp.
In addition, the Corporate Agreement provides that for so long as Lockheed
Martin maintains ownership of 50 percent or more of the Common Stock, New
CalComp may not take any action or enter into any commitment or agreement
which may reasonably be anticipated to result, with or without notice and with
or without lapse of time, or otherwise, in a contravention or event of default
by Lockheed Martin of (i) any provision of applicable law or regulation,
including, but not limited to provisions pertaining to ERISA, (ii) any
provision of Lockheed Martin's Charter or Bylaws, (iii) any credit agreement
or other material instrument binding upon any Lockheed Martin entity, or (iv)
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over any Lockheed Martin entity. Additionally, for so long as
Lockheed Martin continues to own 50 percent or more of the Common Stock of New
CalComp, New CalComp may not take any action reasonably expected to result in
a material increase in liabilities required to be included in its consolidated
financial statements, nor may it materially increase its obligations under any
employee benefit plan, without the prior written consent of Lockheed Martin.
The Corporate Agreement also provides that nothing contained in the Corporate
Agreement is intended to limit or restrict in any way the ability of Lockheed
Martin to control or limit
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any action or proposed action of New CalComp, including but not limited to,
the incurrence by New CalComp of indebtedness, based upon Lockheed Martin's
internal policies or other factors.
Registration Rights Agreement. New CalComp will enter into a registration
rights agreement (the "Registration Rights Agreement") with Lockheed Martin.
Under the Registration Rights Agreement, until Lockheed Martin or its
assignees can sell all of the registrable securities then owned in a single
market transaction pursuant to Rule 144(k) under the Securities Act of 1933,
as amended (the "Securities Act"), in the case of any proposed registration of
shares of capital stock or other securities of New CalComp, Lockheed Martin or
its assignees shall have the right, subject to certain limitations contained
therein, to elect to include in such registration statement all or a part of
their registrable securities (a "Piggyback Registration").
Under the Registration Rights Agreement, at any time after the date of the
Registration Rights Agreement and from time to time thereafter, Lockheed
Martin (or an assignee owning in the aggregate at least 25% of the Common
Stock issued to Lockheed Martin as of the date of the execution of the
Registration Rights Agreement) may cause New CalComp to use its best efforts
to file a registration statement to register under the Securities Act for sale
to the public all or a portion of the registrable securities of Lockheed
Martin or its assignees, and thereafter use its best efforts to file any and
all amendments as may be necessary to cause the registration statement to be
declared effective. New CalComp will have no obligation, however, to register
any securities under the Registration Rights Agreement unless the reasonably
anticipated aggregate offering price to the public of such securities, as
stated by Lockheed Martin or its assignees in their written registration
request, equals or exceeds $15 million. In addition, New CalComp will have no
obligation to file more than three registration statements on a form other
than Form S-3 and in no event will it be required to file more than four
registration statements in total. The costs and expenses (other than
underwriting discounts, commissions and similar payments) of all registrations
will be borne by New CalComp.
The Registration Rights Agreement contains indemnification and contribution
provisions (i) by Lockheed Martin and its assignees for the benefit of New
CalComp and related persons, (ii) by New CalComp for the benefit of Lockheed
Martin and the other persons entitled to effect registrations of Common Stock
pursuant to its terms and (iii) related persons.
Tax Sharing Agreement. New CalComp and Lockheed Martin will enter into a tax
sharing agreement (the "Tax Sharing Agreement"), which would be effective on
the date the Exchange is consummated. Pursuant to the Tax Sharing Agreement,
New CalComp and Lockheed Martin will make payments between them such that,
with respect to any period, the amount of taxes to be paid by New CalComp or
any refund payable to New CalComp will be determined as though New CalComp
were to file separate federal, state and local income tax returns (including
any amounts determined to be due as a result of a redetermination of the tax
liability of Lockheed Martin arising from an audit or otherwise) as the common
parent of an affiliated group of corporations filing a consolidated return
rather than a consolidated subsidiary of Lockheed Martin. Under the Tax
Sharing Agreement, for so long as New CalComp remains part of the Lockheed
Martin combined consolidated group for federal income tax purposes, New
CalComp will be entitled to the benefit of any tax attribute attributable to
New CalComp that could be used by New CalComp if it were not part of the
Lockheed Martin combined consolidated group. At such time as New CalComp
ceases to be included in the Lockheed Martin combined consolidated group for
federal income tax purposes, New CalComp shall no longer be entitled to the
benefit of any tax attribute created while part of the Lockheed Martin
combined consolidated group that would otherwise have been attributable to New
CalComp.
In determining the amount of tax sharing payments, Lockheed Martin will
prepare a pro forma consolidated return for New CalComp that reflects the same
positions and elections used by Lockheed Martin in preparing the returns for
the Lockheed Martin consolidated group. Lockheed Martin will continue to have
all the rights of a common parent of a consolidated group, will be the sole
and exclusive agent for New CalComp in any and all matters relating to the
income tax liability of New CalComp, will have sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns (or amended returns), and
will have the power, in its sole discretion, to contest or compromise any
asserted tax adjustment or
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deficiency and to file, litigate or compromise any claim or refund on behalf
of New CalComp. Interest required to be paid by or to New CalComp with respect
to any federal income tax pursuant to the Tax Sharing Agreement shall be
computed at the rate and in the manner provided in the Internal Revenue Code
of 1986 for interest on underpayments and overpayments, respectively, of
federal income tax for the relevant period. Any interest required to be paid
by or to New CalComp with respect to any state or local income tax or
franchise tax return shall be computed at the rate and in the manner as
provided under the applicable state or local statute for interest on
underpayments and overpayments, respectively, of such tax for the relevant
period.
Under the Tax Sharing Agreement, New CalComp will reimburse Lockheed Martin
for any outside legal and accounting expenses incurred by Lockheed Martin in
the course of the conduct of any audit or contest regarding the Lockheed
Martin consolidated group, and for any other expenses incurred by Lockheed
Martin in the course of any litigation relating thereto, to the extent such
costs are reasonably attributable to an issue relating to New CalComp or its
subsidiaries; provided, however, that prior to incurring any such expenses,
Lockheed Martin shall consult with New CalComp and shall consider New
CalComp's views with regard to the retention of outside professional
assistance.
Vendor and Customer Relationships. Effective May 15, 1996, CalComp
transferred its ownership interest in AGT Holdings, Inc., the parent of Access
Graphics, to Lockheed Martin. CalComp sells computer graphics equipment to
Access Graphics for resale. Sales to Access Graphics amounted to $19.8
million, $7.3 million and $4.2 million for CalComp in 1995, 1994 and 1993,
respectively. It is expected that the customer relationship with Access
Graphics will continue after the Exchange. Summagraphics sold approximately
$1.6 million in products to Access Graphics and, through its CAD Warehouse
subsidiary, purchased $1.5 million in products from Access Graphics during the
period between December 1, 1994 and November 30, 1995. CalComp also purchases
certain components from Lockheed Martin Commercial Electronics, an affiliate
of Lockheed Martin. Purchases amounted to $10.5 million, $9.8 million and
$10.7 million for 1995, 1994 and 1993, respectively. This relationship is
expected to continue after the consummation of the Exchange. See "Note 4 of
the Notes to Consolidated Financial Statements of CalComp Inc."
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MARKET PRICE OF SUMMAGRAPHICS COMMON STOCK
Summagraphics Common Stock currently is traded on the NASDAQ National Market
System under the symbol "SUGR." Following the Exchange, it is anticipated that
the trading symbol will be changed to "CLCP." The following table sets forth
the high and low closing bid prices of Summagraphics Common Stock for the
periods indicated as reported by the NASDAQ National Market System.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
Fiscal Year Ended May 31, 1995
First Quarter.................................................... 8 6 3/8
Second Quarter................................................... 9 1/8 6 3/4
Third Quarter.................................................... 8 3/4 6 1/2
Fourth Quarter................................................... 6 5/8 2 5/8
Fiscal Year Ended May 31, 1996
First Quarter.................................................... 3 5/8 2 5/8
Second Quarter................................................... 3 3/8 1 1/2
Third Quarter.................................................... 3 5/8 1 1/2
Fourth Quarter................................................... 3 5/16 2 5/8
Fiscal Year Ending May 31, 1997
First Quarter (through June 14, 1996)............................ 3 3/8 2 7/8
</TABLE>
On February 2, 1996, the last full trading day prior to the public
announcement of the Exchange, the last sales price of Summagraphics Common
Stock as reported on the NASDAQ National Market System was $2 7/8. On June 14,
1996, the most recent date for which it was practicable to obtain market price
information prior to the printing of this Proxy and Information Statement,
such sale price was $3 3/8. It is anticipated that the Common Stock will
continue to trade on the NASDAQ National Market System after consummation of
the Exchange, under the new symbol "CLCP." On May 16, 1996, Summagraphics
received an inquiry from the NASDAQ Stock Market as to whether Summagraphics
continued to meet the listing requirements for the National Market System.
Pursuant to correspondence and subsequent telephone conversations, the NASDAQ
Stock Market has agreed to delay their determination until consummation of the
Exchange, and has indicated that New CalComp will have to meet the initial
listing requirements for New CalComp Common Stock to continue to trade on the
NASDAQ National Market System. Two of the requirements for initial listing on
the National Market System is that a total market capitalization of common
stock held by non-affiliates is equal to or exceeds $15,000,000 and that the
bid price of the listed security is equal to or exceeds $3.00. Since no public
market exists for the stock of CalComp and no public market will exist for New
CalComp Common Stock until such time as the Exchange is consummated, a
determination as to whether the initial listing requirements will be satisfied
cannot be made. Lockheed Martin has indicated that it intends to use
reasonable efforts to cause the Common Stock to continue to be listed on the
NASDAQ National Market System after the Exchange. In the event that the Common
Stock does not continue to be listed on the NASDAQ National Market System, the
trading volume of the Common Stock may decrease and an active trading market
may not develop or be sustained following the Exchange. In the event that the
Common Stock does not continue to be listed on the NASDAQ National Market
System after the Exchange, Lockheed Martin has indicated that it intends to
use reasonable efforts to cause the Common Stock to be listed on the NASDAQ
SmallCap Market.
The quotations set out above represent prices between dealers and do not
include retail mark-up, mark- down or commission. They do not represent actual
transactions. These quotations have been supplied by the National Association
of Securities Dealers, Inc.
As of the Record Date, there were 349 record holders of Summagraphics Common
Stock (which shares are believed to be beneficially owned by approximately
2,000 persons).
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DIVIDEND POLICY
Summagraphics has never paid any dividends with respect to its Common Stock.
Following the Exchange, any future payment of dividends will be at the
discretion of the Board of Directors and will depend on the financial
condition and capital requirements of New CalComp, as well as other factors
that the Board of Directors deem relevant. It is currently anticipated that
following the Exchange, New CalComp will retain future earnings, if any, to
finance the operation and growth of New CalComp's business. After the
Exchange, and for as long as Lockheed Martin owns 50 percent or more of the
Common Stock, Lockheed Martin will be able to elect the entire Board of
Directors of New CalComp, and therefore, will be able to control all decisions
with respect to New CalComp's dividend policy.
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BUSINESS OF SUMMAGRAPHICS
GENERAL
Summagraphics is engaged in the manufacture and sale of digitizing tablets,
large format plotters, thermal transfer printers, and graphic cutters.
A digitizer is a computer graphics input device, functionally similar to a
keyboard or mouse, consisting of an electronic stylus or cursor and a tablet
containing a grid of sensors which translate engineering drawings, maps and
other graphic information into digital form for entry into a computer.
A pen plotter is a computer graphics output device, functionally similar to
a printer, but used to automatically draw lines, symbols, diagrams and other
graphics output.
An ink jet plotter is a computer graphics output device, functionally
similar to a printer and pen plotter, but it uses ink jet technology rather
than ink pen technology to automatically draw lines, symbols, diagrams and
other graphics output.
A thermal transfer printer, capable of interfacing with PostScript(TM) and
other industry standard software, uses Summagraphics' patented techniques to
produce brilliantly colored, high quality images up to 24" x 40" for sign-
making applications.
A cutter performs a function similar to a plotter, but rather than drawing
an image onto a sheet of paper it accurately cuts on various media (such as
vinyl) along a programmed image employing the same technique as a plotter
except using a knife instead of a pen.
Summagraphics' products are used in applications with high-performance
computer graphics systems, including computer-aided design, manufacturing,
engineering, publishing and graphic arts.
Summagraphics added pen plotters and cutters to its pre-existing digitizer
product lines in May 1990 with the acquisition of the Houston Instrument
Division ("Houston Instrument") of Ametek, Inc. ("Ametek"). This acquisition
broadened Summagraphics' presence in the U.S. market, provided Summagraphics
with a manufacturing facility in Belgium and expanded Summagraphics' U.S.,
European and Far Eastern distribution networks. Approximately 56% of
Summagraphics' net sales for the fiscal year ended May 31, 1995 was
attributable to overseas markets.
Summagraphics' products are sold by its sales force primarily through
distributors and also to OEMs which incorporate Summagraphics' products into
their own computer products. Summagraphics' products may be integrated with
most personal computers, including IBM-compatible personal computers and Apple
personal computers, workstations from Sun Microsystems and Digital Equipment,
and publishing systems from Scitex, and are compatible with most industry
standard CAD and graphics software applications.
Summagraphics' strategy is: to pursue sales and market share growth for its
existing product lines, through product enhancements and new product
introductions; to devote resources to research and development of new
products; and, as and if appropriate opportunities arise, to acquire or
develop one or more complementary product lines or businesses serving the
computer graphics markets.
In March 1992, Summagraphics restructured its North American operation by
combining the management and administrative processes of its digitizer and
Houston Instrument into a single operating unit; and established an
administrative headquarters in Europe responsible for cutter manufacturing,
and sales, distribution and service of all Summagraphics' products for the
European market.
Further restructuring was initiated in May 1993, associated with the arrival
of a new President and Chief Executive Officer who joined Summagraphics in
April 1993. The restructuring included a reduction in work
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force, asset write-downs, consolidation of manufacturing operations in
Summagraphics' Austin, Texas facility, changes in some of Summagraphics'
senior executives, and a redeployment of assets to apply them more
effectively. Also, North America and Asia Pacific sales, manufacturing, and
engineering administration is now based in Austin, Texas.
During fiscal year 1995, Summagraphics changed its corporate headquarters
from Seymour, Connecticut to Austin, Texas, and in late fiscal year 1995
undertook additional organizational actions which included a reduction in
force and abandonment of the remaining portion of Summagraphics' Connecticut
lease.
DIGITIZERS
Market And Applications. Digitizers have accounted for approximately forty
percent (40%) of the sales of Summagraphics in each of its last three fiscal
years. Summagraphics' primary markets for digitizers are in computer-aided
design, engineering and manufacturing (CAD/CAE/CAM). Digitizers typically are
used with personal computers and workstations and support a broad range of
software applications which include high-end computer aided publishing,
construction management and costing, graphics design and animation, mapping
and geographic information systems (GIS) and geological/seismic analysis. They
also are used frequently with software systems such as AutoCAD. Newspaper
publishers, for example, use Summagraphics' digitizers as part of their
complete computer-aided publishing systems for publication layout. Engineers
and architects use Summagraphics' digitizers in estimating construction costs
rapidly and accurately from blueprints and site plans while in the field.
Animation and graphics design uses for Summagraphics' digitizers vary widely
and include use in cinema productions, colorization of black and white movies
and television weather and sport analysis. Digitizers offer significant
benefits of speed and efficiency to the user in CAD design over other input
methodologies such as computer mice and on-screen menus.
Uses for digitizers include desktop publishing, image processing and pen-
based computing. See "Product Development."
Technology. Digitizers are capable of determining the absolute location of a
stylus or cursor to within several thousandths of an inch on a grid of sensors
imbedded in a tablet. Depending upon the technology used, this is accomplished
by pulsing either the grid or the cursor with an electric current causing a
reciprocal electrical flow in the cursor or the grid. This reciprocal flow is
measured, converted into a set of digital X-Y coordinates and transmitted to a
host computer for processing.
Digitizers can offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, joystick and touchpanels in graphics
intensive applications due to their high level of precision, greater
functionality and increased productivity. Keyboards are primarily used for
inputting text and numerical information and are not well suited for graphics
applications. Mice are low accuracy, relative pointing devices commonly used
with icon-based operating systems and low-resolution graphics applications. By
contrast, digitizers are capable of inputting X-Y coordinate data to
communicate an absolute position. Absolute positioning allows accurate drawing
and selection of discrete points on the surface of the digitizing tablet. The
latter is critical to high accuracy tasks such as digitizing a map or an
existing CAD drawing.
Summagraphics' digitizer products are primarily based on electromagnetic
technology whereby a cursor or a grid generates an electromagnetic field which
is measured by built-in electronic instruments. These methods produce
digitizers capable of higher resolution than other commonly-used technologies
(magnetostrictive and resistive). Electromagnetic tablets offer the additional
advantage of being relatively unaffected by temperature, humidity, electrical
noise and conductive materials on the digitizing surface.
Products. Summagraphics offers three series of electromagnetic digitizers:
desktop, industry standard tablets (the SummaSketch Series); low-cost, large-
format tablets (the Summagrid(R) Series); and large-format, high accuracy
tablets (the Microgrid(R) Series). Digitizers are offered in standard
configurations for the distribution market and are customized to meet specific
OEM and foreign market specifications. All are supported by a broad
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range of accessory products including styli, cursors, pressure sensitive pens,
power supplies, cabling and software templates. Digitizers may be software or
hardware configured to meet various requirements.
The SummaSketch Series electromagnetic tablets, sold under the trade names
SummaSketch III and SummaSketch III Professional, comprises a majority of
Summagraphics' digitizer sales. These tablets are constructed using a single
printed circuit Board housing the X-Y grid and the control and interface
electronics. Applications include desktop CAD, CAM, CAE, graphic arts design
and general purpose computing.
The Summagrid (SG) Series electromagnetic tablets are constructed of a
single large printed circuit Board containing the X-Y grid and control
interface circuitry housed in a separate chassis common to all sizes. The
Summagrid Series offers customers a large format tablet with similar accuracy
and resolution to a desktop unit but at a significantly lower cost than the
Microgrid Series. Applications include cost estimation, facilities management
and low-end CAD or mapping. Both the Summagrid and the Microgrid Series of
digitizers are available in backlit versions for high-end medical and tracing
applications.
The Microgrid (MG) Series electromagnetic tablets are constructed of a
single large printed circuit board containing the X-Y grid. Control and
interface electronics are integrated into the tablet in a chassis common to
all sizes of tablets. Applications include high-end CAD, CAE, cartography and
civil and mechanical engineering, which require greater accuracy and line
resolution than desktop models offer. Each Microgrid tablet is tested on
Summagraphics' laser interferometer test bed to guarantee accuracy.
Summagraphics introduced a product enhancement in fiscal year 1993 which
enables the user to utilize at their discretion the cursor or stylus as either
a corded or battery powered cordless (convertible) version. Cordless cursors
are an added convenience to users of large tablets where the large tablet
surface otherwise necessitates a long cord. The cordless technology used on
Summagrid represents core technology for Summagraphics which can be applied to
new and existing digitizer products to offer unique customer benefits.
Additionally, Summagraphics introduced its Microgrid(R) Ultra Series large-
format tablet which is an upgrade of Summagraphics' Microgrid Series high-
accuracy tablets for applications requiring precise formatting devices such as
GIS mapping, electronic design and CAD.
In fiscal year 1995, Summagraphics introduced the Summa Expression, a high
performance desktop tablet designed for graphic arts applications such as
drawing, painting, illustration and animation. This tablet features a small 6"
x 8" active area footprint and allows drawing with high precision and
flexibility using 256 levels of pressure sensitivity and customizable menu
buttons. This tablet is the first of a planned series of high performance
small-format tablets dedicated to address the needs of the professional
graphics user. The SummaPad(TM) was also introduced in fiscal year 1995. This
tablet features a 4" x 5" active area and also provides pressure sensitivity.
PLOTTERS
Market And Applications. Summagraphics began to market plotters in May 1990
with the acquisition of Houston Instrument. In each of the last three fiscal
years, plotters have accounted for approximately thirty percent (30%) of
Summagraphics' sales. Summagraphics' primary markets for plotters are in
computer-aided design and engineering. Its pen plotter products are used
extensively by architects and mechanical, electrical electronic and civil
engineers to create complex drawings and specifications. Pen plotters are also
used with computerized mapping, geographical exploration and geographic
information systems, where precise high quality hard-copy output is required.
Summagraphics' plotters are also used extensively in many other application
areas, including medical, scientific, business and educational presentation
graphics. Pen plotters remain the most cost effective means to create high
quality wide format, permanent line drawings.
Summagraphics introduced in fiscal year 1994, a large-format, color thermal
wax transfer printer--SummaChrome(TM)--for use in in-house design departments
of corporations and retail chains, advertising agencies, graphic design firms,
and sign, copy and photo shops servicing both businesses and consumers.
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Applications include the production of colored signs, presentation materials,
photo enlargements, design renderings, maps, and satellite images. In fiscal
year 1995, Summagraphics re-evaluated the resources required to sell this
product and decided to focus its energy on the segment of the graphics market
where they were already positioned for success--sign-making. Recognizing their
unique opportunity to offer the first large-format digital printing solution
that can print directly on vinyl without any additional process for UV or
water resistance, Summagraphics shifted its marketing focus to take advantage
of this technological advantage. Summagraphics already had the sign-making
channel in place to support its SummaSign Series of high performance
cutters/plotters. This shift in market focus is more cost effective to
execute.
In fiscal year 1995, Summagraphics introduced its SummaJet(TM) 2 Series of
ink jet plotters for the CAD market. The SummaJet 2 entry took advantage of a
void in the existing ink jet market for low cost color printing.
Technology. All types of plotters function by creating images on hard-copy
media such as paper or polyester film. Pen plotters may be distinguished from
other hard-copy output devices, because pen plotters create hard copy of
vector, or point-to point lines, while other plotters produce raster, which
constructs an image as a series of dots, a print band at a time.
Pen plotters function by receiving plot commands downloaded from a computer
and, by following these instructions, moving one of a selection of pens
relative to paper, film or other media, thereby generating a drawing. The
media is driven bi-directionally on one axis while the pen is driven on the
other axis.
Both functions are microprocessor controlled, highly responsive, closed-loop
servo systems that permit accurate and precise graphic creation.
Summagraphics has developed significant expertise in relevant software,
servo, paper handling and mechanical design technologies.
Summagraphics' line of feature-enhanced pen plotters called the HiPlot(R)
7000 Series in A-to D-size and A- to E- size plotters, improving speed of
throughput and plot quality.
Summagraphics introduced in fiscal year 1994 its SummaChrome(TM) Imaging
System, a color thermal transfer printer, which produces large-format color
output images up to 24" x 40" direct on vinyl. The product is intended for
sign-makers who produce large-format vinyl or screen print signs. Since it
prints directly on vinyl, it eliminates the need for transferring images and
enabling the user to make vivid, fine-lined large-format signs which are
durable in outdoor applications for up to three to five years.
Summagraphics introduced in fiscal year 1995 its SummaJet plotter which is
Summagraphics' entry into the color D- and E- size ink jet market. The product
is both raster and vector compatible and intended to address the CAD market
with features like replot, automatic pilot, printing, automatic scaling and
mirror functions.
Products. Summagraphics offers a series of large-format plotters and small
format plotters. Summagraphics' offering of large-format plotters include high
performance, high speed CAD pen plotters.
Summagraphics introduced the HiPlot 7000 Series of pen plotters in late
fiscal year 1993. The HiPlot Series offers users additional features of faster
plot completion, a primary application requirement and, in addition, improved
plotting quality and a new feature called HIQueue(TM), a plot management
package for networked multi-user environments. The ability to effectively
manage plot data in a networked multi-user environment is a strong requirement
among users.
SummaChrome, Summagraphics' color thermal transfer printer for the sign
market, produces color prints up to 24" x 40" of exceptional clarity and
brilliance. Its patented Ribbon Printing(TM) mechanism permits highly precise
registration and increased resolution to 400 dpi from thermal's traditional
desktop 300 dpi range.
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CUTTERS
Cutters are output devices, similar in construction to a pen plotter, but
employ a knife in place of a pen to cut vinyl for signs and banners, artfilm
for screen printing, and various stencil materials for etching text and images
into glass, wood and stone via an abrasive etching process. Cutter performance
is primarily measured by speed, acceleration, and guaranteed accuracy.
Additional features include knife type, tool pressure and software
compatibility. Speed is measured by how many inches the knife moves per
second. Acceleration is how quickly the knife reaches its top speed, this is
important since most signs consist of short lines. Guaranteed accuracy depends
on the drive mechanism, either friction or sprocket, in the cutter. There are
currently two types of knife systems used to cut material; drag and
tangential. Drag knife units typically cost less, have less knife pressure
capability, and are used for general sign applications. Tangential knife units
are typically more expensive, with more knife pressure, greater precision
cutting abilities and the ability to cut a wider variety of material.
Summagraphics markets a line of precision cutters designed to produce low-
cost, computer-generated letter and graphics for sign and display making
applications. During late fiscal year 1993, Summagraphics introduced two new
tangential cutters, the T1000 and the T600. In fiscal year 1994, Summagraphics
introduced three new drag knife cutters, the D610, D750 and the D1300. These
cutters primarily differ in the width of sign media they handle, the type of
knife used and the features they contain. In fiscal year 1995, Summagraphics
introduced the SummaSign cutter (the SummaSign 1010 Plus). This high
performance cutter combines an advanced media handling system, offers both
sprocket drive and friction drive and is therefore capable of handling plain
media as well as half-inch industry-standard punched media. Summagraphics also
introduced the low cost, small-format SummaCut Series of cutters designed for
small, independent sign shops who produce a limited quantity of vinyl signs.
AFTER MARKET SERVICE AND SUPPORT
Summagraphics' customer service group provides customer support for
Summagraphics' products via depot, on-site or on an exchange basis with
standard warranty protection programs which include Limited Lifetime Warranty,
48-Hour Priority Response(TM) in the first year after purchase, along with
additional warranty options for 24-Hour Priority Response(TM) and multiple
product leasing options. This group also sells a wide range of plotting media
and a variety of pens for use with its plotters. Summagraphics also offers a
library of CAD digitizer templates for use with AutoCAD. Summagraphics'
templates simplify the use of CAD programs and increase productivity by
permitting the user to bypass nested menus and access necessary commands
quickly.
PRODUCT DEVELOPMENT
During fiscal year 1993, 1994 and 1995 Summagraphics' research and
development expenses were $8,003,000, $5,631,000, and $6,761,000,
respectively.
During fiscal year 1993, Summagraphics acquired joint ownership of a broad
patent for incorporating a digitizer into a liquid crystal display (LCD)
without the use of a separate digitizer X-Y grid. This allows for a very cost
effective approach to "writing on the screen" pen computer systems.
Summagraphics has been investigating relationships with LCD manufacturers to
pursue this technology further, and recently entered into a license agreement
with Sharp Corporation to enable them to enhance their product line of
combined displays and input panels.
MARKETING AND CUSTOMERS
Summagraphics seeks to offer a broad line of application-compatible computer
peripheral products for graphics input and output and to develop strong brand
recognition. Summagraphics has developed a world-wide sales network including
OEMs, distributors and manufacturers' representatives and maintains sales
offices in the United States, Belgium, France and Germany.
Summagraphics also maintains a support and technical assistance program for
third-party software developers in emerging markets and has on occasion
entered into several joint marketing support arrangements
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with developers of selected applications. No single customer of Summagraphics
accounts for ten percent (10%) or more of Summagraphics' yearly sales.
Summagraphics' network of distributors consists of national, vertical and
regional distributors. National distributors in the United States, such as
Ingram Micro, Inc. and Merisel, and Computer 2000 in Europe, sell to retail
accounts and account for a large percentage of Summagraphics' sales. Vertical
distributors sell to retail accounts. They carry a line of Summagraphics'
products and specialize in integrating Summagraphics' standard products into
specialized systems for vertical markets. Regional distributors focus on an
area typically composed of five to seven states and specialize in applications
and accounts which require a greater amount of service and technical skill in
making the sale. Summagraphics attempts in most instances to have more than
one distributor in foreign countries. Summagraphics believes that by avoiding
reliance upon exclusive distributorship arrangements it broadens the market
for its products and fosters constructive competition among its distributors.
Summagraphics also sells its products directly to OEMs for incorporation
into systems manufactured by them and indirectly to smaller OEMs through a
network of manufacturer representatives. Many of these sales are customized
products which are incorporated into the OEMs design cycles.
Summagraphics' CAD Warehouse, Inc. subsidiary sells Summagraphics products
and products of other companies, advertises through trade publications and its
own catalog, and sells through orders. Lockheed Martin and CalComp have
advised Summagraphics that New CalComp does not currently intend to continue
operation of the CAD Warehouse business following Closing. The operations of
the CAD Warehouse business included in the Summagraphics historical financial
information consist of revenues of $14,553,000, costs applicable to revenue of
$12,997,000, and selling, general and administrative expense of $1,637,000.
The net effect of the disposition of the CAD Warehouse business to the
Unaudited Pro Forma Condensed Statement of Operations contained elsewhere in
this Proxy and Information Statement is a reduction in the operating loss
incurred. See "Note E to the Notes to the Unaudited Pro Forma Condensed
Financial Statements."
See Note 7 of the Notes to the Consolidated Financial Statements of
Summagraphics for information on Summagraphics' foreign and domestic sales.
Summagraphics maintains domestic sales/service offices in Seymour,
Connecticut; Austin, Texas; and Huntington Beach, California. Summagraphics
has foreign sales subsidiaries located in Brussels, Belgium; London, England;
Munich, Germany; and a foreign sales office located in Paris, France.
Summagraphics' marketing and sales organization consists of these groups:
product/management, distribution sales, marketing communications, and customer
service. Product management is responsible for market research, new product
planning and pricing strategies. The North America/Asia Pacific sales group,
headquartered in Austin, Texas, includes regional sales managers covering
domestic and foreign territories who are responsible for both direct and
indirect OEM account relationships, and distribution managers who work with
national, regional and vertical distributors. The European sales group is
headquartered in Brussels, Belgium and operates in a manner similar to its
North America/Asia Pacific counterpart. Each of the North America/Asia Pacific
and European sales and service groups has a marketing communications group
responsible for trade shows, advertising, product sales, literature and
customer relations, and a customer service support capability responsible for
customer service and assisting customers with technical issues.
MANUFACTURING OPERATIONS, QUALITY CONTROL AND WARRANTIES
Summagraphics has certain of its manufacturing performed outside the United
States to take advantage of lower manufacturing costs, while allowing
Summagraphics to maintain high standards of quality.
Summagraphics maintains a manufacturing facility in Gistel, Belgium for the
manufacture of cutters and distribution of all of its products sold in the
European market. In order to reduce manufacturing costs, Summagraphics
recently entered into agreements to outsource manufacturing of its SummaJet
ink jet product line and its large-format digitizer product line and has an
ongoing program of investigating the outsourcing of manufacturing of its
remaining products.
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Final assembly of products takes place either at the outsourcing
manufacturing locations or at Summagraphics' facilities in Austin, Texas and
Gistel, Belgium where there is also product warehousing. Summagraphics also
does product warehousing and distribution at its Seymour, Connecticut
location.
Summagraphics generally purchases devices, components and sub-assemblies
from more than one source both domestically and internationally where
alternative sources are available and economical; however, Summagraphics uses
sole suppliers for certain components. Summagraphics believes that it
maintains adequate inventories of sole source items and that alternative
components or sources for those items could be readily incorporated into
Summagraphics' products.
Summagraphics' present manufacturing capacity is adequate to meet its
anticipated production requirements for the foreseeable future. If required,
Summagraphics has the ability to increase purchases under its existing
manufacturing and second source agreements or to manufacture domestically
products currently manufactured offshore.
Summagraphics maintains quality control procedures for products manufactured
both domestically and offshore. These procedures include quality testing
during design, prototype and pilot stages of production, inspection of
incoming raw materials, inspection of sub-assemblies and testing of finished
product using automatic test equipment. Finished products undergo burn-in
testing to provide for long-term, reliable operation.
Summagraphics warrants its products for periods ranging from ninety days to
the life of the product. Summagraphics makes available extended warranties,
spare parts and out-of-warranty repair service in the United States and
Europe. To date, warranty costs have been insignificant.
COMPETITION
The markets in which Summagraphics sells it products are highly competitive.
Summagraphics faces actual and potential competition from a number of
established manufacturers, both domestic and international, including
Summagraphics' largest competitors, CalComp and Hewlett-Packard Co., which
have significantly greater financial, technical, manufacturing and marketing
resources than Summagraphics; and Mutoh America Corporation, Wacom Company,
Ltd., Encad, Inc., and Oce. CalComp competes primarily with Summagraphics'
digitizer and plotter products; Mutoh competes primarily with Summagraphics'
cutter products; and Hewlett-Packard competes primarily with Summagraphics'
plotter products. Summagraphics' lower cost products face competition from
manufacturers of mice and tablets, including Logitech, Inc. Summagraphics
recently entered into an OEM agreement with Mutoh for the production and sale
of certain products of each of those companies by the other, to enhance
Summagraphics' product offerings.
Summagraphics believes that its competitive ability also depends on the
quality, pricing, performance and support of its products, manufacturing costs
and Summagraphics' technical capability and successful introduction of new
products and product enhancements. See "Product Development." Summagraphics
believes that it offers a number of important attributes, including its
product price and performance, market presence, technological expertise,
quality of its product line, relationships with certain OEMs and its well-
developed distribution channels. Inability to match product introductions or
enhancements or price/performance of competitors' products could adversely
affect Summagraphics' market share and profitability.
BACKLOG
Summagraphics manufactures on the basis of its forecast of near-term demand
and maintains inventories of finished products in anticipation of firm orders
from its customers. Summagraphics typically ships within thirty days of
receipt of orders. While certain OEMs and distributors place orders for
scheduled deliveries, most of Summagraphics' customers currently order
products on an as-needed basis. For this reason, and because customers may
cancel or reschedule orders with little or no penalty, or may place orders on
shipment hold, and because Summagraphics may decline to ship to customers for
credit reasons, Summagraphics believes that it has no backlog orders that are
firm, and, in any event, that the level of such orders is not indicative of
sales.
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EMPLOYEES
As of June 14, 1996, Summagraphics employed approximately 194 people, 113
domestically and 81 internationally. None of the employees are covered by a
collective bargaining agreement, although Summagraphics' employees in Belgium
are covered by government mandated benefits. Summagraphics believes that
relations with its employees are good.
PATENTS AND PROPRIETARY INFORMATION
Summagraphics attaches importance to its portfolio of patents, trademarks,
copyrights, trade secrets and know-how. In the course of research and
development, Summagraphics engineers at times devise inventions which
Summagraphics may elect to patent if it would provide a clear-cut market
advantage, inhibit competitors or generate a source of licensing revenues.
Summagraphics has approximately fifty patents and twenty patents pending in
the United States and in a number of foreign countries. Summagraphics also
relies on trade secrets, know-how, contracts, copyrights, trademarks and
patents to establish and protect its proprietary rights and to maintain the
confidentiality of trade secrets, proprietary information and creative
developments.
As part of Summagraphics' strategy for protecting its technology and market
position, it will announce certain inventions that it intends to use but does
not intend to patent in order to prevent competitors and others from obtaining
patent protection on such inventions. As a matter of cost control,
Summagraphics may allow certain patents that it judges to be obsolete to
lapse. Summagraphics believes that its proprietary information is protected to
the fullest extent practicable. There can be no assurance that the
confidentiality agreements upon which Summagraphics relies to protect its
trade secrets and know-how would be upheld by the courts. Moreover, patents
relating to particular products do not necessarily preclude competitors from
successfully marketing substitute products to compete with patented products.
Summagraphics believes that the loss of any particular patent, or group of
patents, will not have a material adverse effect on Summagraphics' financial
position and results of operations. Other companies may also obtain patents
covering configurations and processes relating to Summagraphics' products,
which would require Summagraphics to obtain licenses. There can be no
assurance that Summagraphics will be able to acquire such licenses, if
required, on commercially reasonable terms.
PROPERTIES
Summagraphics' executive offices are located in Austin, Texas in a leased
building having a total of 96,400 square feet of space. The lease will expire
in June 2010. In addition, Summagraphics leases a building in Seymour,
Connecticut (the lease will expire in November 1998), which is being vacated,
and owns a building in Gistel, Belgium, and those buildings have a total of
84,000 and 43,180 square feet of space, respectively. Summagraphics also
leases office space for selling operations in Huntington Beach, California and
Macedonia, Ohio, and in three foreign countries (Germany, France and Belgium).
Except for the Seymour, Austin and Gistel facilities, these locations function
primarily as sales, training and field service centers for their regions. See
Note 9 of Notes to Summagraphics' Consolidated Financial Statements for
information regarding Summagraphics' obligations under leases.
LEGAL PROCEEDINGS
Summagraphics is a party to several legal actions arising in the normal
course of business. Summagraphics believes that the disposition of these
matters will not have a material adverse affect on its financial position or
results of operations taken as a whole.
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BUSINESS OF CALCOMP
GENERAL
CalComp, which prior to the Exchange is a wholly owned subsidiary of
Lockheed Martin, is a supplier of both input and output computer graphics
peripheral products consisting of (i) large format LED, direct imaging, vector
and inkjet plotters, (ii) digitizers, (iii) large format scanners and (iv)
large format color printers. In general, CalComp's products are designed for
use in the CAD/CAM, printing and publishing, and graphic arts markets, both
domestically and internationally. CalComp maintains service product support
and technical assistance programs for its customers and sells software and
supplies and after-warranty service.
HISTORY
The businesses of CalComp derive from California Computer Products, Inc.
("CCP") which was incorporated in September 1958 to manufacture and market
computer graphics products for the U.S. Government's NIMBUS Weather Satellite
Program. In 1959, CCP introduced the world's first drum plotter, which
translated computer output into visual data such as drawings, charts and
graphics. CCP expanded its product offerings by introducing new plotters and
controllers through the 1960's and 1970's. CCP added its first electrostatic
plotter to its product line in 1979. During the 1980's and 1990's, CCP, and
subsequently CalComp, continued to expand its product line through adapting
various technologies to new products, including thermal transfer technology in
printers, laser technology in printers/plotters, LED technology in plotters,
bubble inkjet in plotters, and direct thermal technology in printers and
plotters. CCP added the digitizer product line in 1980 through the acquisition
of Talos Systems Inc.
In 1980, CCP was acquired by Sanders Associates, Inc., a defense electronics
company in Nashua, New Hampshire. At the end of 1983, CCP was merged with and
into Sanders Associates, Inc. and the business was conducted thereafter under
the name of CalComp Group, Sanders Associates, Inc. Sanders Associates was
acquired by Lockheed Corporation ("Lockheed") in 1986 at which time CalComp
Group became an operating unit of Lockheed's Information Systems Group.
CalComp Inc. was incorporated in 1987 under California law to acquire the
assets and liabilities of CalComp Group from Sanders Associates, Inc., at
which time it became a separate legal entity and a wholly owned indirect
subsidiary of Lockheed. In March 1995, the businesses of Lockheed and the
businesses of Martin Marietta Corporation were combined to form Lockheed
Martin Corporation. CalComp is now a subsidiary of Lockheed Martin in the
Commercial Systems Group of the Information & Technology Services Sector.
PRODUCTS
CalComp produces graphics peripheral products targeted at the CAD/CAM,
printing and publishing, and the Graphic Arts markets. CalComp products fall
into two primary product lines: (1) hardcopy output products, consisting of
inkjet plotters and printers, direct imaging plotters, dry film imaging
products, L.E.D. products, vector plotters, and thermal transfer printers; and
(2) input devices, consisting of digitizers and scanners. CalComp also sells
after-warranty service and supplies which support its product lines.
HARD-COPY OUTPUT DEVICES
CalComp produces and sells a wide variety of hard-copy output devices which
accounted for approximately 35% of CalComp's revenues in 1995. Output devices
consist of plotters and printers. Plotters are devices that translate computer
output data into hard-copy media, such as schematics, charts, maps, drawings,
pictures, and other images. The basic unit consists of a microprocessor, a
controller, and a marking mechanism. Pen plotters are distinguished from other
plotters by the fact that pen plotters create point-to-point lines while other
plotters utilize raster data to construct an image as a series of dots, one
print band at a time. Printers are units that place raster images on output
media, either paper or film, by placing small marks, or dots, on the media.
These output devices are often interchangeable, with the difference between
plotters and printers often being the firmware-based connectivity solutions.
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Inkjet Plotters and Printers. CalComp produces bubble-jet technology based
equipment consisting of both color and monochrome plotters for the wide format
market, sold under the names TechJet Color (R) and TechJet (R) Designer.
Direct Imaging Plotters. CalComp sells the DrawingMaster (R) monochrome
plotter which is particularly suitable for network environments or other
applications where medium to high volume plotting is required.
Dry Film Imaging Products. CalComp manufactures and sells a direct imaging
system for use in placing images on dry film or paper. The unit can be used to
produce film separations for many kinds of screen printing without the need
for any darkroom equipment. The units are compatible with several Raster Image
Processors as well as PostScript(TM) and other datastream output formats.
L.E.D. Plotters. CalComp sells a line of L.E.D. plotters. L.E.D. plotters
are designed for environments that require high volumes, such as networks,
reprographics and document management operations.
Vector Plotters. CalComp manufactures and sells the DesignMate line of pen
plotters. These products are compatible with a wide variety of interfaces
common in the CAD/CAM market.
Thermal Transfer Printers. CalComp produces and sells printers that produce
high-quality color output on paper or transparency media. These units are
based on a thermal transfer technology, utilizing a ribbon which transfers the
color to the media. These units are PostScript(TM) language compatible and are
used as printers for presentation graphics and other applications where high-
quality color images are required.
INPUT DEVICES
CalComp manufactures and sells digitizers and sells a family of scanners.
Digitizer sales accounted for approximately 13% and scanner sales
approximately 4% of CalComp's total revenues for 1995. A digitizer is an input
device which consists of a tablet and a pen or cursor. A digitizer translates
drawings, maps and other graphic information into digital format that can then
be entered into a computer. The device is designed to quickly determine and
follow the position of the pen or cursor when placed on top of the tablet, for
uses such as tracing, drawing, or other applications where precise control of
the absolute input position is important. The devices are also capable of
detecting relative position, similar to a mouse input device. A scanner is a
device that detects an image on an input media and translates the image into
raster data to a computer.
DrawingBoard(TM) III Digitizer Tablets. CalComp manufactures and sells a
family of high performance, low cost digitizer tablets which are designed for
CAD, mapping, and GIS applications, and can be used in drawing, tracing, and
presentation graphics applications. These digitizers come in a range of sizes
and accuracies. CalComp also produces a backlit version of this tablet.
Estimat Flexible Graphics Tablets. CalComp manufactures a lightweight,
flexible tablet which can be rolled up for transport or storage.
DrawingSlate(TM) II Digitizer Tablets. This family of small format
digitizers is thin and lightweight. It has a pressure sensitive, cordless pen
for variable line weight input. These tablets are particularly useful with
graphics software where variations in pen pressure may translate to line
width, color blend, opaqueness, or various other attributes.
Large Format Scanners. CalComp markets a family of large format scanners
capable of fast, high volume scanning. These units, which can scan documents
up to 36" wide, come in resolutions from 300 to 1000 dpi.
SERVICE AND SUPPORT
CalComp, through its North American Channels group and its international
subsidiaries, provides an extensive range of customer service and technical
support for CalComp's products. Technical support and
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customer service are provided through a twenty-four hour telephone response
network that provides customers with continuous access to trained technical
support personnel. In addition, CalComp provides product support and service
through repair, exchange or replacement of products sent to its Anaheim
headquarters. CalComp also maintains a staff of service technicians that are
available for on-site service calls.
RESEARCH AND DEVELOPMENT
During each of the years 1993, 1994 and 1995, CalComp expended funds for
research and development activities of $29.1 million, $21.5 million and $17.3
million, respectively. CalComp intends to continue to invest funds to develop
technologies that are expected to expand its product offerings. A significant
portion of research and development funds in the output device market involve
expanding inkjet technology and related platforms, with an emphasis on
improving CalComp's position in the area of core marking and printing
technology used in the CAD, Graphic Arts and Printing and Publishing markets.
Additionally, significant funds are expected to be utilized to develop
proprietary after-market output products such as inks and media. Research and
development funds in the digitizer market, where CalComp has proprietary core
technology, are expected to be devoted to improving product performance while
maintaining competitive pricing.
PATENTS AND PROPRIETARY INFORMATION
CalComp owns numerous patents and patent applications which are used in the
operation of CalComp's business and has developed a variety of proprietary
information that is necessary for its business. While such patents, patent
applications and other proprietary information is, in the aggregate, important
to the operation of CalComp's business, management of CalComp does not believe
that any individual patent, patent application or other intellectual property
right is of such significance to the business of CalComp that its loss or
termination would materially affect the business of CalComp.
SALES AND DISTRIBUTION
CalComp sells hardware, supplies and service through a variety of
distribution channels. In 1995, CalComp introduced its ChannelWorks two-tiered
distribution network. Through ChannelWorks, CalComp limited the number of its
domestic distributors to those with broader market penetration capabilities
and reduced the cost of distributing products. Under ChannelWorks, products
are generally sold through a limited number of distributors, with some
additional sales through original equipment manufacturers (OEMs) and systems
integrators. Supplies and certain specialized products are sold through
dealers.
Internationally, sales and distribution activities are determined by
CalComp's subsidiaries in an attempt to ensure that sales and distribution
efforts are appropriate for the markets in the particular country in which
that subsidiary operates. In countries where CalComp does not have a
subsidiary, sales are handled by either a local distributor or under a master
distributor relationship out of CalComp's headquarters in Anaheim, California.
COMPETITION AND RISKS
CalComp encounters extensive competition in all of its lines of business
with numerous other parties, depending on the particular product. CalComp's
business involves rapidly changing technologies and the markets in which its
products are sold are characterized by rapid movement to higher performance
and lower priced product offerings. CalComp competes not only with other
manufacturers of similar technologies but also with firms that make products
that may be substituted or exchanged for CalComp products. The parties with
whom CalComp competes are determined based on whether the product at issue is
in the hard-copy output market or input market as well as the specific
requirements of the relevant customer.
Hard-Copy Output Devices. The wide-format hard copy output market is
comprised of professional output products having media handling capability of
greater than 17" width. CalComp competes in the market with the following five
technologies: Pen Plotter, Inkjet, Direct Thermal, L.E.D. and Thermal
Transfer. The parties with
89
<PAGE>
whom CalComp competes in plotters sales varies depending on the nature of the
technology involved. CalComp competes with a wide variety of competitors in
both product performance and price in connection with sales of its hard-copy
output products. Traditional competitors in the hard-copy output device market
are: Hewlett Packard, Xerox, Encad, Summagraphics, JDL, Oce, JRL, and Mutoh.
Input Devices. There are many suppliers of input devices with which CalComp
competes. A myriad of other signal-sensing devices are all capable of direct
computer input and, to some extent, are interchangeable with other input
devices. Various features distinguish the competitive products in this market.
The input device selected by a customer will vary based upon intended
application, price and performance. Traditionally, customers using CAD
applications, mapping applications and GIS applications have perceived the
need for the high precision input offered by digitizers. Graphic Arts
applications have in the past favored mouse input devices. Customers in the
graphic arts market have recently begun broader use of digitizers, which use
is expected to continue to expand.
Major vendors in the worldwide digitizer market include CalComp, along with
Wacom, Summagraphics, Seiko and Hitachi. In addition, there are many smaller
companies such as ACECAD, Mutoh, GTCO and Graphtec. CalComp is also a provider
of large format scanners. CalComp is one of the largest providers of both
small and large format digitizers. Wacom is the largest worldwide provider of
small format tablets for the Graphic Arts market, while CalComp and
Summagraphics are large suppliers in the CAD market.
The large format monochrome scanner addresses the needs of users who have to
transfer hard copy drawings into a digital form. Applications for large format
scanning include Architectural Engineering and Construction (AEC), Document
Management, Mapping/GIS, and Facilities Management. Traditionally, converting
to a digital form has been accomplished by either totally re-creating the
original drawing, utilizing a Computer Aided Drafting package within the
computer, or digitizing the original drawing using a large format digitizer.
CalComp offers a full line of monochrome scanners called the ScanPlus III.
Also included with the hardware is software which allows the end user to view
and manipulate the items being scanned. Other major providers in this market
are Vidar, Ideal, Contex and Oce. Market position is usually dictated by
advertising, pricing and channel awareness rather than product
differentiators.
International Sales. Approximately 63% and 59% of CalComp's sales in 1995
and 1994, respectively, were made internationally. International sales involve
risks that are not necessarily applicable to domestic activities, such as
exposure to currency fluctuations, offset obligations and changes in foreign
economic and political environments. In addition, international transactions
often involve increased financial and legal risks arising from widely
different legal systems, customs and mores.
ORGANIZATION
CalComp is organized geographically for sales and service, and functionally
for product development, manufacturing, and support. CalComp's Product
Management Organization is responsible for defining product requirements and,
once accepted, has product managers who remain responsible for the product
through development, manufacturing and sales to provide continuity to
CalComp's market commitment. Product Development is charged with the design of
an economically manufacturable product which meets the specifications
originated by Product Management. The Manufacturing Organization performs all
of the manufacturing operations, including purchasing, receiving,
manufacturing/assembly, testing, packaging, storage and shipping. The Input
Technologies Division is located in Scottsdale, Arizona and performs all of
its own product management, product development and manufacturing.
North American Channels is responsible for the selection, management and
support of the North American channels of distribution for all of CalComp's
products in the United States, Canada and Mexico. In addition, North American
Channels manages the sales to the portions of the world outside of North
America, Asia/Pacific, and Europe where CalComp has no operating subsidiaries
or distributors through Budde International, Inc., a Master Distributor
located in Anaheim, California.
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CalComp's European operations are headquartered in Neuss, Germany. CalComp's
activities in the Asia/Pacific region are conducted through subsidiaries in
Australia, Hong Kong, and China. CalComp is a party to a Joint Venture in
Japan in which it has a 44% equity interest, Nippon Steel Corporation owns
51%, and Sumitomo Corporation owns 5%. The Joint Venture, NS CalComp Corp., is
the exclusive distributor for nearly all of CalComp's products in Japan.
EMPLOYEES
As of June 14, 1996, CalComp employed approximately 1,080 people worldwide,
of which 425 employees are involved in product development, manufacturing,
marketing and headquarters operations in Anaheim, California. Approximately
160 employees are employed in the sales and service of CalComp's products and
are located at various strategic sites throughout North America, with many
located in Anaheim, California. CalComp employs approximately 170 people in
support of its digitizer operations in Scottsdale, Arizona. In addition, there
are approximately 290 employees in Europe and 35 employees in Asian
operations, primarily involved with the importation, sales and service of
CalComp's products into their local geographic region. Employees located in
foreign subsidiaries are nearly always residents of the local country. CalComp
has fewer than 5 expatriates at any time.
PROPERTIES
CalComp's World Headquarters are located on a 27 1/2 acre, company-owned
parcel in Anaheim California. This facility consists of 10 buildings totaling
433,165 square feet. CalComp also owns its Input Technology Division facility
in Scottsdale, Arizona which is comprised of a 68,000 square foot building on
7 acres of land. CalComp leases space at several field locations in the United
States. These leased facilities are located in San Jose, California;
Schaumburg, Illinois; Livonia, Michigan; Greensboro, North Carolina; Florham
Park, New Jersey; Bensalem, Pennsylvania; Dallas, Texas; and Houston, Texas
and total approximately 16,433 square feet. CalComp's Canadian subsidiary
leases 22,192 square feet of space in Downsview, Toronto. CalComp leases
96,542 square feet of space in Europe, at locations in Vienna, Austria; Neuss,
Germany; Bologna, Spain; Milano, Italy; Twyford, Berkshire, England; Paris,
France; Madrid, Spain; Sollentuna, Sweden; and Amstelveen, Netherlands. Asian
operations occupy 11,851 square feet of space collectively in Sydney and
Melbourne, Australia; Quarry Bay, Hong Kong; and Peking, China.
SUBSIDIARIES
CalComp has an extensive network of foreign subsidiaries operated almost
exclusively by nationals. The foreign subsidiaries (with country and year of
establishment) are as follows:
CalComp B.V. (Netherlands, 1963);
CalComp G.m.b.H. (Germany, 1967);
CalComp Ltd. (England, 1968);
CalComp S.A. (France, 1969);
CalComp S.p.A. (Italy, 1973);
CalComp Canada, Inc. (Ontario, Canada, 1977);
CalComp Europe Ltd. (England, 1979);
N.V. CalComp S.A. (Belgium, 1979);
CalComp A.B. (Sweden, 1980);
CalComp Espana S.A. (Spain, 1982);
NS CalComp Corp. (Japan, 1983, later converted to a Joint Venture with
Nippon Steel Corporation and Sumitomo Corporation);
CalComp Asia Pacific Limited (Hong Kong, 1985);
CalComp A/S (Norway, 1989);
CalComp Ges.m.b.H. (Austria, 1990);
CalComp Australia Pty. Limited (Australia, 1990);
CalComp Europe B.V. (Netherlands, 1991); and
CalComp Graphic Peripherals (China) Limited (Hong Kong, 1991).
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LEGAL PROCEEDINGS
CalComp is party to several legal actions in the normal course of its
business. Management of CalComp does not believe that the disposition of these
matters will have a material affect of the business of CalComp.
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MANAGEMENT OF NEW CALCOMP AFTER THE EXCHANGE
DIRECTORS
As contemplated by the Exchange Agreement, immediately after the Exchange
each of the current directors of Summagraphics will resign and Lockheed
Martin, as the owner of a majority of the outstanding shares of Common Stock,
will adopt a resolution by written consent increasing the size of the Board of
Directors from six to seven members and electing seven directors. The
following table sets forth information as to the persons who are expected to
serve as directors of New CalComp following the Exchange:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
LOCKHEED MARTIN DESIGNEES:
Peter B. Teets........................... 54 Chairman of the Board of Directors
Gary R. Long............................. 64 Director
Gary P. Mann............................. 50 Director
Terry F. Powell.......................... 49 Director
Gerald W. Schaefer....................... 49 Director
INDEPENDENT DIRECTORS:
Neil A. Knox............................. 43 Director
Kenneth R. Ratcliffe..................... 49 Director
</TABLE>
Peter B. Teets, the Chairman of the Board of Directors, has served as
President and Chief Operating Officer, Information & Technology Services
Sector, Lockheed Martin Corporation, since March 1995. Mr. Teets also served
as President, Space Group, Martin Marietta Corporation, from 1993 to 1995.
From 1987 to 1993, Mr. Teets served as President, Astronautics Group, Martin
Marietta Corporation.
Gary R. Long was named President of CalComp in January 1994, after serving
as Senior Vice President of CalComp's Digitizer Products Division since 1988.
From 1980, he was Vice President and General Manager of that division, with
overall responsibility for product development, product sales management,
manufacturing operations, product assurance, finance and personnel functions.
Gary P. Mann has served as President, Commercial Systems Group, Information
& Technology Services Group, Lockheed Martin Corporation, since February 1996.
From March 1995 to January 1996, Mr. Mann served as Vice President, Business
Development, Information & Technology Services Sector, Lockheed Martin
Corporation. Mr. Mann has also served as Vice President and General Manager,
Martin Marietta Information Systems Company, from 1993 to March 1995. From
1991 to 1993, Mr. Mann served as President, Martin Marietta Technical
Services.
Terry F. Powell has served as Vice President, Human Resources, Information &
Technology Services Sector, Lockheed Martin Corporation, since March 1995. Mr.
Powell has also served as Vice President Human Resources, Lockheed
Aeronautical Systems Company, from 1987 to 1995.
Gerald W. Schaefer has served as Vice President, Finance, Information &
Technology Services Sector, Lockheed Martin Corporation, since March 1995. Mr.
Schaefer also served as Vice President, Finance, Space Group, Martin Marietta
Corporation from 1993 to 1995. From 1989 to 1993, Mr. Schaefer served as
Manager, Finance, Aerospace Operations Division, GE Aerospace.
Neil A. Knox has served as Vice President and General Manager of Sun
Microsystems, Internet Products Group, a business unit of Sun Microsystems
Computer Company since October 1995. Prior to that time, Mr. Knox served as
Vice President of Reseller Channels in Sun Microsystems United States field
operations.
Kenneth R. Ratcliffe has served as President and Chief Operating Officer, PC
Connection, Inc., from 1994 to 1995. Mr. Ratcliffe has also served as Vice
President, Finance and Operations, Apple Computer, from 1987 to 1993.
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Following the Exchange, New CalComp will have a Board of Directors
consisting of seven members. Mr. Long will be the President and Chief
Executive Officer of New CalComp. Messrs. Teets, Mann, Schaefer, and Powell
are officers or employees of Lockheed Martin Information & Technology Sector
and are members of management to whom Mr. Long reports as President of
CalComp. Under the terms of the Corporate Agreement, Lockheed Martin and New
CalComp will agree to use good faith efforts to cause at least two members of
New CalComp's Board to be directors not associated with Lockheed Martin or New
CalComp. Two members, Messrs. Knox and Ratcliffe are neither directors,
officers nor employees of Lockheed Martin nor officers or employees of New
CalComp. Subject to the terms of the Corporate Agreement, Lockheed Martin will
have the ability to change the size and composition of New CalComp's Board of
Directors and committees of the Board, although Lockheed Martin has advised
Summagraphics that it currently has no plans to do so.
The members of the Board of Directors elected following the Exchange would
serve for terms beginning at the time Lockheed Martin elects them by written
consent, which is expected to occur immediately following the Exchange, and
expiring upon the election of directors at the first annual meeting of
stockholders following the Exchange. It is currently contemplated that the
first annual meeting of stockholders following the Exchange would occur in
April 1997. None of the persons expected to be elected by Lockheed Martin to
serve as New CalComp's Board of Directors has served as a director of
Summagraphics prior to the date of this Proxy and Information Statement.
COMPENSATION OF DIRECTORS
Directors, other than employees or officers of New CalComp or Lockheed
Martin, initially will receive $10,000 annually for service on New CalComp's
Board of Directors, $1,000 per Board meeting attended and $500 per committee
meeting attended. Directors will be reimbursed for expenses incurred in
connection with attendance at New CalComp Board and committee meetings.
Directors who are officers or employees of New CalComp or Lockheed Martin will
not be compensated separately for service on the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The New CalComp Board of Directors will have an Audit Committee and a
Compensation Committee. The Audit Committee will review the results and scope
of the audit and other services provided by New CalComp's independent
auditors. The Compensation Committee will review the structure, performance
and compensation of New CalComp's management as well as annually nominate a
slate of officers. The Stock Option Committee will be a subcommittee of the
Compensation Committee and will administer stock option plans of New CalComp,
including the 1996 CalComp Technology, Inc. Stock Option Plan. The New CalComp
Board of Directors will appoint members to these committees immediately after
the Closing.
OFFICERS
As of the date of this Proxy and Information Statement, the persons who are
expected to serve as executive officers of New CalComp, including a chief
financial and accounting officer, have not been finally determined.
Immediately following the Exchange, certain of the then current officers of
Summagraphics will resign and the Board of Directors elected by Lockheed
Martin will appoint new officers. Set forth below are certain of the persons
who are expected to serve as officers of New CalComp following the Exchange:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Gary R. Long.............. 64 President and Chief Executive Officer
Winfried Rohloff.......... 43 Senior Vice President, World Wide Sales
Harold W. Simeroth........ 52 Senior Vice President, Digital Imaging Systems
James R. Bell............. 54 Senior Vice President, Input Technologies
Philip W. Loberg, Jr...... 38 Vice President and Controller
</TABLE>
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<PAGE>
Gary R. Long was named President of CalComp in January 1994, after serving
as Senior Vice President of CalComp's Digitizer Products Division since August
1988. From 1980, he was Vice President and General Manager of that division,
with overall responsibility for product development, product sales management,
manufacturing operations, product assurance, finance and personnel functions.
Winfried Rohloff was promoted to Vice President of CalComp Europe in August
1994. Prior to that appointment, Mr. Rohloff was director of CalComp's Central
Europe region. Mr. Rohloff has held a variety of sales and marketing positions
since joining CalComp in 1980.
Harold W. Simeroth joined CalComp as Vice President, Product Development in
November 1995. Before accepting that position, Mr. Simeroth was Vice President
of Engineering at Encad for the previous two years. Mr. Simeroth has been in
the computer industry since 1969 in a number of key engineering and management
positions.
James R. Bell has been Vice President of CalComp's Input Technologies
Division (formerly Digitizer Division) since the beginning of 1994. Mr. Bell
returned to CalComp after serving for nearly two years as Vice President of
Business Development for Lockheed Commercial Electronics Co. Mr. Bell first
joined CalComp in 1983 and was named Vice President of Operations of the
Display Products Division in 1988.
Philip W. Loberg, Jr. was appointed Vice President, Controller of CalComp in
March 1996 and Controller in February 1995. Mr. Loberg has held a variety of
finance and accounting positions since joining CalComp in 1988.
COMPENSATION OF CALCOMP EXECUTIVE OFFICERS
The following tables show annual and long-term compensation from CalComp and
Lockheed Martin for services in all capacities to CalComp of the Chief
Executive Officer and the next four most highly compensated executive officers
of CalComp for the year ended December 31, 1995 (the Summary Compensation
Table includes information for the years ended December 25, 1994 and December
26, 1993). As noted above, Messrs. Long, Rohloff and Bell are expected to
become executive officers of New CalComp after the Exchange. Mr. Baessler
retired from CalComp effective May 10, 1996. Mr. Baessler has been temporarily
retained as a consultant, primarily to conduct integration planning relating
to the Exchange. The information set forth in the tables captioned "Option
Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal
Year" and "Fiscal Year-End Option/SAR Values" relate to options to purchase
shares of Lockheed Martin common stock granted under plans sponsored by
Lockheed Martin. CalComp does not currently maintain any stock option plans;
nor are there any options to purchase CalComp capital stock by any named
executive officer. Accordingly, securities granted under these plans are
options exercisable for the common stock of Lockheed Martin. It is anticipated
that certain of the executive officers of CalComp named above may continue to
participate in the compensation and benefit plans described below. See
"Relationship with Lockheed Martin--Services Agreement." The information set
forth in this "Compensation of CalComp Executive Officers" relates to the
historical compensation of CalComp, is provided for informational purposes
only and is not intended to be indicative of the executive compensation
policies of New CalComp after the Exchange.
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<PAGE>
CALCOMP INC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ -----------------------------
AWARDS PAYOUTS
--------------------- -------
NUMBER OF
SECURITIES
NAME OTHER ANNUAL RESTRICTED UNDERLYING LTIP
AND PRINCIPAL COMPEN- STOCK OPTIONS/ PAYOUTS ALL OTHER
POSITION YEAR SALARY(1) BONUS SATION(2)(3) AWARDS SARS(4) ($) COMPENSATION(5)
------------- ---- --------- ------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary R. Long 1995 $265,208 $90,000 $ -- -- 7,000 $ -- $12,988
President 1994 248,408 21,000 69,283 -- -- -- 11,924
1993 161,600 28,000 -- -- -- 46,200 7,757
Ernest J. Baessler 1995 206,750 61,400 8,422 -- 3,500 -- 10,126
Exec. Vice 1994 191,250 75,700 44,533 -- 2,119 -- 9,180
President 1993 -- -- -- -- 2,119 -- 6,801
Finance/Admin.
Winfried Rohloff 1995 201,426 50,300 -- -- 3,500 -- --
Vice President 1994 192,986 63,685 -- -- -- -- --
Europe 1993 146,348 37,946 -- -- -- 10,300 --
James R. Bell 1995 164,519 48,800 36,048 -- 2,700 -- 8,497
Vice President/ 1994 151,799 38,100 166,685 -- -- -- 7,118
General Manager 1993 -- -- -- -- -- -- 5,808
James L. Volkmar 1995 142,704 50,000 53,862 -- 3,500 -- --
Vice President 1994 -- -- -- -- -- -- --
North American Channels 1993 -- -- -- -- -- -- --
</TABLE>
- --------
(1) The Corporation started biweekly payment of wages in 1995; therefore,
yearly salary differences reflect differences in compensation as well as
variations, if any, in the number of pay periods.
(2) During 1995, some executive officers of the Corporation received certain
personal benefits from the Corporation. The cost of the personal benefits
furnished to each named executive officer with the exceptions of Messrs.
Bell and Volkmar did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus of that executive officer as reported in the above
table. The amount reported for Mr. Bell for 1995 includes payments of
$16,500 for a country club membership and $10,904 for tax reimbursements,
health club dues and car telephone expenses. The amount reported for Mr.
Volkmar represents payments for relocation expenses. All payments of
perquisites and other personal benefits to the named executive officers,
including relocation expenses, were made in accordance with CalComp's
policies and procedures.
(3) The amount reported for Mr. Long in 1994 includes payments of $67,632 for
relocation expenses and $1,651 for financial services and airline
memberships. The amount reported for Mr. Baessler in 1994 included
payments of $43,232 for relocation expenses and $1,301 for financial
services and airline memberships. The amount reported for Mr. Bell in 1994
includes payments of $153,155 for relocation expenses and $13,530 for
financial services, health club dues, airline memberships and the use of a
company car. All payments of perquisites and other personal benefits to
the named executive officers, including relocation expenses, were made in
accordance with CalComp's policies and procedures.
(4) The referenced options were granted under the Lockheed Martin Corporation
Amended Omnibus Securities Award Plan in 1995 or under Lockheed
Corporation stock option plans in prior years. The options relate to
shares of common stock of Lockheed Martin. No SARs were granted to the
named executive officers.
(5) Amounts include Lockheed Martin's (for 1995) and Lockheed Corporation's
(for 1993 and 1994) matching contributions under the Lockheed Salaried
Employees Savings Plan Plus for Messrs. Long, Baessler and Bell of
$23,635, $19,879 and $19,992, respectively, and Lockheed Martin's (for
1995) and Lockheed Corporation's (for 1993 and 1994) contributions to the
Lockheed non-qualified supplemental plan for Messrs. Long, Baessler and
Bell of $9,034, $6,228 and $1,431, respectively.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
Shown below is information relating to grants of options to purchase shares
of Lockheed Martin Common Stock awarded pursuant to the Lockheed Martin
Corporation Omnibus Securities Award Plan ("Omnibus Plan")(2) to the executive
officers of CalComp named in the CalComp Inc. Summary Compensation Table for
the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
- ------------------------------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN 1995 PER SHARE DATE 5% 10%
---- ------------ ------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Long............ 7,000 0.31% $59.375 05/04/2005 $ 261,400 $ 662,400
Ernest J. Baessler...... 3,500 0.16% 59.375 05/04/2005 130,700 331,200
Winfried Rohloff........ 3,500 0.16% 59.375 05/04/2005 130,700 331,200
James R. Bell........... 2,400 0.11% 59.375 05/04/2005 89,617 227,108
James L. Volkmar........ 3,500 0.16% 59.375 05/04/2005 130,700 331,200
</TABLE>
- --------
(1) No SARs were granted to the named executive officers in the last fiscal
year.
(2) Awards were granted at the discretion of the Compensation Committee of
Lockheed Martin, a disinterested committee of the Board of Directors of
Lockheed Martin upon the recommendation of management. The Omnibus Plan
requires that awards under the Omnibus Plan be evidenced by an award
agreement setting forth the number and type of stock-based awards and the
terms and conditions applicable to the award as determined by the
Compensation Committee of Lockheed Martin. Under the 1995 Award
Agreements, options vest and become exercisable in two equal increments on
the first and second anniversary dates of the grant. Options awarded in
1995 expire 186 days following termination of employment except in
instances of death, disability, layoff or retirement. In the event of
death all outstanding options vest immediately and will expire at the end
of their remaining term or three years following death, whichever is
earlier. In instances of disability, all outstanding options vest
immediately and expire on the normal expiration date, ten years following
the date of grant. In instances of layoff the award agreement states that
the terms of all outstanding options will be unaffected by such layoff. In
instances of retirement which occurs on or after the first vesting date,
options remaining on the second vesting date will vest as though the
employee had remained employed through the second vesting date. In the
event of a change in control of Lockheed Martin, the options would vest to
the extent not already vested.
(3) The dollar amounts set forth in these columns are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission, and, therefore, are not intended to forecast possible future
appreciation, if any, of Lockheed Martin's common stock price.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Shown below is information relating to the exercise of options for the
purchase of shares of Lockheed Martin common stock and stock appreciation
rights (SARs) relating to Lockheed Martin common stock during the last
completed fiscal year and the fiscal year-end value of unexercised options for
Lockheed Martin common stock and SARs for the executive officers of CalComp
named in the CalComp Inc. Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISABLE VALUE OF UNEXERCISED
NUMBER OF OPTIONS/SARS AT FISCAL YEAR IN-THE-MONEY OPTIONS/SARS
SHARES END AT FISCAL YEAR END
ACQUIRED VALUE ------------------------------ -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Long............ -- -- -- 7,000/0 -- $137,340
Ernest J. Baessler...... 2,608 $70,273 6,438/0 3,500/0 $290,191 68,670
1,712 61,126
652 23,612
Winfried Rohloff........ -- -- -- 3,500/0 -- 68,670
James R. Bell........... -- -- 3,505/0 2,400/0 60,487 47,088
James L. Volkmar........ -- -- -- 3,500/0 -- 68,670
</TABLE>
PENSION PLAN
The executive officers of CalComp named in the CalComp Inc. Summary
Compensation Table set forth above, with the exception of Mr. Rohloff who does
not participate, participate in the Sanders Pension Plan (the "Pension Plan"),
which covers all of CalComp's executive officers and substantially all of the
salaried employees of CalComp on a contributory basis. Set forth below is a
pension table, which shows the estimated annual benefits payable upon
retirement for specified earnings and years of service under the Pension Plan.
The following information does not apply to Mr. Rohloff who is covered under a
pension plan sponsored by the German government.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
FINAL AVERAGE EARNINGS 15 20 25 30 40
---------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000........................... $ 21,912 $ 29,220 $ 35,064 $ 40,908 $ 52,752
150,000........................... 33,168 44,220 53,064 61,908 79,752
200,000(1)........................ 44,412 59,220 71,064 82,908 106,752
300,000(1)........................ 66,912 89,220 107,064 124,908 160,752
400,000(1)........................ 89,412 119,220 143,064 166,908 214,752
500,000(1)........................ 111,912 149,220 179,064 208,908 268,752
</TABLE>
- --------
(1) Benefits payable under the Pension Plan may be limited by Sections
401(a)(17) and 415 of the Internal Revenue Code. The maximum annual amount
payable under the Pension Plan as of December 31, 1995 in accordance with
Section 415(b) was $120,000, at age 65 for someone born before January 1,
1938.
Compensation covered by the Pension Plan generally includes, but is not
limited to, base salary, executive compensation awards and overtime. The
normal retirement age under the Pension Plan is 65, but unreduced early
retirement benefits are available at age 62 and reduced benefits are available
as early as age 55. The calculation of retirement benefits under the Pension
Plan is generally based upon an annual accrual rate, average compensation for
the highest five years of the ten years preceding retirement, and the number
of years of service. Maximum benefits payable under the Pension Plan are
subject to current limits on benefits under the Internal Revenue Code. The
executive officers named in the CalComp Inc. Summary Compensation Table
participate in the Sanders Supplemental Executive Retirement Plan, which
provides for the payment of benefits in excess of
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those limits. Amounts listed in the foregoing table are not subject to any
deduction for Social Security benefits or other offsets.
As of December 31, 1995, the estimated annual benefits payable upon
retirement at age 65 for the executive officers named in the compensation
table, based on continued employment at current compensation levels, are as
follows: Mr. Long $86,904; Mr. Baessler $65,340; Mr. Bell $61,740; and Mr.
Volkmar $44,016. The years of credited service upon assumed retirement at age
65 for Mr. Long, Mr. Baessler, Mr. Bell and Mr. Volkmar were 18.7, 17.1, 19.3,
13.1, respectively. Mr. Baessler is covered under both the Lockheed Martin
Corporation Pension Plan and the Sanders Pension Plan.
Messrs. Long, Baessler and Bell participate in the Lockheed Salaried
Employees Savings Plan Plus (the "Lockheed Savings Plan"). Under the Lockheed
Savings Plan, participants may save 2% to 12% of their base compensation on an
after-tax or pretax basis (the "Participant's Contribution"). Lockheed Martin
matches 60% of up to the first 8% of compensation contributed on behalf of the
employee (the "Matching Contribution").
Participants in the Lockheed Savings Plan may direct the investment of the
Participant's Contribution among four different investment options, of which
Lockheed Martin common stock is one option. Prior to January 1, 1996, a
participant could not invest more than 25% of the Participant's Contribution
in the common stock Fund. Effective January 1, 1996, that limitation was
removed. Lockheed Martin's Matching Contribution is invested in Lockheed
Martin common stock to the extent determined by the Board of Directors of
Lockheed Martin. During certain periods prior to July 1, 1995, 50% of the
Matching Contribution was invested in the Lockheed Martin Common Stock Fund
and the remaining 50% was invested in the same funds as the Participant's
Contribution. Commencing with Matching Contributions made after July 1, 1995,
100% of the Matching Contribution is invested in the Lockheed Martin Common
Stock Fund.
Effective March 27, 1989, the Lockheed Savings Plan was amended to create
the Lockheed (ESOP Feature) Trust (the "ESOP Trust") to fund a portion of the
Matching Contribution. On April 4, 1989, Lockheed Corporation (predecessor to
Lockheed Martin) sold to the ESOP Trust 10,613,458 shares of Lockheed
Corporation common stock for an aggregate purchase price of $500 million. The
ESOP Trust financed the purchase of the stock through a loan payable over
fifteen years. As the loan is repaid, shares of stock are released from a
suspense account for allocation to the accounts of participants. The common
stock portion of the Matching Contribution is fulfilled, in part, with the
stock allocated from the suspense account (approximately 1,200,000 shares of
Lockheed Martin common stock per year). The balance of the stock portion of
the Matching Contribution is fulfilled through purchases of common stock on
the open market or from participants who terminate employment by retirement or
otherwise.
Participant's accounts may be distributed upon termination of employment,
except that all or portions of the Matching Contribution are forfeited if the
participant terminates employment prior to having earned five years of service
except if the termination is on account of retirement, disability, death,
commencement of military service or layoff.
Because of the limitations on annual contributions to the Lockheed Savings
Plan contained in the Internal Revenue Code, certain employees are not allowed
to elect to contribute the maximum 12 percent of compensation otherwise
permitted by the Lockheed Savings Plan. A supplemental savings plan has been
established for Lockheed Savings Plan participants affected by these limits.
Additional matching contributions that become payable under a Termination
Benefits Agreement are also payable through this plan. The supplemental
savings plan provides for payment in a lump sum or up to 20 annual
installments upon termination of employment, subject to restrictions similar
to those contained in the Lockheed Savings Plan, of amounts deferred by the
employee in excess of the Internal Revenue Code's deferral limit, the
corresponding Matching Contribution (if applicable) and the income on both.
All amounts accumulated and unpaid under this supplemental plan must be paid
in a lump sum within fifteen calendar days following a change in control, as
defined in the plan document. For this purpose, the Exchange was not a change
in control.
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CalComp entered into an agreement with Gary Long on November 8, 1995 under
the provisions of the Sanders Supplemental Executive Retirement Plan ("SERP").
Pursuant to this agreement, Mr. Long will continue in the employ of CalComp
until January 31, 1997 at which time he will be eligible for certain SERP
benefits, including: (i) one year of salary continuation plus the average of
the three prior years' incentive compensation with all benefits and
perquisites to which he was entitled as President of CalComp continuing; (ii)
payment of a consulting fee equal to 35% of his base salary at retirement for
a one-year period following salary continuation; and (iii) a one-time
relocation benefit payable within one year of retirement. Additionally, at the
end of the salary continuation period, Mr. Long will be entitled to certain
retirement benefits, including CalComp retiree life insurance coverage of
$3,000, dental coverage and retiree medical plan benefits.
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CURRENT MANAGEMENT OF SUMMAGRAPHICS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of the current executive officers
and directors of Summagraphics and their respective ages and positions with
Summagraphics.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael S.
Bennett 43 President, Chief Executive Officer and Director
David G. Osowski 43 Senior Vice President, Controller and Treasurer
Dennis Jolly 45 Senior Vice President of Sales, Marketing and Service
Darius C. Power 49 Senior Vice President of Worldwide Manufacturing
Robert B. Sims 53 Senior Vice President, General Counsel and Secretary
Andrew Harris 40 Director
G. Glenn Henry 53 Director
Stephen J. Keane 67 Director
Dennis G. Sisco 49 Director
</TABLE>
Michael S. Bennett joined Summagraphics in April 1993 as President and Chief
Executive Officer and as a director. Previously he was Vice President, PC
Systems, of Dell Computer Corporation since December 1990, and before that
served as Vice President and General Manager of Dell Marketing Corporation.
Earlier, he was President and CEO of Printronix, Inc., before that served as
President and CEO of Interlan, Inc., and prior to that he was employed for
twelve years by Digital Equipment Corporation in various managerial positions
in manufacturing and sales in the United States and in Europe.
David G. Osowski joined Summagraphics in September 1986 as Corporate
Controller. In May 1990, he became Corporate Controller and Vice President of
Summagraphics' Digitizer Division and in May 1991, he was promoted to Senior
Vice President, Controller and Treasurer of Summagraphics. Prior to joining
Summagraphics, Mr. Osowski served as Assistant Controller at Boehringer
Ingelheim Pharmaceuticals, Inc. and before that was an audit supervisor at
Price Waterhouse.
Dennis Jolly joined Summagraphics in September, 1995 as a Senior Vice
President of Sales, Marketing, and Service handling the sales, marketing and
support organizations and responsibilities for non-Europe areas. Previously,
Mr. Jolly was with Dell Computer Corporation for seven years in various
capacities, most recently as Group Vice President, Indirect Channel, USA of
Dell Computer Corporation. Prior thereto, he was Director of Marketing for
Fourth Shift Corporation, a manufacturing software company, and before that
was employed by Apple Computer for five years in various capacities, lastly as
Regional Sales Manager.
Darius C. Power joined Summagraphics as Senior Vice President of Worldwide
Manufacturing in July, 1995. Prior to joining Summagraphics, Mr. Power was
Vice President of Manufacturing for Leading Edge Products, Inc. and prior
thereto, he was Managing Director of Manufacturing Operations for AST
Research, Inc.
Robert B. Sims joined Summagraphics as Vice President, General Counsel and
Secretary in June 1984. In May 1990, he was promoted to Senior Vice President,
General Counsel and Secretary. Mr. Sims has served in corporate counsel
capacities at Mathematical Applications Group, Inc., Lever Brothers Company,
Raymark Corporation and General Signal Corporation and has been associated
with the law firms of Whitham and Ransom and Cahill Gordon & Reindel. Mr. Sims
is director of Raytech Corporation.
Andrew Harris has served as a director of Summagraphics since January 1995.
Mr. Harris is the director of TechDirect International Ltd., a position he had
held since January 1994. Prior to that time Mr. Harris served as President of
Dell International from 1987 to 1994.
G. Glenn Henry has served as a director of Summagraphics since August 1993.
Mr. Henry has served as PC Director of MIPS Technologies, Inc., Chief
Technical Officer of Dell Computer Corp. and Senior Vice President--Product
Group of Dell Computer Corp. since 1993, 1992 and 1989, respectively.
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Stephen J. Keane has served as a director of Summagraphics since July 1985.
Mr. Keane also serves as a director of Storage Technology Corp., a producer of
information storage and retrieval subsystems and network products, and
Maxserv, Inc., a supplier of telephonic technical support services.
Dennis G. Sisco served as a director of Summagraphics since October 1983.
Mr. Sisco is a Senior Vice President of Dunn & Bradstreet Corp., a position he
has served since July 1993. Prior to that he served as President of D&B
Enterprises since December 1988.
In the event that Summagraphics stockholders do not approve each of the
proposals set forth in this Proxy and Information Statement, and therefore,
the Exchange is not consummated, the above listed directors shall remain
directors of Summagraphics until the next annual meeting of Summagraphics
stockholders or until their successors are elected and qualified.
BOARD OF DIRECTORS AND MEETINGS
The Board of Directors of Summagraphics held six regular and eight special
meetings during the fiscal year ended May 31, 1996. During fiscal year 1996,
no director attended fewer than seventy-five percent (75%) of the total number
of meetings of the Board of Directors.
The Board of Directors of Summagraphics has a standing Compensation
Committee and a standing Audit Committee. The Compensation Committee, which
consists of Messrs. Sisco and Keane, determines the compensation of
Summagraphics' executive officers and met two times in fiscal 1996. The Audit
Committee, which consists of Messrs. Harris, Henry and Sisco, oversees the
accounting and financial functions of Summagraphics, including matters
relating to the appointment and activities of Summagraphics' independent
auditors, and met once in fiscal 1996.
COMPENSATION OF DIRECTORS
Fees. Each director of Summagraphics who is not an officer or employee of
Summagraphics receives an annual fee of $10,000 for his services as a director
and $1,000 for each meeting the director attends and each committee meeting
attended on a day other than when the Board of Directors meets. An additional
fee of $3,000 per year is payable to committee chairmen.
Directors Stock Plan. The 1988 Non-Employee Director Stock Option Plan, as
amended (the "Directors Plan") was adopted by the Board of Directors on June
28, 1988 and approved by the stockholders of Summagraphics on September 27,
1988. The purpose of the Directors Plan is to promote the interests of
Summagraphics by providing an inducement to obtain and retain the services of
qualified persons who are neither employees nor officers of Summagraphics to
serve as members of the Board of Directors and to demonstrate Summagraphics'
appreciation for their service upon Summagraphics' Board of Directors.
The Directors Plan currently authorizes the grant of options to purchase an
aggregate of 75,000 shares of Common Stock. Adjustments in the number of
shares issuable will be made in the event of a recapitalization, stock split,
merger, consolidation, Exchange, combination, liquidation, stock dividend or
similar transaction.
Options are granted under the Directors Plan only to members of the Board of
Directors of Summagraphics who are not officers or employees of Summagraphics.
Each eligible member of Summagraphics' Board of Directors is automatically
granted on October 31 of each year, without further action by the Board, an
option to purchase 3,000 shares of Common Stock. Each person who is neither an
employee nor an officer of Summagraphics who is first appointed to the Board
of Directors by the Board of Directors is automatically granted, on the date
of such appointment without further action by the Board of Directors, an
option to purchase 3,000 shares of Common Stock.
The exercise price per share of options granted under the Directors Plan is
one hundred percent (100%) of the fair market value of the Common Stock on the
date the option is granted. Options granted under the Directors
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Plan expire five years from the date of grant. One-third of the shares covered
by the option become exercisable on each anniversary of the option grant
commencing with the first anniversary of the option grant.
Payment of the exercise price of an option granted under the Directors Plan
may be made in cash, shares of Common Stock or any combination thereof. In no
event, however, will the optionholder receive shares of Common Stock upon
exercise of his option with an aggregate fair market value in excess of the
difference between the fair market value of the Common Stock and the option
exercise price times the number of shares purchasable under the option.
An option granted under the Directors Plan is exercisable, during the
optionholder's lifetime, only by the optionholder, and is not transferable by
him except by will or by the laws of descent and distribution.
During Summagraphics fiscal year ended May 31, 1994, options to purchase an
aggregate of 15,000 shares of Common Stock were granted under the Directors
Plan to five eligible directors at an exercise price of $4.38 per share.
During fiscal year ended May 31, 1995, options to purchase an aggregate of
21,000 shares of Common Stock were granted under the Directors Plan to six
eligible directors, of which 18,000 shares were granted by an exercise price
of $8.63 per share, and 3,000 shares were granted at an exercise price of
$7.00 per share. During fiscal year ended May 31, 1996, options to purchase an
aggregate of 12,000 shares of Common Stock were granted under the Directors
Plan to four eligible directors at an exercise price of $2.50 per share.
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<PAGE>
SUMMAGRAPHICS EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during Summagraphics' fiscal year ended May 31, 1996 to Summagraphics'
Chief Executive Officer and each of Summagraphics' other most highly
compensated executive officers who earned in excess of $100,000, based on
salary and bonus earned during fiscal 1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
FISCAL LONG TERM
YEAR ENDED COMPENSATION AWARDS OTHER ANNUAL
NAME AND PRINCIPAL POSITION MAY 31, SALARY($) BONUS ($)(1) OPTIONS(#)(2) COMPENSATION($)
- --------------------------- ---------- --------- ------------ ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael S. Bennett....... 1996 253,000 -- 10,000 --
President and Chief 1995 250,000 -- 10,000 --
Executive Officer 1994 250,000 -- 31,250 --
David G. Osowski......... 1996 132,600 -- 10,000 --
Senior Vice President, 1995 120,000 -- 10,000 --
Controller and Treasurer 1994 120,000 6,600 28,500 --
Robert B. Sims........... 1996 132,600 -- 10,000 --
Senior Vice President, 1995 132,000 -- 10,000 --
General Counsel and
Secretary 1994 132,000 6,600 28,500 --
Dennis Jolly(3).......... 1996 76,000 13,332 15,000 --
Senior Vice President of
Sales, 1995 -- -- -- --
Marketing and Service 1994 -- -- -- --
Darius C. Power(4)....... 1996 131,600 -- 20,000 --
Senior Vice President 1995 -- -- -- --
of Worldwide
Manufacturing 1994 -- -- -- --
</TABLE>
- --------
(1) Includes bonus payments accrued and paid during indicated fiscal year and
includes bonus payments which had accrued during prior fiscal year but
were paid in indicated fiscal year, all under Summagraphics' management
bonus plan and as discretionary bonus authorized by Summagraphics' Board
of Directors.
(2) See also "Option Grant Table" for option grants.
(3) Mr. Jolly was not employed by Summagraphics during fiscal years 1994 or
1995.
(4) Mr. Power was not employed by Summagraphics during fiscal years 1994 or
1995.
OPTIONS GRANTED DURING 1996 FISCAL YEAR
The following table sets forth certain information related to options
granted to the Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
- ------------------------------------------------------------------- ----------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(2) YEAR 1996 ($/SHARE) DATE 5% 10%
---- ---------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Bennett...... 10,000 5% $2.75 09/27/05 $ 17,295 $ 43,828
David G. Osowski........ 10,000 5% 2.25 09/27/05 17,295 43,828
Robert B. Sims.......... 10,000 8% 2.75 06/28/04 17,295 43,828
Dennis Jolly............ 15,000 5% 2.75 09/27/05 25,942 65,742
Darius C. Power......... 15,000 8% 3.50 09/27/05 33,017 83,671
5,000 3% 2.75 06/27/05 8,647 21,914
</TABLE>
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<PAGE>
- --------
(1) The "Potential Realizable Value" portion of the table illustrates value
that might be realized upon exercise of the options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation of the Common Stock at the Exercise Price over the term of
the options. The exercise price of each option was at least equal to the
fair market value of the Common Stock on the date of grant.
(2) The options granted are non-qualified and are exercisable as set forth in
related option agreements.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth information concerning each exercise of
options during fiscal 1996 by each of the Named Executive Officers.
Summagraphics does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
SHARES YEAR-END; YEAR-END;
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE(#) UNEXERCISABLE(1)
---- ------------ ------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
Michael S. Bennett...... -0- -0- 114,583/111,667 $61,050/3,125
David G. Osowski........ -0- -0- 53,499/22,001 -0-/3,125
Robert B. Sims.......... -0- -0- 57,999/22,001 -0-/3,125
Dennis Jolly............ -0- -0- -0-/15,000 -0-/4,688
Darius C. Power......... -0- -0- -0-/20,000 -0-/1,563
</TABLE>
- --------
(1) The closing price for the Common Stock as reported on the NASDAQ National
Market System on May 31, 1996 was $3 1/16. Value is calculated on the
basis of the (a) difference between the option exercise price of "in the
money" options and $3 1/16 multiplied by (b) the number of shares of
Common Stock underlying the option.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
On April 16, 1993, Summagraphics and Michael S. Bennett entered into an
employment agreement with an initial term through April 15, 1996, which was
subsequently extended through April 15, 1997. Salary thereunder was payable at
a rate of $250,000 per annum through May 31, 1994. Salary adjustments for the
remainder of the term are determined by the Board of Directors. The agreement
also entitles Mr. Bennett to an annual bonus in an amount determined by the
Board of Directors. Mr. Bennett's employment agreement provides for his
participation in insurance, retirement and other employee benefit plans
offered generally by Summagraphics to its employees.
Mr. Bennett's employment agreement also provides for payment of his salary,
retirement benefits and specified insurance benefits for the remainder of the
term of the agreement and severance in the event that notice of termination is
given by Summagraphics for reasons other than cause, death or disability, or
is given by Mr. Bennett for "good reason" after a "change of control" of
Summagraphics. For purposes of the agreement, "change of control" is defined
to include transactions which would be required to be reported to stockholders
in a statement complying with the Securities Exchange Act of 1934, as amended
(the "Exchange Act") provided that by any such transaction a person becomes
the beneficial owner, directly or indirectly, of securities of Summagraphics
representing twenty-five percent (25%) or more of Summagraphics' outstanding
securities. "Good reason" is defined to include the assignment of Mr. Bennett
to duties inconsistent with his status as President and Chief Executive
Officer, a reduction in his salary and the failure to continue in effect his
participation in existing benefit plans.
Summagraphics has entered into severance agreements with David G. Osowski,
Robert B. Sims, Dennis Jolly and Darius C. Power. These agreements provide for
a lump-sum payment to each officer of an amount equal to the officer's highest
total compensation for any twelve month period prior to the termination of the
officer's employment by Summagraphics without cause or by the officer for good
reason subsequent to a
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<PAGE>
"change in control" of Summagraphics. A "change in control" of Summagraphics
is defined in the agreement to include transactions which would be required to
be reported to stockholders in a statement complying with the Exchange Act and
also (i) an acquisition by any person, directly or indirectly, of securities
of Summagraphics representing twenty percent (20%) or more of the voting power
of Summagraphics' outstanding securities, or (ii) the failure of the current
members of the Board of Directors to constitute a majority of the Board of
Directors unless the election or nomination of new directors was approved by
two-thirds of the directors then in office who are current members of the
Board of Directors.
In connection with the Exchange, a number of key management employees,
including each of Messrs. Bennett, Osowski, Sims, Jolly and Power, have
entered into arrangements approved by the Board of Directors of Summagraphics,
with the consent of Lockheed Martin, with respect to, among other things, the
above referenced change of control agreements, existing benefit plans and an
incentive bonus plan. For a description of these arrangements and the amount
of consideration to be received by such individuals in connection with the
Exchange, see "The Exchange Agreement--Interests of Certain Persons in the
Exchange."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Sisco and Keane served as members of the Compensation Committee
during the last fiscal year. There are no relationships of a nature required
to be disclosed.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires Summagraphics' directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of Summagraphics' equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of
Summagraphics. Executive officers, directors and greater than ten-percent
(10%) stockholders are required by regulation promulgated by the Securities
and Exchange Commission to furnish Summagraphics with copies of all Section
16(a) forms they file.
To Summagraphics' knowledge, based solely on review of the copies of such
reports furnished to Summagraphics during the last fiscal year, all Section
16(a) filing requirements applicable to its officers, directors and greater
than ten-percent (10%) beneficial owners were complied with.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Summagraphics,
consisting of two Directors, make this report on its compensation policies
applicable to the executive officers and the basis for the Chief Executive
Officer's compensation for the last complete fiscal year.
The compensation philosophy of the Compensation Committee is based upon the
premise that all salaried personnel should be paid a salary making it possible
for Summagraphics to attract and retain the services of highly qualified
individuals who should be eligible to receive additional compensation for
outstanding contributions to Summagraphics. Compensation consists of the
following two elements: a fixed base salary and a management incentive in
variable amounts in accordance with levels of eligibility and performance
criteria. The objectives under this philosophy are to maintain a compensation
opportunity which recognizes the compensation practices of other employees
with whom Summagraphics competes for executives, to provide for aggregate
compensation related to performance achievement, to maintain an effective
system of salary planning control, and to provide executives with the
opportunity to earn additional compensation on achievement of certain goals of
Summagraphics and its stockholders attributable to excellence in management.
To accomplish the compensation objectives, all salaried positions, including
the Chief Executive Officer, are graded to reflect levels of responsibility
inherent in the position and market value. The judgment takes into account the
following factors: organizational relationships, knowledge requirements,
impact potential on responsibility requiring direction. Among other specific
skills taken into account for the Chief Executive Officer
106
<PAGE>
and executive officers are management capability, financial acumen and human
resources ability. The Compensation Committee considers all such factors but
places no relative weight on any of the factors. Although the determination of
executive compensation is performed using documented criteria as referenced
below, the Compensation Committee retains full discretionary authority in
establishing executive compensation.
The base salary for executive officers is set in relation to the base salary
policy and bonus practice of others in the computer industry and also other
employers with whom Summagraphics competes for employees. The data sources for
determining the base salary practice of bonus paying employers are
compensation reports published by the American Management Association;
compensation reports published by the American Electronics Association;
compensation reports published by other associations (such as those to which
engineers and others of Summagraphics' managerial personnel belong) which
periodically report on compensation practices across the country;
miscellaneous industry surveys and surveys on specific geographic areas. The
data sources were selected as models for executives' salaries based upon the
similarities of industry, operations and products to Summagraphics and the
prestige of the sponsoring firms. Special surveys may be conducted if the
Compensation Committee deems it appropriate in its discretion and one was
performed by KPMG Peat Marwick LLP in 1990. The Compensation Committee has
endeavored to compare its compensation practices to other companies whose
operations, products and job responsibilities are closest and most fitting in
type to Summagraphics. The base salaries of executive officers of
Summagraphics, including the Chief Executive Officer, were considered by the
Compensation Committee to be reasonable in light of companies who are
considered appropriate bases for comparison with the compensation practices of
Summagraphics. To strengthen the executives' commitment to improve on the
financial performance of Summagraphics, the amount available for distribution
as variable compensation in any year is determined by Summagraphics' level of
achievement of its operating income as predetermined and set forth in its
business plan for each fiscal year. The formula necessitates that
Summagraphics achieve the stipulated level before variable compensation is
paid. In addition, certain employees were eligible for task bonuses, related
to their accomplishment of specific projects unrelated to Summagraphics'
overall performance designed to achieve a significant benefit for
Summagraphics.
In accordance with the philosophy recited above, the Board stipulated
operating income goals in each of the fiscal years 1994, 1995 and 1996 based
upon the Board approved business plan for each year. The stipulated goal was
not achieved, in 1996 and 1995 and in part in 1994, resulting in bonus to the
executive officers, as well as other employees, in amounts established in the
variable compensation plan to be paid for fiscal year 1994 but not for fiscal
years 1996 and 1995, except to certain individuals who met specific task
assignments unrelated to Summagraphics' overall performance but which were
designed to achieve a significant contribution for Summagraphics if the
elements of the task were achieved.
The basis for the Chief Executive's compensation reported for the last
completed fiscal year was in accordance with the salary and variable
compensation plans recited above.
Summagraphics' contributions under the defined contribution 401(k) plan to
the executive officers, including the Chief Executive Officer, are made to all
participants in the plan in accordance with operative provisions of said plan.
Such provisions, which apply to all participants, provide a matching Company
contribution and a supplemental Company contribution. Only the supplemental
Company contribution is discretionary under the plan and, if granted, is made
to all participants. During fiscal year 1994, Summagraphics' matching
contributions to the plan were superseded for economic reasons and have not
yet been reinstated.
The grant of stock options in fiscal year 1996 to the executive officers,
including the Chief Executive Officer, was made by the Board on the basis of a
1987 non-qualified plan approved by the stockholders, wherein the purpose as
indicated in the plan is to promote the interest of Summagraphics by
encouraging officers, directors and other key employees to invest in
Summagraphics' Common Stock, and to remain in the employ of Summagraphics,
thereby increasing their personal interest in its continued success and
progress. The criterion used to determine the number of options granted to the
executive officers and the Chief Executive Officer, as well as all other
participants, was a formula established by the Compensation Committee based
upon the responsibility level of the executive and the individual's impact on
profitability, in its discretion.
107
<PAGE>
CORPORATE PERFORMANCE GRAPH
The following Performance Graph compares Summagraphics' cumulative total
stockholder return on its common stock with certain indexes and peer groups
for a five-year period:
[GRAPH]
108
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lockheed Martin and New CalComp have advised Summagraphics that New CalComp
does not currently intend to continue the operation of Summagraphics' CAD
Warehouse business following the Closing of the Exchange, and the disposition
of CAD Warehouse by Summagraphics prior to Closing is part of the performance
criteria of the Incentive Plan. See "The Exchange Agreement--Interests of
Certain Persons in the Exchange," "Notes to the Unaudited Pro Forma Condensed
Financial Information" and "Business of Summagraphics."
On May 15, 1996, CalComp transferred its ownership interest in AGT Holdings,
Inc., the parent of Access Graphics, to Lockheed Martin. CalComp sells
computer graphics equipment to Access Graphics for resale. Sales to Access
Graphics amounted to $19.8 million, $7.3 million and $4.2 million for CalComp
in 1995, 1994 and 1993, respectively. It is expected that the customer
relationship with Access Graphics will continue after the Exchange.
Summagraphics sold approximately $1.6 million in products to Access Graphics
and, through its CAD Warehouse subsidiary, purchased $1.5 million in products
from Access Graphics during the period between December 1, 1994 and November
30, 1995. CalComp also purchases certain components from Lockheed Martin
Commercial Electronics, an affiliate of Lockheed Martin. Purchases amounted to
$10.5 million, $9.8 million and $10.7 million for 1995, 1994 and 1993,
respectively. This relationship is expected to continue after the consummation
of the Exchange. See "Note 4 of the Notes to Consolidated Financial Statements
of CalComp."
Lockheed Martin has in the past provided various services to CalComp through
informal arrangements for which Lockheed Martin has charged CalComp fees
determined by Lockheed Martin. See "Note 4 to the Notes to Consolidated
Financial Statements of CalComp Inc." for a description of the services
provided and the amounts charged to CalComp by Lockheed Martin during 1995,
1994 and 1993. Lockheed Martin will continue to provide certain services after
the Exchange pursuant to a number of Intercompany Agreements between Lockheed
Martin and New CalComp. For a description of the Intercompany Agreements and
New CalComp's relationship with Lockheed Martin after the Exchange, see
"Relationship with Lockheed Martin."
Certain officers and key employees of Summagraphics are parties to various
employment, severance and benefit arrangements under which they will or have
the potential to receive additional compensation as a consequence of the
Exchange. For a description of such arrangements and the consideration to be
received by certain executive officers of Summagraphics under such
arrangements, see "The Exchange Agreement--Interests of Certain Persons in the
Exchange."
109
<PAGE>
PRINCIPAL STOCKHOLDERS OF SUMMAGRAPHICS
The following table sets forth certain information regarding beneficial
ownership of Summagraphics Common Stock as of the Record Date, before and
after giving effect to the Exchange by (i) each stockholder known by
Summagraphics to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each current director and each named executive officer of
Summagraphics, and (iii) all current directors and executive officers of
Summagraphics as a group. Except as otherwise indicated, Summagraphics
believes that the beneficial owners of Summagraphics Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable. As of the Record Date, Summagraphics had 4,642,395 shares of
Common Stock outstanding.
<TABLE>
<CAPTION>
SUMMAGRAPHICS SUMMAGRAPHICS
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER
THE EXCHANGE THE EXCHANGE
----------------------------- ----------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF SHARES OF SHARES OF SHARES
- ------------------------------------ --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Bessemer Venture 306,562 6.6% 306,562 *
Funds(2)...............
1025 Old Country Road
Suite 205
Westbury, New York
11590
C.L. King & Associates.. 244,500 5.3% 244,500 *
9 Elk Street
Albany, New York 12207-
1102
Michael S. Bennett(3)... 126,168 2.7% 126,168 *
Andrew Harris........... -- -- -- --
G. Glenn Henry.......... 8,000 * 8,000 *
Stephen J. Keane........ 16,000 * 16,000 *
Dennis G. Sisco......... 9,000 * 9,000 *
David G. Osowski(4)..... 74,500 1.6% 74,500 *
Robert B. Sims(5)....... 71,999 1.6% 71,999 *
Dennis Jolly............ 20,000 * 20,000 *
Darius C. Power......... -- -- -- --
All directors and all
executive officers as
group(6)............... 356,667 7.7% 252,081 *
Lockheed Martin 1,250,000 21.3% 40,733,319 89.7%
Corporation(7)(8)......
6801 Rockledge Drive
Bethesda, Maryland
20817
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted, each person or group named in the table has
sole investment and voting power with respect to all shares of Common
Stock shown as beneficially owned by such person or group.
(2) Includes shares held by Bessemer Venture Partners I, L.P., shares held by
Bessemer Venture Partners II, L.P., shares held by G. Felda Hardymon and
shares held by affiliated parties. Mr. Hardymon was a director of
Summagraphics who retired.
(3) Includes 121,249 shares which Mr. Bennett has the right to acquire
pursuant to the exercise of stock options which are exercisable on the
Record Date or within (60) days thereafter.
(4) Includes 67,499 shares which Mr. Osowski has the right to acquire pursuant
to the exercise of stock options which are exercisable on the Record Date
or within sixty (60) days thereafter.
(5) Consist solely of options to purchase 71,999 shares which are exercisable
on the Record Date or within sixty (60) days thereafter.
110
<PAGE>
(6) Includes 291,747 shares which all directors and all executive officers as
a group have the right to acquire pursuant to the exercise of stock
options which are exercisable on the Record Date or within sixty (60) days
thereafter.
(7) Shares issuable upon the conversion of the Convertible Debenture issued to
Lockheed Martin by Summagraphics. The Convertible Debenture is only
convertible into Summagraphics Common Stock after the occurrence of an
event of default thereunder. See "Relationship with Lockheed Martin."
Lockheed Martin expressly disclaims beneficial ownership of these shares,
because no such event of default has occurred as of the date of this Proxy
and Information Statement. With respect to those shares owned by Lockheed
Martin prior to the Exchange, "percentage of shares" assumes conversion of
the Convertible Debenture at the rate of $2.00 per share.
(8) Pursuant to the Exchange Agreement, Summagraphics has agreed to issue to
Lockheed Martin a number of shares of its Common Stock which, following
the Exchange, will equal approximately 89.7% of the issued and outstanding
Common Stock, on a fully diluted basis, in exchange for all of the
outstanding capital stock of CalComp. The actual amount of shares of
Common Stock to be issued to Lockheed Martin may be adjusted in certain
limited circumstances. See "The Exchange Agreement." For purposes of the
Exchange, "fully diluted basis" means a basis whereby the aggregate number
of shares of Common Stock for such determination includes (i) all Common
Stock then issued and outstanding, (ii) all Common Stock that would be
issued and outstanding upon the exercise, conversion or exchange of all
outstanding warrants, options or other rights to subscribe for, purchase
or otherwise acquire any shares of Common Stock (or rights to acquire any
such warrants, options or other rights), regardless of whether such
warrants, options or other rights are then exercisable, convertible or
exchangeable, (iii) all Common Stock which would be outstanding upon the
exercise, conversion or exchange of all outstanding evidences of
indebtedness, shares of capital stock or other securities (or rights to
acquire any of the foregoing) which are or may be exercisable, convertible
or exchangeable into shares of Common Stock, regardless of whether such
evidences of indebtedness, shares of stock or other securities are then
exercisable, convertible or exchangeable, and (iv) the Exchange Shares
issuable upon such determination but excluding Common Stock issuable upon
conversion of the Convertible Debenture. For purposes of subsections (ii)
and (iii) above, the number of shares of Common Stock issuable pursuant to
options, warrants and rights of conversion that will be deemed to be
outstanding will be determined using the "Treasury Stock Method" of
accounting as defined in APB Opinion 15 based on an average of the closing
prices, as reported in The Wall Street Journal, for the five days
preceding the Closing Date. In addition, upon an Event of Default under
the Convertible Debenture, Lockheed Martin would have the right to convert
principal and interest into shares of Common Stock at a conversion price
of $2.00 per share, subject to certain adjustments upon a breach of the
Exchange Agreement by Lockheed Martin. Additional shares of Common Stock
may be issued to Lockheed Martin, pursuant to Amendment No. 1, if the sum
of the Backlog and Material Adverse Effect Variances (as defined in
Amendment No. 1) is less than zero. The number of additional shares of
stock issuable to Lockheed Martin pursuant to Amendment No. 1 shall be
determined by dividing the sum of Backlog and Material Adverse Effect
Variances, if negative, by the average closing prices, as reported in The
Wall Street Journal--NASDAQ National Market Issues, for the five days
preceding Closing. The number of Exchange Shares issuable to Lockheed
Martin may be reduced, pursuant to Amendment No. 2, if the CalComp
Material Adverse Effect Variance (as defined in Amendment No. 2) is
greater than zero. The reduction in the number of Exchange Shares pursuant
to Amendment No. 2 shall be determined by dividing the CalComp Material
Adverse Effect Variance, if any, by the average closing prices of Common
Stock, as reported in The Wall Street Journal--NASDAQ National Market
Issues, for the five days preceding Closing.
111
<PAGE>
DESCRIPTION OF SUMMAGRAPHICS/NEW CALCOMP CAPITAL STOCK
The authorized capital stock of Summagraphics consists of 25,000,000 shares,
of which 20,000,000 shares are Common Stock, par value $.01 per share, and
5,000,000 shares are Preferred Stock, par value $.01 per share. As of the
Record Date, there were 4,642,395 shares of Common Stock issued and
outstanding. No shares of Preferred Stock are currently outstanding. In the
event the Exchange is consummated, the number of authorized shares of Common
Stock will be increased to 60,000,000 and approximately 45.4 million shares of
Common Stock will be outstanding, of which Lockheed Martin will own
approximately 89.7%, subject to adjustment in certain circumstances. See "Risk
Factors--Relationship with Lockheed Martin; and--Future Sales of Large Amounts
of Common Stock by Lockheed Martin May Negatively Affect Prevailing Market
Prices."
EFFECT OF THE EXCHANGE ON THE HOLDERS OF COMMON STOCK
Each currently issued and outstanding share of Common Stock will remain
outstanding and unchanged after the Exchange. Current holders of Common Stock
will continue to hold shares of New CalComp Common Stock after the Exchange.
Current Summagraphics stockholders are not being asked to tender their share
certificates in connection with the Exchange.
COMMON STOCK
All outstanding shares of Common Stock are, and the Exchange Shares will be
when issued, duly authorized, validly issued, fully paid and nonassessable.
Subject to the rights of the holders of any outstanding shares of Preferred
Stock and any restrictions that may be imposed by any lender, holders of
Common Stock are entitled to receive such dividends, if any, as may be
declared by the Board of Directors out of legally available funds. It is
currently anticipated that following the Exchange, New CalComp will retain
future earnings, if any, to finance the operation and growth of New CalComp's
business. See "Risk Factors--No Dividends" and "Dividend Policy." In the event
of the liquidation, dissolution or winding up of New CalComp, holders of
Common Stock will be entitled to share equally and ratably, based on the
number of shares held, in the assets, if any, remaining after payment of all
of New CalComp's debts and liabilities and the liquidation preference of any
outstanding preferred stock.
Holders of Common Stock are entitled to one vote per share for each share
held of record on any matter submitted to the holders of Common Stock for a
vote. Because holders of Common Stock do not have cumulative voting rights,
the holders of a majority of the shares of Common Stock represented at a
meeting can elect all the directors. After the Exchange, Lockheed Martin will
be able to elect all of the members of the New CalComp Board of Directors and
exercise a controlling influence over the business and affairs of New CalComp,
including any determinations with respect to mergers or other business
combinations involving New CalComp, the acquisition or disposition of assets
by New CalComp, the incurrence of indebtedness by New CalComp, the issuance of
any additional Common Stock or other equity securities, and the payment of any
dividends with respect to the Common Stock. In addition, Lockheed Martin, by
virtue of its controlling ownership, will have the power to approve matters
submitted to a vote of New CalComp's stockholders (or by written consent in
lieu of a meeting) without the consent of New CalComp's other stockholders;
will have the power to prevent a change in control of New CalComp; and could
seek to cause New CalComp to pay dividends, enter into business or financial
transactions with Lockheed Martin, sell assets, or take other actions that
might be favorable to Lockheed Martin. See "Risk Factors--Relationship with
Lockheed Martin."
The shares of Common Stock are neither redeemable nor convertible, and the
holders thereof have no preemptive rights to subscribe for or purchase any
additional shares of capital stock.
PREFERRED STOCK
Summagraphics is authorized to issue shares of Preferred Stock in one or
more series, and to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including voting, redemption
and conversion rights. The Board of Directors also may designate dividend
rights and preferences in liquidation.
112
<PAGE>
It is not possible to state the actual effect of the authorization and
issuance of additional series of Preferred Stock upon the rights of holders of
Common Stock until the Board of Directors determines the specific terms,
rights and preferences of a series of Preferred Stock. Such effects, however,
might include, among other things, granting the holders of Preferred Stock
priority over the holders of Common Stock with respect to the payment of
dividends; diluting the voting power of the Common Stock; or granting the
holders of Preferred Stock preference with respect to liquidation rights. In
addition, under certain circumstances, the issuance of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the
securities or the removal of incumbent management. The provisions of the
Certificate of Incorporation relating to Preferred Stock are not being
modified in any material respect by the Restated Charter.
SECTION 203 OF THE DGCL
Summagraphics is currently subject to Section 203 of the DGCL ("Section
203"), which prohibits certain persons ("Interested Stockholders") from
engaging in a "business combination" with a Delaware corporation for three
years following the date such persons become Interested Stockholders.
Interested Stockholders generally include: (i) persons who are the beneficial
owners of 15% or more of the outstanding voting stock of the corporation; and
(ii) persons who are affiliates or associates of the corporation and who hold
15% or more of the corporation's outstanding voting stock at any time within
three years before the date on which such person's status as an Interested
Stockholder is determined. Subject to certain exceptions, a "business
combination" includes, among other things: (i) mergers or consolidations; (ii)
the sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets having an aggregate market value equal to 10% or more of either the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock
of the corporation; (iii) transactions that result in the issuance or transfer
by the corporation of any stock of the corporation to the Interested
Stockholder, except pursuant to a transaction that effects a pro rata
distribution to all stockholders of the corporation; (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the Interested Stockholder; or (v) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees pledges or other financial benefits provided by or
through the corporation.
Section 203 does not apply to a business combination if: (i) before a person
becomes an Interested Stockholder, the Board of Directors of the corporation
approves the transaction in which the Interested Stockholder became an
Interested Stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commences (other than certain excluded shares); or (iii) following
a transaction in which the person became an Interested Stockholder, the
business combination is (a) approved by the Board of Directors of the
corporation, and (b) authorized at a regular or special meeting of
stockholders (and not by written consent) by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
By virtue of the Board of Directors of Summagraphics approval of the
Exchange, Section 203 will not apply to any business combination involving
Lockheed Martin and Summagraphics. In addition, the Restated Charter provides
that Section 203 will not apply to New CalComp after the Exchange. See "The
Restated Charter."
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Restated Charter contains certain provisions that may have the effect of
deterring a future acquisition of New CalComp. Although such provisions do not
have substantial practical significance to investors while Lockheed Martin
controls New CalComp, such provisions could become significant if Lockheed
Martin reduces its ownership interest in New CalComp such that it no longer
controls New CalComp. See "The Restated Charter."
113
<PAGE>
APPLICABILITY OF CALIFORNIA CORPORATION LAW TO NEW CALCOMP AFTER THE EXCHANGE
Section 2115 of the General Corporation Law of the State of California (the
"CGCL") makes certain provisions of the CGCL applicable to corporations not
incorporated in California which have specified minimum contacts with the
State of California (a "quasi-California corporation"). Summagraphics is not
currently subject to Section 2115 and Summagraphics currently is (and after
the Exchange will continue to be) a Delaware corporation and will have a
charter and bylaws containing provisions at variance with the CGCL. While it
is not expected that New CalComp will become subject to Section 2115, the
extent of CalComp's contacts with the State of California presents the
possibility that New CalComp could in the future become subject to Section
2115. Because California law is generally regarded as being more stockholder
protective than Delaware law, if New CalComp became subject to Section 2115,
New CalComp stockholders may have certain additional stockholder rights to the
extent that Section 2115 is applicable. It is likely that Lockheed Martin and
New CalComp will seek to avoid becoming subject to Section 2115.
TRANSFER AGENT AND REGISTRAR
Bank of Boston is the transfer agent and registrar for the Common Stock.
INDEPENDENT AUDITORS
The consolidated balance sheets of Summagraphics as of May 31, 1994 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
May 31, 1995 included in this Proxy and Information Statement have been
included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants and upon the authority of said firm
as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the May 31, 1993 financial statements refers to a change in the
method of accounting for income taxes in 1993. Representatives of KPMG Peat
Marwick LLP are expected to be present at the Meeting, will have the
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
The consolidated financial statements of CalComp Inc. as of December 31,
1994 and December 25, 1995 and for each of the three years in the period ended
December 31, 1995 included in this Proxy and Information Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
In light of the Exchange, Summagraphics has not yet selected independent
auditors to serve as Summagraphics' independent auditors for the fiscal year
ended May 31, 1996. In the event the Exchange is consummated, however, it is
expected that the fiscal year will be changed to a calendar basis to coincide
with CalComp's current year end, and that Ernst & Young LLP will be selected
as the independent auditors to serve as New CalComp's independent auditors for
the year ending December 31, 1996.
AVAILABLE INFORMATION
Summagraphics is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and accordingly, files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Such reports, proxy statements and other
information filed with the SEC are available for inspection and copying at the
public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400 Chicago, Illinois 60661 and at Seven World Trade Center,
New York, New York 10048. Copies of such documents may also be obtained from
the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
114
<PAGE>
FORWARD LOOKING STATEMENTS
This Proxy and Information Statement contains statements which, to the
extent that they are not recitations of historical fact, constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward looking statements involve risks and uncertainties. The
forward looking statements in this document are intended to be made subject to
the safe harbor protections provided by Section 27A and 21E.
STOCKHOLDER PROPOSALS
In the event that holders of Summagraphics Common Stock approve the
Exchange, the Restated Charter and the Stock Option Plan and the Exchange is
consummated, New CalComp intends to change its fiscal year from May 31 to
December 31. In that event, it is expected that the 1997 Annual Meeting of
Stockholders will be held on April 15, 1997. In the event that the Exchange
occurs, stockholder proposals to be considered for inclusion in the proxy
statement of New CalComp must be received by New CalComp at its principal
office in Anaheim, California on or before November 5, 1996.
In the event that the Exchange does not occur, it is expected that the next
Annual Meeting of Stockholders of Summagraphics will be held in September,
1996. If the Exchange does not occur, in order for stockholder proposals for
the next Annual Meeting of Stockholders of Summagraphics to be eligible for
inclusion in the proxy statement of Summagraphics, they must be received by
Summagraphics at its principal office in Austin, Texas by July 31, 1996.
OTHER BUSINESS
Action may be taken on the business to be transacted at the Meeting on the
date provided in the Notice of the Special Meeting or any date or dates to
which an original or later adjournment of such meeting may be adjourned. As of
the date of this Proxy and Information Statement, Summagraphics management
does not know of any other matters to be presented at the Meeting. If,
however, other matters properly come before the Meeting, whether on the
original date provided in the Notice of Special Meeting or any dates to which
any original or later adjournment of such Meeting may be adjourned, it is
intended that the holders of the proxy will vote in accordance with their best
judgment.
By Order of the Board of Directors
Michael S. Bennett
President and Chief Executive
Officer
Austin, Texas
June 24, 1996
115
<PAGE>
SUMMAGRAPHICS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMAGRAPHICS CORPORATION
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at May 31, 1994 and 1995...................... F-3
Consolidated Statements of Operations for the fiscal years ended May 31,
1993, 1994 and 1995...................................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended
May 31, 1993, 1994 and 1995.............................................. F-5
Consolidated Statements of Cash Flows for the fiscal years ended May 31,
1993, 1994 and 1995...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Balance Sheets as of May 31, 1995 and February 29, 1996
(unaudited).............................................................. F-18
Consolidated Statements of Operations for the nine months ended February
28, 1995 and February 29, 1996 (unaudited)............................... F-19
Consolidated Statements of Cash Flows for the nine months ended February
28, 1995 and February 29, 1996 (unaudited)............................... F-20
Notes to Unaudited Consolidated Financial Statements...................... F-21
CALCOMP INC.
Report of Independent Auditors............................................ F-23
Consolidated Balance Sheets at December 25, 1994 and December 31, 1995.... F-24
Consolidated Statements of Operations for the years ended December 26,
1993, December 25, 1994 and December 31, 1995............................ F-25
Consolidated Statements of Shareholder's Accounts for the years ended
December 26, 1993, December 25, 1994 and December 31, 1995............... F-26
Consolidated Statements of Cash Flows for the years ended December 26,
1993, December 25, 1994 and December 31, 1995............................ F-27
Notes to Consolidated Financial Statements................................ F-28
Consolidated Balance Sheets at December 31, 1995 and March 31, 1996
(unaudited).............................................................. F-41
Consolidated Statements of Operations for the three months ended March 26,
1995 and March 31, 1996 (unaudited)...................................... F-42
Consolidated Statements of Cash Flows for the three months ended March 26,
1995 and March 31, 1996 (unaudited)...................................... F-43
Notes to Unaudited Consolidated Financial Statements...................... F-44
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Summagraphics Corporation:
We have audited the accompanying consolidated balance sheets of
Summagraphics Corporation and subsidiaries as of May 31, 1994 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Summagraphics Corporation and subsidiaries as of May 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended May 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 8 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
/s/ KPMG Peat Marwick LLP
----------------------------------
KPMG Peat Marwick LLP
Austin, Texas
June 27, 1995, except as to notes 5 and 9
which are as of September 20, 1995.
F-2
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 819,000 $ 560,000
Accounts receivable (less allowance for doubtful
accounts of $1,113,000 in 1994
and $954,000 in 1995)............................ 17,914,000 18,039,000
Inventories:
Materials......................................... 5,269,000 9,881,000
Work-in process................................... 1,043,000 2,504,000
Finished goods.................................... 5,224,000 6,998,000
------------ ------------
11,536,000 19,383,000
------------ ------------
Prepaid expenses and other current assets......... 1,117,000 1,136,000
Total current assets............................ 31,386,000 39,118,000
------------ ------------
FIXED ASSETS:
Land.............................................. 290,000 344,000
Building.......................................... 1,319,000 1,616,000
Machinery and equipment........................... 12,133,000 13,861,000
Furniture and fixtures............................ 1,228,000 1,241,000
Leasehold improvements............................ 1,009,000 1,044,000
Construction-in-progress.......................... 187,000 389,000
------------ ------------
16,166,000 18,495,000
Less: accumulated depreciation and amortization.... (9,725,000) (13,188,000)
------------ ------------
Net fixed assets................................ 6,441,000 5,307,000
Intangible and other assets, net of accumulated
amortization (note 3)............................. 9,509,000 9,176,000
------------ ------------
$ 47,336,000 $ 53,601,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 9,583,000 $ 12,500,000
Accrued liabilities (notes 2 and 4)............... 9,274,000 10,619,000
Notes payable (note 5)............................ -- 9,548,000
Current portion of long-term debt (note 5)........ 148,000 561,000
Current obligations under capital leases.......... 458,000 277,000
------------ ------------
Total current liabilities....................... 19,463,000 33,505,000
------------ ------------
Long-term liabilities, less current portion:
Long-term debt (note 5)........................... 947,000 1,579,000
Capital lease obligations......................... 535,000 282,000
Deferred gain on sale of building................. 510,000 476,000
Deferred tax liability (note 8)................... -- 498,000
Restructuring, lease abandonment and other
charges (note 2)................................. 1,804,000 2,857,000
------------ ------------
Total long-term liabilities..................... 3,796,000 5,692,000
------------ ------------
Commitments and contingencies (note 9)
Stockholders' equity (note 6):
Preferred stock, $.01 par value, authorized
5,000,000 shares................................. -- --
Common stock, $.01 par value, authorized
20,000,000 shares, issued 4,546,000 shares in
1994 and 4,645,000 shares in 1995................ 45,000 46,000
Additional paid-in capital........................ 38,639,000 39,111,000
Retained earnings (accumulated deficit)........... (13,830,000) (25,879,000)
Cumulative translation adjustment.................. (302,000) 1,601,000
------------ ------------
24,552,000 14,879,000
------------ ------------
Less: Treasury stock, at cost--49,000 shares in
1994 and 1995..................................... (465,000) (465,000)
Stockholder note receivable....................... (10,000) (10,000)
------------ ------------
Total stockholders' equity...................... 24,077,000 14,404,000
------------ ------------
$ 47,336,000 $ 53,601,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------------------
1993 1994 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net sales............................. $ 81,404,000 $77,755,000 $78,494,000
Cost of sales......................... 51,772,000 50,526,000 58,188,000
------------ ----------- -----------
Gross profit........................ 29,632,000 27,229,000 20,306,000
Selling, general and administrative... 29,892,000 18,934,000 21,940,000
Research and development.............. 8,003,000 5,631,000 6,761,000
Restructuring, lease abandonment and
other charges
(note 2)............................. 8,487,000 -- 2,228,000
------------ ----------- -----------
Operating income (loss)............. (16,750,000) 2,664,000 (10,623,000)
------------ ----------- -----------
Other income (expense):
Interest income..................... 124,000 105,000 21,000
Interest expense.................... (429,000) (421,000) (609,000)
Miscellaneous, net.................. 220,000 (206,000) (201,000)
------------ ----------- -----------
(85,000) (522,000) (789,000)
------------ ----------- -----------
Income (loss) before income taxes,
extraordinary gain and cumulative
effect of change in accounting
method............................. (16,835,000) 2,142,000 (11,412,000)
Provision for income taxes (note 8)... -- -- 187,000
------------ ----------- -----------
Income (loss) before extraordinary
gain and cumulative effect of
change in accounting method........ (16,835,000) 2,142,000 (11,599,000)
Extraordinary gain (note 5)........... -- 645,000 --
Cumulative effect of change in method
of accounting for income taxes....... 411,000 -- --
------------ ----------- -----------
Net income (loss)................... $(16,424,000) $ 2,787,000 (11,599,000)
============ =========== ===========
Net income (loss) per common share:
Income (loss) before extraordinary
gain and cumulative effect of change
in accounting method................. $ (3.89) $ 0.47 $ (2.56)
Extraordinary gain.................... -- 0.14 --
Cumulative effect of change in method
of accounting for income taxes....... 0.09 -- --
------------ ----------- -----------
Net income (loss) per common share.. $ (3.80) $ 0.61 $ (2.56)
============ =========== ===========
Weighted average shares used in
computing net income (loss) per
common share....................... 4,323,000 4,519,000 4,537,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK TREASURY
----------------- RETAINED STOCK
NUMBER ADDITIONAL EARNINGS CUMULATIVE AND
OF PAID-IN (ACCUMULATED TRANSLATION STOCKHOLDER STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT NOTE EQUITY
--------- ------- ---------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31,
1992................ 4,268,000 $43,000 37,921,000 1,213,000 154,000 (292,000) 39,039,000
Sale of common stock.... 146,000 1,000 58,000 -- -- -- 59,000
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 3,000 -- 18,000 -- -- -- 18,000
Imputed benefit from the
granting of options
below fair market
value.................. -- -- 75,000 -- -- -- 75,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 59,000 1,000 276,000 -- -- -- 277,000
Awards granted pursuant
to the 1987 stock
plan................... 5,000 -- 35,000 -- -- -- 35,000
Net loss................ -- -- -- (16,424,000) -- -- (16,424,000)
Sale of treasury stock
at $8.00 per share..... -- -- 14,000 -- -- 186,000 200,000
Purchase of treasury
stock at $7.69 per
share.................. -- -- -- -- -- (369,000) (369,000)
Unrealized translation
loss................... -- -- -- -- (147,000) -- (147,000)
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (450,000) -- -- (450,000)
--------- ------- ---------- ----------- --------- -------- -----------
Balance at May 31,
1993................ 4,481,000 45,000 38,397,000 (15,661,000) 7,000 (475,000) 22,313,000
--------- ------- ---------- ----------- --------- -------- -----------
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 11,000 -- 42,000 -- -- -- 42,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 47,000 -- 165,000 -- -- -- 165,000
Awards granted pursuant
to the 1987 stock
plan................... 7,000 -- 35,000 -- -- -- 35,000
Net income.............. -- -- -- 2,787,000 -- -- 2,787,000
Unrealized translation
loss................... -- -- -- -- (309,000) -- (309,000)
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (956,000) -- -- (956,000)
--------- ------- ---------- ----------- --------- -------- -----------
Balance at May 31,
1994................ 4,546,000 45,000 38,639,000 (13,830,000) (302,000) (475,000) 24,077,000
--------- ------- ---------- ----------- --------- -------- -----------
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 59,000 1,000 304,000 -- -- -- 305,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 37,000 -- 150,000 -- -- -- 150,000
Awards granted pursuant
to the 1987 stock
plan................... 3,000 -- 18,000 -- -- -- 18,000
Net loss................ -- -- -- (11,599,000) -- -- (11,599,000)
Unrealized translation
gain................... -- -- -- -- 1,903,000 -- 1,903,000
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (450,000) -- -- (450,000)
--------- ------- ---------- ----------- --------- -------- -----------
Balance at May 31,
1995................ 4,645,000 $46,000 39,111,000 (25,879,000) 1,601,000 (475,000) 14,404,000
========= ======= ========== =========== ========= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------
1993 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $(16,424,000) $ 2,787,000 $(11,599,000)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Gain on retirement of debt......... -- (645,000) --
Cumulative effect of change in
accounting method................. (411,000) -- --
Depreciation and amortization...... 5,536,000 3,580,000 3,629,000
Restructuring, lease abandonment
and other charges................. 8,487,000 -- 2,228,000
(Gain) loss on sale of fixed
assets............................ 253,000 (4,000) 14,000
Compensation in form of stock...... 110,000 35,000 18,000
Changes in assets and liabilities:
Accounts receivable.............. 2,360,000 34,000 864,000
Inventories...................... (1,111,000) 644,000 (6,985,000)
Prepaid and other current
assets.......................... 126,000 (8,000) 56,000
Accounts payable................. (1,424,000) 4,465,000 2,670,000
Accrued liabilities.............. (198,000) (4,828,000) 883,000
Other liabilities................ -- (321,000) 18,000
------------ ----------- ------------
Net cash (used in) provided by
operating activities.............. (2,696,000) 5,739,000 (8,204,000)
------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures............... (2,782,000) (1,528,000) (1,927,000)
Proceeds from sale of fixed
assets............................ 29,000 55,000 10,000
Intangible assets.................. (516,000) 38,000 644,000
------------ ----------- ------------
Net cash used in investment
activities........................ (3,269,000) (1,435,000) (1,273,000)
------------ ----------- ------------
Cash flows from financing activities:
Cash dividends paid to stockholders
of CAD Warehouse, Inc............. (450,000) (956,000) (450,000)
Proceeds from long-term
borrowings........................ 983,000 -- 855,000
Proceeds from short-term
borrowings........................ 2,805,000 -- 9,323,000
Proceeds from sales of common
stock............................. 354,000 208,000 455,000
Purchases of treasury stock........ (369,000) -- --
Repayment of short-term debt....... -- (2,805,000) --
Repayment of long-term debt and
capital lease obligations......... (2,864,000) (2,623,000) (466,000)
------------ ----------- ------------
Net cash (used in) provided by
financing activities.............. 459,000 (6,176,000) 9,717,000
------------ ----------- ------------
Effect of exchange rate changes on
cash................................ (322,000) 42,000 (499,000)
------------ ----------- ------------
Net change in cash................... (5,828,000) (1,830,000) (259,000)
Cash at beginning of year............ 8,477,000 2,649,000 819,000
------------ ----------- ------------
Cash at end of year.................. $ 2,649,000 $ 819,000 $ 560,000
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1993, 1994, AND 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company is primarily engaged in the manufacture and sale of digitizing
tablets (computer input devices), and plotters (computer output devices).
These products are used in applications with high performance computer
graphics systems such as computer-aided design (CAD). The Company engages in
the manufacture and sale of cutters. The Company also owns a mail-order
distributor of CAD related equipment and software. The consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. All significant intercompany balances and transactions
have been eliminated.
Cash Equivalents
For the purpose of cash flows, the Company considers all highly liquid
investments with maturities of three (3) months or less to be cash
equivalents. The Company had no cash equivalents at May 31, 1994 and 1995.
Inventories
Inventories are stated at the lower of cost or market. Cost is applied on a
first-in, first-out (FIFO) basis; market is determined on the basis of
estimated net realizable value. The Company reserves for inventory that is
determined to be obsolete or substantially in excess of forecasted demand.
Fixed Assets
Fixed assets acquired are stated at cost. Equipment and furniture under
capital leases are stated at the lower of the present value of future minimum
lease payments or fair value at the inception of the lease.
Building depreciation is provided on the straight-line method over a period
of fifteen (15) years, depreciation of furniture and fixtures and machinery
and equipment (including amortization of assets covered by capital leases) is
provided on the straight-line method, based on estimated useful lives ranging
from three (3) to ten (10) years. Amortization of leasehold improvements is
provided over the lesser of estimated useful life of the improvement or the
life of the lease. Maintenance and repairs are charged to operations as
incurred; significant betterments are capitalized.
Intangible Assets
Goodwill represents the amount by which the cost to purchase Houston
Instrument exceeded the fair market value of the related net assets. The
Company assesses the recoverability of its intangible assets by determining
whether the amortization of the intangible asset balance over its remaining
life can be recovered through projected future operating cash flows before
interest over the remaining amortization period. As a result of this ongoing
review, the Company reduced the original life of the goodwill from forty (40)
to twenty-five (25) years. The effect of the change in fiscal 1995, which was
recorded prospectively, is $53,000.
Other acquired identifiable intangible assets are amortized using the
straight-line method over lives not exceeding seven and one-half (7.5) years.
Warranty Reserve
The Company provides warranties on its products for various periods. The
Company reserves for future warranty costs based on historical failure rates
and repair costs.
F-7
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
Revenue Recognition
The Company recognizes revenue when product is shipped to customers. Under
contract, certain customers may return a small percentage of the prior
quarter's net purchases provided the product is in resale condition and a new
order of equal value is placed for delivery within thirty (30) days. The
Company carries reserves for these and other returns based on historical
trends.
Income Taxes
Effective June 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Prior to June 1, 1992, the Company recorded taxes under the provisions set
forth in Statement of Financial Accounting Standards No. 96.
Per Share Data
Net income (loss) per common and common equivalent share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
stock options and warrants, calculated by using the Treasury Stock method.
Foreign Exchange
Assets and liabilities of foreign subsidiaries generally are translated into
U.S. Dollars at exchange rates in effect at the end of the year whereas
revenues and expenses are translated using average exchange rates that
prevailed during the year. Gains and losses that result from this process are
shown as an adjustment in stockholders' equity.
Reclassifications
Certain reclassifications have been made to conform to prior years' data to
the current presentation.
Basis of Presentation
The consolidated financial statements of the Company have been prepared to
give retroactive effect to the merger with CAD Warehouse, Inc., an S--
Corporation, on November 10, 1994 in exchange for 510,000 shares of the
Company's common stock. The merger was accounted for using the pooling of
interest method.
NOTE 2: RESTRUCTURING, LEASE ABANDONMENT AND OTHER CHARGES
In the fourth quarter of 1993, the Company incurred an $8,487,000
restructuring charge in response to the difficult worldwide economic
conditions as well as to maximize cost efficiencies. The restructuring charge
was provided to cover costs of reductions in workforce, and the relocation of
the Company's Connecticut manufacturing operations to its Texas facility. The
charge included a provision of $248,000 for fixed assets write-downs due to
the consolidation, $2,606,000 of lease and leasehold improvement costs for the
unused portion of its Connecticut facility, $2,629,000 for severance and
related charges due to a fifteen percent (15%) reduction of workforce in June,
1993, and $1,636,000 for manufacturing consolidation costs consisting of
moving, relocation,
F-8
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
and severance. At May 31, 1995, $1,804,000 of this liability, related to the
Connecticut lease, remained. This remaining amount will be utilized over the
approximately four (4) years remaining on the lease.
In the fourth quarter of 1995, the Company decided to abandon its leased
facility in Connecticut, and accordingly recorded a liability of $2,228,000
related to the furtherance of the Company's consolidation of operations to
Austin, Texas. This abandoned lease liability relates to the remaining lease
and leasehold improvement costs associated with the Company's Connecticut
facility. This liability will be funded over the approximately four (4) years
remaining on the lease.
NOTE 3: INTANGIBLE AND OTHER ASSETS
Significant components of intangible and other assets at May 31, 1994 and
1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Goodwill........................................... $ 9,570,000 $ 9,912,000
Other acquired intangibles......................... 2,789,000 2,941,000
----------- -----------
12,359,000 12,853,000
Less accumulated amortization...................... 3,232,000 3,903,000
----------- -----------
9,127,000 8,950,000
Other assets....................................... 382,000 226,000
----------- -----------
$ 9,509,000 $ 9,176,000
=========== ===========
NOTE 4: ACCRUED LIABILITIES
Significant components of accrued liabilities at May 31, 1994 and 1995 are
as follows:
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Payroll and other compensation..................... $ 1,461,000 $ 1,223,000
Federal, state, foreign, and payroll withholding
taxes............................................. 774,000 444,000
Sales returns and allowances....................... 1,040,000 3,026,000
Restructuring and lease abandonment costs.......... 2,081,000 1,039,000
Other.............................................. 3,918,000 4,887,000
----------- -----------
$ 9,274,000 $10,619,000
=========== ===========
NOTE 5: INDEBTEDNESS AND LIQUIDITY
A. LONG-TERM DEBT
Long-term debt at May 31, 1994 and 1995 consists of the following:
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Convertible subordinated note (i).................. $ -- $ --
Other (ii)......................................... 1,095,000 2,140,000
----------- -----------
1,095,000 2,140,000
Less current portion............................... 148,000 561,000
----------- -----------
$ 947,000 $1,579,000
=========== ===========
</TABLE>
F-9
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
The aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 561,000
1997.............................................................. 490,000
1998.............................................................. 352,000
1999.............................................................. 105,000
2000 and thereafter............................................... 632,000
----------
$2,140,000
==========
</TABLE>
(i)Convertible Subordinated Note
In connection with the acquisition of Houston Instrument, the Company
issued to the seller an 8%, five-year, interest only, $5,000,000
convertible subordinated note due on May 1, 1995. The note was
convertible at anytime after May 1, 1991 into 333,333 shares of common
stock of the Company at $15.00 per share, subject to adjustment,
through the exercise of attached warrants. In July, 1992, the Company
exercised its option to prepay $2,500,000, thereby reducing the
remaining note balance to $2,500,000. In May, 1994, the Company
repurchased the note (with a remaining balance of $2,500,000) for
$1,800,000, resulting in an extraordinary gain of $645,000. In
connection with the note repayment, the Company canceled the existing
333,000 warrants and issued 300,000 new warrants to purchase shares of
the Company's common stock (150,000 of which expired on May 1, 1995 and
150,000 of which are exercisable at $9.00 a share, subject to
adjustment, and expire on May 1, 1997).
(ii)Other
Consists of local borrowings of a Belgian subsidiary, including a
$1,054,000 mortgage due in the year 2005, on the subsidiary's facility
in Gistel, Belgium. Interest rates on this debt range from 7.55% to 10%
per annum.
Also, in December 1994, the Company entered into a loan agreement (Loan
Agreement) that provides financing for capital expenditures through May
31, 1995, to a maximum amount of $2,500,000. The Company received
funding under this agreement in the amount of $1,153,000, through May
31, 1995, which is payable over a period of three (3) years at a rate
based on London InterBank Offered Rate (LIBOR). In May 1995, the
agreement was extended to August 31, 1995. Under the terms of the
agreement, the Company is subject to certain covenants and
restrictions. At May 31, 1995, the Company was in default with respect
to certain of the covenants. On September 18, 1995, the Company
executed an agreement which waives the existing events of default and
provides for amendments to the financial covenants acceptable to both
the lender and the Company.
B. REVOLVING CREDIT AGREEMENTS
On October 12, 1992, one of the Company's Belgian subsidiaries entered into
a $4,000,000 Credit Agreement. This agreement has no defined expiry date and
requires the bank to give six (6) months notice of termination, if no defaults
exist. Borrowings under this agreement may be in the form of various bank
instruments, in various currencies and at various rates, at the Company's
option, and are secured by essentially all of the subsidiary's assets except
real property. Under the terms of the agreement, the subsidiary is subject to
certain covenants and restrictions. As of May 31, 1995, the subsidiary was in
compliance with all covenants and restrictions. At May 31, 1995, $1,452,000
was available under this agreement.
In July, 1994, the Company entered into an $8,000,000 Credit Agreement (U.S.
Credit Agreement) with a new bank replacing the $6,000,000 facility in place
at May 31, 1994. Under the terms of the agreement, the
F-10
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
Company is subject to certain covenants and restrictions. Borrowings under
this agreement may be in the form of various bank instruments at rates based
on the bank's base rate and are secured by substantially all of the Company's
North American assets. At May 31, 1995, the Company was in default under the
terms of the Credit Agreement.
On September 18, 1995 the Company received a commitment to amend the
existing Credit Agreement to extend the maturity date to September 30, 1996,
waive the existing events of default, reduce the facility to $7,000,000, and
to adjust the facility pricing and covenants and restrictions. At May 31,
1995, there was no incremental availability under this agreement. In return
for the commitment, the Company has agreed to issue, at market value, warrants
to acquire shares of the Company's common stock and to apply a portion of
proceeds from certain cash inflows outside the ordinary course of business, if
any, to outstanding principal.
C. LIQUIDITY
The Company experienced a significant loss in 1995 as a result of its
decision to abandon its lease in Connecticut, the delayed introduction of a
significant new product, charges related to downsizing operations in North
America, write-offs of idle fixed assets and excess or obsolete inventories
and significant competitive pressures primarily related to its plotter product
lines. The Company has developed a plan to return to profitable levels during
fiscal 1996 which includes outsourcing certain of its manufacturing and
distribution requirements as well as reducing expenditures in all areas. The
waiver received on the U.S. Credit Agreement was based, in part, on
management's projections of future operations and cash flows. The ability of
the Company to achieve its projections is dependent upon various factors, some
of which may be outside the control of the Company. In addition, management is
considering various alternatives to raise additional funds including
additional debt or equity financing and/or sales of certain operating assets.
However, there can be no assurance that any such alternatives can be
successfully consummated.
NOTE 6: STOCKHOLDERS' EQUITY
A. COMMON STOCK RESERVED
The following shares of common stock are reserved for issuance at May 31,
1995:
<TABLE>
<S> <C>
Stock option plans:
Employee stock plan................................................... 1,213,000
Non-employee director stock option plan............................... 75,000
Performance unit plan................................................. 50,000
---------
1,338,000
Warrants.............................................................. 150,000
Employee stock purchase plan.......................................... 35,000
---------
1,523,000
=========
</TABLE>
B. STOCK OPTION PLANS
The Company's 1987 Stock Option Plan provides for the granting to directors,
consultants, officers, and other employees of options to purchase a total of
1,350,000 shares of common stock.
The Company's 1988 Non-Employee Director Stock Option Plan ("Directors'
Plan") for outside directors provides for the issuance of options for 75,000
shares of common stock exercisable for a period of ten (10) years
F-11
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
from date of the option grant. Under the Directors' Plan, each member of the
Board of Directors ("Board") who is neither an employee nor an officer of the
Company will be automatically granted on October 31 of each year an option to
purchase 3,000 shares of the Company's common stock.
In addition to these two plans, the Board may also grant qualified and non-
qualified options, stock purchase rights, and stock awards.
Any options, awards, etc., granted under these plans are required to be at
prices which are not less than the fair market value per share of common stock
on the date of grant. The options, awards, etc., shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in
such installments as the Board may specify. Each option shall expire on the
date specified by the Board, subject to earlier termination provisions, but
not more than, under 1987 Stock Plan, ten (10) years and one day and, under
the Directors' Plan, ten (10) years, from the date of grant.
A summary of changes in stock issuable under employee and non-employee
option plans follows:
<TABLE>
<CAPTION>
RANGE OF
SHARES EXERCISE PRICES
-------- ---------------
<S> <C> <C>
Outstanding at May 31, 1992........................... 501,000 $6.00--$13.25
Granted............................................. 285,000 3.75-- 9.00
Exercised........................................... (8,000) 4.00-- 9.00
Canceled............................................ (152,000) 7.00-- 12.00
-------- -------------
Outstanding at May 31, 1993........................... 626,000 3.75-- 13.25
-------- -------------
Granted............................................. 543,000 .01-- 7.13
Exercised........................................... (18,000) 3.50-- 7.13
Canceled............................................ (202,000) 3.13-- 11.50
-------- -------------
Outstanding at May 31, 1994........................... 949,000 .01-- 13.25
-------- -------------
Granted............................................. 182,000 3.13-- 8.63
Exercised........................................... (62,000) 3.13-- 8.00
Canceled............................................ (225,000) 3.13-- 13.25
-------- -------------
Outstanding at May 31, 1995........................... 844,000 $ .01--$ 9.00
======== =============
</TABLE>
At May 31, 1995, 424,000 options were exercisable at prices ranging from
$.01 to $9.00 a share.
C. EMPLOYEE STOCK PURCHASE PLAN
The 1988 Employee Stock Purchase Plan, which was approved by stockholders in
1989, provides that eligible employees may authorize payroll deductions
between 2% and 10% of their regular pay to purchase up to a maximum of 2,000
shares of the Company's common stock in a fiscal year. The purchase price of
the stock is the lesser of 85% of the average market price of the Company's
common stock on either the first or last business day of the Payment Period.
Payment Periods begin on June 1 and December 1 each year. The aggregate number
for shares which may be purchased under this plan is 250,000, of which 215,000
have been purchased to date.
D. PERFORMANCE UNIT PLAN
The 1989 Performance Unit Plan which was approved by stockholders in fiscal
1990, provides that officers and key employees of the Company may be granted
performance units by the Board or a committee comprised
F-12
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
of at least three (3) Board members (no such committee has been appointed).
Performance units, which are the equivalent of $100 each, may be granted
either in cash or shares of common stock or any combination thereof, to
participants upon the attainment of certain achievement objectives as
established by the Board. No performance units have been granted to date.
NOTE 7: FOREIGN AND DOMESTIC OPERATIONS, EXPORT SALES, AND MAJOR CUSTOMERS
Sales, operating income (loss), and identifiable assets of the Company by
geographical area are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------
1993 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States....................... $ 45,147,000 $42,175,000 $ 34,228,000
Europe.............................. 21,881,000 21,435,000 27,381,000
Other............................... 14,376,000 14,145,000 16,885,000
------------ ----------- ------------
$ 81,404,000 $77,755,000 $ 78,494,000
============ =========== ============
Operating Income (Loss):
United States....................... $(11,367,000) $ 1,426,000 $ (9,647,000)
Europe.............................. (4,255,000) 954,000 2,208,000
Other............................... (1,128,000) 284,000 (3,184,000)
------------ ----------- ------------
$(16,750,000) $ 2,664,000 $(10,623,000)
============ =========== ============
<CAPTION>
BALANCE AT MAY 31,
---------------------------------------
1993 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
Identifiable Assets:
United States....................... $ 38,237,000 $35,082,000 $ 34,898,000
Europe.............................. 20,066,000 18,751,000 21,987,000
Eliminations........................ (6,028,000) (6,497,000) (3,284,000)
------------ ----------- ------------
$ 52,275,000 $47,336,000 $ 53,601,000
============ =========== ============
</TABLE>
During 1993, 1994, and 1995, export sales were $14,376,000, $14,145,000, and
$16,885,000, respectively. No one customer accounted for greater than ten
percent (10%) of net sales in any of these years.
F-13
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
NOTE 8: INCOME TAXES
A $187,000 provision for income taxes was recorded in 1995 (none was
recorded in 1994 or 1993). The provision (benefit) for income taxes consists
of the following for 1993, 1994, and 1995:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1993
------------------------------
CURRENT DEFERRED TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Federal......................................... $(411,000) $789,000 $ 378,000
State........................................... -- (88,000) (88,000)
Foreign......................................... -- (290,000) (290,000)
--------- -------- ---------
Total......................................... $(411,000) $411,000 $ --
========= ======== =========
<CAPTION>
YEAR ENDED MAY 31, 1994
------------------------------
CURRENT DEFERRED TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Federal......................................... $ -- $ -- $ --
State........................................... -- -- --
Foreign......................................... -- -- --
--------- -------- ---------
Total......................................... $ -- $ -- $ --
========= ======== =========
<CAPTION>
YEAR ENDED MAY 31, 1995
------------------------------
CURRENT DEFERRED TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Federal......................................... $(400,000) $ -- $(400,000)
State........................................... -- -- --
Foreign......................................... 21,000 566,000 587,000
--------- -------- ---------
Total......................................... $(379,000) $566,000 $ 187,000
========= ======== =========
</TABLE>
Effective June 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
F-14
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
The components of the net deferred tax asset (liability) as of May 31, 1994
and 1995 were as follows:
<TABLE>
<CAPTION>
AS OF MAY 31, 1994
------------------------
U.S. FEDERAL
& STATE FOREIGN
------------ ----------
<S> <C> <C>
Deferred tax assets:
Other assets....................................... $ 328,000 $ --
Inventory reserves................................. 1,495,000 --
Restructuring accruals............................. 1,261,000 354,000
Other miscellaneous items.......................... 1,180,000 197,000
Tax credit carryforwards........................... 1,986,000 --
Net operating loss carryforwards................... 1,708,000 2,085,000
Valuation allowance................................ (7,440,000) (901,000)
------------ ----------
Total deferred tax asset......................... 518,000 1,735,000
------------ ----------
Deferred tax liabilities:
Property, plant, and equipment..................... 518,000 --
Tax deductible goodwill............................ -- 1,735,000
------------ ----------
Total deferred tax liability..................... 518,000 1,735,000
------------ ----------
Net deferred tax asset (liability)................... $ -- $ --
============ ==========
<CAPTION>
AS OF MAY 31, 1995
------------------------
U.S. FEDERAL
& STATE FOREIGN
------------ ----------
<S> <C> <C>
Deferred tax assets:
Other assets....................................... $ 944,000 $ 153,000
Inventory and warranty reserves.................... 1,792,000 --
Restructuring accruals............................. 2,283,000 51,000
Accounts receivable and return reserves............ 1,201,000 --
Tax credit carryforwards........................... 1,689,000 --
Net operating loss carryforwards................... 3,598,000 2,361,000
Valuation allowance................................ (10,518,000) (79,000)
------------ ----------
Total deferred tax asset......................... 989,000 2,486,000
------------ ----------
Deferred tax liabilities:
Property, plant, and equipment..................... 989,000 --
Tax deductible goodwill............................ -- 2,984,000
------------ ----------
Total deferred tax liability..................... 989,000 2,984,000
------------ ----------
Net deferred tax asset (liability)................... $ -- $ (498,000)
============ ==========
</TABLE>
The valuation allowance for deferred tax assets as of June 1, 1994 was
$8,341,000. The net change in the valuation allowance for the year ended May
31, 1995 was an increase of $2,256,000. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets as of May 31, 1995
will be allocated as follows:
<TABLE>
<S> <C>
Income tax benefit that would be reported in the consolidated
statement of operations...................................... $10,343,000
Goodwill...................................................... 254,000
-----------
$10,597,000
===========
</TABLE>
F-15
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
The provision for income taxes varies from the amounts computed by applying
the U.S. Federal Income Tax rate of thirty-four percent (34%) as follows:
<TABLE>
<CAPTION>
1993 1994 1995
AMOUNT % AMOUNT % AMOUNT %
----------- ----- --------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
expense (benefit)...... $(5,724,000) (34.0) $ 947,000 34.0 $(3,880,000) (34.0)
Increase (reduction)
resulting from:
Benefit of Subchapter S
Corporation status..... (169,000) (1.0) (333,000) (11.9) (156,000) (1.4)
Change in the beginning
of the year balance of
the valuation allowance
for deferred tax assets
allocated to income tax
expense................ 6,298,000 37.4 (690,000) (24.8) 2,256,000 19.8
Differing foreign tax
rates.................. (166,000) (1.0) 57,000 2.0 104,000 0.9
State taxes--net of
federal benefit........ (223,000) (1.3) -- -- -- --
Amortization of
goodwill............... 28,000 .2 26,000 .9 2,099,000 18.4
Other differences....... (44,000) (.3) (7,000) (.2) (236,000) (2.1)
----------- ----- --------- ----- ----------- -----
$ -- -- $ -- -- $ 187,000 1.6
=========== ===== ========= ===== =========== =====
</TABLE>
At May 31, 1995, the Company had available NOL carryforwards of
approximately $10,584,000 and $5,874,000 for U.S. and foreign tax reporting
purposes, respectively. The NOL carryforwards for tax reporting purposes
expire in varying amounts in the U.S. through the year 2009. The NOL's in
foreign jurisdictions carryforward indefinitely. Further, the Company has
general business credit carryforwards of approximately $669,000 which expire
through the year 2007, foreign tax credits of $514,000 which expire through
the year 2000, and alternative minimum tax carryforwards of $322,000 which
have no expiration dates.
U.S. and foreign income (loss) from operations before federal, state, and
foreign income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ---------- ------------
<S> <C> <C> <C>
U.S................................. $(13,759,000) $2,326,000 $(13,034,000)
Foreign............................. (3,076,000) 461,000 1,622,000
------------ ---------- ------------
$(16,835,000) $2,787,000 $(11,412,000)
============ ========== ============
</TABLE>
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
Federal income tax returns. There have been no material deficiencies asserted
by the IRS for the audit to date.
NOTE 9: COMMITMENTS AND CONTINGENCIES
A. LEASES
In May, 1992, the Company concluded a sale and leaseback of its Austin,
Texas facility. The Company recorded a $612,000 gain on the sale which was
deferred and is being amortized over the lease term. The lease is an eighteen
(18) year operating lease expiring in the year 2010. The lease provides for a
fixed rental charge, plus additional rent based on increases in the Consumer
Price Index. Under the terms of the agreement, the Company is subject to
certain covenants and restrictions. At May 31, 1995, the Company was in
default with certain of the covenants. On September 20, 1995, the lessor
committed to waive defaults at May 31, 1995 and to forbear against exercising
remedies to financial covenant violations in exchange for commitments to
specific performance by the Company through August 31, 1996.
F-16
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1993, 1994, AND 1995
The Company leases various assets used in its operations, primarily
buildings and equipment. Substantially all of the leases provide that the
Company pay for maintenance and insurance.
Future minimum lease payments for leased capital assets total $607,000, of
which $48,000 represents interest. Capital leases and non-cancelable operating
leases, exclusive of the Connecticut facility, at May 31, 1995 require the
following annual minimum lease payments:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
1996.................................................. $312,000 $ 1,049,000
1997.................................................. 270,000 1,009,000
1998.................................................. 25,000 946,000
1999.................................................. -- 899,000
2000.................................................. -- 865,000
Later years........................................... -- 8,626,000
-------- -----------
$607,000 $13,394,000
======== ===========
</TABLE>
Rental expense on operating leases for 1993, 1994, and 1995 was $1,803,000,
$1,530,000 and $1,686,000, respectively. The original cost and net book value
of furniture and equipment under capital lease at May 31, 1995 was $1,776,000
and $164,000, respectively.
B. EMPLOYEE 401(K) PLAN
The Company's 401(k) Plan covers all full-time employees who have completed
six (6) months of continuous employment and are eighteen (18) years of age or
older. Under the terms of the plan an employee may contribute up to twenty
percent (20%) of annual compensation, up to five percent (5%) of which will be
matched by the Company at 25%, 50%, 75% or 100% of the employee contribution
depending on years of service. Employee contributions vest fully upon
contribution while employer contributions vest twenty percent (20%) per year.
Employer contributions for 1993, 1994, and 1995 were $268,000, $0 and $0,
respectively. Additional contributions may be authorized by the Board of
Directors predicated on Company performance.
C. LITIGATION
The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the normal course of business. The
Company believes that the disposition of these matters will not have a
material adverse effect on its financial position or results of operations
taken as a whole.
NOTE 10: SUPPLEMENTARY CASH FLOW INFORMATION AND OTHER
For the years ended May 31, 1993, 1994, and 1995 certain supplementary cash
flow information follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.......................................... $450,000 $421,000 $609,000
Income taxes...................................... 499,000 -- --
Non-cash financing activities, capital leases....... 693,000 175,000 15,000
</TABLE>
In the fourth quarter of fiscal 1995, the Company incurred various non-
recurring/unusual charges, including charges related to lease abandonment,
manufacturing outsourcing, unusual new product introduction costs and excess
inventory allowances which aggregated approximately $9 million.
F-17
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash............................................... $ 560,000 $ 916,000
Accounts receivable (less allowance for doubtful
accounts: May 31,
1995--$954,000 and February 29, 1996--
$921,000)....................................... 18,039,000 15,672,000
Inventories:
Materials...................................... 9,881,000 5,699,000
Work-in-process................................ 2,504,000 1,161,000
Finished goods................................. 6,998,000 4,600,000
------------ ------------
19,383,000 11,460,000
Prepaid expenses and other current assets........ 1,136,000 1,049,000
------------ ------------
Total current assets......................... 39,118,000 29,097,000
Fixed assets:
Land............................................. 344,000 324,000
Building......................................... 1,616,000 1,227,000
Machinery and equipment.......................... 13,861,000 13,440,000
Furniture and fixtures........................... 1,241,000 1,598,000
Leasehold improvements........................... 1,044,000 819,000
Construction-in-progress......................... 389,000 552,000
------------ ------------
18,495,000 17,960,000
Less: accumulated depreciation and amortization.. (13,188,000) (13,708,000)
------------ ------------
Net fixed assets............................. 5,307,000 4,252,000
Intangible and other assets, net of accumulated
amortization...................................... 9,176,000 8,543,000
------------ ------------
$ 53,601,000 $ 41,892,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 12,500,000 $ 9,637,000
Accrued liabilities.............................. 10,619,000 7,050,000
Notes payable to banks........................... 9,548,000 9,957,000
Current portion of long-term debt................ 561,000 768,000
Current obligations under capital leases......... 277,000 290,000
------------ ------------
Total current liabilities........................ 33,505,000 27,702,000
Long-term liabilities, less current portion:
Long-term debt................................... 1,579,000 1,323,000
Capital lease obligations........................ 282,000 133,000
Deferred gain on sale of building................ 476,000 451,000
Restructuring, lease abandonment and other
charges......................................... 3,355,000 2,575,000
------------ ------------
Total Liabilities............................ 39,197,000 32,184,000
------------ ------------
Stockholder's equity:
Preferred stock, $.01 par value, authorized
5,000,000 shares................................ -- --
Common stock, $.01 par value; authorized
20,000,000 shares, issued 4,465,000 and
4,645,000 shares, respectively.................. 46,000 47,000
Additional paid-in capital....................... 39,111,000 39,155,000
Accumulated deficit.............................. (25,879,000) (29,863,000)
Cumulative translation adjustment................ 1,601,000 844,000
Less: Treasury stock at cost--49,000 shares...... (465,000) (465,000)
Stockholder note receivable..................... (10,000) (10,000)
------------ ------------
Total stockholder's equity....................... 14,404,000 9,708,000
------------ ------------
$ 53,601,000 $ 41,892,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Net sales............................................ $61,343,000 $48,138,000
Cost of sales........................................ 40,274,000 36,286,000
----------- -----------
Gross profit....................................... 21,069,000 11,852,000
Selling, general and administrative.................. 14,868,000 12,198,000
Research and development............................. 4,904,000 2,992,000
----------- -----------
Operating income (loss)............................ 1,297,000 (3,338,000)
Other income (expense):
Interest income.................................... 19,000 14,000
Interest expense................................... (327,000) (880,000)
Miscellaneous, net................................. (122,000) 220,000
----------- -----------
(430,000) (646,000)
----------- -----------
Income (loss) before income taxes and cumulative
effect of change in accounting method............. 867,000 (3,984,000)
Provision (benefit) for income taxes................. -- --
----------- -----------
Income (loss) before cumulative effect of change in
accounting method................................. 867,000 (3,984,000)
Cumulative effect of change in method of accounting
for income taxes.................................... -- --
----------- -----------
Net income (loss)................................ $ 867,000 $(3,984,000)
=========== ===========
Net income (loss) per common share:
Income (loss) before cumulative effect of change in
accounting method................................... $ 0.18 $ (0.87)
Cumulative effect of change in method of accounting
for income taxes.................................... -- --
----------- -----------
Net income (loss) per common share................... $ 0.18 $ (0.87)
=========== ===========
Weighted average shares used in computing net income
(loss) per common share............................. 4,802,000 4,605,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS REPRESENTING
INCREASES (DECREASES) IN CASH
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 867,000 $ (3,984,000)
Adjustments to reconcile net income (loss) to net
cash used in (provided by) operating activities:
Cumulative effect of change in accounting method.. -- --
Depreciation and amortization..................... 2,494,000 1,827,000
Restructuring charges............................. (361,000) (361,000)
Loss (gain) on sale of fixed assets............... 23,000 (80,000)
Compensation in form of stock..................... 18,000 19,000
Changes in assets and liabilities:
Accounts receivable............................... (3,474,000) 1,938,000
Inventories....................................... (7,812,000) 7,574,000
Prepaid and other current assets.................. (241,000) (256,000)
Accounts payable.................................. 2,701,000 (2,733,000)
Accrued liabilities............................... (2,286,000) (3,866,000)
----------- ------------
Net cash (used in) provided by operating
activities..................................... (8,071,000) 78,000
----------- ------------
Cash flows from investing activities:
Capital expenditures.............................. (1,423,000) (361,000)
Proceeds from sale of fixed assets................ 10,000 70,000
----------- ------------
Net cash used in investing activities........... (1,413,000) (291,000)
----------- ------------
Cash flows from financing activities:
Proceeds from short-term borrowings............... 9,401,000 839,000
Proceeds from sale of common stock................ 332,000 26,000
Payment of cash dividends to stockholders of CAD
Warehouse, Inc................................... (450,000) --
Proceeds (repayments) of long-term debt and
capital lease obligations........................ 515,000 (403,000)
----------- ------------
Net cash provided by financing activities......... 9,798,000 462,000
----------- ------------
Effect of exchange rate changes on cash............. (416,000) 107,000
----------- ------------
Net change in cash.................................. (102,000) 356,000
Cash at beginning of period......................... 819,000 560,000
----------- ------------
Cash at end of period............................... $ 717,000 $ 916,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENT PRESENTATION
The financial statements of Summagraphics Corporation and its subsidiaries
(the "Company") included herein have been prepared without audit pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC")
and, in the opinion of management, reflect all adjustments necessary to
present fairly the financial condition and the results of operations for such
interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, management believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the audited
financial statements and notes thereto for the year ended May 31, 1995
included elsewhere herein. The results for these interim periods are not
necessarily indicative of the results for the respective fiscal years.
(2) SUBSEQUENT EVENTS
As a result of its U.S. operating losses during fiscal 1996, Summagraphics
violated certain financial covenants with its U.S. bank, the landlord of its
Texas facility and a loan agreement for Summagraphics' capital expenditures.
In September 1995, all parties agreed to waive all events of default and to
revise the respective agreements, as previously disclosed in Summagraphics'
Form 10-K for the fiscal year ended May 31, 1995. The U.S. bank agreement was
executed in January 1996. Significant new provisions of this agreement
included an extension of the agreement until September 30, 1996, repayment of
the loan based on remittance of certain percentages of daily cash collections,
no new loan advances except for one minor exception, additional loan
repayments required to be made based upon any proceeds from asset sales or
equity proceeds, an increased borrowing rate, new financial covenants and the
granting to the bank of warrants to purchase 37,500 shares of Summagraphics
Common Stock at $1.75 per share.
Subsequent to the signing of the bank agreement, Summagraphics expects to
report a net loss of approximately $1.6 million in the third quarter ended
February 29, 1996. This loss was caused primarily by Summagraphics' inability
to finance inventory purchases during the quarter due to a severe tightening
of vendor credit in the U.S., the bankruptcy of a key European cutter supplier
late in the quarter and the discontinuance of a contract manufacturing
relationship in the third quarter that resulted in delayed and reduced product
deliveries. As a result of this loss, Summagraphics breached certain financial
covenants as revised by an amendment to the credit agreement effective in
December 1995. In a further modification to the agreement made in March 1996,
concurrent with the execution of the Exchange Agreement with Lockheed Martin,
the bank agreed to forebear against declaring default with respect to certain
financial covenants for the period ending February 29, 1996 until the maturity
of the debt, the date of which is variable, depending upon certain
circumstances.
The revised Texas lease agreement was executed in March 1996 and also
contained revisions to certain financial covenants to accommodate the third
quarter losses. New provisions of this agreement include a rent reduction
through September 30, 1996 and the granting of warrants to purchase 15,000
shares of Common Stock to the landlord at a price of $2.00 per share as well
as revised financial covenants. Summagraphics is currently in compliance with
the revised terms and conditions of the amended lease agreement. The capital
expenditure credit line was also amended in March 1996 to accommodate the
third quarter loss.
In February 1996, Summagraphics announced that it had signed a letter of
intent with Lockheed Martin Corporation ("Lockheed Martin") with respect to a
proposal acquisition by Lockheed Martin of Summagraphics and on March 19,
1996, Summagraphics and Lockheed Martin signed a Plan of Reorganization and
Agreement for the Exchange of Stock of CalComp Inc. ("CalComp") for stock of
Summagraphics (the "Exchange Agreement"). The Exchange Agreement calls for
Summagraphics to issue to Lockheed Martin approximately 40.7 million shares of
Summagraphics common stock in exchange for all of the capital stock of
CalComp. As a
F-21
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
result of this share issuance, Lockheed Martin will own approximately 89.7% of
the outstanding Common Stock (on a fully diluted basis) of Summagraphics. The
Exchange Agreement, among other items, includes a provision for Lockheed
Martin to provide $2.5 million of financing to Summagraphics during the period
from the signing of the Exchange Agreement until the closing of the Exchange.
The initial funding under this Agreement was received by Summagraphics in late
March and has been used primarily to finance inventory purchases in the fourth
quarter.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CalComp Inc.
We have audited the accompanying consolidated balance sheets of CalComp Inc.
(the Company, a wholly owned subsidiary of Lockheed Martin Corporation
(Parent)) (Note 1) as of December 25, 1994 and December 31, 1995, and the
related consolidated statements of operations, shareholder's accounts and cash
flows for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As more fully described in Notes 1 and 4, the Company is one of several
subsidiaries of Lockheed Martin Corporation and has material transactions with
its Parent and affiliates.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at December 25, 1994 and December 31, 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
--------------------------------
Ernst & Young LLP
Orange County, California
February 15, 1996, except for the first paragraph
of Note 1, as to which the date is May 15, 1996
F-23
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 11,249 $ 14,574
Accounts receivable, less allowance for doubtful
accounts of $3,411 and $4,102 in 1994 and 1995,
respectively...................................... 53,880 46,380
Accounts receivable from affiliates................ 4,142 12,232
Inventories........................................ 43,641 40,308
Other current assets............................... 3,991 3,504
-------- --------
Total current assets................................. 116,903 116,998
Property, plant and equipment, net................... 49,267 51,060
Investments.......................................... 3,902 4,875
Goodwill, net of accumulated amortization of $14,101
and $15,756 in 1994 and 1995, respectively.......... 52,082 50,427
Other assets......................................... 6,158 8,204
-------- --------
Total assets......................................... $228,312 $231,564
======== ========
LIABILITIES AND SHAREHOLDER'S ACCOUNTS
Current liabilities:
Accounts payable................................... $ 19,537 $ 17,592
Deferred revenue................................... 12,800 10,122
Accrued salaries and related expenditures.......... 8,500 7,594
Sales and value added tax payable.................. 3,500 3,784
Income taxes payable............................... 387 1,321
Other liabilities.................................. 12,558 15,688
-------- --------
Total current liabilities............................ 57,282 56,101
Other long-term liabilities.......................... 4,607 5,080
Accumulated postretirement benefit obligation........ 3,941 3,640
Commitments and contingencies........................ -- --
Shareholder's accounts:
Shareholder's equity:
Common stock, no par value, 1,000 shares
authorized, issued and outstanding.............. 265,650 265,650
Accumulated deficit.............................. (61,067) (71,785)
Cumulative translation adjustment................ 5,955 8,531
-------- --------
Total shareholder's equity......................... 210,538 202,396
Net receivable from Parent......................... (48,056) (35,653)
-------- --------
Total shareholder's accounts......................... 162,482 166,743
-------- --------
Total liabilities and shareholder's accounts......... $228,312 $231,564
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue:
Hardware and supplies................ $224,219 $216,520 $188,880
Service.............................. 61,339 57,855 54,860
Sales to affiliates.................. 14,593 20,173 37,915
-------- -------- --------
Total net revenue...................... 300,151 294,548 281,655
Cost applicable to revenue:
Hardware and supplies................ 150,404 154,875 135,880
Service.............................. 44,362 42,847 39,233
Cost of sales to affiliates.......... 9,938 14,069 27,555
-------- -------- --------
Total cost applicable to revenue....... 204,704 211,791 202,668
-------- -------- --------
Gross profit........................... 95,447 82,757 78,987
Expenses:
Selling.............................. 68,411 55,856 44,943
Product development.................. 29,128 21,526 17,343
General and administrative........... 33,166 18,416 17,564
Corporate expenses from Parent....... 13,364 10,423 8,225
-------- -------- --------
Loss from operations................... (48,622) (23,464) (9,088)
Interest income........................ 638 260 268
Other income (expense), net............ (2,983) 253 1,674
-------- -------- --------
Loss before income taxes............... (50,967) (22,951) (7,146)
Provision for (benefit of) income
taxes................................. (4,328) 275 3,572
-------- -------- --------
Net loss............................... $(46,639) $(23,226) $(10,718)
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S ACCOUNTS
<TABLE>
<CAPTION>
RETAINED
EARNINGS CUMULATIVE NET
COMMON (ACCUMULATED TRANSLATION RECEIVABLE
STOCK DEFICIT) ADJUSTMENT FROM PARENT
-------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, December 27, 1992....... $265,650 $ 8,798 $9,102 $(65,420)
Net decrease in receivable from
Parent........................ -- -- -- 24,314
Translation adjustment......... -- -- (5,181) --
Net loss....................... -- (46,639) -- --
-------- -------- ------ --------
Balance, December 26, 1993....... 265,650 (37,841) 3,921 (41,106)
Net increase in receivable from
Parent........................ -- -- -- (6,950)
Translation adjustment......... -- -- 2,034 --
Net loss....................... -- (23,226) -- --
-------- -------- ------ --------
Balance, December 25, 1994....... 265,650 (61,067) 5,955 (48,056)
Net decrease in receivable from
Parent........................ -- -- -- 12,403
Translation adjustment......... -- -- 2,576 --
Net loss....................... -- (10,718) -- --
-------- -------- ------ --------
Balance, December 31, 1995....... $265,650 $(71,785) $8,531 $(35,653)
======== ======== ====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-26
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
DECEMBER 26, 1993 DECEMBER 25, 1994 DECEMBER 31, 1995
----------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(46,639) $(23,226) $(10,718)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 16,014 12,199 9,845
Investee income....... (498) (184) (1,645)
Net changes in
operating assets and
liabilities.......... 1,156 21,557 11,406
-------- -------- --------
Net cash provided by
(used in) operating
activities............. (29,967) 10,346 8,888
INVESTING ACTIVITIES
Purchase of property,
plant and equipment.... (5,745) (8,048) (10,824)
Cash proceeds from sale
of property, plant,
equipment.............. 820 1,739 841
Dividend received....... -- -- 672
-------- -------- --------
Net cash used in
investing activities... (4,925) (6,309) (9,311)
FINANCING ACTIVITIES
Net cash received from
(paid to) Parent....... 25,384 (6,467) 2,978
-------- -------- --------
Net cash provided by
(used in) financing
activities............. 25,384 (6,467) 2,978
Effect of exchange rate
changes on cash........ (2,028) 573 770
-------- -------- --------
Change in cash.......... (11,536) (1,857) 3,325
Cash at beginning of
year................... 24,642 13,106 11,249
-------- -------- --------
Cash at end of year..... $ 13,106 $ 11,249 $ 14,574
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-27
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
CalComp Inc. (the Company) is a wholly owned subsidiary of Lockheed Martin
Corporation (Lockheed Martin or the Parent). The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. The financial statements do not include the accounts of AGT
Holdings, Inc. and Access Graphics, Inc. (Access), which have been transferred
to the Parent effective May 15, 1996. This transaction has been treated as a
change in the reporting entity since the two entities are in dissimilar
businesses to that of the Company and historically have been managed and
financed separately by the Parent.
The acquisition of the Company by Lockheed Martin in August 1986 was
accounted for as a purchase and a new basis of accounting was established for
the Company's financial statements. This new basis resulted in certain assets
and liabilities being recorded at their then fair market value. Accumulated
depreciation, retained earnings, and cumulative translation adjustment reflect
activity from August 1, 1986. For tax purposes, no revaluation occurred as a
result of the business combination.
The equity method of accounting is used when the Company has a significant,
but less than majority ownership interest in another company. Under the equity
method, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee companies,
which is recognized as a component of other income (expenses) net in the
consolidated statements of operations. The Company's investment in NS CalComp
Corporation (NSCC) is accounted for under the equity method. A portion of the
profit on product sales to NSCC is deferred until realized through sales to
third party customers.
Use of Estimates
The development and use of estimates is inherent in the preparation of
financial statements that are presented in accordance with generally accepted
accounting principles. Significant estimations are made relative to the
valuation of accounts receivable, inventories, income taxes, and certain
accrued liabilities, including, among others, those for warranties and
contingent liabilities where an unfavorable outcome is considered probable and
the amount of the loss is estimable. Actual results may differ from amounts
estimated.
Business
The Company develops, manufactures, distributes and supports a wide variety
of computer graphics products which it markets in the United States and
throughout the world. The Company's principal products are plotters, printers
and digitizers. Plotters are devices that translate computer output into hard
copy visual data such as schematics, maps, charts and other drawings.
Digitizers are devices that convert points, lines and drawings to digital
impulses that can be input into a computer. The Company is dependent on
certain distributors in North America and Asia through which it transacts a
majority of its hardware sales. In management's opinion, other sources of
distribution on comparable terms would be available if there was a disruption
in the business relationship with these distributors. The Company is dependent
on certain limited source suppliers for key technology components used in its
products. Loss of such vendor relationships could have a significant impact on
the Company's near term operating results. The Company also derives a
significant portion of its revenues from the sale of services and supplies
related to its hardware products.
Revenue Recognition
Revenue is recognized from product sales when shipments are made and from
services over the term of the service contract.
F-28
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fiscal Year
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1993 and 1994 each contained fifty-two weeks.
Fifty-three weeks were included in fiscal 1995.
Concentration of Credit Risk
The Company sells the majority of its products throughout the United States,
Canada, Europe and Asia. Sales to the Company's recurring customers are
generally made on open account terms while sales to occasional customers are
made on a C.O.D. basis. The Company performs periodic credit evaluations of
its ongoing customers and generally does not require collateral. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations. No single customer represented more than 10% of
sales in any year presented. Accounts receivable from one of the Company's
primary distributors amounted to $1,847,000 and $9,135,000 at December 1994
and 1995, respectively.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings...................................................... 33 years
Building improvements.......................................... 5 to 15 years
Machinery and equipment........................................ 3 to 8 years
Furniture and fixtures......................................... 5 to 8 years
</TABLE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," (SFAS No.
121). This standard was implemented by the Company on January 1, 1996. The
standard addresses the accounting for the impairment of long-lived assets,
such as property, plant, and equipment, and goodwill related to those assets.
If impairment indicators are present, SFAS No. 121 requires an assessment of
the recoverability of long-lived assets based on whether the carrying value of
the assets could be recovered through undiscounted cash flows over the
expected lives of the assets. Adjustments to the carrying value are recorded
as a component of operations in the period that an impairment assessment is
made. The Company believes that the application of SFAS No. 121 will not have
a material impact on its consolidated financial position or results of
operations.
Intangible Assets
The excess of the Parent's purchase price over the fair value of assets
allocated to the Company was $70,420,000. This amount, net of an amount
allocated to the sale of a majority interest in NSCC, previously known as
Nippon CalComp KK (NCKK), is being amortized on a straight-line basis over 40
years. The Company assesses the recoverability of its intangible assets by
determining whether the amortization of the intangible asset over its
remaining life can be recovered through undiscounted projected future
operating cash flows. Adjustments to the carrying value are recorded as a
component of operations in the period that an impairment assessment is made.
Translation of Foreign Currencies
The assets and liabilities of the Company's foreign subsidiaries, whose cash
flows are primarily in their local currency, have been translated into U.S.
dollars using the current exchange rates at each balance sheet date.
F-29
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The operating results of these foreign subsidiaries have been translated at
average exchange rates during each reporting period. Adjustments resulting
from translation of foreign currency financial statements are reflected as
cumulative translation adjustments in the consolidated balance sheet.
Exchange gains and losses resulting from foreign currency transactions
(transactions denominated in a currency other than that of the entity's
primary cash flow) are included in operations in the period in which they
occur.
In 1995, the Company purchased forward contracts on Yen to hedge its firm
purchase commitments with Japanese vendors. Losses from hedge transactions are
netted against foreign exchange transaction gains. As of December 31, 1995 all
Yen forward positions had been closed.
Income Taxes
The Company's operations are included in consolidated federal and combined
state income tax returns with the Parent. The provision for income taxes is
calculated on a separate return basis, pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
SFAS No. 109 requires recognition of deferred tax assets and liabilities based
on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
1993, 1994, and 1995 was $9,473,000, $8,874,000 and $5,847,000, respectively.
Statement of Cash Flows
Changes in operating assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Changes in operating assets and
liabilities:
Accounts receivable............... $9,245 $ 5,196 $ 9,618
Accounts receivable from
affiliates....................... 2,551 (871) (8,090)
Inventories....................... (9,355) 20,541 4,353
Other current assets.............. 3,364 (219) 487
Other assets...................... 1,160 (265) (2,046)
Accounts payable.................. 200 94 (2,308)
Accrued salaries and related
expenditures..................... 3,565 (12,689) (906)
Deferred revenue.................. (1,601) 1,619 (2,678)
Sales and value added tax
payable.......................... (2,216) 2,343 284
Other liabilities................. 4,720 (3,275) 2,015
Income taxes payable.............. (8,968) 5,985 1,080
Other long-term liabilities....... (146) 3,673 473
Accumulated postretirement benefit
obligation....................... (296) (92) (301)
Decrease (increase) in net
receivable from Parent........... (1,067) (483) 9,425
------ ------- -------
Net changes in operating assets and
liabilities........................ $1,156 $21,557 $11,406
====== ======= =======
</TABLE>
F-30
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net income taxes paid to (received from) the Parent and foreign governments
were $4,754,000, $(5,659,000) and $2,638,000, for 1993, 1994, and 1995,
respectively.
2. BALANCE SHEET INFORMATION
Additional information for certain balance sheet accounts is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net inventories:
Raw materials and purchased components................. $ 11,932 $ 9,960
Work in process........................................ 2,900 1,628
Finished goods......................................... 28,809 28,720
-------- --------
$ 43,641 $ 40,308
======== ========
Property, plant and equipment:
Land, buildings and building improvements.............. $ 52,208 $ 52,051
Machinery and equipment................................ 55,349 55,745
Furniture and fixtures................................. 7,647 7,241
-------- --------
115,204 115,037
Less accumulated depreciation.......................... (65,937) (63,977)
-------- --------
$ 49,267 $ 51,060
======== ========
</TABLE>
3. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following components:
<TABLE>
<CAPTION>
1993 1994 1995
------- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
The Company's share of NSCC's earnings............... $ 498 $ 184 $1,645
Foreign exchange transaction gain (loss)............. (2,516) 228 360
Legal settlement..................................... (741) -- --
Other expense, net................................... (224) (159) (331)
------- ----- ------
Total................................................ $(2,983) $ 253 $1,674
======= ===== ======
</TABLE>
4. TRANSACTIONS WITH PARENT AND AFFILIATES
The Parent had billed the Company for certain corporate general and
administrative costs under a formula acceptable for the United States
Department of Defense contracting purposes. Additionally, the Parent has
billed the Company for interest based on the Parent's cost of borrowed funds.
Subsequent to the Exchange, interest charges will be based on the terms of the
credit agreement with the Parent (Note 10). Amounts charged to the Company
were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Corporate general and administrative................. $ 6,447 $ 4,390 $3,578
Interest............................................. 6,917 6,033 4,647
------- ------- ------
$13,364 $10,423 $8,225
======= ======= ======
</TABLE>
F-31
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additionally, the Company has entered into informal support agreements with
the Parent. The agreements provide, among other things, that the Parent
undertake to provide certain services for and at the request of the Company
including, but not limited to, administration of the pension and savings plan,
legal and other general administrative services and group medical, liability
and worker's compensation insurance. Expenses are allocated to the Company
based on actual amounts incurred on behalf of the Company plus estimated
overhead related to such amounts. Amounts billed to the Company were
$7,819,000, $6,556,000, and $3,981,000 for 1993, 1994 and 1995, respectively.
Such amounts are allocated to various cost elements in the financial
statements based on relevant factors which include headcount and square
footage. Conversely, any expenditures incurred by the Company on behalf of the
Parent are billed to the Parent.
The Parent has a centralized domestic cash management system whereby the
Company's cash surplus is transferred to the Parent's accounts on a daily
basis and cash disbursements are funded by the Parent, as needed, to maintain
the disbursement account at a zero balance.
The net receivable from Parent represents the net of the following
transactions:
.Cash advances to and from the Parent in connection with the cash
management system.
.Federal and state income taxes payable to the Parent.
.Other intercompany balances payable.
.The Company's investment in Access and AGTH.
It is the Parent's intention upon consummation of the exchange to convert
the balance of the net receivable from Parent at the closing date into a
constructive dividend to the Parent (Note 10).
The Company sells computer graphics equipment to Access for resale. Sales
amounted to $4,233,000, $7,266,000 and $19,722,000 for the years ended
December 1993, 1994, and 1995, respectively. End user sales to other
affiliated companies were $1,343,000, $2,299,000 and $1,378,000 for the years
ended December 1993, 1994 and 1995, respectively. Sales to related parties
have been consummated at prices and terms consistent with similar transactions
with unrelated third parties. Accounts receivable from these affiliates
related to such sales aggregated $1,933,000 and $7,961,000 as of December 1994
and 1995, respectively.
The Company purchases certain components from Lockheed Martin Commercial
Electronics, an affiliate. Purchases amounted to $10,707,000, $9,755,000 and
$10,503,000 for the years ended December 1993, 1994 and 1995, respectively.
Purchases from Lockheed Martin Commercial Electronics were made at prices and
terms similar to those available from unrelated vendors.
5. INVESTMENT IN NS CALCOMP KK
In 1990, the Company sold a 56% interest in a previously wholly owned
Japanese subsidiary, Nippon CalComp KK (now referred to as NSCC) to Nippon
Steel Corporation (NSC) and Sumitomo Corporation.
The Company's remaining 44% ownership interest in NSCC is accounted for
under the equity method based on financial information for the twelve months
ended in November. Summarized financial information for NSCC for the years
ended in December is as follows:
F-32
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Balance sheets:
Current assets..................................... $30,704 $32,358 $35,534
Total assets....................................... 33,762 36,306 39,581
Current liabilities................................ 18,776 17,805 20,351
Total liabilities.................................. 18,776 18,289 20,813
Statements of operations:
Net sales.......................................... 50,786 54,375 66,703
Gross profit....................................... 19,330 21,914 26,872
Net earnings....................................... 827 1,531 2,727
</TABLE>
As of December 31, 1995, the carrying value of the Company's investment is
less than the underlying equity in NSCC's net assets due to the profit in
NSCC's inventory that has not been realized through sales to third party
customers, a cumulative translation gain and differences resulting from stock
sales by NSCC. As of December 31, 1995, $4,864,000 of consolidated retained
earnings was represented by the undistributed net earnings of NSCC. Sales to
NSCC amounted to $9,017,000, $10,608,000 and $16,815,000 in 1993, 1994, and
1995, respectively. Accounts receivable from NSCC are $2,209,000 and
$4,271,000 as of December 1994 and 1995, respectively, and are included in
accounts receivable from affiliates in the consolidated balance sheets.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases various operating facilities and equipment under
noncancelable operating leases. Most leases contain renewal options at
stipulated amounts for varying periods. Certain agreements contain options for
the purchase of equipment at a stipulated amount, which will approximate
market at the end of the lease. Additionally, certain leases provide for
periodic rental adjustments based on the Consumer Price Index or fair market
values.
Minimum rental payments under noncancelable operating leases are $3,200,000
in 1996, $2,500,000 in 1997, $1,300,000 in 1998, $600,000 in 1999, $500,000 in
2000 and $700,000 thereafter.
Rent expense was $6,200,000, $5,600,000 and $3,700,000 in 1993, 1994 and
1995, respectively.
Legal Proceedings
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management, the ultimate
liability, if any, with respect to these actions will not materially affect
the financial position, results of operations or cash flows of the Company.
Environmental Matters
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board (the Water Board) relating to its facility in Anaheim,
California. This plan contemplates site assessment and monitoring of soil and
ground water contamination. The Company's plan includes monitoring of several
ground water sampling wells at the site. No remediation has been ordered or is
considered probable of being ordered and therefore no
F-33
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
liability has been recorded for any such activities. Due to the nature of the
contingency, management is unable to estimate a possible range of costs that
might be incurred should remediation be required.
7. TAXES BASED ON INCOME
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $(5,998) $ -- $ --
State........................................ 97 (1,515) (54)
Foreign...................................... 1,573 1,790 3,626
------- ------- ------
$(4,328) $ 275 $3,572
======= ======= ======
</TABLE>
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on loss before income taxes and equity in income from
subsidiaries excluded from the exchange:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income taxes using statutory tax
rate.......................................... $(17,838) $(8,033) $(2,501)
Increases (reduction) from:
Foreign taxes at rates other than statutory
rate........................................ (463) 1,729 1,765
Foreign withholding tax...................... 730 454 484
Operating losses without current tax bene-
fit......................................... 12,804 7,165 3,932
Goodwill amortization........................ 550 550 550
Minority interest............................ (174) (65) (576)
State taxes, net of federal benefit.......... 63 (1,525) (82)
-------- ------- -------
$ (4,328) $ 275 $ 3,572
======== ======= =======
</TABLE>
F-34
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's deferred tax assets and liabilities at December 25, 1994 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities related to:
Excess of purchase book value over tax basis of
property, plant, and equipment...................... $ 3,093 $ 2,896
Depreciation methods................................. 1,534 1,268
Prepaid pension costs................................ 1,166 1,367
Other, net........................................... 51 51
-------- --------
5,844 5,582
Deferred tax assets related to:
Inventories.......................................... 13,601 11,250
Accumulated postretiree medical benefit obligation... 1,754 1,635
Accrued liabilities.................................. 2,577 1,695
Accrued compensation and benefits.................... 1,857 2,018
Accounts receivable.................................. 623 676
Net operating loss carryover......................... 2,017 4,074
Foreign tax credit carryover......................... 29,811 32,208
Other, net........................................... 735 880
-------- --------
52,975 54,436
Valuation allowance for deferred tax assets.......... (47,131) (48,854)
-------- --------
$ -- $ --
======== ========
</TABLE>
The Company has provided a valuation allowance for its net deferred tax
assets because of the likelihood that it will not be able to realize those
assets during their carryforward or turnaround periods.
The Company has a net operating loss for federal income tax purposes of
$11,640,000 expiring in years through 2010. Additionally, the Company has
foreign tax credits of $32,208,000 expiring in years 1996 to 2000.
For financial reporting purposes, loss before income taxes and equity in
income from subsidiaries excluded from the exchange included the following
components:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income (loss):
United States................................ $(54,696) $(21,832) $(11,079)
Foreign...................................... 3,729 (1,119) 3,933
-------- -------- --------
$(50,967) $(22,951) $ (7,146)
======== ======== ========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $22,000,000 at December 31, 1995. Approximately $17,000,000 of
those earnings are considered to be indefinitely reinvested. Distribution of
foreign earnings, including the cumulative translation adjustment component,
would not create a residual U.S. tax liability due to the availability of
foreign tax credits to offset U.S. taxes. Withholding taxes of
F-35
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $900,000 would be payable upon the remittance of the portion of
the foreign earnings which is considered permanently reinvested.
8. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
Substantially all of the Company employees are covered by a contributory
defined benefit plan sponsored by the Parent. Normal retirement age is 65, but
provision is made for earlier retirement. Benefits are based on salary and
years of service. Substantially all benefits are paid from funds previously
provided to trustees. The Parent's funding policy is to make contributions
that are consistent with U.S. government cost allowability and Internal
Revenue Service deductibility requirements, subject to the full funding limits
of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions
made on behalf of the Company's employees are billed to the Company. In
accordance with Statement of Financial Accounting Standards No. 87 "Employers'
Accounting for Pensions," (SFAS No. 87), the cumulative net difference for all
periods since SFAS No. 87 was adopted between amounts contributed to the plan
and amounts recorded as net pension cost is recorded in the consolidated
balance sheet.
The Company has a supplemental executive retirement plan which is not
material. Under this plan, benefits are paid directly by the Company and
charged against liabilities previously accrued.
Net pension cost for 1993, 1994 and 1995, as determined in accordance with
SFAS No. 87 was:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits accrued during the year....... $2,784 $2,827 $1,954
Interest cost on projected benefit obligation........ 2,602 2,626 2,756
Actual return on plan assets......................... (2,142) (2,500) (2,824)
Net amortization and deferral........................ (188) (188) (341)
Employee contributions............................... (614) (554) (479)
------ ------ ------
$2,442 $2,211 $1,066
====== ====== ======
</TABLE>
An analysis of the funded status of the plan follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Plan assets at fair value........................ $34,554 $44,716
Actuarial present value of benefit obligation:
Vested benefits................................ 24,917 30,407
Nonvested benefits............................. 1,095 2,035
------- -------
Accumulated benefit obligation................... 26,012 32,442
Effect of future salary increases................ 5,054 3,496
------- -------
Projected benefit obligation..................... 31,066 35,938
------- -------
Plan assets in excess of projected benefit
obligation...................................... $ 3,488 $ 8,778
======= =======
Consisting of:
Unrecognized net asset at initial application
of SFAS No. 87................................ $ 1,033 $ 772
Unrecognized prior service cost................ (141) (95)
Unrecognized net gain.......................... 662 5,120
Prepaid pension asset......................... 1,934 2,981
------- -------
$ 3,488 $ 8,778
======= =======
</TABLE>
F-36
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Plan assets consist equally of equity securities and fixed income securities
including cash equivalents. Actuarial determinations were based on various
assumptions as illustrated in the following table. Net pension costs in 1993,
1994 and 1995 were based on assumptions in effect at the end of the respective
preceding year. Benefit obligations as of the end of each year reflect
assumptions in effect as of those dates.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate on benefit obligations......................... 7.0% 8.5% 7.5%
Average of full-career compensation increases for those
employees whose benefits are affected by compensation
levels...................................................... 6.0% 6.0% 6.0%
Expected long-term rate of return on plan assets............. 8.0% 8.0% 8.8%
</TABLE>
Neither the Parent nor the Company has any present intention of terminating
any of its pension plans. However, if a qualified defined benefit plan is
terminated, the Company would be required to vest all participants and
purchase annuities with plan assets to meet the accumulated benefit obligation
for such participants.
Retiree Medical Plans
The Company currently provides medical benefits under a contributory group
medical plan sponsored by the Parent for certain early (pre-65) retirees and
under a noncontributory group Medicare supplement plan for retirees aged 65
and over (post-65) with greater than ten years of service.
Under the accrual accounting methods of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits other
than Pensions," (SFAS No. 106), the present value of the actuarially
determined expected future cost of providing medical benefits is attributed to
each year of employee service. The service and interest cost recognized each
year is added to the accumulated postretiree medical benefit obligation. Net
retiree medical benefit costs as determined under SFAS No. 106 were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year......... $ 294 $ 386 $ 304
Interest cost on accumulated postretiree medical
benefit obligation................................... 414 415 590
Actual return on plan assets.......................... (50) (59) (129)
----- ----- -----
$ 658 $ 742 $ 765
===== ===== =====
</TABLE>
In 1993, in response to economic conditions, the Company undertook
significant work force reductions. This action resulted in a net curtailment
gain of $491,000, representing a reversal of a portion of the previously
accrued obligation for future retiree medical costs.
The Company has implemented funding approaches to help manage future retiree
medical costs. A 401(h) trust established under IRS regulations began
receiving funding in 1992. At December 31, 1995, this trust held $2,052,000 in
short-term investment fund accounts, representing funding in advance of
benefit payments. Earnings on trust assets are recorded as a reduction to
annual SFAS No. 106 costs.
F-37
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under SFAS No. 106, actual medical benefit payments to retirees reduce the
Company's accumulated postretiree medical benefit obligation, and any trust
funding reduces the unfunded portion of this obligation on the Company's
balance sheet. An analysis of the funded status of the retiree medical benefit
plan follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees....................................... $ 5,025 $ 4,143
Employees eligible to retire................... 700 768
Employees not eligible to retire............... 1,639 1,875
------- -------
Accumulated postretirement benefit obligation.... 7,364 6,786
Plan assets at fair value........................ (1,568) (2,052)
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets........................... 5,796 4,734
Unrecognized net loss............................ (1,355) (772)
Unrecognized prior service cost.................. -- 178
------- -------
Accrued postretirement benefit unfunded
liability....................................... $ 4,441 $ 4,140
======= =======
</TABLE>
Actuarial determinations were based on various assumptions, as illustrated
in the following table. Net retiree medical costs were based on assumptions in
effect at the end of the respective preceding years. Benefit obligations as of
the end of each year reflect assumptions in effect as of those dates.
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 8.5% 7.5%
Expected long-term rate of return on plan assets............ 8.0% 8.0% 8.8%
Range of medical trend rates:
Initial:
Pre-65 retirees......................................... 13.0% 11.0% 8.0%
Post-65 retirees........................................ 9.0% 6.0% 8.0%
Ultimate:
Pre-65 retirees......................................... 5.0% 5.0% 4.5%
Post-65 retirees........................................ 2.0% 2.0% 2.0%
</TABLE>
Long-term medical trend rates are applicable to the calculation of benefit
obligations for pre-65 and post-65 retirees after 20 and 16 years,
respectively, in 1993 and 1994, and 8 and 13 years, respectively, in 1995.
An increase of one percentage point in the assumed medical trend rates would
result in a 13.4% increase in accumulated postretirement benefit obligation to
$7,695,000 at December 31, 1995, and a 1995 net retiree medical benefit cost
under SFAS No. 106 of approximately $901,000. The Company believes that the
cost containment features the Parent has previously adopted and the funding
approaches under way will allow it to effectively manage its retiree medical
expenses. The Company and the Parent will continue to monitor the costs of
retiree medical benefits and may further modify the plans if circumstances
warrant.
Defined Contribution Plan
The Company's Parent maintains contributory 401(k) savings plans for
salaried and hourly employees of the Parent and its subsidiaries, which cover
substantially all employees. Employees' eligible contributions are
F-38
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
matched by the Parent at a 60% rate. The Parent charged to the Company
expenses of $1,704,000, $1,446,000 and $1,152,000 in 1993, 1994 and 1995,
respectively, for contributions made on behalf of the Company's employees.
9. FINANCIAL INFORMATION RELATING TO SEGMENTS AND GEOGRAPHIC AREAS
The Company operates in one industry segment, the manufacture, sale and
support of computer graphics products. A summary of the Company's net sales,
loss from operations and identifiable assets by geographic area is as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 26, 1993
--------------------------------------------------------------
NORTH PACIFIC PARENT
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
--------- -------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $128,559 $140,746 $30,846 $ -- $ -- $ 300,151
Transfers between geo-
graphical areas........ 88,979 -- -- (88,979) -- --
--------- -------- ------- -------- -------- ---------
Net Sales............... $ 217,538 $140,746 $30,846 $(88,979) $ -- $ 300,151
========= ======== ======= ======== ======== =========
Income (loss) from oper-
ations................. $ (45,609) $ 3,291 $ 4,304 $ 2,756 $(13,364) $ (48,622)
========= ======== ======= ======== ======== =========
Identifiable assets..... $ 159,986 $ 90,373 $15,112 $ (7,725) $ -- $ 257,746
========= ======== ======= ======== ======== =========
<CAPTION>
YEAR ENDED DECEMBER 25, 1994
--------------------------------------------------------------
NORTH PACIFIC PARENT
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
--------- -------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $130,370 $125,114 $39,064 $ -- $ -- $ 294,548
Transfers between geo-
graphical areas........ 77,916 -- -- (77,916) -- --
--------- -------- ------- -------- -------- ---------
Net Sales............... $ 208,286 $125,114 $39,064 $(77,916) $ -- $294,548
========= ======== ======= ======== ======== =========
Income (loss) from oper-
ations................. $ (21,493) $ 2,916 $ 5,042 $ 494 $(10,423) $(23,464)
========= ======== ======= ======== ======== =========
Identifiable assets..... $ 138,580 $ 83,625 $15,107 $ (9,000) $ -- $ 228,312
========= ======== ======= ======== ======== =========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
NORTH PACIFIC PARENT
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
--------- -------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $122,177 $116,921 $42,557 $ -- $ -- $ 281,655
Transfers between geo-
graphical areas........ 83,579 -- -- (83,579) -- --
--------- -------- ------- -------- -------- ---------
Net Sales............... $ 205,756 $116,921 $42,557 $(83,579) $ -- $ 281,655
========= ======== ======= ======== ======== =========
Income (loss) from oper-
ations................. $ (10,087) $ 1,974 $ 6,018 $ 1,232 $ (8,225) $ (9,088)
========= ======== ======= ======== ======== =========
Identifiable assets..... $ 145,186 $ 78,966 $15,023 $ (7,611) $ -- $ 231,564
========= ======== ======= ======== ======== =========
</TABLE>
In determining net income (loss) from operations for each geographic area,
sales and purchases between geographic areas have been accounted for on the
basis of internal transfer prices set by the Company. Identifiable assets by
geographic area are those assets that are used in the Company's operations in
each location.
F-39
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUBSEQUENT EVENT
On February 5, 1996, the Company and its Parent announced the signing of a
letter of intent with Summagraphics Corporation, a competitor in several of
the Company's product lines, to enter into a definitive agreement whereby the
Parent would exchange the Company's shares for an approximate 90% interest in
the combined company. The proposed transaction is subject to the approval of
Summagraphics' shareholders and certain regulatory agencies. Prior to
consummation of the Exchange, the Company will convert the balance of its net
receivable from Parent at the closing date into a constructive dividend to the
Parent. In connection with the Exchange, the Company will enter into formal
services and credit agreements with the Parent (Note 4).
F-40
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 14,574 $ 14,161
Accounts receivable................................. 46,380 44,383
Accounts receivable from affiliates................. 12,232 10,657
Inventories......................................... 40,308 46,576
Other current assets................................ 3,504 4,081
-------- --------
Total current assets.................................. 116,998 119,858
Property, plant and equipment......................... 51,060 51,724
Investments........................................... 4,875 4,992
Goodwill.............................................. 50,427 49,587
Other assets.......................................... 8,204 9,031
-------- --------
Total assets.......................................... $231,564 $235,192
======== ========
LIABILITIES AND SHAREHOLDER'S ACCOUNTS
Current liabilities:
Accounts payable.................................... $ 17,592 $ 16,204
Deferred revenue.................................... 10,122 12,278
Accrued salaries and related expenditures........... 7,594 6,536
Sales and value added tax payable................... 3,784 2,849
Income taxes payable................................ 1,321 1,393
Other liabilities................................... 15,688 18,410
-------- --------
Total current liabilities............................. 56,101 57,670
Other long-term liabilities........................... 5,080 5,009
Accumulated postretirement benefit obligation......... 3,640 3,640
Commitments and contingencies......................... -- --
Shareholder's accounts:
Shareholder's equity:
Common stock, no par value, 1,000 shares
authorized, issued and outstanding............... 265,650 265,650
Accumulated deficit............................... (71,785) (80,900)
Cumulative translation adjustment................. 8,531 8,393
-------- --------
Total shareholder's equity.......................... 202,396 193,143
Net receivable from Parent.......................... (35,653) (24,270)
-------- --------
Total shareholder's accounts.......................... 166,743 168,873
-------- --------
Total liabilities and shareholder's accounts.......... $231,564 $235,192
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-41
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH 26, MARCH 31,
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net revenue:
Hardware and supplies.................................... $51,915 $37,814
Service.................................................. 13,704 12,436
Sales to affiliates...................................... 5,957 5,602
------- -------
Total net revenue.......................................... 71,576 55,852
Cost applicable to revenue:
Hardware and supplies.................................... 37,500 27,539
Service.................................................. 9,641 9,574
Cost of sales to affiliates.............................. 4,450 4,270
------- -------
Total cost applicable to revenue........................... 51,591 41,383
Gross profit............................................... 19,985 14,469
Expenses:
Selling.................................................. 11,903 11,710
Product development...................................... 4,321 5,071
General and administrative............................... 8,308 4,236
Corporate expenses from Parent........................... 1,945 2,306
------- -------
Loss from operations....................................... (6,492) (8,854)
Interest income............................................ -- 548
Other income, net.......................................... 1,204 92
------- -------
Loss before income taxes................................... (5,288) (8,214)
Provision for income taxes................................. 1,324 901
------- -------
Net loss................................................... $(6,612) $(9,115)
======= =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-42
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 26, 1995 MARCH 31, 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................ $(6,612) $(9,115)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 2,342 2,432
Investee income............................... (460) (117)
Net changes in operating assets and
liabilities.................................. 12,514 6,210
------- -------
Net cash provided by (used in) operating
activities..................................... 7,784 (590)
INVESTING ACTIVITIES
Purchase of property, plant and equipment....... (1,954) (2,278)
Cash proceeds from sale of property, plant,
equipment...................................... 608 22
------- -------
Net cash used in investing activities........... (1,346) (2,256)
FINANCING ACTIVITIES
Net cash received from (paid to) Parent......... (999) 2,523
------- -------
Net cash provided by (used in) financing
activities..................................... (999) 2,523
Effect of exchange rate changes on cash......... 791 (90)
------- -------
Change in cash.................................. 6,230 (413)
Cash at beginning of quarter.................... 11,249 14,574
------- -------
Cash at end of quarter.......................... $17,479 $14,161
======= =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-43
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying unaudited condensed consolidated financial statements do
not include certain footnotes and financial presentations normally required
under generally accepted accounting principles and, therefore, should be read
in conjunction with the audited financial statements.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Finished goods........................................ $28,720 $32,626
Work in process....................................... 1,628 923
Raw materials......................................... 9,960 13,027
------- -------
$40,308 $46,576
======= =======
</TABLE>
3. STATEMENT OF CASH FLOWS
Changes in operating assets and liabilities are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH 26, MARCH 31,
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable....................................... $ 3,589 $ 1,954
Accounts receivable from affiliates....................... (1,133) 1,575
Inventories............................................... 9,189 (6,315)
Other current assets...................................... (1,147) (577)
Other assets.............................................. (2,135) (827)
Accounts payable.......................................... (3,073) (1,379)
Accrued salaries and related expenditures................. (1,105) (1,058)
Deferred revenue.......................................... 1,221 2,156
Sales and value added tax payable......................... (242) (935)
Other liabilities......................................... 7,104 2,774
Income taxes payable...................................... (319) 53
Other long-term liabilities............................... 29 (71)
Decrease (increase) in net receivable from Parent......... 536 8,860
------- -------
Net changes in operating assets and liabilities............. $12,514 $ 6,210
======= =======
</TABLE>
Net income taxes paid to (received from) the Parent and foreign governments
were ($1,224,000) and $829,000 for the three months ended March 26, 1995 and
March 31, 1996, respectively.
F-44
<PAGE>
CALCOMP INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Parent has allocated to the Company $1.2 million for each of the three
month periods ended March 26, 1995 and March 31, 1996, for interest based on
the Parent's cost of borrowed funds. Subsequent to the Exchange described in
Note 10 of the December 31, 1995 financial statements, interest charges will
be based on the terms of the credit agreement with the Parent.
4. INTANGIBLE ASSETS
The Company assesses the recoverability of its intangible assets by
determining whether the amortization of the intangible asset over its
remaining life can be recovered through undiscounted projected future
operating cash flows. As a result of this ongoing review, projected cash flows
were considered sufficient to support the recoverability of intangible assets.
However, in light of accelerating changes in technology and the Company's
history of losses, the Company's management considered a reduction in the
amortization period to be appropriate. Accordingly, management reduced the
life of goodwill from an original term of 40 years (with approximately 30
years remaining) to 15 years prospectively, effective January 1, 1996. The
effect of the change in amortization period, recorded on a prospective basis,
is $426,000 for the quarter ended March 31, 1996.
5. CONTINGENCIES
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board (the Water Board) relating to its facility in Anaheim,
California. This plan contemplates site assessment and monitoring of several
ground water sampling wells at the site. No remediation has been ordered or is
considered probable of being ordered and therefore, no liability has been
recorded for any such activities. Due to the nature of the contingency,
management is unable to estimate a possible range of costs that might be
incurred should remediation be required.
F-45
<PAGE>
APPENDIX A-1
------------
PLAN OF REORGANIZATION
and
AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
by and among
LOCKHEED MARTIN CORPORATION,
a Maryland corporation,
CALCOMP INC.,
a California corporation
and
SUMMAGRAPHICS CORPORATION,
a Delaware corporation
dated as of March 19, 1996
<PAGE>
Table of Contents
-----------------
ARTICLE I
THE EXCHANGE
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1 The Exchange.................................... 1
1.2 Closing......................................... 2
1.3 Determination of Summagraphics Exchange Shares.. 2
1.4 Employee Benefits............................... 3
1.5 Board of Directors.............................. 3
1.6 Officers........................................ 4
1.7 Name Change..................................... 4
1.8 Treatment of Stock Options/Severance/Incentive
Compensation................................... 4
1.9 Certain Definitions............................. 4
ARTICLE II
CERTAIN EVENTS PRECEDING CLOSING
2.1 Proxy Statement................................. 5
2.2 Interim Financing............................... 6
2.3 Transfer of AGT Holdings, Inc. Stock............ 6
2.4 Additional Filings.............................. 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Summagraphics. 6
(a) ORGANIZATION AND AUTHORITY.................. 6
(b) CAPITAL STRUCTURE........................... 7
(c) AUTHORITY................................... 7
(d) SUBSIDIARIES................................ 8
(e) FINANCIAL STATEMENTS........................ 8
(f) ABSENCE OF UNDISCLOSED LIABILITIES.......... 8
(g) NO MATERIAL ADVERSE CHANGES................. 9
(h) TAX MATTERS................................. 9
(i) PROPERTY.................................... 10
(j) LITIGATION.................................. 10
(k) CONTRACTS AND COMMITMENTS................... 10
(l) ACCURACY OF INFORMATION SUPPLIED............ 11
(m) SUMMAGRAPHICS' EMPLOYEE BENEFIT PLANS....... 12
(n) ENVIRONMENTAL MATTERS....................... 14
(o) EMPLOYEES; DIRECTORS AND OFFICERS........... 16
(p) COMPLIANCE WITH LAWS........................ 16
(q) INSURANCE................................... 17
(r) APPLICABLE TAKEOVER LAWS.................... 17
(i)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(s) PRODUCT AND SERVICE WARRANTY............... 17
(t) SUMMAGRAPHICS COMMON STOCK TO BE ISSUED.... 18
(u) LABOR DISPUTES............................. 18
(v) TECHNOLOGY................................. 18
(w) OPINION OF FINANCIAL ADVISOR............... 19
(x) BOOKS AND RECORDS.......................... 19
(y) FULL DISCLOSURE............................ 19
(z) INVESTMENT REPRESENTATION.................. 20
(aa)BANKS AND FINANCIAL INSTITUTIONS........... 20
(bb)BACKLOG.................................... 20
3.2 Representations and Warranties of CalComp...... 20
(a) ORGANIZATION, STANDING AND POWER........... 20
(b) CAPITAL STRUCTURE.......................... 21
(c) AUTHORITY.................................. 21
(d) SUBSIDIARIES............................... 21
(e) FINANCIAL STATEMENTS....................... 22
(f) ABSENCE OF UNDISCLOSED LIABILITY........... 22
(g) NO MATERIAL ADVERSE CHANGE................. 22
(h) LITIGATION................................. 23
(i) ACCURACY OF INFORMATION SUPPLIED........... 23
(j) ENVIRONMENTAL MATTERS...................... 23
(k) COMPLIANCE WITH LAWS....................... 24
(l) TECHNOLOGY................................. 24
3.3 Representations and Warranties of Lockheed
Martin........................................ 25
(a) ORGANIZATION AND STANDING.................. 25
(b) AUTHORITY.................................. 25
(c) LITIGATION................................. 25
(d) OWNERSHIP OF CALCOMP EXCHANGE SHARES....... 26
(e) INVESTMENT REPRESENTATION.................. 26
(f) TAX MATTERS................................ 26
(g) ACCURACY OF INFORMATION SUPPLIED........... 27
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
4.1 Conduct of the Business of Summagraphics and
its Subsidiaries' Prior to the Closing....... 27
4.2 Forbearance................................... 27
4.3 No Solicitation............................... 29
4.4 Termination Fee............................... 30
4.5 Compliance with Tax-Free Provisions........... 30
4.6 Access and Information; Cooperation........... 30
4.7 Confidentiality............................... 31
4.8 Public Announcements.......................... 32
4.9 Consents...................................... 32
4.10 Meeting of Summagraphics Stockholders......... 32
(ii)
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ARTICLE V
ADDITIONAL COVENANTS OF SUMMAGRAPHICS
5.1 Issuance of Stock.............................. 33
5.2 Intercompany Agreements........................ 33
5.3 Amendment and Restatement of Articles of
Incorporation................................. 33
5.4 Preparation of Proxy Statement................. 34
5.5 Additional Listing Application................. 34
5.6 Filing of Form 10-C............................ 34
5.7 Hart-Scott-Rodino.............................. 34
5.8 Stock Option Plan.............................. 34
ARTICLE VI
COVENANTS OF CALCOMP AND LOCKHEED MARTIN
6.1 Transfer of CalComp Exchange Shares............ 34
6.2 Intercompany Agreements........................ 34
6.3 Preparation of Proxy Statement................. 34
6.4 Hart-Scott-Rodino.............................. 34
6.5 CalComp Financial Statements................... 35
6.6 Pre-Closing Assistance......................... 35
ARTICLE VII
CONDITIONS PRECEDENT TO CALCOMP'S
AND LOCKHEED MARTIN'S OBLIGATIONS HEREUNDER
7.1 Representations, Warranties, Covenants......... 35
7.2 No Adverse Canges.............................. 36
7.3 Due Diligence Audit of Summagraphics and its
Subsidiaries.................................. 36
7.4 Legal Opinion.................................. 36
7.5 No Adverse Proceedings......................... 36
7.6 Intercompany Agreements........................ 36
7.7 Approval by Stockholders of the Agreement, the
Stock Option Plan and Amendment and
Restatement of Summagraphics'
Articles of Incorporation..................... 36
7.8 Additional Listing Application................. 37
7.9 Secretary's Certificate........................ 37
7.10 Compliance With Laws/Government Approvals...... 37
7.11 Backlog........................................ 37
ARTICLE VIII
CONDITIONS PRECEDENT TO SUMMAGRAPHICS' OBLIGATIONS HEREUNDER
8.1 Representations, Warranties, Covenants......... 37
8.2 No Adverse Proceedings or Events............... 38
(iii)
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8.3 No Adverse Changes............................. 38
8.4 Legal Opinion.................................. 38
8.5 Fairness Opinion............................... 38
8.6 Stockholder Approval........................... 38
8.7 Secretary's Certificate........................ 38
8.8 Intercompany Agreements........................ 38
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Update Disclosure; Breaches.................... 38
9.2 Tax Returns.................................... 39
9.3 Best Efforts and Further Assurances............ 39
9.4 Payoff of Outstanding Indebtedness............. 39
9.5 Directors and Officers Liability Insurance..... 39
9.6 CalComp Taxes.................................. 40
ARTICLE X
TERMINATION, AMENDMENT, SURVIVAL OF
REPRESENTATIONS AND MISCELLANEOUS
10.1 Amendment...................................... 40
10.2 Termination.................................... 40
10.3 Survival of Representations and Covenants...... 42
10.4 Expenses....................................... 42
10.5 Notices........................................ 42
10.6 Entire Agreement in Effect..................... 43
10.7 General........................................ 43
10.8 Governing Law.................................. 43
10.9 Counterparts................................... 43
(iv)
</TABLE>
<PAGE>
List of Schedules and Exhibits
- ------------------------------
Schedule 1.3 Determination of Exchange Shares
Schedule 1.8 Treatment of Stock
Options/Severance/Incentive Compensation
Schedule 3.1(a) Organization and Authority
Schedule 3.1(b)(1) Capital Structure
Schedule 3.1(c) Summagraphics Corporation - Corporate
Authority
Schedule 3.1(d) Summagraphics Corporation - Subsidiaries
Schedule 3.1(e) Summagraphics Corporation - Financial
Statements
Schedule 3.1(f) Summagraphics Corporation - Absence of
Undisclosed Liabilities
Schedule 3.1(i)(1)(v) Summagraphics Corporation - Property
(Encumbrances)
Schedule 3.1(j) Summagraphics Corporation - Litigation
Schedule 3.1(k) Summagraphics Corporation - Contracts and
Commitments
Schedule 3.1(m) Summagraphics Corporation - Employee
Benefit Plans
Schedule 3.1(m)(vii) Summagraphics Corporation - No Violations
of Plan
Schedule 3.1(n)(ii) Summagraphics Corporation - Violations
Schedule 3.1(n)(iii) Summagraphics Corporation - Environmental
Proceedings
Schedule 3.1(n)(v) Summagraphics Corporation - Environmental
Permits
Schedule 3.1(n)(vi) Summagraphics Corporation - Environmental
Spills
Schedule 3.1(n)(vii) Hazardous Waste Handling
Schedule 3.1(o) Summagraphics Corporation - Employees;
Directors and Officers
Schedule 3.1(p) Summagraphics Corporation - Compliance
With Laws
Schedule 3.1(s) Summagraphics Corporation - Product and
Service Warranty
Schedule 3.1(u) Summagraphics Corporation - Labor Disputes
Schedule 3.1(v) Summagraphics Corporation -Technology
Schedule 3.1(w) Summagraphics Corporation - Opinion of
Financial Advisor
Schedule 3.1(aa) Summagraphics Corporation - Banks and
Financial Institutions
Schedule 3.2(d) CalComp Inc. - Subsidiaries
Schedule 3.2(e) CalComp Inc. - Financial Statements
Schedule 3.2(j) CalComp Inc. - Environmental Matters
Schedule 3.2(k) CalComp Inc. - Compliance With Laws
Schedule 3.2(l) CalComp Inc. - Technology
Schedule 4.2 Forbearance
(v)
<PAGE>
Exhibit A Secured Convertible Debenture
Exhibit B Intercompany Services Agreement
Exhibit C Cash Management Agreement
Exhibit D Tax Sharing Agreement
Exhibit E Revolving Credit Agreement
Exhibit F Registration Rights Agreement
Exhibit G Corporate Agreement
Exhibit H Fourth Amended and Restated Articles of
Incorporation
Exhibit I Stock Option Plan
(vi)
<PAGE>
PLAN OF REORGANIZATION AND AGREEMENT FOR THE EXCHANGE OF STOCK
OF CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
THIS PLAN OF REORGANIZATION AND AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION (this "Agreement"), dated
this 19th day of March, 1996, is entered into by and among LOCKHEED MARTIN
CORPORATION, a Maryland corporation ("Lockheed Martin"), CALCOMP INC., a
California corporation ("CalComp") and SUMMAGRAPHICS CORPORATION, a Delaware
corporation ("Summagraphics"). Lockheed Martin, CalComp and Summagraphics
individually are being referred to herein as a "Party" and collectively are
referred to herein as "Parties."
W I T N E S E T H:
- - - - - - - - -
WHEREAS, CalComp has an authorized capital of 1,000 shares of Common
Stock of which 1,000 shares are issued and outstanding as of the date of this
Agreement, all of which are owned by Lockheed Martin;
WHEREAS, Summagraphics has an authorized capital of 20,000,000 shares
of Common Stock, par value $.01 per share, of which 4,623,735 shares are issued
and outstanding as of the date of this Agreement, and 5,000,000 shares of
Preferred Stock, par value $.01 per share, none of which are outstanding as of
the date of this Agreement;
WHEREAS, the boards of directors of each of Lockheed Martin, CalComp
and Summagraphics deem it advisable and in the best interests of the Parties and
their stockholders that Lockheed Martin exchange all of the issued and
outstanding capital stock of CalComp for a number of newly issued shares of
Common Stock of Summagraphics (the "Exchange"), as determined in accordance with
the provisions of Section 1.3 below;
WHEREAS, the Board of Directors of Summagraphics has approved (i) the
transactions contemplated by this Agreement, (ii) the Fourth Amended and
Restated Articles of Incorporation (as defined in Section 5.3) and (iii) the
Stock Option Plan (as defined in Section 5.8) and recommended their submission
to the stockholders of Summagraphics for approval;
WHEREAS, the Parties desire the Exchange to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Parties desire to provide for certain undertakings,
conditions, warranties, representations and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
Parties agree as follows:
ARTICLE I
THE EXCHANGE
1.1 The Exchange. Upon performance of all covenants and obligations
------------
of the Parties contained in this Agreement and upon the
<PAGE>
terms and conditions contained herein, on the Closing Date (as hereinafter
defined) Lockheed Martin agrees to transfer and deliver, or cause to be
transferred and delivered, to Summagraphics all of the issued and outstanding
CalComp Common Stock (the "CalComp Exchange Shares"), and Summagraphics agrees
to issue and deliver to Lockheed Martin (or a direct or indirect wholly owned
subsidiary of Lockheed Martin) such number of shares of Summagraphics Common
Stock as is determined in accordance with the provisions of Section 1.3 below
(the "Summagraphics Exchange Shares"). As a result of the Exchange,
Summagraphics shall own 100% of the issued and outstanding capital stock of
CalComp and Lockheed Martin (or a direct or indirect wholly owned subsidiary)
shall own in the aggregate 89.7% of all of the issued and outstanding shares of
Summagraphics Common Stock outstanding immediately following the Exchange (on a
Fully Diluted Basis).
1.2 Closing. The consummation of the transactions contemplated by
-------
this Agreement (the "Closing") will take place at such time on a date not prior
to May 8, 1996 (the "Closing Date") as shall be mutually agreed to by Lockheed
Martin and Summagraphics but in any case shall be as soon as reasonably
practicable on or after the date of Summagraphics' special meeting of
stockholders called to consider the Exchange. In no event shall the Closing
Date be later than May 31, 1996, provided that if Securities and Exchange
Commission clearance of the Proxy Statement (as hereinafter defined) occurs
after April 26, 1996, the time for the Closing will be extended by a number of
days equal to the number of days after April 26, 1996 that such clearance is
received, but in no event beyond June 15, 1996.
1.3 Determination of Summagraphics Exchange Shares. The number of
----------------------------------------------
Summagraphics Exchange Shares delivered to Lockheed Martin shall equal a number
of shares of Summagraphics Common Stock determined so that immediately after the
Exchange Lockheed Martin owns 89.7% of all of the issued and outstanding capital
stock of Summagraphics determined on a Fully Diluted Basis. For purposes of
this Agreement, "Fully Diluted Basis" shall mean a basis whereby the aggregate
number of shares of Common Stock for such determination includes (i) all
Summagraphics Common Stock then issued and outstanding, (ii) all Summagraphics
Common Stock that would be issued and outstanding upon the exercise, conversion
or exchange of all outstanding warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Summagraphics Common Stock (or
rights to acquire any such warrants, options or other rights), regardless of
whether such warrants, options or other rights are then exercisable, convertible
or exchangeable, (iii) all Summagraphics Common Stock which would be outstanding
upon the exercise, conversion or exchange of all outstanding evidences of
indebtedness, shares of capital stock or other securities (or rights to acquire
any of the foregoing) which are or may be exercisable, convertible or
exchangeable into shares of Common Stock, regardless of whether such evidences
of indebtedness, shares of stock or other securities are then exercisable,
convertible or exchangeable, and (iv) the Summagraphics Exchange Shares issuable
upon such determination but excluding Summagraphics Common Stock issuable upon
conversion of the Secured Convertible Debenture. For purposes of
2
<PAGE>
subsections (ii) and (iii) above, the number of shares of Summagraphics Common
Stock issuable pursuant to options, warrants and rights of conversion that will
be deemed to be outstanding will be determined using the "Treasury Stock Method"
of accounting as defined in APB Opinion 15 based on an average of the closing
prices, as reported in the Wall Street Journal -- NASDAQ National Market Issues,
for the five days preceding Closing. An example of the calculation provided
above is attached as Schedule 1.3.
1.4 Employee Benefits. Employees of CalComp and its subsidiaries
-----------------
(each subsidiary of CalComp is hereinafter referred to as a "CalComp Subsidiary"
or collectively as the "CalComp Subsidiaries") immediately prior to the Exchange
will be eligible to continue to participate in all of the employee benefit
programs of CalComp in which such employees were eligible to participate on the
same terms and conditions as were previously applicable; provided, however, that
they continue to meet the eligibility requirements of those programs. Employees
of Summagraphics and its subsidiaries (each subsidiary of Summagraphics is
hereinafter referred to as a "Summagraphics Subsidiary" or collectively as the
"Summagraphics Subsidiaries") who are employees of Summagraphics or a
Summagraphics Subsidiary immediately prior to the Exchange and who are not made
eligible to participate in the employee benefit programs of CalComp following
the Exchange will be eligible to continue to participate in all of the employee
benefit plans of Summagraphics in which such employees were eligible to
participate prior to the Exchange on the same terms and conditions as were
previously applicable; provided, however, that they continue to meet the
eligibility requirements of those programs. In the event that the Parties shall
determine to extend eligibility to participate in the employee benefit programs
of CalComp to employees who are employees of Summagraphics immediately prior to
the Exchange, (i) service with Summagraphics and Summagraphics Subsidiaries
shall be considered service with CalComp for purposes of determining eligibility
and vesting under all such CalComp employee benefit programs and (ii) medical
plans of CalComp will offer Summagraphics' employees full coverage for pre-
existing conditions and credit for deductibles and co-insurance payments to date
during the plan year. Notwithstanding the foregoing, nothing contained in this
Section 1.4 shall be deemed to convey any right or benefit upon any employee of
CalComp or CalComp Subsidiaries or Summagraphics or Summagraphics Subsidiaries
nor shall any such employee be entitled to enforce any provision of this Section
1.4. Nothing contained in this Section 1.4 shall be deemed to prohibit
Summagraphics or CalComp or any of their respective Subsidiaries from
terminating any employment relationship or any employee benefit program or
changing the terms or conditions of employment or any employee benefit program
at any time following the Closing.
1.5 Board of Directors of Summagraphics. At the Closing,
-----------------------------------
Summagraphics shall deliver to Lockheed Martin letters effecting the resignation
as of Closing of each of the then current directors of Summagraphics whose
resignation is requested in writing by Lockheed Martin prior to Closing and
Lockheed Martin shall appoint new directors by written consent. Lockheed Martin
shall provide information with respect to the composition of the board of
3
<PAGE>
directors which it will appoint for use in connection with the Proxy Statement
(as hereinafter defined).
1.6 Officers of Summagraphics. At the Closing, Summagraphics shall
-------------------------
deliver to Lockheed Martin letters effecting the resignation as of Closing of
each of the then current officers of Summagraphics whose resignation is
requested in writing by Lockheed Martin prior to Closing and the new Board of
Directors of Summagraphics to be appointed by written consent of Lockheed Martin
under Section 1.5 above shall appoint new officers by written consent.
Notwithstanding such resignations, it is understood and agreed that the officers
are not waiving any rights they otherwise may have under employment and
severance arrangements existing as of February 1, 1996 or any additional
arrangements approved by Lockheed Martin and CalComp.
1.7 Name Change. Effective upon the Closing, Summagraphics shall
-----------
change its name to CalComp Inc. and CalComp shall change its name to CalComp
Technologies, Inc.
1.8 Treatment of Stock Options/Severance/Incentive Compensation. The
-----------------------------------------------------------
manner in which currently outstanding employee stock options, employee severance
payments and employee incentive compensation will be treated is as reflected on
the letter attached to this Agreement as Schedule 1.8.
1.9 Certain Definitions. As used in this
-------------------
Agreement, the following terms shall have the meanings set forth below:
(a) "material" means material to Summagraphics or CalComp (as the case
may be) and its respective subsidiaries, taken as a whole, and determined in
light of the facts and circumstances of the matter in question; provided, that
any specific monetary amount stated in this Agreement with respect to
materiality shall determine materiality in that instance.
(b) "Material Adverse Effect," with respect to a Party, means an
event, change or occurrence which, individually or in the aggregate, (i) is
reasonably likely to result in a reduction in the consolidated stockholders'
equity of such Party and its subsidiaries, taken as a whole, by the amount equal
to or greater than $2,000,000 for Summagraphics and $15,000,000 for CalComp or
(ii) which has a material adverse impact on the ability of such Party to
consummate the Exchange contemplated by this Agreement, provided that in
determining whether a Material Adverse Effect has occurred under either (i) or
(ii), the effect of foreign currency translations recorded in the Parties equity
in accordance with SFAS 52 for the applicable period shall be disregarded and
the adverse impact of changes in laws or regulations or accounting rules of
general applicability or interpretations thereof shall not be included.
(c) "person" includes an individual, corporation, partnership, limited
liability company, association, trust or unincorporated organization.
4
<PAGE>
(d) "to the knowledge of" or "to the best of the knowledge of"
Summagraphics or CalComp or similar phrases includes the actual knowledge of the
current directors, the current executive officers (including the knowledge of
the chief executive officer and chief financial officer (or person performing
those functions) after reasonable inquiry) and the general counsel of
Summagraphics or CalComp, as the case may be. For purposes of determining
whether a person has actual knowledge of any fact, event, change or occurrence,
such person shall be deemed to have the knowledge relating to such fact, event,
change or occurrence which would have been gained had such person undertaken a
reasonable inquiry in respect thereto.
(e) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns relating to Taxes.
(f) "Taxes" shall mean all Federal, state, local and foreign taxes,
and other assessments of a similar nature (whether imposed directly or through
withholding) including, but not limited to, income, excise, property, sales,
use, gains, transfer, franchise, payroll, value-added, withholding, employment,
license fees, customs, duties, and other taxes, assessments and charges imposed
by any governmental authority, including any interest, penalties or other
additions to tax with respect to such amounts.
ARTICLE II
CERTAIN EVENTS PRECEDING CLOSING
In addition to the conditions precedent set forth in ARTICLES VII and
VIII, the following events shall occur:
2.1 Proxy Statement. As promptly as practicable after the execution
---------------
and delivery of this Agreement, and in any event on or prior to March 25, 1996,
the Parties shall prepare, and Summagraphics shall file with the Securities and
Exchange Commission (the "SEC"), preliminary proxy materials (in form and
content reasonably satisfactory to Lockheed Martin and CalComp) relating to the
approval of the Fourth Amended and Restated Articles of Incorporation (as
defined in Section 5.3), the Stock Option Plan (as defined in Section 5.8) and
the transactions contemplated hereby by the stockholders of Summagraphics and,
as promptly as practicable following receipt of SEC comments thereon, if any,
Summagraphics shall file definitive proxy materials (the "Proxy Statement") with
the SEC, which comply in form and substance with applicable SEC requirements,
taking into account such comments and mail the Proxy Statement to its
shareholders. The Proxy Statement shall include a recommendation of the Board
of Directors of Summagraphics in favor of the Fourth Amended and Restated
Articles of Incorporation, the Stock Option Plan and the transactions
contemplated by this Agreement which shall not be changed unless the Board of
Directors of Summagraphics, upon receipt of an unsolicited written proposal or
offer which qualifies as an Acquisition Proposal within the meaning of Section
4.4 hereof or upon delivery of a notice by Summagraphics of termination of this
Agreement in accordance with Section 10.2(b) based upon a
5
<PAGE>
material breach by Lockheed Martin of a representation, warranty, covenant or
agreement contained herein, shall have received an opinion of counsel from
Hughes & Luce, L.P. to the effect that to include such recommendation or not
withdraw such recommendation if it were previously included is reasonably likely
to result in a breach of the Board's fiduciary duty under applicable law.
Lockheed Martin and CalComp shall furnish all information concerning CalComp and
Lockheed Martin as may be reasonably requested by Summagraphics in connection
with the actions contemplated by this Section 2.1.
2.2 Interim Financing. Simultaneously with the execution and
-----------------
delivery of this Agreement, Summagraphics and Lockheed Martin shall execute and
deliver the 9-1/4% Secured Convertible Debenture in the form attached hereto as
Exhibit A (the "Secured Convertible Debenture") pursuant to which Lockheed
Martin will make available borrowings and other forms of credit support in an
aggregate principal amount not to exceed $2,500,000 to Summagraphics for the
period between the execution and delivery of this Agreement and the Closing.
2.3 Transfer of AGT Holdings, Inc. Stock. As soon as practicable
------------------------------------
following May 8, 1996 and prior to Closing, CalComp shall distribute all of the
issued and outstanding capital stock of AGT Holdings, Inc., a California
corporation ("AGT") and wholly owned subsidiary of CalComp, to Lockheed Martin.
The Parties acknowledge and agree that Summagraphics shall obtain no interest in
the shares of AGT (and, consequently, the shares of Access Graphics Inc. owned
by AGT) as a result of the transactions contemplated by this Agreement.
2.4 Additional Filings. As promptly as practicable after the
------------------
execution and delivery of this Agreement, each of the Parties shall prepare and
file, or cause to be filed, any and all filings necessary or appropriate for the
consummation of the transactions contemplated by this Agreement, including
without limitation, any and all foreign filings and any and all filings under
the Hart Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), as
contemplated by Sections 5.7 and 6.4 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Summagraphics. In order to
-----------------------------------------------
induce Lockheed Martin and CalComp to enter into this Agreement and to
effectuate the transactions contemplated hereby, Summagraphics represents and
warrants to Lockheed Martin the following:
(a) ORGANIZATION AND AUTHORITY. Summagraphics is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Each of the Summagraphics Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated. Each of Summagraphics and the Summagraphics
Subsidiaries (as defined in Section 3.1(d)) has all requisite power
6
<PAGE>
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Attached hereto as Schedule 3.1(a) for each of
Summagraphics and each Summagraphics Subsidiary are complete and correct copies
of (1) their charters (or other organizational documents) and all amendments
thereto to the date hereof and (2) their bylaws (or other similar governing
documents) as amended to the date hereof.
(b) CAPITAL STRUCTURE.
(1) As of the date of this Agreement, the authorized capital stock of
Summagraphics consists of 20,000,000 shares of Common Stock, $.01 par value per
share, and 5,000,000 shares of Summagraphics Preferred Stock, $.01 par value per
share. As of the date hereof, 4,623,735 shares of Summagraphics Common Stock
are outstanding, all of which are validly issued, fully paid and nonassessable.
Summagraphics has no outstanding Preferred Stock. As of the date hereof,
Summagraphics has outstanding options and warrants to purchase Summagraphics
Common Stock as set forth on Schedule 3.1(b)(1).
(2) Summagraphics has no commitments to issue or sell any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for such shares (other than those stock options and warrants listed
on Schedule 3.1(b)(1)), or giving any person the right to subscribe for or
acquire any such shares and no securities or obligations representing such
rights are outstanding.
(3) Since December 31, 1994, Summagraphics has not adjusted or amended
the exercise price of any stock option previously awarded to any officer of
Summagraphics, whether through amendment, cancellation or replacement grants, or
any other means.
(4) Summagraphics has not issued any stock appreciation right or any
similar right entitling any person to any payment based on the value of
Summagraphics capital stock.
(c) AUTHORITY. The execution of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the Board
of Directors of Summagraphics. Each of the Fourth Amended and Restated Articles
of Incorporation (as defined in Section 5.3) and the Stock Option Plan (as
defined in Section 5.8) have been approved by the Board of Directors of
Summagraphics with the recommendation that, together with the transactions
contemplated by this Agreement, they be submitted to the shareholders of
Summagraphics for approval. This Agreement is the valid and binding obligation
of Summagraphics and no further corporate authorization on the part of
Summagraphics is necessary to consummate the transactions contemplated hereby or
thereby except the approval by the stockholders of Summagraphics of (i) the
Fourth Amended and Restated Articles of Incorporation pursuant to applicable
law, (ii) the Stock Option Plan and (iii) the consummation of the Exchange
pursuant to the requirements of the National Association of Securities Dealers.
Except as otherwise set forth on Schedule 3.1(c), neither the execution and
delivery of this Agreement, the consummation in accordance with the terms of
7
<PAGE>
this Agreement of the transactions contemplated hereby nor compliance by
Summagraphics or any Summagraphics Subsidiary with any provision hereof or
thereof will (i) conflict with or result in a breach of any provision of their
charters or bylaws (or other governing documents) or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license, agreement
or other instrument or obligation to which Summagraphics or any Summagraphics
Subsidiary is a party or by which Summagraphics or any Summagraphics Subsidiary
or any of their respective properties or assets may be bound, or (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Summagraphics or any Summagraphics Subsidiary or any of their respective
properties or assets. Except as otherwise disclosed on Schedule 3.1(c), no
consent is required in connection with the execution and delivery by
Summagraphics of this Agreement or the consummation of the transactions
contemplated hereby.
(d) SUBSIDIARIES. Except as set forth on Schedule 3.1(d),
Summagraphics owns all the issued and outstanding shares of capital stock of
each of Summagraphics Europe N.V., Summagraphics Belgium, N.V., Summagraphics
Ltd., Summagraphics GmbH and CAD Warehouse, Inc. (collectively, the
"Summagraphics Subsidiaries"). Except as set forth on Schedule 3.1(d), other
than the Summagraphics Subsidiaries, neither Summagraphics nor any Summagraphics
Subsidiary owns any shares of capital stock of any corporation or equity
interests in any other person, nor does Summagraphics or any Summagraphics
Subsidiary have or will have on the Closing Date any other subsidiaries.
(e) FINANCIAL STATEMENTS. Attached hereto as Schedule 3.1(e) are
Summagraphics' Annual Report to Stockholders and Form 10-K for the fiscal year
ended May 31, 1995 and Summagraphics' Quarterly Report on Form 10-Q for the
period ended November 30, 1995 which includes (1) the Unaudited Consolidated
Balance Sheet as of November 30, 1995; (2) the Unaudited Consolidated Statements
of Changes in Stockholders' Equity for the six months ended November 30, 1995
and 1994; (3) the Unaudited Consolidated Statement of Income for the six months
ended November 30, 1995 and 1994 and (4) the Unaudited Consolidated Statements
of Cash Flow for the six months ended November 30, 1995 and 1994 together with
the Notes to those Consolidated Statements (the "Summagraphics Financial
Statements"). Subject to the absence of certain footnote information in the
unaudited statements, the Summagraphics Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated or as more particularly set
forth therein. The Unaudited Consolidated Balance Sheets included as a part of
the Summagraphics Financial Statements present fairly as of their respective
dates the consolidated financial position and assets and liabilities of
Summagraphics. The Unaudited Consolidated Statements of Income present fairly
the consolidated results of operations of Summagraphics for the periods
indicated.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the Summagraphics Financial
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Statements or as disclosed on Schedule 3.1(f), neither Summagraphics nor any
Summagraphics Subsidiary has (i) any liabilities or obligations of any nature or
(ii) any liabilities in the nature of employment contracts with, or agreements
to pay bonuses to any of its directors, officers or employees, other than
liabilities or obligations incurred in the ordinary course of business or
specifically identified in schedules to this Agreement.
(g) NO MATERIAL ADVERSE CHANGES. Since November 30, 1995, there has
been and as of the Closing there will be no material adverse change in the
assets or liabilities or in the business or condition (financial or otherwise)
of Summagraphics or any Summagraphics Subsidiary.
(h) TAX MATTERS.
(1) Summagraphics and each of the Summagraphics Subsidiaries have
filed (or have caused to be filed on their behalf), or will file or cause to be
filed, all Tax Returns required to be filed prior to the Closing, and have paid
all Taxes required to be paid in respect of the periods covered by such Tax
Returns or, where payment of such Taxes is not yet due, have established or will
establish prior to the Closing, an adequate reserve for the payment of all Taxes
which are accruable prior to the Closing. Summagraphics and the Summagraphics
Subsidiaries will not have any material liability for any such Taxes in excess
of the amounts so paid or the reserve so established and Summagraphics and the
Summagraphics Subsidiaries are not delinquent in the payment of any material
assessment of Taxes. No material deficiencies for any assessment of Taxes have
been proposed, asserted or assessed against Summagraphics or the Summagraphics
Subsidiaries which would not be covered by existing reserves and, as of the date
of this Agreement, no requests for waivers of the time to assess any such Taxes
are pending. To the best of its knowledge, Summagraphics and each of the
Summagraphics Subsidiaries, has complied with all IRS requirements regarding the
certification of taxpayer identification numbers of customers and backup
withholding.
(2) There are no liens for any Taxes upon the assets of Summagraphics
or any Summagraphics Subsidiary, other than statutory liens for Taxes not yet
due and payable.
(3) Neither Summagraphics nor any Summagraphics Subsidiary is a party
to, is bound by, or has any obligation under, a tax sharing agreement or
arrangement for the allocation, apportionment, sharing, indemnification, or
payment of Taxes.
(4) Neither Summagraphics nor any Summagraphics Subsidiary is a party
to any agreement, contract or other arrangement that would result, separately or
in the aggregate, in the requirement to pay any "excess parachute payments"
within the meaning of Section 280G of the Code, or any gross-up in connection
with such an agreement, contract or arrangement.
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(i) PROPERTY.
(1) Summagraphics and the Summagraphics Subsidiaries own all operating
real properties reflected as owned by them in the Summagraphics Financial
Statements free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever (collectively, "Encumbrances"), except (i)
liens for current taxes not yet due and payable, (ii) mortgages, deeds of trust
or other Encumbrances reflected in the Summagraphics Financial Statements, (iii)
such imperfections of title, easements and other Encumbrances as do not detract
from or interfere with the present use of such operating real properties subject
thereto or affected thereby, (iv) Encumbrances incurred in the ordinary course
of business after the date of this Agreement with the written consent of
Lockheed Martin, and (v) Encumbrances disclosed on Schedule 3.1(i)(1)(v)
attached hereto.
(2) As of the date of this Agreement, substantially all tangible real
or personal property and assets material to the business operation or financial
condition of Summagraphics and the Summagraphics Subsidiaries on a consolidated
basis which are owned by them or in which any of them has an interest (other
than a security interest) are in good operating condition and repair, ordinary
wear and tear excepted.
(3) All leases material to Summagraphics and the Summagraphics
Subsidiaries on a consolidated basis pursuant to which Summagraphics and the
Summagraphics Subsidiaries lease real property are valid and effective in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, and there is not, under any such
leases, any existing default by Summagraphics or the Summagraphics Subsidiaries
or any event which with notice or lapse of time or both would constitute such a
material default.
(j) LITIGATION. Other than as set forth in Schedule 3.1(j), neither
Summagraphics nor any of the Summagraphics Subsidiaries is a party to any
pending or, to the best of Summagraphics' knowledge, threatened claim, action,
suit, investigation or proceeding, nor is Summagraphics or any of the
Summagraphics Subsidiaries subject to any order, judgment or decree. Except as
set forth on Schedule 3.1(j), neither Summagraphics nor any of the Summagraphics
Subsidiaries is subject to any agreement, memorandum of understanding or similar
arrangement with any regulatory authority restricting its operations or
requiring that certain actions be taken, and, neither Summagraphics nor any of
the Summagraphics Subsidiaries has received any notification from any
governmental or regulatory authority, or the staff thereof, asserting that it is
not in compliance with any statutes, regulations or ordinances which such
authority enforces.
(k) CONTRACTS AND COMMITMENTS. Except as reflected in the
Summagraphics Financial Statements or as set forth on Schedule 3.1(k), neither
Summagraphics nor the Summagraphics Subsidiaries has as of the date hereof and,
except to the extent consented to in writing by Lockheed Martin, neither
Summagraphics
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nor any of the Summagraphics Subsidiaries will have on the Closing Date:
(1) any bonus, stock option or stock appreciation right or similar
plans, deferred compensation plans, profit-sharing, retirement arrangements or
other fringe benefit plans (other than those terminable at will by Summagraphics
or the Summagraphics Subsidiary) nor any outstanding calls, commitments or
agreements of any character requiring the issuance of shares of its capital
stock;
(2) any debt obligations for borrowed money (including guaranties or
agreements to acquire such debt obligations of others);
(3) any outstanding loans to any person;
(4) any agreement for services or for the purchase or disposition of
any equipment or supplies except those incurred in the ordinary course of
business;
(5) any lease of personal property with annual rent aggregating
$50,000 or more;
(6) any agreement or contract with any third party for the provision
of services to Summagraphics or the Summagraphics Subsidiaries which involves
payment by Summagraphics or the Summagraphics Subsidiaries of more than $10,000
per month and which (i) has more than six months to run from the date of this
Agreement or (ii) may not be canceled by Summagraphics or the Summagraphics
Subsidiaries as appropriate on 180 days notice or less without penalty; or
(7) any outstanding loans to or loan participations with its officers,
directors, significant stockholders (collectively "Insiders"), or to firms,
partnerships or corporations in which any Insiders are partners, executive
officers, directors or significant stockholders or to any Affiliate of an
Insider or any contract, arrangement or understanding with any Insider or any
Affiliate of any Insider requiring Summagraphics or any Summagraphics
Subsidiaries to perform services or make payments in the future.
(l) ACCURACY OF INFORMATION SUPPLIED. As of their respective filing
dates, Summagraphics' Annual Reports on Form 10-K for the fiscal years ended May
31, 1995 and 1994, and any other filings made from and after the date of such
latest Annual Report on Form 10-K with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (such filings being
collectively referred to herein as the "Summagraphics Filings") complied in all
material respects with the regulations of the SEC, and none of the Summagraphics
Filings, as of the respective dates thereof, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein not misleading. The
information that will be included (other than information provided in writing by
Lockheed Martin specifically for inclusion in the
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Proxy Statement) in the Proxy Statement or any amendment or supplement thereto
pertaining to the transactions contemplated hereby that is filed with the SEC,
at the time the Proxy Statement is filed and distributed to stockholders of
Summagraphics, will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein in order to make the
statements not misleading, provided that information as of a later date shall be
deemed to modify information of an earlier date. This representation and
warranty is being made solely for the benefit of Lockheed Martin and CalComp and
is not intended, nor shall it be deemed to, create any rights in any third
party.
(m) SUMMAGRAPHICS' EMPLOYEE BENEFIT PLANS. Attached hereto as
Schedule 3.1(m) is a true, correct and complete list of each employee benefit
plan (each, a "Plan") to which Summagraphics or any Summagraphics Subsidiaries
is a party, together with, as applicable, a true and correct copy of (i) the
most recent annual report (Form 5500, 5500-C or 5500-R, as appropriate) filed
with the IRS including audited financial reports, if any, (ii) each IRS
favorable determination letter or opinion letter for each such Plan (or copies
of any current pending correspondence in respect thereof) (iii) all Plan
documents for each such Plan, (iv) each applicable Summary Plan Description, and
(v) the most recent actuarial report or valuation relating to each tax-qualified
plan, or the equivalent of any of the foregoing under applicable law, if any.
Except as set forth on Schedule 3.1(m):
(1) There are no plans, programs, contracts, understandings or
arrangements of any type (whether oral or written) of Summagraphics or a
"Commonly Controlled Entity" (within the meaning of Sections 414(b), (c), (m),
(n) or (o) of the Code or regulations thereunder) which provide for pension,
profit sharing, savings, executive compensation, incentive compensation, company
cars or car allowances, deferred compensation, severance pay, bonuses, stock
options, stock purchases, welfare, group insurance, medical disability, life,
health, hospitalization, dental, vacation, sick pay, holiday, educational
assistance, or any other form of employee or former employee benefits, whether
established by contract, policy, custom or course of dealing, (including, but
not limited to plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); and neither Summagraphics nor a
Commonly Controlled Entity has previously sponsored or contributed to any such
plan, program, contract, understanding or arrangement other than as listed and
described on Schedule 3.1(m);
(2) Neither Summagraphics nor any Commonly Controlled Entity has ever
maintained a Plan which is subject to Title IV of ERISA;
(3) Neither Summagraphics nor any Commonly Controlled Entity has ever
been a party to any collective bargaining agreement;
(4) Neither Summagraphics nor any Commonly Controlled Entity has ever
maintained a "multi-employer plan" within the meaning of Sections 3(37) and
4001(a)(3) of ERISA, a
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"multiple employer plan" within the meaning of Section 413 of the Code, or a
"multiple employer welfare arrangement" within the meaning of Section 3(40) of
ERISA;
(5) With respect to the Plans which are "welfare plans" within the
meaning of Section 3(1) of ERISA: (i) none of those Plans provide medical or
death benefits (whether or not insured) with respect to current or former
employees beyond their termination of employment other than as required by
applicable law; and (ii) each of those Plans have been operated in material
compliance with the provisions of Section 4980B of the Code and Part 6 of Title
I of ERISA and all other applicable laws concerning continuation or conversion
of coverage; and (iii) none of those Plans have any reserves, assets, surplus or
prepaid premiums;
(6) With respect to each of the Plans: (i) if intended to qualify
under Section 401(a) or 403(a) of the Code, the Plan has been maintained and
administered at all times in full compliance with its terms and applicable laws
and regulations and has been so qualified during the period from its adoption to
date and the trust forming a part thereof is exempt from taxation pursuant to
Section 501(a) of the Code, a favorable determination letter as to qualification
under Section 401 of the Code has been issued and any amendments required for
continued qualification under Section 401 of the Code have been timely adopted
and nothing has occurred subsequent to the date of such determination letter
that could reasonably be expected to adversely affect the qualified status of
such Plan; (ii) no event has occurred and there exists no circumstance under
which Summagraphics could directly, or indirectly through a Commonly Controlled
Entity, incur any liability with respect to any current or former employee (or
any beneficiary of any current or former employee) of Summagraphics or any
Commonly Controlled Entity under ERISA, the Code or otherwise (other than the
normal cost of benefits occurring in the ordinary course under the unfunded
Plans); (iii) there are no actions, suits or claims pending or threatened with
respect to any Plan or against any fiduciary or the assets of any Plan (other
than claims for benefits in the ordinary course) and there are no facts which
could give rise to any such actions, suits or claims, and no Plan is under audit
or investigation by any governmental authority; (iv) no event has occurred with
respect to any Plan or any employee benefit plan sponsored, maintained or
contributed to by Summagraphics or a Commonly Controlled Entity which could be
reasonably expected to subject any Plan, Summagraphics or any Party directly or
indirectly (through indemnification agreement or otherwise) to any liability for
or as a result of a breach of fiduciary duty, a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, or a civil
penalty under Section 502 of ERISA or a tax under Section 4971 of the Code; (v)
no "reportable event" (as defined in Section 4043 of ERISA) has occurred; (vi)
no "accumulated funding deficiency" (as defined in Section 302 of ERISA or
Section 412 of the Code) has occurred; (vii) all contributions required to be
made to, or benefit liabilities arising under, any Plan for all periods prior to
the date hereof and the Closing Date have been, or will as of the Closing Date
be, paid or accrued; (viii) all contributions intended to be deductible have met
the requirements for deductibility under the Code; (ix)
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each Plan is in compliance with the annual reporting requirements under ERISA
and the Code; (x) each Plan has been operated in accordance with its terms and
with all applicable laws, including, but not limited to ERISA, the Code, federal
securities laws and state insurance and health care continuation and conversion
laws.
(7) Except as set forth on Schedule 3.1(m)(vii), consummation of the
transactions contemplated by this Agreement will not (i) entitle any individual
to any bonus, incentive or severance pay or payments, or (ii) accelerate the
time of payment or vesting of any benefit under any Plan, increase the amount of
compensation due to any individual from Summagraphics prior to, or after the
Closing Date, or increase any benefits otherwise payable under any Plan, (iii)
result in the payment of an amount subject to the provisions of Section 280G of
the Code, or (iv) give rise to any liability or obligation of Summagraphics
pursuant to any Plan.
(8) Except as previously consented to in writing by Lockheed Martin,
since November 30, 1995, neither Summagraphics nor a Commonly Controlled Entity
has adopted or communicated to employees of Summagraphics any change to, or
termination of, any Plan or the adoption of a new employee benefit plan or
arrangement affecting the employees of Summagraphics or their dependents.
(9) Except in the normal course of business, neither Summagraphics nor
any Summagraphics Subsidiaries is bound to make, nor has Summagraphics or any
Summagraphics Subsidiary proposed the making of, bonus or incentive or other
similar payments to any employees or consultants at any future date or an
increase to the compensation of any employee or consultant. None of
Summagraphics nor any Summagraphics Subsidiaries will be liable by reason of
this Agreement or any of the transactions contemplated hereby, to make payments
to employees by way of damages or compensation for loss of office or for
redundancy or unfair dismissal or any like payment, other than payments of
severance benefits under Plans disclosed in this Agreement as contemplated by
Section 1.8.
(n) ENVIRONMENTAL MATTERS. (i) For purposes of this Section 3.1(n)
and Section 3.2(j), the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state, local or foreign law
(including case or common law), statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface soil, subsurface soil, plant and animal life or any
other natural resource), or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances. The term "Environmental Law"
includes without limitation (i) the Comprehensive Environmental Response,
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Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C. (S) 9601,
et seq; the Resource Conservation and Recovery Act ("RCRA"), as amended, 42
U.S.C. (S) 6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S) 7401,
et seq; the Federal Water Pollution Control act, as amended, 33 U.S.C. (S)
1251, et seq; the Toxic Substances Control Act, as amended, 15
U.S.C.(S) 9601, et seq; the Emergency Planning and Community Right to Know
Act, 42 U.S.C. (S) 11001, et seq; the Safe Drinking Water Act, 42 U.S.C.
(S) 300f, et seq; the Solid Waste Disposal Act, as amended; and all
comparable state and local laws, and (ii) any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance(s)" means any substance that is toxic, ignitable,
reactive, corrosive, radioactive, or caustic or is regulated as a hazardous
substance, contaminant, toxic substance, toxic pollutant, hazardous waste,
or pollutant, including without limitation, petroleum, its derivatives, by-
products and other hydrocarbons, or is otherwise regulated under or the
subject of applicable Environmental Laws.
"Remedial Action" means the investigation, removal, clean-up or
remediation of contamination, environmental degradation or damage arising
from or related to the generation, use, handling, treatment, storage,
transportation, disposal, discharge, release, threatened release or
emission of Hazardous Substances, including without limitation,
investigations, responses and remedial actions under CERCLA, corrective
action under RCRA 42 U.S.C. (S)(S)3004(u) and (v), 3008(h) and 7003, and
clean-up requirements under Environmental Laws.
(ii) Except as set forth on Schedule 3.1(n)(ii), neither
Summagraphics, any of the Summagraphics Subsidiaries, nor any properties owned
or operated by Summagraphics or any of the Summagraphics Subsidiaries or in
which any such entity has a security interest, has been, or is, in violation of
or liable under any Environmental Law.
(iii) Except as set forth on Schedule 3.1(n)(iii), there
are no actions, suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand letters or requests
for information from any environmental agency) instituted, pending or, to the
best knowledge of Summagraphics, threatened, relating to the liability of any
properties owned or operated by Summagraphics or any of the Summagraphics
Subsidiaries or in which such entity has a security interest under any
Environmental Law.
(iv) The facilities occupied or used by Summagraphics or any of the
Summagraphics Subsidiaries and any other real property presently or formerly
owned by, used by or
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leased to or by Summagraphics or any of the Summagraphics Subsidiaries or any
predecessor of Summagraphics or any of the Summagraphics Subsidiaries
(collectively, the "Property"), the existing and prior uses of such Property and
all operations of the businesses of Summagraphics or any of the Summagraphics
Subsidiaries or any predecessor of Summagraphics or any of the Summagraphics
Subsidiaries comply, and have at all times complied, in all material respects
with all Environmental Laws and each of Summagraphics and the Summagraphics
Subsidiaries is not in violation of nor has it violated, in connection with the
ownership, use, maintenance or operation of such Property or the conduct of its
business, any Environmental Law.
(v) Except as set forth on Schedule 3.1(n)(v), each of Summagraphics
and the Summagraphics Subsidiaries has all material permits, registrations,
approvals and licenses required by any governmental agency under any
Environmental Law.
(vi) Except as set forth on Schedule 3.1(n)(vi), there has been no
spill, discharge, leak, emission, injection, disposal, escape, dumping or
release of any kind on, beneath or above such Property or into the environment
surrounding such Property of any Hazardous Substances in violation of
Environmental Laws or requiring Remedial Action.
(vii) Except as set forth on Schedule 3.1(n)(vii), there
has been no past, and there is no current or anticipated storage, disposal,
generation, manufacture, refinement, transportation, production or treatment of
any Hazardous Materials at, upon or from such Property. No asbestos-containing
materials, underground storage tanks or polychlorinated biphenyls (PCBs) are
located on such Property.
(viii) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or, to the
best knowledge of Summagraphics, threatened, by any governmental entity or any
foreign governmental entity or third party with respect to the business or any
in connection with any actual or alleged failure to comply with any requirement
of any Environmental Law.
(o) EMPLOYEES; DIRECTORS AND OFFICERS. Schedule 3.1(o) sets forth a
true, correct and complete list of all employees of Summagraphics and each
Summagraphics Subsidiary together with current annual or hourly compensation.
In addition, Schedule 3.1(o) identifies each director and officer of
Summagraphics and each of the Summagraphics Subsidiaries.
(p) COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.1(p),
neither Summagraphics nor any Summagraphics Subsidiaries (i) is in violation of
any law, order or permit applicable to its business or (ii) has received any
notification or communication from any agency or federal, state or local
government or any regulatory authority or the staff thereof (a) asserting that
either Summagraphics or any of the Summagraphics Subsidiaries is not in
compliance with any law or order; or (b) threatening to revoke any material
permits, or (c) requiring either Summagraphics
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<PAGE>
or any Summagraphics Subsidiaries (1) to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding or (2) to adopt any Board resolution or similar
undertaking which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its management, or the payment of
dividends.
(q) INSURANCE. Summagraphics and the Summagraphics Subsidiaries are
presently insured, and since December 31, 1993 have been insured, for reasonable
amounts with financially sound and reputable insurance companies, against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. All of the insurance policies and
bonds maintained by Summagraphics and the Summagraphics Subsidiaries are in full
force and effect, Summagraphics and the Summagraphics Subsidiaries are not in
material default thereunder, and all material claims thereunder have been filed
in due and timely fashion. Summagraphics and the Summagraphics Subsidiaries
have no knowledge of any material inaccuracy in any application for such
policies or binders, any failure to pay premiums when due or any similar state
of facts that might form the basis for termination of any such insurance.
Summagraphics and the Summagraphics Subsidiaries have no knowledge of any state
of facts or of the occurrence of any event that is reasonably likely to form the
basis for any claim against it not fully covered (except to he extent of any
applicable deductible) by the policies or binders referred to above.
(r) APPLICABLE TAKEOVER LAWS. Summagraphics has taken all necessary
action to exempt (i) the transactions contemplated by this Agreement (including,
without limitation, the issuance of the Secured Convertible Debenture and the
Summagraphics Exchange Shares) and (ii) any transaction between or among
Lockheed Martin and any other Party after the Closing (to the extent that
applicable law permits the exemption of any such transaction therefrom), from
any applicable anti-takeover laws including, without limitation, the provisions
of Section 203 of the Delaware General Corporation Law to the extent applicable.
In addition, Summagraphics has taken all action necessary or appropriate so that
the entering into this Agreement and the consummation of the transactions
contemplated by this Agreement will be exempt from any change of control or
anti-takeover provisions of the Articles of Incorporation, Bylaws, or other
governing instruments of Summagraphics or any Summagraphics Subsidiaries and
will not restrict or impair the ability of Lockheed Martin to vote, or otherwise
to exercise the rights of a stockholder with respect to, shares of Summagraphics
or any Summagraphics Subsidiaries that may be acquired or controlled by Lockheed
Martin.
(s) PRODUCT AND SERVICE WARRANTY. Except as set forth on Schedule
3.1(s), no product manufactured, sold, leased or delivered by Summagraphics or
any Summagraphics Subsidiaries nor any service rendered by Summagraphics or any
Summagraphics Subsidiaries, is subject to any guaranty, warranty, or other
indemnity. Each product manufactured, sold, leased, or delivered by
Summagraphics, and each service rendered by Summagraphics, has conformed with
all applicable contractual commitments and all
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express and implied warranties. Neither Summagraphics nor any Summagraphics
Subsidiary has any liability and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against any of Summagraphics or any Summagraphics Subsidiary that would
be reasonably likely to give rise to any liability or claim for replacement or
repair thereof or other damages in connection therewith. There is no basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against Summagraphics or any Summagraphics
Subsidiaries that could reasonably be expected to give rise to any liability
arising out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by Summagraphics or any of its Subsidiaries or any service rendered by
Summagraphics or any of its Subsidiaries.
(t) SUMMAGRAPHICS COMMON STOCK TO BE ISSUED. Each share of
Summagraphics Common Stock to be issued to Lockheed Martin in connection with
the consummation of the transactions contemplated by this Agreement, when
issued, will be validly authorized and issued, fully paid and non-assessable.
Immediately following Closing, Lockheed Martin will own 89.7% of the issued and
outstanding capital stock of Summagraphics on a Fully Diluted Basis. There are
no existing options, subscriptions, warrants, rights, contracts, commitments,
understandings, arrangements, or agreements of any nature to which Summagraphics
or any Summagraphics Subsidiaries are a party or by which any of them are bound,
relating to the issuance, sale, delivery or transfer of the Summagraphics
Exchange Shares other than this Agreement.
(u) LABOR DISPUTES. There is neither pending nor, to the best
knowledge of Summagraphics, threatened, any labor dispute, strike or work
stoppage which adversely affects or which may adversely affect Summagraphics'
business or the business of any Summagraphics Subsidiaries or which may
interfere with the continued operation of Summagraphics' business or the
business of any Summagraphics Subsidiaries after Closing. Except as set forth
on Schedule 3.1(u) attached hereto, neither Summagraphics nor any agents,
representatives or employees of Summagraphics, in connection with its business,
has committed any unfair labor practice as defined in the National Labor
Relations Act of 1947, as amended, and there is not now pending nor, to the
knowledge of Summagraphics, threatened any unfair labor practice charge against
Summagraphics or any Summagraphics Subsidiaries within the jurisdiction of the
National Labor Relations Board or any representative thereof or the jurisdiction
of any similar state, local or foreign authority. Except as set forth on
Schedule 3.1(u), (i) there are no employment agreements, collective bargaining
agreements or other agreements relating to employment between Summagraphics or
any Summagraphics Subsidiaries and any of their respective employees, and (ii)
no employee of Summagraphics has any contractual right to continued employment
with Summagraphics or any Summagraphics Subsidiaries following consummation of
the transactions contemplated by this Agreement.
(v) TECHNOLOGY. Summagraphics owns, or is licensed or otherwise
entitled to use or (with respect to such of the following
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<PAGE>
which pertain only to Summagraphics' business as conducted or proposed to be
conducted) can obtain on reasonable terms rights to all patents, trademarks,
tradenames, servicemarks, copyrights, schematics, technology, know-how, computer
software programs or applications in tangible or intangible proprietary
information or material that are used or proposed to be used in the business of
Summagraphics or any Summagraphics Subsidiaries as currently conducted or as
presently proposed to be conducted by Summagraphics or any Summagraphics
Subsidiaries (the "Summagraphics Intellectual Property Rights"). Schedule
3.1(v) lists all patents, patent applications, trademarks, tradenames, and
servicemarks including all registrations for, and pending applications to
register, such trademarks, tradenames and servicemarks, included in the
Summagraphics Intellectual Property Rights, together with a list of all
Summagraphics' currently marketed software products and an indication as to
which, if any, of such software products have been registered for copyright
protection with the United States Patent & Trademark Office. Except as set
forth on Schedule 3.1(v), no claims with respect to the Summagraphics
Intellectual Property Rights have been asserted, or to the knowledge of
Summagraphics, are threatened by any person nor does Summagraphics or any
Summagraphics Subsidiary know of any valid grounds for any bona fide claim (i)
to the effect that the manufacture, sale or use of any product or process as now
used or offered or proposed for use or sale by Summagraphics or any
Summagraphics Subsidiary infringes on any patents of any person, (ii) against
the use by Summagraphics or any Summagraphics Subsidiary of any trademarks,
tradenames, trade secrets, copyrights, technology, know-how, processes or
computer software programs and applications used in the business of
Summagraphics and the Summagraphics Subsidiaries as currently conducted or
presently proposed to be conducted or (iii) challenging the ownership, validity
or effectiveness of any of the Summagraphics Intellectual Property Rights. To
Summagraphics' knowledge, all granted and issued patents and all registered
trademarks listed on Schedule 3.1(v) and all copyrights held by Summagraphics
are valid and existing. To Summagraphics' knowledge, there is no unauthorized
use, infringement or misappropriation of any of the Summagraphics Intellectual
Property Rights by any third party, employee or former employee.
(w) OPINION OF FINANCIAL ADVISOR. Summagraphics has been advised in
writing by its financial advisor, Needham & Company, Inc., that in its opinion,
as of the date hereof, the terms of the transactions described herein are fair,
from a financial point of view, to Summagraphics and its stockholders. A copy
of that opinion is attached hereto as Schedule 3.1(w).
(x) BOOKS AND RECORDS. The books of account, stock records, minute
books and other records of Summagraphics and the Summagraphics Subsidiaries are
complete and correct in all material respects and have been maintained in
accordance with good business practices, and the matters contained therein are
appropriately and accurately reflected in the Summagraphics Financial
Statements.
(y) FULL DISCLOSURE. No statement contained in any certificate or
schedule furnished or to be furnished by Summagraphics to Lockheed Martin or
CalComp in, or pursuant to the
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provisions of, this Agreement contains or shall contain any untrue statement of
a material fact or omits or shall omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
(z) INVESTMENT REPRESENTATION. Summagraphics is aware that the
CalComp Exchange Shares are not registered under the Securities Act of 1933 (the
"Securities Act"). Summagraphics possesses such knowledge and experience in
business matters that it is capable of evaluating the merits and risks of its
investments hereunder. Summagraphics has been provided access to all
information and personnel as Summagraphics deems necessary or advisable in
connection with its investment decision hereunder. Summagraphics is acquiring
the CalComp Exchange Shares for its own account, for investment purposes only
and not with a view to distribution thereof. Summagraphics agrees not to sell,
transfer, offer for sale, pledge, hypothecate or otherwise dispose of the
CalComp Exchange Shares, without registration under the Securities Act, except
pursuant to a valid exemption from registration under the Securities Act.
(aa) BANKS AND FINANCIAL INSTITUTIONS. Schedule 3.1(aa) sets forth a
true, correct and complete list of each bank or financial institution from which
Summagraphics currently has outstanding indebtedness together with the aggregate
amount outstanding as of the date of this Agreement. Attached to schedule
3.1(aa) is a true, correct and complete copy of each agreement listed thereon.
(bb) BACKLOG. At and as of May 31, 1996, Summagraphics shall have
received bona fide purchase orders for sales in the "input" and "cutter"
portions of Summagraphics business ("Backlog") which management of Summagraphics
reasonably believes will result in net sales of not less than $2,750,000 and
which Backlog is reasonably expected to be filled in accordance with the terms
thereof. In the event that the Closing occurs prior to May 31, 1996,
Summagraphics shall have Backlog which, together with prospective orders
expected by May 31, 1996, management reasonably believes will result in Backlog
of not less than $2,750,000 in the aggregate as of May 31, 1996.
3.2 Representations and Warranties of CalComp. In order to induce
-----------------------------------------
Summagraphics to enter into this Agreement and to consummate the transactions
contemplated hereby, CalComp represents and warrants to Summagraphics as
follows:
(a) ORGANIZATION, STANDING AND POWER. CalComp is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and, has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Each of the CalComp Subsidiaries has all requisite power and authority to own,
lease and operate the properties and to carry on its business as now being
conducted.
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(b) CAPITAL STRUCTURE.
(i) As of the date hereof, the authorized capital stock of CalComp
consists of 1,000 shares of Common Stock of which 1,000 shares are issued and
outstanding. As of the date hereof and as of the Closing Date, all outstanding
shares of capital stock of CalComp have been validly issued and are fully paid
and nonassessable. Lockheed Martin owns 100% of the issued and outstanding
shares of capital stock of CalComp.
(ii) CalComp has no commitments to issue or sell any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for such shares, or giving any person the right to subscribe for or acquire any
such shares and no securities or obligations representing such shares are
outstanding.
(c) AUTHORITY. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by each of the Board of Directors and sole stockholder of CalComp and
this Agreement is the valid and binding obligation of CalComp. Except for the
Joint Venture (as defined in Section 3.2(d) below), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by CalComp and the CalComp Subsidiaries with
any of the provisions hereof or thereof will (i) conflict with or result in a
breach of any provision of CalComp's Articles of Incorporation or Bylaws, or
conflict with or result in a default or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions of
any material note, bond, mortgage, indenture, license, agreement or other
instrument, or violate the provisions of any agreement to which CalComp is a
party or by which it or any of its properties or assets may be bound in any
instance in which such right of termination, cancellation, or acceleration if
exercised or such violation would have a Material Adverse Effect, or (ii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to CalComp or any CalComp Subsidiaries or any of its properties or
assets. Except for CalComp's Joint Venture affiliate, no consent or approval by
any governmental authority is required for the execution and delivery by CalComp
of this Agreement and the consummation of the transactions contemplated hereby,
except for the approval of all the applicable regulatory agencies and meeting of
conditions herein set forth.
(d) SUBSIDIARIES. Schedule 3.2(d) sets forth a true, correct and
complete list of each corporation of which CalComp directly or indirectly owns
all of the issued and outstanding shares of capital stock (collectively, the
"CalComp Subsidiaries"). In addition, CalComp owns 1,706 shares (out of a total
of 3,887 shares) of NS CalComp Corporation (Japan) as part of a joint venture
with Nippon Steel Corporation (which owns 1,978 Shares) and Sumitomo Corporation
(which owns 194 Shares) (the "Joint Venture"). Other than the CalComp
Subsidiaries and the Joint Venture, CalComp owns no shares of capital stock of
any other corporation or equity interest in any other person, and has and will
have on the Closing Date no other subsidiaries. The Parties acknowledge that as
of the
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Closing, CalComp will not own and will not have any interest in the following
subsidiaries: AGT Holdings, Inc., Access Graphics, Inc., Advanced Products
Group, Inc. (Georgia), CAD Source, Inc., Access Graphics (U.K.) Ltd., Access
Graphics of Canada Inc., Access Graphics B.V. and Access Graphics S.A. de C.V.
CalComp is currently dissolving CalComp Foreign Sales Corp. (Barbados) and
therefore does not represent that as of the date of signing of this Agreement
nor as of the Closing Date that it does or will own such subsidiary.
(e) FINANCIAL STATEMENTS. Attached hereto as Schedule 3.2(e) are the
Consolidated Balance Sheets of CalComp for each of the fiscal years ended
December 31, 1995 and 1994, the Consolidated Income Statement of CalComp for
each of the years in the three year period ended December 31, 1995, Statement of
Shareholders' Equity for each of the years ended in the three year period ended
December 31, 1995 and the Consolidated Statement of Cash Flow of CalComp for
each of the years in the three year period ended December 31, 1995, each
prepared on a basis which treats the disposition of AGT as if it had occurred
prior to the date of such financial statements. Subject to the absence of
certain footnote information in the financial statements attached as Schedule
3.2(e), those financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated or as more particularly set forth therein. The
Balance Sheets of CalComp for each of the fiscal years ended December 31, 1995
and 1994 present fairly as of their respective dates the consolidated financial
position and assets and liabilities of CalComp. The Consolidated Income
Statement of CalComp for each of the years in the three year period ended
December 31, 1995, present fairly the consolidated results of operations of
CalComp for the periods indicated. The CalComp Financial Statements to be
delivered in accordance with the provisions of Section 6.5 to Summagraphics
will, at the time they are so delivered be prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated, except that the CalComp Financial Statements will be prepared
on a basis to reflect the disposition of AGT as contemplated by Section 2.4.
(f) ABSENCE OF UNDISCLOSED LIABILITY. Except to the extent reflected
or reserved against in the CalComp Financial Statements, neither CalComp nor any
CalComp Subsidiary as of the date of this Agreement has (i) any liabilities or
obligations of any nature or (ii) any liabilities in the nature of employment
contracts with, or agreements to pay bonuses to any of its directors, officers
or employees, other than liabilities or obligations incurred in ordinary course
of business or specifically identified in schedules to this Agreement.
(g) NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has
been and as of the Closing there will be no material adverse change in the
assets or liabilities or in the business or condition (financial or otherwise),
results of operations or prospects of CalComp.
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(h) LITIGATION. There are no actions, proceedings or investigations
pending or, to the best of CalComp's knowledge, threatened against CalComp or
its Subsidiaries which, in the opinion of CalComp's in-house counsel is likely
to have a Material Adverse Effect on the financial conditions or operations of
CalComp and its subsidiaries. Neither CalComp nor any of its Subsidiaries is
subject to any agreement, memorandum of understanding or similar arrangement
with any regulatory authority restricting its operations or requiring that
certain actions be taken, and, neither CalComp nor any of its Subsidiaries has
received any notification from any governmental or regulatory authority, or the
staff thereof, asserting that it is not in compliance with any statutes,
regulations or ordinances which such authority enforces, noncompliance with
which could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the financial conditions of CalComp and its
Subsidiaries.
(i) ACCURACY OF INFORMATION SUPPLIED. The information that will be
provided in writing by CalComp specifically for inclusion in the Proxy Statement
or any amendment or supplement thereto pertaining to the transactions
contemplated hereby that is filed with the SEC, at the time the Proxy Statement
is filed and distributed to stockholders of Summagraphics will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein in order to make the statements not misleading, provided
that information as of a later date shall be deemed to modify information of an
earlier date. This representation and warranty is being made solely for the
benefit of Summagraphics and Lockheed Martin and is not intended, nor shall it
be deemed to, create any rights in any third party.
(j) ENVIRONMENTAL MATTERS. (i) To the best knowledge of CalComp, and
except as set forth on Schedule 3.2(j), neither CalComp, any of the CalComp
Subsidiaries, nor any properties owned or operated by CalComp or any of the
CalComp Subsidiaries or in which any such entity has a security interest, has
been or is in violation of or liable under any Environmental Law.
(ii) Except as set forth on Schedule 3.2(j), there are no actions,
suits or proceedings, or demands, claims, notices or investigations (including
without limitation notices, demand letters or requests for information from any
environmental agency) instituted, pending or threatened relating to the
liability of any properties owned or operated by CalComp or any of the CalComp
Subsidiaries or in which such entity has a security interest under any
Environmental Law.
(iii) To the best knowledge of CalComp, the facilities
occupied or used by CalComp or any of the CalComp Subsidiaries and any other
real property presently or formerly owned by, used by or leased to or by CalComp
or any of the CalComp Subsidiaries or any predecessor of CalComp or any of the
CalComp Subsidiaries (collectively, the "Property"), the existing and prior uses
of such Property and all operations of the businesses of CalComp or any of the
CalComp Subsidiaries or any predecessor of CalComp or any of the CalComp
Subsidiaries comply and have at all times complied in all material respects with
all Environmental Laws
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and each of CalComp and the CalComp Subsidiaries is not in violation of nor has
it violated, in connection with the ownership, use, maintenance or operation of
such Property or the conduct of its business, any Environmental Law.
(iv) Except as set forth on Schedule 3.2(j), each of CalComp and the
CalComp Subsidiaries has all material permits, registrations, approvals and
licenses required by any governmental agency or Environmental Law.
(v) To the best knowledge of CalComp, and except as set forth on
Schedule 3.2(j), there has been no spill, discharge, leak, emission, injection,
disposal, escape, dumping or release of any kind on, beneath or above such
Property or into the environment surrounding such Property of any Hazardous
Substances in violation of Environmental Laws or requiring Remedial Action.
(vi) There are no claims, notices of violations, notice letters,
investigations, inquiries or other proceedings now pending or threatened by any
governmental entity or any foreign governmental entity or third party with
respect to the business or any in connection with any actual or alleged failure
to comply with any requirement of any Environmental Law.
(k) COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.2(k),
neither CalComp nor any CalComp Subsidiaries (i) is in violation of any law,
order or permit applicable to its business or (ii) has received any notification
or communication from any agency or federal, state or local government or any
regulatory authority or the staff thereof (a) asserting that either CalComp or
any of the CalComp Subsidiaries is not in compliance with any law or order; or
(b) threatening to revoke any material permits, or (c) requiring either CalComp
or any CalComp Subsidiaries (1) to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment or memorandum of
understanding or (2) to adopt any Board resolution or similar undertaking which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its management, or the payment of dividends.
(l) TECHNOLOGY. CalComp owns, or is licensed or otherwise entitled to
use or (with respect to such of the following which pertain only to CalComp's
business as conducted or proposed to be conducted) can obtain on reasonable
terms rights to all patents, trademarks, tradenames, servicemarks, copyrights,
schematics, technology, know-how, computer software programs or applications in
tangible or intangible proprietary information or material that are used or
proposed to be used in the business of CalComp or any CalComp Subsidiaries as
currently conducted or proposed to be conducted by CalComp or any CalComp
Subsidiaries (the "CalComp Intellectual Property Rights"). Except as set forth
on Schedule 3.2(l), no claims with respect to the CalComp Intellectual Property
Rights have been asserted, or to the knowledge of CalComp, are threatened by any
person nor does CalComp or any CalComp Subsidiary know of any valid grounds for
any bona fide claim (i) to the effect that the manufacture, sale or use of any
product or process as now used or offered or proposed for use
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or sale by CalComp or any CalComp Subsidiary infringes on any patents of any
person, (ii) against the use by CalComp or any CalComp Subsidiary of any
trademarks, tradenames, trade secrets, copyrights, technology, know-how,
processes or computer software programs and applications used in the business of
CalComp and any CalComp Subsidiaries as currently conducted or proposed to be
conducted or (iii) challenging the ownership, validity or effectiveness of any
of the CalComp Intellectual Property Rights. To CalComp's knowledge, all
granted and issued patents, all registered trademarks, and all copyrights that
constitute part of the CalComp Intellectual Property Rights are valid and
existing. To CalComp's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the CalComp Intellectual Property Rights by any third
party, employee or former employee.
3.3 Representations and Warranties of Lockheed Martin. In order to induce
-------------------------------------------------
Summagraphics to enter into this Agreement and to consummate the transactions
contemplated hereby, Lockheed Martin represents and warrants to Summagraphics as
follows:
(a) ORGANIZATION AND STANDING. Lockheed Martin is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and, has all of the requisite corporate power and authority to
consummate the transactions contemplated by this Agreement.
(b) AUTHORITY. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Lockheed Martin and this Agreement is
the valid and binding obligation of Lockheed Martin. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby, nor compliance by Lockheed Martin with any of the provisions hereof will
(i) conflict with or result in a breach of any provision of Lockheed Martin's
Charter or Bylaws, or result in a default or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license, agreement
or other instrument, or result in a violation of any material agreement to which
Lockheed Martin is a party or by which it or any of its properties or assets may
be bound, or (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Lockheed Martin or any of its properties or assets. No
consent or approval by any governmental authority is required for the execution
and delivery by Lockheed Martin of this Agreement or the consummation of the
transactions to be consummated by Lockheed Martin hereunder, except for the
approval of all the applicable regulatory agencies and meeting of conditions
hereinafter set forth.
(c) LITIGATION. There are no actions, proceedings or investigations
pending or, to the best of Lockheed Martin's knowledge, threatened against
Lockheed Martin or any Lockheed Martin Subsidiary which, if adversely
determined, would have a Material Adverse Effect on the ability of Lockheed
Martin to consummate the transactions contemplated by this Agreement. Neither
Lockheed Martin nor any of its Subsidiaries is subject to
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any agreement, memorandum of understanding or similar arrangement with any
regulatory authority restricting its operations or requiring that certain
actions be taken, and, neither Lockheed Martin nor any of its Subsidiaries has
received any notification from any governmental or regulatory authority, or the
staff thereof, asserting that it is not in compliance with any statutes,
regulations or ordinances which such authority enforces, noncompliance with
which could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the ability of Lockheed Martin to consummate the
transactions contemplated by this Agreement.
(d) OWNERSHIP OF CALCOMP EXCHANGE SHARES. Lockheed Martin owns 100%
of the outstanding capital stock of CalComp of record and beneficially, and, as
of the Closing, free and clear of any Encumbrance. Upon the Closing of the
Exchange and the delivery of the CalComp Exchange Shares to Summagraphics,
Summagraphics will acquire the entire legal and beneficial interest in and to
all of the CalComp Exchange Shares, free and clear of any Encumbrance other than
any Encumbrance which is a result of the terms of any agreement to which
Summagraphics is party, or any order, claim or other charge against
Summagraphics.
(e) INVESTMENT REPRESENTATION. Lockheed Martin is aware that the
Summagraphics Exchange Shares are not registered under the Securities Act.
Lockheed Martin possesses such knowledge and experience in business matters that
it is capable of evaluating the merits and risks of its investments hereunder.
Lockheed Martin agrees not to sell, transfer, offer for sale, pledge,
hypothecate or otherwise dispose of the Summagraphics Exchange Shares, without
registration under the Securities Act, except pursuant to a valid exemption from
registration under the Securities Act.
(f) TAX MATTERS.
(i) CalComp and each of the CalComp Subsidiaries have filed (or had
filed on their behalf), or will file or cause to be filed, all Tax Returns
required to be filed prior to the Closing, and have paid all Taxes required to
be paid in respect of the periods covered by such Tax Returns or, where payment
of such Taxes is not yet due, have established or will establish prior to the
Closing, an adequate reserve for the payment of all Taxes which are accruable
prior to the Closing. CalComp and the CalComp Subsidiaries will not have any
material liability for any such Taxes in excess of the amounts so paid or the
reserve so established and CalComp and the CalComp Subsidiaries are not
delinquent in the payment of any material assessment of Taxes. No material
deficiencies for any assessment of Taxes have been proposed, asserted or
assessed against CalComp or the CalComp Subsidiaries which would not be covered
by existing reserves and, as of the date of this Agreement, no requests for
waivers of the time to assess any such Taxes are pending. CalComp, and to the
best of CalComp's knowledge, each of the CalComp Subsidiaries, has complied with
all IRS requirements regarding the certification of taxpayer identification
numbers of customers and backup withholding.
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(ii) There are no liens for any Taxes upon the assets of CalComp or
any CalComp Subsidiary, other than statutory liens for Taxes not yet due and
payable.
(iii) Neither CalComp nor any CalComp Subsidiary is a party to
any agreement, contract or other arrangement that would result, separately or in
the aggregate, in the requirement to pay any "excess parachute payments" within
the meaning of Section 280G of the Code, or any gross-up in connection with such
an agreement, contract or arrangement.
(g) ACCURACY OF INFORMATION SUPPLIED. The information which will be
provided in writing by Lockheed Martin specifically for inclusion in the Proxy
Statement pertaining to the transactions contemplated hereby, at the time such
information is provided will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein in order to
make the statements not misleading, provided that information as of a later date
shall be deemed to modify information of an earlier date. This representation
and warranty is being made solely for the benefit of Summagraphics and is not
intended, nor shall it be deemed to, create any rights in any third party.
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
4.1 Conduct of the Business of Summagraphics and its Subsidiaries' Prior
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to the Closing. During the period from the date of this Agreement to the
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Closing and except as otherwise expressly provided in the last sentence of
Section 4.4, Summagraphics shall, and Summagraphics shall cause the
Summagraphics Subsidiaries to, conduct their respective operations according to
the ordinary and usual course of business consistent with current practices and
use their reasonable best efforts to maintain and preserve their business
organizations, employees and advantageous business relationships.
Notwithstanding the foregoing, Summagraphics shall not enter into any employee
benefit plan or arrangement with any employee, officer or director without the
prior consent of CalComp and Lockheed Martin.
4.2 Forbearance.
-----------
(a) During the period from the date of this Agreement to the Closing
and except as contemplated by this Agreement (including with respect to Section
4.2(a)(v), (vi) and (viii) below the provisions of the last sentence of Section
4.4) and as set forth on Schedule 4.2, neither Summagraphics nor any
Summagraphics Subsidiaries shall without the prior written consent of CalComp
and Lockheed Martin:
(i) make any changes to their respective Articles of
Incorporation or Bylaws;
(ii) adjust, split, combine or reclassify Summagraphics Common
Stock or make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem,
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purchase or otherwise acquire, any shares of their capital stock or any
securities or obligations convertible into or exchangeable for any shares of
their capital stock, or grant (or revise the terms or conditions of any previous
grant of) any stock options or stock appreciation rights or give any person any
right or warrant to acquire any shares of their capital stock;
(iii) enter any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business;
(iv) increase in any manner the compensation or fringe benefits of any
of their directors, officers, agents or employees or pay any pension or
retirement allowance not required by any existing Plan or agreement to any such
directors, officers, agents or employees or become a party to, amend or commit
itself to any pension, retirement, profit sharing, welfare benefit plan or
agreement or employment agreement with or for the benefit of any employee or
officer or other person other than payments consistent with past practices and
current incentive compensation plans and other increases consented to by
Lockheed Martin and CalComp in writing, which consent shall not be unreasonably
withheld;
(v) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vi) merge or consolidate or agree to merge or consolidate with
or into any other person;
(vii) materially change the extent or character of its business
operations;
(viii) dissolve, liquidate (completely or partially), acquire any
capital assets, or grant to any person a right or option to lease, acquire, or
purchase, any material amount of the assets of Summagraphics or any
Summagraphics Subsidiary (including any part thereof or any interest therein),
except in the ordinary course of business and consistent with past practice or
as expressly contemplated by this Agreement;
(ix) issue any shares of its capital stock or any securities
convertible into or exercisable or exchangeable for capital stock;
(x) incur any indebtedness for borrowings (except the Secured
Convertible Debenture, or issue any debt securities or any securities
convertible into debt securities or any options to purchase debt securities or
other rights in respect thereto or assume, indorse, or guarantee, or become a
surety, an accommodation party, or responsible in any other way for, an
obligation or indebtedness of another person;
(xi) discontinue or materially diminish any insurance coverage
applicable to its assets, properties, and business operations;
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(xii) commit to a labor or employment contract of any kind
whatsoever, or any compensation obligation to any employee that is executory or
requires payment after the Closing Date, except as consented to in writing by
Lockheed Martin and CalComp, which consent shall not be unreasonably withheld;
(xiii) mortgage, pledge or subject to any other lien any of its
assets;
(xiv) cancel or compromise any legal right or claim of or debts
owed to Summagraphics or any Summagraphics Subsidiaries;
(xv) engage in any speculative currency transactions; or
(xvi) agree to do, or acquiesce in, any of the foregoing acts.
(b) During the period from the date of this Agreement to the Closing,
Summagraphics shall maintain itself as a corporation duly incorporated under the
laws of the State of Delaware and conduct and maintain its operations according
to its usual and ordinary course of business in accordance with past practice.
(c) During the period from the date of this Agreement to the Closing,
Summagraphics shall consult with CalComp and Lockheed Martin with respect to
material business decisions affecting Summagraphics' business.
(d) For purposes of seeking consent to any action to be taken in
accordance with the provisions of this Section 4.2, the parties acknowledge and
agree that any such request shall be in writing delivered to David B. Minnick at
Lockheed Martin Corporation (or such other person as is designated in writing by
Lockheed Martin). Upon receipt of a written request from Summagraphics,
Lockheed Martin shall provide or withhold its consent to such request as soon as
reasonably practicable.
4.3 No Solicitation. Summagraphics acknowledges that Lockheed Martin will
---------------
devote substantial time and incur substantial out-of-pocket expenses in
connection with the preparation and negotiation of this Agreement and the
consummation of the transactions contemplated hereby. Unless and until the
sooner of (i) Lockheed Martin notifies Summagraphics that it no longer wishes to
pursue the Transaction, (ii) this Agreement shall have been terminated pursuant
to its terms or (iii) June 15, 1996, neither Summagraphics nor any of its
subsidiaries nor any of their executive officers, directors, agents (including,
without limitation, Broadview Associates, L.P. or Needham & Company, Inc.) or
affiliates of any of the foregoing, shall, directly or indirectly, encourage,
solicit or initiate discussions or negotiations with any person (other than
Lockheed Martin) concerning any Acquisition Proposal (as hereinafter defined) or
disclose, directly or indirectly, to any person in connection with an
Acquisition Proposal any information not customarily disclosed to the public
concerning Summagraphics or any of the Summagraphics'
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Subsidiaries, afford to any other person access to the properties, books or
records of Summagraphics or any of the Summagraphics Subsidiaries in connection
with an Acquisition Proposal or otherwise assist any person preparing to make or
who has made such an Acquisition Proposal, or enter into any agreement with any
third party providing for a business combination transaction, equity investment
or a sale of all or any significant amount of assets, except in a situation in
which a majority of the full Board of Directors of Summagraphics has determined
in good faith, upon advice of counsel, that such Board has a fiduciary duty to
consider and respond to a bona fide Acquisition Proposal by a third party (which
Acquisition Proposal was not directly or indirectly solicited by Summagraphics
or the Summagraphics Subsidiaries or any of their respective officers,
directors, representatives, agents or affiliates in violation of this Agreement)
and provides written notice of its intention to consider such Acquisition
Proposal. Summagraphics will promptly communicate to Lockheed Martin the
identity of the offeror and the terms of any Acquisition Proposal which it may
receive in respect to any of the foregoing transactions.
4.4 Termination Fee. In the event that (i) the Closing does not occur
---------------
because of a breach of this Agreement by Summagraphics and within twelve months
thereafter Summagraphics enters into an agreement with respect to an Acquisition
Proposal or the consummation of the transactions contemplated by any Acquisition
Proposal occurs or (ii) Summagraphics breaches the provisions of Section 4.3,
Summagraphics (or the survivor of any transaction contemplated by the
Acquisition Proposal, which shall include any purchaser of a substantial portion
of the assets of Summagraphics or any Summagraphics Subsidiary) shall
immediately pay to Lockheed Martin by wire transfer of immediately available
funds the sum of $1,250,000 (the "Termination Fee"). For purposes of this
Agreement, "Acquisition Proposal" shall mean any third party proposal concerning
any merger, share exchange, consolidation, sale of any substantial portion of
the assets of Summagraphics and the Summagraphics Subsidiaries, tender offer,
sale of control or similar transaction involving Summagraphics or any
Summagraphics Subsidiaries. The term "Acquisition Proposal" shall not include,
among other things, any third party proposal to acquire Summagraphics' CAD
Warehouse business or Summajet or Summachrome product lines or to secure license
rights to such products; provided, however, Summagraphics shall obtain written
approval from Lockheed Martin prior to entering into any agreement in respect to
any of the foregoing, which approval shall not be unreasonably withheld.
4.5 Compliance with Tax-Free Provisions. Summagraphics shall not take any
-----------------------------------
action prior to or after the Closing which would disqualify the Exchange (and
the other transactions contemplated hereby) as a tax free reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
4.6 Access and Information; Cooperation. Summagraphics and the
-----------------------------------
Summagraphics Subsidiaries will permit reasonable access to Lockheed Martin and
CalComp and their respective representatives, during normal business hours to
verify the accuracy from time to
30
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time of the representations and warranties contained herein. Such investigation
may include an examination of all of Summagraphics' business affairs, contracts,
personnel records, premise files, accounts receivable and accounts payable, tax
returns, agreements, schedule of assets owned, and all other items deemed
necessary by Lockheed Martin to make such examination thereof and to conduct
such other investigation as they deem appropriate to verify the representations
and warranties of Summagraphics contained herein. Summagraphics and CalComp
will each give to the officers, accountants, counsel and authorized
representatives of the other Party access to its properties, books and records
and those of its subsidiaries (including its audit work papers) and will furnish
the other Party with such additional financial and operating data and other
information as to its business and properties and those of its subsidiaries as
the other Party may from time to time reasonably request. In addition, each
shall promptly deliver to the other each internally prepared monthly balance
sheet from November 30, 1995 in the case of Summagraphics and December 31, 1995
in the case of CalComp, if any, through Closing and all other internally
prepared financial information prepared since November 30, 1995 or December 31,
1995, as the case may be. The Parties will cooperate with each other in the
preparation of any documents or other materials which may be required in
connection with the preparation of the Proxy Statement as filed with the SEC or
in connection with any other documents or materials required by any governmental
agency, stock exchange or association of securities dealers. CalComp will
cooperate with and furnish such information to, and cause its directors and
officers and those of its subsidiaries to cooperate with and furnish such
information to, Summagraphics as Summagraphics may reasonably request in
connection with the preparation of the Proxy Statement for the special meeting
of the stockholders of Summagraphics to consider the transactions contemplated
hereby.
4.7 Confidentiality. Each of the Parties shall cause its advisers and
---------------
agents to maintain the confidentiality of all confidential information furnished
to it by the other party concerning its and its Subsidiaries' businesses,
operations, and financial positions, and shall not use such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Closing, each Party
shall promptly return all documents and copies thereof, and return or destroy
all work papers containing confidential information received from the other
Party. In the event that any Party violates any of the terms of this paragraph,
they agree that the Party who is not in violation would have an inadequate
remedy at law for such violation and may, therefore, seek an injunction without
the necessity of bond, to prevent or halt any violation hereof and the parties
hereto agree not to raise any defense that the Party who is not in violation of
this paragraph has an adequate remedy at law. The Parties further acknowledge
and agree that in the event of a violation of the terms and conditions of this
paragraph that the party who is not in violation shall have any and all remedies
available at law or equity and shall not be limited to the remedy of injunctive
relief. The confidentiality provisions of this Section 4.7 are in addition to
and shall not be deemed to supersede the agreements contained in
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(i) the letter, dated October 12, 1995, from Broadview Associates, L.P. to
Lockheed Martin and (ii) the letter agreement, dated December 20, 1995, between
Lockheed Martin Corporation and Summagraphics (the "Confidentiality
Agreements"). In addition, CalComp agrees that, in the event that this
Agreement is terminated for any reason prior to Closing, CalComp shall not for a
period of one year from the date hereof, directly or indirectly, recruit any
non-clerical employee of Summagraphics with whom CalComp has had contact in
connection with CalComp's investigation of Summagraphics from the date hereof to
the Closing; provided however, that the foregoing restriction shall not preclude
CalComp or Lockheed Martin from employing any such employee who seeks employment
with CalComp or Lockheed Martin in response to a general advertisement or other
similar method and not in response to any direct solicitation efforts made by
CalComp or Lockheed Martin. Any provisions of this Section 4.7 shall survive
the Closing or the termination of this Agreement.
4.8 Public Announcements. The Parties will consult with each other before
--------------------
issuing any press release relating to this Agreement or the transactions
contemplated herein and shall not issue any such press release without the prior
written consent of the other Party, except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange.
4.9 Consents.
--------
(a) From the date of this Agreement to the Closing, Summagraphics will
use its reasonable best efforts (which efforts shall not include the payment of
any money to any third party without the prior consent of Lockheed Martin, other
than ordinary filing fees) to obtain the written consents or approvals of all
third parties whose consent or approval is required with regard to the
transactions contemplated to be performed by Summagraphics by the terms of this
Agreement, whether under the terms of any lease, mortgage, indenture or other
agreement to which Summagraphics or any of the Summagraphics Subsidiaries is a
party or by which any of their assets is bound or otherwise.
(b) From the date of this Agreement to the Closing, each of Lockheed
Martin and CalComp will use their respective reasonable best efforts (which
efforts shall not include the payment of any money to any third party, other
than ordinary filing fees) to obtain the written consents or approvals of all
third parties whose consent or approval is required with regard to the
transactions contemplated to be performed by Lockheed Martin or CalComp, as the
case may be, by the terms of this Agreement, whether under the terms of any
lease, mortgage, indenture or other agreement to which Lockheed Martin or
CalComp or any of their respective Subsidiaries is a party or by which any of
their assets is bound or otherwise.
(c) The Parties agree to reasonably cooperate with each other in
connection with obtaining the consents contemplated by Section 4.9.
4.10 Meeting of Summagraphics Stockholders. Summagraphics will duly call
-------------------------------------
and within the time set forth in its Bylaws will
32
<PAGE>
convene a special meeting of its stockholders to act upon the transactions
contemplated hereby, the Board of Directors of Summagraphics (subject to Section
2.1) will recommend approval of this Agreement and the Fourth Amended and
Restated Articles of Incorporation to its stockholders, and will use its
reasonable best efforts to obtain a favorable vote thereon. The calling and
holding of such meetings and all transactions, documents and information related
thereto will be in compliance with all applicable laws (including, without
limitation, applicable securities laws). The Proxy Statement for the
stockholders' meeting of Summagraphics will be in form and content reasonably
satisfactory to Lockheed Martin.
ARTICLE V
ADDITIONAL COVENANTS OF SUMMAGRAPHICS
5.1 Issuance of Stock. Summagraphics will issue and deliver or cause to
-----------------
be delivered the Summagraphics Exchange Shares to Lockheed Martin (or its
designee) as called for by Paragraph 1.1 of this Agreement.
5.2 Intercompany Agreements. At the Closing, Summagraphics shall execute
-----------------------
and deliver to Lockheed Martin each of the following documents (collectively,
the "Intercompany Agreements"):
(a) an intercompany services agreement in the form attached hereto as
Exhibit B (the "Services Agreement");
(b) a cash management agreement in the form attached hereto as Exhibit
C (the "Cash Management Agreement");
(c) a tax sharing agreement in the form attached hereto as Exhibit D
(the "Tax Sharing Agreement");
(d) a revolving credit agreement in the form attached hereto as
Exhibit E (the "Revolving Credit Agreement");
(e) a registration rights agreement in the form attached hereto as
Exhibit F (the "Registration Rights Agreement"); and
(f) a corporate agreement in the form attached hereto as Exhibit G
(the "Corporate Agreement").
5.3 Amendment and Restatement of Articles of Incorporation. Prior to
------------------------------------------------------
Closing, Summagraphics shall take all actions necessary or appropriate
(including approval of its stockholders) to cause to be filed with the Secretary
of State of the State of Delaware an amendment and restatement to its Articles
of Incorporation in the form attached as Exhibit H (the "Fourth Amended and
Restated Articles of Incorporation") pursuant to which:
(a) Summagraphics shall change its name to CalComp Inc.;
(b) Summagraphics shall agree to the allocation of business
opportunities by and between it and Lockheed Martin set forth therein; and
33
<PAGE>
(c) Summagraphics shall increase the number of authorized shares of
capital stock to 60,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock.
5.4 Preparation of Proxy Statement. In accordance with the provisions of
------------------------------
Section 2.1, Summagraphics shall prepare, file in definitive form and deliver to
each of its stockholders the Proxy Statement.
5.5 Additional Listing Application. At or prior to Closing, Summagraphics
------------------------------
shall take all action necessary or appropriate to cause the Summagraphics
Exchange Shares to be listed for trading on the NASDAQ Interdealer Quotations
System.
5.6 Filing of Form 10-C. Within 10 days of Closing, Summagraphics shall
-------------------
prepare and have filed with the SEC its report on Form 10-C-Report By Issuer of
Securities Quoted on NASDAQ Interdealer Quotations System in respect of the
Summagraphics Exchange Shares.
5.7 Hart-Scott-Rodino. As soon as practicable following the execution of
-----------------
this Agreement and no later than 10 days after the execution of this Agreement,
Summagraphics shall make its filing of a Notification and Report Form pursuant
to, and shall thereafter promptly make any required submissions under the HSR
Act with respect to the transactions contemplated by this Agreement. In
addition, Summagraphics shall cooperate with Lockheed Martin in connection with
Lockheed Martin's filing under the HSR Act in respect of the transactions
contemplated by this Agreement.
5.8 Stock Option Plan. Summagraphics shall use its reasonable best
-----------------
efforts to cause the stock option plan in the form attached hereto as Exhibit I
(the "Stock Option Plan") to be approved by its shareholders.
ARTICLE VI
COVENANTS OF CALCOMP AND LOCKHEED MARTIN
6.1 Transfer of CalComp Exchange Shares. At the Closing, Lockheed Martin
-----------------------------------
will, or will cause its subsidiary to, transfer and deliver the CalComp Exchange
Shares to Summagraphics as called for by Section 1.1 of this Agreement.
6.2 Intercompany Agreements. At the Closing, Lockheed Martin shall
-----------------------
execute and deliver to Summagraphics each of the Intercompany Agreements.
6.3 Preparation of Proxy Statement. Each of Lockheed Martin and CalComp
------------------------------
shall use reasonable efforts to cooperate with Summagraphics in the preparation
of the Proxy Statement.
6.4 Hart-Scott-Rodino. As soon as practicable following the execution of
-----------------
this Agreement and no later than 10 days after the execution of the Agreement,
Lockheed Martin shall make its filing of a Notification and Report Form pursuant
to, and shall thereafter promptly make any required submissions under, the HSR
Act with
34
<PAGE>
respect to the transactions contemplated by this Agreement. In addition,
Lockheed Martin shall cooperate with Summagraphics in connection with the
preparation and filing of a Notification and Report Form in respect of the
transactions contemplated by this Agreement under the HSR Act by Summagraphics.
6.5 CalComp Financial Statements. As soon as practicable following the
----------------------------
execution of this Agreement but in no event after March 25, 1996, CalComp shall
deliver to Summagraphics for inclusion in the Proxy Statement the following
financial statements, audited, with an unqualified opinion by Ernst & Young LLP,
CalComp's independent auditors; the consolidated balance sheet of CalComp for
each of the fiscal years ended December 31, 1995 and 1994, the consolidated
income statement of CalComp for each of the years in the three year period ended
December 31, 1995, the statement of shareholders' equity for each of the years
ended in the three year period ended December 31, 1995 and the consolidated
statement of cash flow of CalComp for each of the years in the three year period
ended December 31, 1995 (collectively, the "CalComp Financial Statements"). The
CalComp Financial Statements shall be prepared on a basis which treats the
disposition of AGT as if it had occurred prior to the CalComp Financial
Statements.
6.6 Pre-Closing Assistance. Lockheed Martin acknowledges that changes may
----------------------
occur in the business of Summagraphics and the Summagraphics Subsidiaries
resulting from employee resignations and the deterioration or termination of
vendor or customer relations which are a direct result of the announcement or of
the transactions contemplated by this Agreement and Lockheed Martin will use
reasonable efforts to work with Summagraphics to remedy such occurrences, it
being understood that if such occurrences (together with all other events,
changes or occurrences) result in a Material Adverse Effect despite Lockheed
Martin's efforts, Lockheed Martin would be entitled pursuant to Section 10.2(b)
to terminate this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO CALCOMP'S
AND LOCKHEED MARTIN'S OBLIGATIONS HEREUNDER
Unless waived in writing by Lockheed Martin, in its sole discretion, all
obligations of CalComp or Lockheed Martin, as the case may be, hereunder to
effect the Exchange shall be subject to the fulfillment prior to or at the
Closing of the following conditions:
7.1 Representations, Warranties, Covenants. The representations and
--------------------------------------
warranties of Summagraphics herein contained shall be true in all material
respects as of the Closing, shall be deemed made again at and as of the Closing
and shall be true in all material respects as if so made again; Summagraphics
shall have performed all of the obligations and complied with all of the
covenants required by this Agreement to be performed or complied with by it in
all material respects on or prior to the Closing Date and Lockheed Martin shall
receive from Summagraphics officers' certificates in such detail as Lockheed
Martin may reasonably
35
<PAGE>
request dated the Closing Date and signed by the chief executive officer,
president or secretary of Summagraphics to the foregoing effect.
7.2 No Adverse Changes. There shall not have been any material adverse
------------------
changes in the financial position, results of operations, assets, liabilities or
business of Summagraphics and the Summagraphics Subsidiaries, taken as a whole,
from November 30, 1995, the date of the Summagraphics Financial Statements
referred to in Paragraph 3.1(e) above, to the Closing Date, which changes,
individually or in the aggregate, have or could reasonably be expected to have a
Material Adverse Effect.
7.3 Due Diligence Audit of Summagraphics and its Subsidiaries. The tax
---------------------------------------------------------
portion of the due diligence audit of Summagraphics and its Subsidiaries
conducted pursuant to Paragraph 4.6 shall have confirmed the accuracy of the
representations and warranties set forth in Section 3.1(h) and 3.1(n) and the
final review of accountant's work papers relating to Summagraphics' Belgium
operation shall be reasonably satisfactory to Lockheed Martin.
7.4 Legal Opinion. Lockheed Martin shall have received a written opinion,
-------------
dated as of the Closing Date, from Hughes & Luce, L.P., counsel to
Summagraphics, in form reasonably satisfactory to Lockheed Martin, which shall
cover matters customary in transactions of this nature.
7.5 No Adverse Proceedings. There shall be no order restraining or
----------------------
prohibiting the transaction contemplated hereby and no action or proceeding
against any of the Parties or their respective Subsidiaries in respect of the
consummation of the transactions contemplated by this Agreement shall have been
instituted or threatened or any investigations or inquiries undertaken that, in
the reasonable judgment of the affected party, could result in substantial
damages or as a result of which the affected party could be deprived of any of
the material benefit of the contemplated transactions.
7.6 Intercompany Agreements. Summagraphics shall have executed and
-----------------------
delivered to Lockheed Martin each of the Intercompany Agreements referred to in
Section 5.2.
7.7 Approval by Stockholders of the Agreement, the Stock Option Plan and
--------------------------------------------------------------------
Amendment and Restatement of Summagraphics' Articles of Incorporation. This
- ---------------------------------------------------------------------
Agreement, the Fourth Amended and Restated Articles of Incorporation and the
Stock Option Plan shall have been submitted to the stockholders of Summagraphics
at a special meeting of stockholders duly called and held and each of the
transactions contemplated by this Agreement, the Fourth Amended and Restated
Articles of Incorporation and the Stock Option Plan shall have been approved, in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware (the "DGCL") and the Certificate of
Incorporation and Bylaws of Summagraphics, by an affirmative vote of the holders
of at least a majority of all the outstanding shares of Summagraphics Common
Stock entitled to vote and, with respect to the Exchange and
36
<PAGE>
the Stock Option Plan by the affirmative vote of the holders of a majority of
the shares present and entitled to vote at the meeting. Summagraphics shall
have duly authorized the filing of, and shall have filed and caused to be
accepted of record by the Secretary of State of the State of Delaware, the
Fourth Amended and Restated Articles of Incorporation.
7.8 Additional Listing Application. Summagraphics shall have caused the
------------------------------
Summagraphics Exchange Shares to be listed on the NASDAQ Interdealer Quotation
System.
7.9 Secretary's Certificate. At the Closing, Summagraphics shall cause to
-----------------------
be delivered to Lockheed Martin, a secretary's certificate in a form reasonably
satisfactory to Lockheed Martin.
7.10 Compliance With Laws/Government Approvals. All applicable
-----------------------------------------
securities, antitrust and other laws shall have been complied with in connection
with the transactions contemplated hereby. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any governmental authorities necessary for the consummation
of the transactions contemplated by this Agreement, including, but not limited
to, such requirements under applicable state securities laws, the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the HSR Act, shall
have been filed, occurred or been obtained. All other material consents of
third parties shall have been obtained.
7.11 Backlog. The representations and warranties set forth in Section
-------
3.1(bb) shall be true and correct in all respects as of Closing. At the
Closing, Summagraphics shall have caused to be delivered to Lockheed Martin, a
certificate from Michael S. Bennett and Dave Osowski in such detail as Lockheed
Martin may reasonably request, dated the Closing Date, to such effect together
with copies of purchase orders evidencing such Backlog.
ARTICLE VIII
CONDITIONS PRECEDENT TO SUMMAGRAPHICS' OBLIGATIONS HEREUNDER
Unless waived in writing by Summagraphics, in its sole discretion, all
obligations of Summagraphics hereunder to effect the Exchange shall be subject
to the fulfillment prior to or at the Closing of the following conditions:
8.1 Representations, Warranties, Covenants. The representations and
--------------------------------------
warranties of each of CalComp and Lockheed Martin herein contained shall be true
in all material respects as of the Closing Date, shall be deemed made again at
and as of the Closing Date and shall be true in all material respects as if so
made again. Each of CalComp and Lockheed Martin shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date in all material
respects and Summagraphics shall have received from Lockheed Martin an officer's
certificate in such detail as Summagraphics may reasonably request dated the
Closing Date and signed by its president, any vice
37
<PAGE>
president or other authorized signatory or secretary to the foregoing effect.
8.2 No Adverse Proceedings or Events. There shall be no order restraining
--------------------------------
or prohibiting the transactions contemplated hereby and no action or proceeding
against any of the Parties or their respective Subsidiaries in respect of the
consummation of the transactions contemplated by this Agreement shall have been
instituted or threatened or any investigations or inquiries undertaken that in
the reasonable judgment of Summagraphics, could result in substantial damages or
as a result of which Summagraphics could be deprived of any of the material
benefits of the transactions contemplated by this Agreement.
8.3 No Adverse Changes. There shall not have been any material adverse
------------------
change in the financial position, results of operations, assets, liabilities or
business of CalComp and the CalComp Subsidiaries, taken as a whole, from
December 31, 1995, to the Closing Date, which changes, individually or in the
aggregate, have or constitute a Material Adverse Effect.
8.4 Legal Opinion. Summagraphics shall have received a written opinion,
-------------
dated as of the Closing Date, of in-house counsel to Lockheed Martin, in form
reasonably satisfactory to Summagraphics, which shall cover matters customary in
transactions of this nature.
8.5 Fairness Opinion. The fairness opinion delivered to the Board of
----------------
Directors of Summagraphics by Needham & Company, Inc. in accordance with the
provisions of Section 3.1(w) shall not have been rescinded.
8.6 Stockholder Approval. The transactions contemplated by this Agreement
--------------------
and the Fourth Amended and Restated Articles of Incorporation shall have been
approved and adopted by the affirmative vote of the holders of at least a
majority of the outstanding shares of Summagraphics Common Stock.
8.7 Secretary's Certificate. At the Closing, each of CalComp and Lockheed
-----------------------
Martin shall cause to be delivered to Summagraphics, a secretary's certificate
in a form reasonably satisfactory to Summagraphics.
8.8 Intercompany Agreements. Lockheed Martin shall have executed and
-----------------------
delivered to Summagraphics each of the Intercompany Agreements referred to in
Section 5.2. Sufficient funds shall have been made available to Summagraphics
pursuant to the Revolving Credit Agreement at the Closing to allow Summagraphics
to repay in full its indebtedness to Silicon Valley Bank and Heller Financial.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Update Disclosure; Breaches. From and after the date hereof until the
---------------------------
Closing, each Party shall promptly notify each other Party by written update of
(a) the occurrence, non-
38
<PAGE>
occurrence, or any event the occurrence, or non-occurrence, of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate, (b) any failure of a Party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement, and (c) any other matter which may occur from and after the
date of this Agreement which, if existing on the date hereof, would have been
required to be described herein; provided, however, that the delivery of any
such notice shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to or on the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the Party
receiving such notice under this Agreement.
9.2 Tax Returns. The Exchange shall be reported as a "reorganization"
-----------
within the meaning of Section 368(a)(i)(B) of the Code in all federal and, to
the extent permitted, all state and local tax returns filed after the Closing.
Notwithstanding any other provisions of this Agreement, the obligations set
forth in this Section 9.2 shall survive the Closing.
9.3 Best Efforts and Further Assurances. Each of the Parties to this
-----------------------------------
Agreement shall use its best reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
the Closing under this Agreement. Each party hereto, at the reasonable request
of another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
affecting completely the consummation of this Agreement and the transactions
contemplated hereby. If, at any time after the Closing, any such further action
is necessary or desirable to carry out the purposes of this Agreement and to
vest Lockheed Martin with full right, title and possession of the Summagraphics
Exchange Shares or Summagraphics with full right, title and possession of the
CalComp Exchange Shares, the officers and directors of each of Lockheed Martin
and Summagraphics shall take all such lawful and necessary action.
9.4 Payoff of Outstanding Indebtedness. At the Closing, Summagraphics
----------------------------------
shall pay, discharge and satisfy all outstanding indebtedness to Silicon Valley
Bank and Heller Financial described on Schedule 3.1(aa) and shall deliver to
Lockheed Martin evidence satisfactory to Lockheed Martin that such banks or
financial institutions have released all Encumbrances which such bank or
financial institutions then hold against the properties or assets of
Summagraphics or any Summagraphics Subsidiaries. The Parties acknowledge and
agree that Summagraphics shall be entitled to borrow funds from Lockheed Martin
under the Revolving Credit Agreement at Closing to pay off such amounts.
9.5 Directors and Officers Liability Insurance. For a period of six years
------------------------------------------
after the Closing, Lockheed Martin shall use reasonable efforts to cause to be
maintained in effect the current policies of directors and officers liability
insurance maintained by Summagraphics (provided that Lockheed Martin may
substitute therefore policies with reputable and financially sound carriers of
at least the same coverage in amounts containing terms and
39
<PAGE>
conditions which are no less advantageous) with respect to claims arising from
or related to facts or events which occurred at or before the Closing; provided,
that Lockheed Martin shall not be obligated to make premium payments for such
insurance to the extent such premiums exceed 150% of the premiums paid as of the
date hereof by Summagraphics for such insurance (the "Maximum Amount"). If the
amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Lockheed Martin and Summagraphics shall
maintain the most advantageous policies of directors, and officers' insurance
obtainable for an annual premium equal to the Maximum Amount.
9.6 CalComp Taxes.
-------------
(a) Lockheed Martin shall reimburse or pay and assume liability for
and indemnify and hold harmless Summagraphics and CalComp against (i) any
Federal or state income or franchise taxes based on income, including any
interest, penalties or other additions to tax with respect to such amounts,
payable by or on behalf of CalComp or any of the CalComp Subsidiaries for any
period ending on or prior to December 31, 1995 (except in each case to the
extent that such liability is properly reflected as an accrued liability in a
balance sheet for such company as at the close of business on December 31,
1995), and (ii) any deficiencies in any taxes described in (i) above payable by
or on behalf of CalComp or any of the CalComp Subsidiaries with respect to any
period ending on or prior to December 31, 1995.
(b) Lockheed Martin shall be entitled to all refunds of any taxes
described in (a)(i) above, together with any interest thereon, with respect to
CalComp or any of the CalComp Subsidiaries for any period ending on or prior to
December 31, 1995, and Summagraphics shall pay or cause to be paid to Lockheed
Martin any such refunds received.
ARTICLE X
TERMINATION, AMENDMENT, SURVIVAL OF
REPRESENTATIONS AND MISCELLANEOUS
10.1 Amendment. This Agreement may not be amended at any time except in
---------
writing signed by each of the Parties.
10.2 Termination. Notwithstanding any other provision to the contrary of
-----------
this Agreement, and notwithstanding the approval of this Agreement by the
stockholders of Summagraphics, this Agreement and the transactions contemplated
hereby may be terminated and the Exchange abandoned (without any obligation
(other than the payment of the fee contemplated by Section 4.4 in the event that
Summagraphics terminates this Agreement) by Lockheed Martin or Summagraphics to
renegotiate the Agreement) at any time prior to the Effective Date:
(a) By mutual consent of Summagraphics and Lockheed Martin; or
40
<PAGE>
(b) By Summagraphics or Lockheed Martin (provided that the terminating
Party is not then in material breach of any representation, warranty, covenant,
or other agreement contained in this Agreement) in the event of a material
breach by the other Party of any representation, warranty, covenant or other
agreement contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach; provided, however, that, for purposes of this Section
10.2(b), a material breach of a representation or warranty shall be deemed to
exist only if, when aggregated with all other such breaches, the breach has or
constitutes a Material Adverse Effect; or
(c) By either Party hereto if the Federal Trade Commission or the
Department of Justice, as the case may be, denied approval of the Exchange under
the HSR Act and the time period for all appeals or requests for reconsideration
has run;
(d) By either Summagraphics or Lockheed Martin in the event the
Closing has not occurred on or before June 15, 1996 or such later date as may be
established pursuant to Section 1.2, provided the failure to consummate the
Exchange is not caused by or does not result in any breach of the Agreement by
the Party electing to terminate; or
(e) By the Board of Directors of either Summagraphics or Lockheed
Martin (provided that the terminating Party is not then in material breach of
any representation, warranty, covenant or other agreement contained in this
Agreement) in the event that any of the conditions precedent to the obligations
of such Party to consummate the Exchange cannot be satisfied or fulfilled on or
before June 15, 1996 or such later date as may be established pursuant to
Section 1.2;
(f) By Summagraphics, if Lockheed Martin has not on or before the date
the Proxy Statement is first mailed to stockholders of Summagraphics delivered
written notice to Summagraphics that the conditions set forth in Section 7.3 has
been waived or satisfied;
(g) By Summagraphics if the holders of more than fifty percent of the
outstanding shares of Summagraphics Common Stock fail to vote in favor of the
transactions contemplated by this Agreement or the Fourth Amended and Restated
Articles of Incorporation;
(h) By the Board of Directors of Summagraphics if Summagraphics
receives an Acquisition Proposal which the Board of Directors of Summagraphics
determines in good faith in accordance with Paragraph 4.3 that it must consider,
and which Acquisition Proposal a majority of the full Board of Directors of
Summagraphics further determines to approve and to recommend to the stockholders
of Summagraphics for approval; provided however that, in that event,
Summagraphics pays to Lockheed Martin the fee contemplated by Section 4.4.
In the event of the termination of this Agreement and the abandonment of the
transactions contemplated by this Agreement
41
<PAGE>
pursuant to this Paragraph 10.2, other than as otherwise expressly provided
herein, this Agreement shall become void and have no effect, without any
liability on the part of either Party or its directors, officers or
stockholders. Notwithstanding the foregoing, nothing contained in this
Paragraph 10.2 shall relieve either Party from liability for any breach of this
Agreement.
10.3 Survival of Representations and Covenants. Except for those
-----------------------------------------
provisions of this Agreement that by their terms survive the Closing, the
respective warranties, representations, obligations and agreements of the
Parties hereto shall not survive the Closing.
10.4 Expenses. Except as provided in Section 4.4 each party will pay its
--------
own fees and expenses, including the fees and expenses of accountants,
attorneys, investment advisors and other professionals, incurred in connection
with the negotiation of this Agreement and the consummation of the transactions
contemplated hereby, provided that CalComp shall pay (i) the filing fee
associated with the filings of the Parties under the HSR Act and (ii) the filing
fee of the SEC associated with the Proxy Statement. Notwithstanding the
foregoing, in the event that either Party breaches this Agreement and this
Agreement is thereafter terminated, that Party shall pay the reasonable fees and
expenses of third-party consultants, accountants and attorneys that are actually
incurred (including fees and expenses incurred by Summagraphics relating to the
fairness opinion contemplated by Section 3.1(w) and the filing fees to be paid
by CalComp pursuant to the proviso contained in the preceding sentence) by the
-------
non-terminating party in connection with the preparation and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
Notwithstanding the foregoing, in the event that Lockheed Martin terminates this
Agreement in breach of the terms hereof or Summagraphics terminates this
Agreement pursuant to Section 10.2(b), Lockheed Martin agrees to pay within five
days of receipt of a reasonably detailed statement from Summagraphics, the
reasonable fees and expenses of third party consultants, accountants and
attorneys which are actually incurred by Summagraphics in connection with the
preparation and delivery of this Agreement and the consummation of the
transactions contemplated hereby. The obligations of the Parties under this
Section will survive any termination of this Agreement pursuant to Section 10.2.
10.5 Notices. All notices, requests, demands and other communications
-------
under or connected with this Agreement shall be in writing and (a) if to
Summagraphics shall be addressed to 8500 Cameron Road, Austin, Texas 78754,
Attention: Robert B. Sims, Esquire, General Counsel, with copies to its
counsel, Hughes & Luce, L.L.P., 1717 Main Street, Suite 2800, Dallas, Texas
75201, Attention: Michael W. Tankersley, Esquire, and (b) if to Lockheed Martin
shall be addressed to 6801 Rockledge Drive, Bethesda, Maryland 20817,
Attention: Stephen M. Piper, Esquire, Assistant General Counsel, with a copy to
Lockheed Martin Information & Technology Services, 6801 Rockledge Drive,
Bethesda, Maryland 20817, Attention: Director of Finance and (c) if to CalComp
shall be addressed to 2411 West LaPalma Avenue, Anaheim, California 92801,
Attention: General Counsel.
42
<PAGE>
10.6 Entire Agreement in Effect. This Agreement, including the Exhibits
--------------------------
and Schedules hereto (together with the Confidentiality Agreements), is intended
by the Parties to and does constitute the entire agreement of the Parties with
respect to the transactions contemplated hereunder. This Agreement including
the Exhibits and Schedules attached hereto supersedes any and all other prior
understandings and agreements between the Parties hereto (other than the
Confidentiality Agreements) and it may not be changed, waived, discharged or
terminated orally but only in writing by a party against which enforcement of
the change, waiver, or discharge or termination is sought.
10.7 General. The paragraph headings contained in this Agreement are for
-------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and the Exhibits attached
hereto may be executed simultaneously in two or more counterparts, each of which
shall be deemed an original, all of which shall become one and the same
instrument. This Agreement and the Exhibits attached hereto shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors; it shall not be assigned.
10.8 Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Maryland.
10.9 Counterparts. This Agreement and each of the exhibits or schedules
------------
hereto may be executed (by facsimile signature or otherwise) in two or more
counterparts, each of which shall constitute one and the same agreement.
43
<PAGE>
IN WITNESS WHEREOF, Lockheed Martin, CalComp and Summagraphics have caused
this Agreement to be duly executed by their respective chairmen or presidents
and their respective seals to be hereunto affixed and attested by their
respective secretaries thereunto duly authorized as of the date first written
above.
LOCKHEED MARTIN CORPORATION
By:/s/ PETER B. TEETS
------------------
Peter B. Teets
President - Lockheed
Martin Information &
Technology Services Sector
CALCOMP INC.
By:/s/ GARY LONG
-------------
Gary Long
President
SUMMAGRAPHICS CORPORATION
By:/s/ MICHAEL S. BENNETT
----------------------
Michael S. Bennett
President and Chief Executive
Officer
44
<PAGE>
APPENDIX A-2
------------
AMENDMENT NUMBER 1
to
PLAN OF REORGANIZATION
AND
AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
BY AND AMONG
LOCKHEED MARTIN CORPORATION,
A MARYLAND CORPORATION,
CALCOMP INC.,
A CALIFORNIA CORPORATION
AND
SUMMAGRAPHICS CORPORATION
A DELAWARE CORPORATION
DATED AS OF MARCH 19, 1996
dated as of April 30, 1996
<PAGE>
TABLE OF CONTENTS
1. Definition of Terms ................................. 1
2. Material Adverse Effect ............................. 1
3. Backlog ............................................. 1
4. Rescission of Backlog and Material
Adverse Effect Conditions to Closing ................ 1
5. MAE Variance ........................................ 1
6. Backlog Variance .................................... 2
7. Modified Effect of a Change in Backlog or
a Material Adverse Effect by Summagraphics .......... 2
8. Number of Additional Shares of Stock ................ 2
9. Additional Obligations of Summagraphics ............. 2
A. WARN Notice .................................... 2
B. Summagraphics Personnel ........................ 2
C. Transition Planning Access ..................... 2
D. Summachrome Purchase Orders .................... 2
E. Summajet Purchase Orders ....................... 2
F. Large Format Digitizer Purchase Orders ......... 2
G. Temporary Employees ............................ 2
H. Purchase Order Cancellation .................... 3
I. CO-OP Advertising .............................. 3
10. Name Change ......................................... 3
11. Corresponding Changes to Other Agreements ........... 3
12. All Other Terms Remain in Effect .................... 3
<PAGE>
APPENDIX A-2
AMENDMENT NUMBER 1
to
Plan of Reorganization and Agreement for the
Exchange of Stock of CalComp Inc. for Stock of
Summagraphics Corporation, dated as of March 19, 1996
This Amendment is made and entered into as of April 30, 1996 by and
between Lockheed Martin Corporation, a Maryland corporation; CalComp Inc. a
California corporation; and Summagraphics Corporation, a Delaware corporation.
RECITALS
WHEREAS, Lockheed Martin, CalComp and Summagraphics recognize that
ongoing operations of Summagraphics requires modifications to the Plan of
Reorganization entered into by the parties as of March 19, 1996; and
WHEREAS, all parties agree to make and accept the following negotiated
changes to the Plan of Reorganization and related Exhibits and documents;
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS OF TERMS. Capitalized terms shall have the same meaning as
defined in the Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among the parties
hereto dated as of March 19, 1996 (the "Plan of Reorganization")
2. MATERIAL ADVERSE EFFECT. The definition of Material Adverse Effect, as
defined in Paragraph 1.9(b) of the Plan of Reorganization is amended by
deleting the words "$2,000,000 for Summagraphics" in line 6 and replacing them
with the words "$3,400,000 for Summagraphics".
3. BACKLOG. Committed Backlog, as used in this Amendment, shall mean the
Summagraphics Backlog (as defined in Paragraph 3.1(bb) of the Plan of
Reorganization) of $2,750,000, but the words "May 31, 1996" shall be deleted and
replaced with the words "the Closing Date."
4. RESCISSION OF BACKLOG AND MATERIAL ADVERSE EFFECT CONDITIONS TO
CLOSING. The parties hereby agree to delete Paragraphs 7.2 and 7.11 to the
extent that Summagraphics (i) failure to achieve a Material Adverse Effect less
than the amount specified in Paragraph 2 above, or (ii) having an actual backlog
as of the Closing Date less than the amount specified in Paragraph 3, above,
would otherwise constitute a Failure of a Condition Precedent to Closing.
5. MAE VARIANCE. The "MAE Variance" will be the amount by which the actual
Material Adverse Effect, as of the Closing, is different from the amount
specified in Paragraph 2. A positive variance is considered to be a variance in
favor of the Purchaser. For example, if the actual Material Adverse Effect is
$3,800,000 and the amount in paragraph 2 is $3,400,000, the MAE Variance is
- -$400,000. If the actual Material Adverse Effect as of the Closing is
$2,500,000, the MAE Variance would be +$500,000.
6. BACKLOG VARIANCE. The Backlog Variance will be the amount by which the
actual Backlog as
<PAGE>
of the Closing is different from the amount specified in
Paragraph 3. A positive variance is considered to be a variance in favor of the
Purchaser. For example, if the actual Backlog as of the Closing is $3,500,000
and the Backlog Committed is $2,750,000, the Backlog Variance would be +
$750,000. If the actual Backlog as of the Closing is $2,000,000, the Backlog
Variance would be - $750,000.
7. MODIFIED EFFECT OF A CHANGE IN BACKLOG OR A MATERIAL ADVERSE EFFECT BY
SUMMAGRAPHICS. The parties agree that if the sum of the Backlog Variance and the
MAE Variance is less than $0, any negative amount will result in Summagraphics
issuing additional stock above and beyond any stock issuance otherwise provided
for in the Plan of Reorganization.
8. NUMBER OF ADDITIONAL SHARES OF STOCK. Summagraphics will issue such number
of additional shares as is indicated by dividing the sum of the MAE Variance and
Backlog Variance, if negative, by the average closing prices, as reported in the
Wall Street Journal,--NASDAQ National Market Issues, for the five days preceding
Closing, as specified by Paragraph 1.3 of the Plan of Reorganization. The number
of shares to be issued (to the nearest whole share) times the share price
above must equal the negative variance (if any), but in the event the sum of
the MAE and Backlog Variances is positive, the number of shares will not be
adjusted.
9. ADDITIONAL OBLIGATIONS OF SUMMAGRAPHICS.
A. WARN NOTICE. Summagraphics will give a WARN Notice to all necessary
recipients when directed by CalComp, but not sooner than May 1, 1996. At
the time of the WARN Notice, Summagraphics employees so notified shall
receive written notification of their full entitlement, including
severances.
B. SUMMAGRAPHICS PERSONNEL. Following the giving of the WARN Notice
(unless earlier agreed to by Summagraphics,) Summagraphics will permit
reasonable CalComp access to Summagraphics employees for the purpose of
interviewing possible future employees and to make offers to selected
employees. Such requests will follow a reasonable Summagraphics protocol.
C. TRANSITION PLANNING ACCESS. Summagraphics agrees to cooperate with
CalComp as reasonably necessary to support the transition planning actions
by CalComp relating to employees, customers, suppliers, lending
institutions, landlords, and others.
D. SUMMACHROME PURCHASE ORDERS. Summagraphics will refrain from issuing
any Purchase Orders effective with the date of this Amendment for support
of Summachrome production except as may be specifically agreed to in
writing by CalComp. This provision is not intended to restrict the
production or sale of such units prior to the Closing.
E. SUMMAJET PURCHASE ORDERS. Summagraphics will refrain from issuing any
Purchase Orders effective with the date of this Amendment for support of
Summajet production except as may be specifically agreed to in writing by
CalComp. This provision is not intended to restrict the production or
sale of such units prior to the Closing.
F. LARGE FORMAT DIGITIZER PURCHASE ORDERS. Summagraphics will refrain
from issuing any Purchase Orders for production after August 31, 1996 for
purchases of Large Format Digitizers except as may be specifically agreed
to in writing by CalComp. This provision is not intended to restrict the
production or sale units prior to the Closing.
G. TEMPORARY EMPLOYEES. Summagraphics will eliminate, to the greatest
extent, reasonably possible, the use of temporary employees.
2
<PAGE>
H. PURCHASE ORDER CANCELLATION. Summagraphics will negotiate the
cancellation of Purchase Orders for Summajet, Summachrome and Large Format
Digitizers to result in a net savings as great as possible. This provision
is not intended to restrict the production or sale of such units prior to
the Closing.
I. CO-OP ADVERTISING. Summagraphics will eliminate, to the greatest
extent possible, all Co-operative Advertising expenses related to the
Summajet and Summachrom Product Lines. This provision is not intended to
restrict the production or sale of such units prior to the Closing.
10. NAME CHANGE. Effective as of the Closing, the name of Summagraphics
Corporation will be changed to "CalComp Technology, Inc." and the name of
CalComp Inc. will not be changed.
11. CORRESPONDING CHANGES TO OTHER AGREEMENTS. By this Amendment, the parties
hereby declare that all terms and conditions in the Plan of Reorganization, the
Exhibits, or any other agreement between the parties relating to matters covered
by this Amendment are deemed amended as necessary to conform to the provisions
of this Amendment.
12. ALL OTHER TERMS REMAIN IN EFFECT. Except as expressly provided herein, all
other terms and conditions in the Plan of Reorganization, its Exhibits, and all
other agreements between the parties remain unchanged and in effect.
IN WITNESS WHEREOF, Lockheed Martin, CalComp and Summagraphics have
caused this Agreement to be duly executed by their respective chairman or
presidents and their respective seals to be hereunto affixed and attested by
their respective secretaries thereunto duly authorized as of the date first
written above.
LOCKHEED MARTIN CORPORATION
By: /s/ Peter E. Teets
--------------------------------
Peter B. Teets
President - Lockheed
Martin Information &
Technology Services Sector
CALCOMP
By: /s/ Gary Long
-------------------------------
Gary Long
President
SUMMAGRAPHICS CORPORATION
By: /s/ Michael S. Bennett
------------------------------
Michael S. Bennett
President and Chief Executive
Officer
3
<PAGE>
APPENDIX A-3
AMENDMENT NUMBER 2
dated as of June 5, 1996
to
PLAN OF REORGANIZATION
and
AGREEMENT FOR THE EXCHANGE OF STOCK OF
CALCOMP INC. FOR STOCK OF SUMMAGRAPHICS CORPORATION
by and among
LOCKHEED MARTIN CORPORATION,
a Maryland corporation,
CALCOMP INC.,
a California corporation
and
SUMMAGRAPHICS CORPORATION,
a Delaware corporation
dated as of March 19, 1996
<PAGE>
AMENDMENT NUMBER 2
to
Plan of Reorganization and Agreement for the
Exchange of Stock of CalComp Inc. for Stock of
Summagraphics Corporation, dated as of March 19, 1996
This Amendment is made and entered into as of June 5, 1996 by and among
Lockheed Martin Corporation ("Lockheed Martin"), a Maryland corporation; CalComp
Inc. ("CalComp"), a California corporation; and Summagraphics Corporation
("Summagraphics"), a Delaware corporation.
RECITALS
--------
WHEREAS, on March 19, 1996, Lockheed Martin, CalComp and Summagraphics
(collectively, the "Parties") entered into the Plan of Reorganization and
Agreement for the Exchange of Stock of CalComp Inc. for Stock of Summagraphics
Corporation (the "Plan of Reorganization"); and
WHEREAS, on April 30, 1996, the Parties entered into Amendment Number 1 to
the Plan of Reorganization ("Amendment Number 1"), which amended certain
provisions thereto; and
WHEREAS, the Parties deem it necessary to modify further the Plan of
Reorganization, in light of recent operating results of CalComp and
uncontrollable delays in obtaining clearance of the Proxy and Information
Statement by the Securities and Exchange Commission; and
WHEREAS, the Parties have negotiated and accept the following changes to
the Plan of Reorganization as amended by Amendment Number 1 and the related
documents and Exhibits;
NOW, THEREFORE, the Parties hereby agree as follows:
AGREEMENT
---------
1. CAPITALIZED TERMS. Capitalized terms used herein shall have the
meanings assigned to such terms in the Plan of Reorganization as amended by
Amendment Number 1.
2. MATERIAL ADVERSE EFFECT. The definition of Material Adverse Effect, as
defined in Paragraph 1.9(b) of the Plan of Reorganization and amended by
Amendment Number 1, is hereby further amended by deleting the words "$15,000,000
for CalComp" in Line 6 and replacing them with the words $25,500,000 for
CalComp."
3. RESCISSION OF MATERIAL ADVERSE EFFECT CONDITION TO CLOSING. The
Parties hereby agree to delete paragraph 8.3 to the
<PAGE>
extent that CalComp's failure to achieve a Material Adverse Effect less than the
amount specified in Paragraph 2 above would otherwise constitute a failure of a
condition precedent to Closing.
4. REDUCTION OF SHARES OF SUMMAGRAPHICS COMMON STOCK. The parties hereby
agree that Section 1.10 is added to the Exchange Agreement to read as follows:
------------
"1.10 Reduction of Shares of Summagraphics Common Stock. The
-------------------------------------------------
number of shares of Summagraphics Common Stock to be issued to
Lockheed Martin pursuant to Section 1.3 shall be reduced by the
-----------
CalComp MAE Variance (as defined below) divided by the average
closing prices of Summagraphics Common Stock as reported in the
Wall Street Journal -- NASDAQ National Market Issues for the five
-------------------
days preceding the Closing (rounded to the nearest whole share).
For purposes hereof, the term "CalComp MAE Variance" shall mean
the amount of the decrease, if any, in the consolidated stockholders'
equity of CalComp from December 31, 1995 to Closing that exceeds
$25,500,000."
5. TERM OF AGREEMENT. The term of the Plan of Reorganization is extended
through July 31, 1996, conditioned, however, upon Summagraphics obtaining the
consent of Silicon Valley Bank of such extension, which consent shall be on
terms and conditions acceptable to Lockheed Martin and CalComp. Accordingly, all
references to "June 15, 1996" in Paragraphs 1.2, 4.3 and 10.2 of the Plan of
Reorganization (as well as in the Exhibits and other documents related to the
Plan of Reorganization) shall be deleted and replaced with the date "July 31,
1996."
6. CORRESPONDING CHANGES TO OTHER AGREEMENTS. By this Amendment, the
Parties hereby declare that all terms and conditions in the Plan of
Reorganization, the Exhibits, and any other agreement between and among the
Parties relating to matters covered by this Amendment are deemed amended as
necessary to conform to the provisions of this Amendment.
7. EXTENSION OF CONVERTIBLE DEBENTURE. Upon receipt by Lockheed Martin of
a waiver and consent from Silicon Valley Bank in form satisfactory to Lockheed
Martin and CalComp, Lockheed Martin shall extend the date set forth in Section
3.(iv) of the Convertible Debenture to a date coextensive with the date set
forth in Section 3 above.
8. CHANGES TO THE FOURTH AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF SUMMAGRAPHICS. The parties agree that Fourth Amended and
Restated Certificate of Incorporation of Summagraphics is amended as set forth
in Exhibit A attached hereto.
9. ALL OTHER TERMS REMAIN IN EFFECT. Except as expressly provided herein,
all other terms and conditions in the Plan of
-2-
<PAGE>
Reorganization, its Exhibits, and all other agreements between and the Parties
remain unchanged in effect.
IN WITNESS WHEREOF, Lockheed Martin, CalComp and Summagraphics have caused
this Agreement to be duly executed by their respective chairmen or presidents
and their respective seals to be affixed hereto and attested by their respective
secretaries thereunto duly authorized as of the date first written above.
LOCKHEED MARTIN CORPORATION
By: /s/ Peter B. Teets
--------------------------------
Peter B. Teets
President - Lockheed Martin
Information & Technology
Services Sector
CALCOMP INC.
By: /s/ Gary Long
--------------------------------
Gary Long
President
SUMMAGRAPHICS CORPORATION
By: /s/ Michael S. Bennett
--------------------------------
Michael S. Bennett
President and Chief Executive
Officer
-3-
<PAGE>
APPENDIX B
[LETTERHEAD OF NEEDHAM & COMPANY, INC.]
June 6, 1996
Board of Directors
Summagraphics Corporation
8500 Cameron Road
Austin, Texas 78754
Gentlemen:
We understand that Summagraphics Corporation ("Summagraphics"), Lockheed
Martin Corporation ("Lockheed Martin") and CalComp Inc., a wholly-owned
subsidiary of Lockheed Martin ("CalComp"), have entered into a Plan of
Reorganization and Agreement for the Exchange of Stock of CalComp Inc. for Stock
of Summagraphics Corporation dated as of March 19, 1996 (the "Reorganization
Agreement") whereby Lockheed Martin will transfer to Summagraphics all of the
issued and outstanding capital stock of CalComp in exchange for newly issued
shares of Summagraphics' common stock (the "Exchange"). The terms of the
Exchange are set forth more fully in the Reorganization Agreement. We further
understand that the Reorganization Agreement was amended pursuant to Amendments
thereto dated April 30, 1996 and as of June 5, 1996 (the "Amendments").
Pursuant to the Reorganization Agreement, we understand that at the Closing
Date (as defined in the Reorganization Agreement), Summagraphics will acquire
all of the issued and outstanding capital stock of CalComp, in consideration of
the issuance to Lockheed Martin of a number of shares of Summagraphics' common
stock determined so that immediately after the Exchange Lockheed Martin owns
89.7% of all of the issued and outstanding shares of Summagraphics common stock
on a Fully Diluted Basis (as defined in the Reorganization Agreement). With your
permission, and based upon representations of management of Summagraphics and
CalComp, we have assumed that no adjustments will be made to the percentage
ownership of Summagraphics' common stock by Lockheed Martin pursuant to the
Amendments.
You have asked us to advise you as to the fairness, from a financial point
of view, to the stockholders of Summagraphics of the consideration to be paid by
Lockheed Martin to Summagraphics in the Exchange. Needham & Company, Inc. as
part of its investment banking business is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations. We have acted as financial advisor to Summagraphics
in connection with the Exchange, and Summagraphics has agreed to indemnify us
for certain liabilities arising out of the rendering of this opinion.
<PAGE>
For purposes of this opinion we have, among other things: (i) reviewed the
Reorganization Agreement and the Amendments; (ii) reviewed certain other
documents relating to the Exchange, including preliminary copies of the Proxy
and Information Statement of Summagraphics; (iii) reviewed certain publicly
available information concerning Lockheed Martin, CalComp and Summagraphics;
(iv) reviewed the historical stock prices and trading volumes of Summagraphics'
common stock; (v) visited certain of CalComp's and Summagraphics' facilities and
held discussions with members of management of Lockheed Martin, CalComp and
Summagraphics concerning their current and future business prospects; (vi)
reviewed and discussed with management certain historical financial statements
and financial forecasts and projections prepared by CalComp and Summagraphics;
(vii) compared certain publicly available financial data of companies whose
securities are publicly traded, which we deemed generally comparable to the
business of Summagraphics and CalComp combined after the Exchange ("New
CalComp"), to similar data for New CalComp; (viii) reviewed the financial terms
of certain other business combinations, which we deemed generally relevant; and
(ix) performed and/or considered such other studies, analyses, inquiries and
investigations as we deemed appropriate. We have discussed with certain members
of Summagraphics' management Summagraphics' liquidity position, which has
continued to deteriorate and has, among other things, affected adversely
Summagraphics' ability to procure products from vendors to fulfill customer
orders. We noted, base upon such discussions, that Summagraphics' working
capital needs for the current calendar year have been largely dependent upon
funds provided by Lockheed Martin and CalComp, and that absent such source of
liquidity or another source, Summagraphics' business prospects would worsen
materially.
In connection with our review and arriving at our opinion, we have not
assumed any responsibility to independently verify any of the foregoing
information, have relied on such information, and have assumed that (i) all such
information is complete and accurate in all material respects, (ii) the Exchange
will constitute a tax-free reorganization, and (iii) as noted above, that no
adjustments will be made to the percentage ownership of Summagraphics' common
stock by Lockheed Martin pursuant to the Amendments. With respect to CalComp's
and Summagraphics' financial forecasts provided to us by their respective
managements, we have assumed for purposes of our opinion that such forecasts
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of such managements, at the time of preparation, of the
future operating and financial performance of CalComp and Summagraphics. We
have not assumed any responsibility for or made or obtained any independent
evaluation, appraisal or physical inspection of the assets or liabilities of
Summagraphics, Lockheed Martin or CalComp. Further, our opinion is based on
economic, monetary and market conditions existing as of the date hereof, and in
rendering this opinion, we have relied without independent verification on the
accuracy, completeness and fairness of all historical financial and other
information which was either publicly available or furnished to us by Lockheed
Martin, CalComp and Summagraphics. Our opinion as expressed herein is limited
to the fairness, from a financial point of view, to the stockholders of
Summagraphics of the consideration to be paid to Summagraphics by Lockheed
Martin in the Exchange and does not address Summagraphics' underlying business
decision to engage in the Exchange.
In the ordinary course of our business, we may actively trade the equity
securities of one or more parties to the Exchange for our own account or for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
<PAGE>
This letter and the opinion expressed herein are for the benefit of the
Board of Directors of Summagraphics and may not be quoted or referred to or used
for any purpose without our prior written consent, except that this letter may
be disclosed in connection with any registration statement or proxy statement
used in connection with the Exchange so long as this letter is quoted in full in
such registration statement or proxy statement.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the consideration to be paid to Summagraphics by Lockheed Martin in
the Exchange is fair to the stockholders of Summagraphics from a financial
point of view.
Very truly yours,
Needham & Company, Inc.
<PAGE>
APPENDIX C
================================================================================
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMAGRAPHICS CORPORATION
Dated as of __________ __, 1996
================================================================================
<PAGE>
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMAGRAPHICS CORPORATION
Summagraphics Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware, filed its Certificate of
Incorporation with the Secretary of State of the State of Delaware on June 29,
1972 under the name "Scriptographics Corporation". Desiring to amend its
Certificate of Incorporation, as heretofore amended, and to restate the same, as
amended, Summagraphics Corporation does hereby certify:
FIRST: That the Board of Directors of Summagraphics Corporation, at a
meeting duly called at which a quorum was present and acting throughout, duly
adopted a resolution proposing and declaring advisable the amendment and
restatement of the Certificate of Incorporation of Summagraphics Corporation as
hereinafter set forth.
SECOND: That, thereafter, the stockholders of Summagraphics
Corporation, in a manner and by the vote prescribed by Section 242 of the
General Corporation Law of the State of Delaware, voted in favor of the
amendment and restatement.
THIRD: That this Fourth Amended and Restated Certificate of
Incorporation of Summagraphics Corporation has been duly adopted in accordance
with Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
FOURTH: That the Third Restated Certificate of Incorporation of
Summagraphics Corporation is hereby amended and restated in its entirety as
follows:
ARTICLE 1. The name of the corporation is CalComp Technology, Inc.
(hereinafter the "Corporation").
ARTICLE 2. The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE 3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of
Delaware.
<PAGE>
ARTICLE 4. The total number of shares of stock which the Corporation
shall have authority to issue is Sixty-Five Million (65,000,000), of which
Sixty Million (60,000,000) shares of the par value of one cent ($.01) per
share, amounting in the aggregate to Six Hundred Thousand Dollars
($600,000), shall be Common Stock, and Five Million (5,000,000) shares of
the par value of one cent ($.01) per share, amounting in the aggregate to
Fifty Thousand Dollars ($50,000), shall be Preferred Stock. A description
of the respective classes of stock and a statement of the designations,
preferences, voting powers (or no voting powers), relative participating,
optional or other special rights and privileges and the qualifications,
limitations and restrictions of the Preferred Stock and Common Stock are as
follows:
(a) Preferred Stock
---------------
The Preferred Stock may be issued in one or more series at such
time or times and for such consideration or considerations as the
Board of Directors may determine. Each series shall be so
designated as to distinguish the shares thereof from the shares
of all other series and classes. The Board of Directors is
expressly authorized, subject to the limitations prescribed by
law and the provisions of this Fourth Amended and Restated
Certificate of Incorporation, to provide for the issuance of all
or any shares of the Preferred Stock in one or more series, each
with such designations, preferences, voting powers (or no voting
powers), relative, participating, optional or other special
rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or
resolutions adopted by the Board of Directors to create such
series, and a certificate setting forth said resolution or
resolutions shall be filed in accordance with the General
Corporation Law of the State of Delaware. The authority of the
Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to
provide that the shares of each such series may be: (i) subject
to redemption, at the option of either the holder or the
Corporation or upon the happening of a specified event, at such
time or times and at such price or prices; (ii) entitled to
receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in
preference to, or in such relation
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to, the dividends payable on any other class or classes or any
other series; (iii) entitled to such rights upon the dissolution
of, or upon any distribution of the assets of, the Corporation;
(iv) convertible into, or exchangeable for, at the option of
either the holder or the Corporation or the happening of a
specified event, shares of any other class or classes of stock,
or of any other series of the same or any other class or classes
of stock of the Corporation at such price or prices or at such
rates of exchange and with such adjustments, if any; (v) entitled
to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of
Preferred Stock; or (vi) entitled to such other preferences,
powers, qualifications, rights and privileges, all as the Board
of Directors may deem advisable and as are not inconsistent with
law or the provisions of this Fourth Amended and Restated
Certificate of Incorporation.
(b) Common Stock
------------
Except as otherwise required by law, this Fourth Amended and
Restated Certificate of Incorporation, or as otherwise provided
for in any resolutions of the Board of Directors providing for
the issuance of shares of Preferred Stock in one or more series,
the holders of the Common Stock, voting together as a single
class with the holders of the Preferred Stock, if any, shall
possess all of the voting power. Each holder of Common Stock
shall be entitled to one vote for each share held. The
Corporation shall not have cumulative voting.
ARTICLE 5. The Corporation is to have perpetual existence.
ARTICLE 6. The Board of Directors of the Corporation shall be
comprised of seven members or such other number of members as is determined
by the Board of Directors of the Corporation in accordance with the Bylaws.
ARTICLE 7. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware:
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(a) The Board of Directors of the Corporation is expressly authorized
to adopt, amend or repeal the Bylaws of the Corporation.
(b) Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
(c) The books of the Corporation may be kept at such place within or
without the State of Delaware as the Bylaws of the Corporation
may provide or as may be designated from time to time by the
Board of Directors of the Corporation.
ARTICLE 8. (a) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, any person who was or is made or is threatened to be made a party
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of
the fact that such person, or a person for whom such person is the legal
representative, is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, trust, enterprise
or nonprofit entity, including service with respect to employee benefit
plans (an "indemnitee"), against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such
indemnitee. The Corporation shall be required to indemnify an indemnitee
in connection with a proceeding (or part thereof) initiated by such
indemnitee only if the initiation of such proceeding (or part thereof) by
the indemnitee was authorized by the Board of Directors of the Corporation.
(b) Notwithstanding the foregoing subparagraph (a), a director or
officer of the Corporation shall only be indemnified with respect
to a criminal action or proceeding, if at all, if the director or
officer had no reasonable cause to believe the conduct giving
rise to such action or proceeding was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create the presumption that such person did
not act in good faith and in a manner such person believed to be
in or not opposed to the best interests of the Corporation and,
with respect to a criminal action or proceeding, shall not
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create the presumption that such person had reasonable cause to
believe that the conduct giving rise to such action or proceeding
was unlawful.
(c) Any and all indemnifications (except those ordered by a court)
shall be made by the Corporation only as authorized in the
specific case upon a determination that the indemnification of
the director or officer is proper under the circumstances. The
determination of the propriety of indemnification in a specific
case shall be made upon the affirmative vote of a majority of the
directors who are not parties to the action, suit or proceeding,
even if such directors comprise less than a quorum. In the event
there are no such directors, or if such directors so direct, the
determination shall be made by independent legal counsel in a
written opinion or by the stockholders.
(d) The Corporation may, in the discretion of the majority of the
Board of Directors who are not parties to the action, suit or
proceeding, to pay expenses and legal fees incurred by a director
or officer in defending any civil, criminal, administrative or
investigative action in advance of its final disposition upon an
undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that the
director or officer is not entitled to be indemnified by the
Corporation.
(e) The Corporation is hereby authorized to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or was serving at
the request of the Corporation as a director, officer, employee
or agent of another corporation or other enterprise against any
liability asserted against the director, officer, employee or
agent and incurred by such person in any such capacity, or
arising out of the director, officer, employee or agent's status
as such, whether or not the Corporation would have the power to
indemnify such person against liability under the law of the
applicable jurisdiction.
ARTICLE 9. (a) Upon the consummation of the Plan of Reorganization
and Agreement for the Exchange of Stock of CalComp Inc. for Stock of
Summagraphics Corporation, as
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amended, pursuant to which Lockheed Martin Corporation ("Lockheed Martin")
will exchange 100% of the issued and outstanding Common Stock of CalComp
Inc. for approximately 89.7% of the then-issued and outstanding Common
Stock of the Corporation, Lockheed Martin will own shares of the
outstanding Common Stock of the Corporation, which represents a controlling
interest in the Corporation. As used herein, "Lockheed Martin" includes
Lockheed Martin and each corporation, partnership, joint venture, limited
liability company, association and other entity in which the Corporation
beneficially owns (directly or indirectly) fifty percent (50%) or more of
the outstanding common stock of such corporation or, if not a corporation,
equity interests entitled to vote generally in the election of the
governing body of such entity. In anticipation that the Corporation and
Lockheed Martin may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities,
and in recognition of (i) the benefits to be derived by the Corporation
through its continued contractual, corporate and business relations with
Lockheed Martin (including service of officers, directors and employees of
Lockheed Martin as directors of the Corporation) and (ii) the difficulties
attendant to any director, who desires and endeavors fully to satisfy such
director's fiduciary duties, in determining the full scope of such duties
in any particular situation, the provisions of this Article 9 are set forth
to regulate, define and guide, to the extent permitted by law, the conduct
of certain affairs of the Corporation as they may involve Lockheed Martin
and its officers, directors and employees, and the powers, rights, duties
and liabilities of the Corporation and its officers, directors, employees
and stockholders in connection therewith; provided, however, except as
expressly set forth herein, nothing contained in this Article 9 shall
limit, restrict or relieve the powers, rights, duties and liabilities of
the Corporation and its officers, directors, employees and stockholders.
(b) To the fullest extent permitted by the General Corporation Law of
the State of Delaware, except as Lockheed Martin may otherwise agree in
writing, Lockheed Martin shall have the right to (i) engage in the same or
similar business activities or lines of business as the Corporation and
(ii) do business with any client or customer of the Corporation, and
Lockheed Martin shall have no duty to refrain from engaging in such
business activities or to refrain from doing business with such clients and
customers. To the fullest extent permitted by the General Corporation Law
of the State of Delaware, neither Lockheed Martin nor any officer, director
or employee thereof (except as provided in subparagraph (c)
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<PAGE>
of this Article 9) shall be liable to the Corporation or its stockholders
for breach of any duty which is owed or may be owed to the Corporation by
reason of any such activities of Lockheed Martin or of such person's
participation therein. To the fullest extent permitted by the General
Corporation Law of the State of Delaware, in the event that Lockheed Martin
acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both Lockheed Martin and the Corporation, other
than from the Corporation, Lockheed Martin shall have no duty to
communicate or present such corporate opportunity to the Corporation and
shall not be liable to the Corporation or its stockholders for breach of
any duty as a stockholder of the Corporation by reason of the fact that
Lockheed Martin pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person or entity, or does not
present such corporate opportunity to the Corporation.
(c) In the event that a director, officer or employee of the
Corporation who is also a director, officer or employee of Lockheed Martin
acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both the Corporation and Lockheed Martin, such
director or officer of the Corporation shall act in good faith in a manner
consistent with the following policy:
(i) a corporate opportunity offered to any person who is a
director, officer or employee of the Corporation and who is
also a director but not an officer or employee of Lockheed
Martin shall belong to the Corporation, unless such
opportunity is expressly offered to such person primarily in
his or her capacity as a director of Lockheed Martin, in
which case such opportunity shall belong to Lockheed Martin;
(ii) a corporate opportunity offered to any person who is a
director but not an officer or employee of the Corporation
and who is also a director, officer or employee of Lockheed
Martin shall belong to Lockheed Martin, unless such
opportunity is expressly offered to such person primarily in
his or her capacity as a director of the Corporation or he
or she became aware of it in the course of the performance
of his or her duties on behalf of the Corporation, in which
case such opportunity shall belong to the Corporation; and
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<PAGE>
(iii) a corporate opportunity offered to any other person who is
either (A) an officer or employee of both the Corporation
and Lockheed Martin or (B) a director of both the
Corporation and Lockheed Martin (but an officer or employee
of neither the Corporation nor Lockheed Martin) shall belong
to Lockheed Martin or to the Corporation, as the case may
be, if such opportunity is expressly offered to such person
primarily in his or her capacity, or he or she became aware
of it in the course of the performance of his or her duties
on behalf of the Corporation, as an officer, employee or
director of Lockheed Martin or of the Corporation, as the
case may be; otherwise, such opportunity shall belong to
either Lockheed Martin or the Corporation as a majority of
the directors of the Corporation who are not officers or
employees of either Lockheed Martin or the Corporation or
directors of Lockheed Martin shall determine in their good
faith judgment, taking into account all the facts and
circumstances with respect to such opportunity.
(d) For the purposes of this Article 9, "corporate opportunities"
shall not include any business opportunities that the Corporation is not
financially able to undertake, or that are, from their nature, not in the
ordinary business of the Corporation or are of no practical advantage to it
or that are ones in which the Corporation has no interest or reasonable
expectancy. In addition, "corporate opportunities" shall not include any
transactions in which the Corporation or its subsidiaries are permitted to
participate pursuant to any services agreement or any other agreement
(which may be adopted, amended or repealed from time to time by the vote of
a majority of the disinterested directors) between Lockheed Martin and the
Corporation (each such agreement is referred to herein as a "Services
Agreement"), it being acknowledged that the rights of the Corporation under
any such Services Agreement shall be deemed for all purposes to be
contractual rights and shall not be corporate opportunities of the
Corporation for any purpose; provided, however, that the absence of any
such Services Agreement, or the absence of any provisions in a Services
Agreement relating to any particular transactions or types of transactions,
shall not support any inferences or implications or have any effect
whatsoever on transactions not explicitly covered by a Services Agreement.
(e) Any person or entity that currently owns, hereafter purchases or
hereafter otherwise acquires any interest in any
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<PAGE>
shares of capital stock of the Corporation shall be deemed to have notice
of and to have consented to the provisions of this Article 9.
(f) For purposes of this Article 9, the "Corporation" shall mean the
Corporation and each corporation, partnership, joint venture, limited
liability company, association and other entity in which the Corporation
beneficially owns (directly or indirectly) fifty percent (50%) or more of
the outstanding common stock of such corporation or, if not a corporation,
equity interests entitled to vote generally in the election of the
governing body of such entity.
ARTICLE 10. (a) In anticipation that (i) the Corporation and Lockheed
Martin or its customers (or other persons acquiring products manufactured
or distributed by Lockheed Martin) may enter into contracts or otherwise
transact business with each other and that the Corporation may derive
benefits therefrom and (ii) the Corporation may from time to time enter
into contractual, corporate or business relations with one or more of its
directors, or one or more corporations, partnerships, associations or other
organizations in which one or more of its directors have a financial
interest or are affiliated with (collectively "Related Entities"), the
provisions of this Article 10 are set forth to regulate and guide certain
contractual relations and other business relations of the Corporation as
they may involve Lockheed Martin or its customers (or other persons
acquiring products manufactured or distributed by Lockheed Martin), Related
Entities and their respective officers and directors, and the powers,
rights, duties and liabilities of the Corporation and its officers,
directors and stockholders in connection therewith. The provisions of this
Article 10 are in addition to, and not in limitation of, the provisions of
the General Corporation Law of the State of Delaware and the other
provisions of this Fourth Amended and Restated Certificate of
Incorporation. Any contract or business relation that does not comply with
procedures set forth in this Article 10 shall not by reason thereof be
deemed void or voidable or result in any breach of any duty or the
derivation of any improper personal benefit but shall be governed by the
provisions of this Fourth Amended and Restated Certificate of
Incorporation, the Bylaws of the Corporation, the General Corporation Law
of the State of Delaware and other applicable law.
(b) Directors of the Corporation who are also directors or officers of
Lockheed Martin or any Related Entity may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a
committee thereof that authorizes, approves or ratifies any contract,
agreement, arrangement or transaction or any arrangements, guidelines or
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<PAGE>
standards. Voting shares owned by Lockheed Martin, any Related Entities,
or such interested party may be counted in determining the presence of a
quorum at a meeting of stockholders that authorizes, approves or ratifies
any contract, agreement, arrangement or transaction or any arrangements,
guidelines or standards.
(c) To the fullest extent permitted by law, Lockheed Martin shall not
be liable to the Corporation or its stockholders for breach of any duty by
reason of the fact that Lockheed Martin in good faith takes any action or
exercises any rights or gives or withholds any consent in connection with
any agreement or contract between Lockheed Martin and the Corporation. No
vote cast or other action taken by any person who is an officer, director
or other representative of Lockheed Martin, which vote is cast or action is
taken by such person in his or her capacity as a director of the
Corporation, shall constitute an action of or the exercise of a right by or
a consent of Lockheed Martin for the purpose of any such agreement or
contract.
(d) Any person or entity that currently owns, hereafter purchases or
hereafter otherwise acquires any interest in any shares of capital stock of
the Corporation shall be deemed to have notice of and to have consented to
the provisions of this Article 10.
(e) For purposes of this Article 10, any contract, agreement,
arrangement or transaction with any corporation, partnership, joint
venture, limited liability company, association or other entity in which
the Corporation beneficially owns (directly or indirectly) fifty percent
(50%) or more of the outstanding voting power, or with any officer or
director thereof, shall be deemed to be a contract, agreement, arrangement
or transaction with the Corporation.
ARTICLE 11. A director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended. If the General Corporation Law of the State of
Delaware is amended after the effective date of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or
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<PAGE>
protection of a director of the Corporation existing hereunder with respect
to any act or omission occurring prior to such repeal or modification.
ARTICLE 12. The Corporation shall not be governed by the provisions
of Section 203 of the General Corporation Law of the State of Delaware or
by any similar law restricting business combinations with an Interested
Stockholder, as defined in such Section 203.
ARTICLE 13. The Corporation reserves the right to amend or repeal any
provision contained in this Fourth Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon a stockholder herein are granted subject to this
reservation.
IN WITNESS WHEREOF, Summagraphics Corporation has caused this certificate
to be signed by Michael S. Bennett, its duly authorized President and Chief
Executive Officer, and attested by Robert B. Sims, its duly authorized
Secretary, this ____ day of __________, 1996.
ATTEST: SUMMAGRAPHICS CORPORATION
By:
- ------------------------------ -----------------------------
Robert B. Sims Michael S. Bennett
Secretary President and Chief Executive
Officer
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<PAGE>
APPENDIX D
CALCOMP TECHNOLOGY, INC.
1996 STOCK OPTION PLAN
FOR KEY EMPLOYEES
(WITH STOCK APPRECIATION RIGHTS)
Adopted: ______, 1996
<PAGE>
CALCOMP TECHNOLOGY, INC.
1996 STOCK OPTION PLAN FOR KEY EMPLOYEES
1. Purpose
The purpose of the Plan is to attract and retain the services of key
employees in positions which contribute materially to the successful operation
of the business of the Corporation and to grant such employees an opportunity to
acquire a proprietary interest in the business enterprise.
It is intended that this purpose will be effected through the granting of
stock options (including qualified incentive stock options issued pursuant to
Section 13) and stock appreciation rights, as provided herein.
2. Definitions
(a) "Board of Directors" means the Board of Directors of CalComp
Technology, Inc.
(b) "Committee" means the Stock Option Committee.
(c) "Corporation" means CalComp Technology, Inc. (formerly Summagraphics
Corporation) and its subsidiaries.
(d) "Early retirement" means retirement before Normal retirement but on
or after attaining age 55 and completion of 10 years of service.
(e) "Employee" means officers and other key employees of the Corporation,
but excludes directors who are not also officers or employees of the
Corporation.
(f) "Grant" means the award of a stock option or a stock appreciation
right.
(g) "Grantee" means an employee to whom an option or right is granted.
(h) "Grant value of the right" means the fair market value of a share of
stock on the date a right is granted as that value may be adjusted
pursuant to Section 8 of the Plan.
(i) "Normal retirement" means retirement on or after the later of age 65
or the completion of 5 years of service.
(j) "Option" means an option to purchase shares of CalComp Technology,
Inc. Common Stock.
<PAGE>
(k) "Right" means a stock appreciation right.
(l) "Subsidiary" means a corporation of which CalComp Technology, Inc.
owns, directly or indirectly, stock having at least 50% of the power
to vote, under normal circumstances, in the election of directors.
(m) "Vest" means the option or right becomes exercisable.
(n) "Year of service" means the completion of 1,000 hours of service with
the Corporation or any affiliate of the Corporation, including service
with Summagraphics Corporation completed prior to the time that the
Corporation and Summagraphics became affiliated.
3. Effective Date
The Plan shall become effective upon the approval by the stockholders.
4. Eligible Employees
Options and rights may be granted only to salaried employees of the
Corporation. However, not more than 10% of the total number of shares available
under the Plan shall be subject to option to any one employee, and no more than
10% of the rights available under the Plan may be granted to any one employee.
No individual who owns stock possessing 5% or more of the combined voting power
of all classes of stock of the Corporation shall be eligible for a grant of
options or rights under the Plan.
5. Terms of Stock Options and Stock Appreciation Rights
The terms of each option or right granted under the Plan shall be deter-
mined by the Committee, consistent with the provisions of the Plan, including
the following:
(a) Each grant of options or rights may be exercised in whole or in
part subject to the provisions of the Plan, provided that no option or right
shall be exercisable prior to one year or after ten years from the date of
grant. Except as provided in Section 8, each grant shall be divided into three
approximately equal installments of 100-share and 100-right increments. The
first installment shall vest one year after the date of grant and each
succeeding installment shall vest one year from the date the prior installment
vested. To the extent that the installments are not equal in number, the larger
installment or installments shall vest in the last or second and last years.
After an installment is vested, the options or rights included in that
installment may, except as provided in Section 9, be exercised at any time prior
to the expiration of ten years from date of grant.
(b) Each grantee must remain in the employ of the Corporation for at least
<PAGE>
one year from the date the option or right is granted before any part of the
grant can be exercised.
(c) An option or right shall not be assignable or transferable by the
grantee otherwise than by will or by the laws of descent and distribution and
shall be exercisable during the participant's lifetime only by the participant
or, in the event of disability, by the legal guardian or representative.
6. Stock Options
(a) Shares of Stock Subject to the Plan
The shares that may be issued under the Plan shall not exceed 2,000,000
shares of the Common Stock, $.01 par value, of the Corporation, except as
provided in Section 8 below. They may consist in whole or in part of unissued or
treasury shares. Such treasury shares may be acquired to satisfy the
requirements of the Plan. If for any reason shares as to which an option has
been granted cease to be subject to purchase, then such shares shall again be
available for option under the Plan.
(b) Grant of Options
(i) The purchase price of the stock subject to option shall not be
less than 100% of the fair market value of the stock on the date the option is
granted, except as otherwise provided in Section 8(a) below.
(ii) Except as provided in Section 11, the purchase price of the stock
subject to option shall be paid in cash or, with the approval of the Board of
Directors or the Committee, may be paid in full or part by the tender of CalComp
Technology, Inc. Common Stock owned by the optionee. Common Stock delivered in
payment of the purchase price shall be valued at the fair market value and any
portion of the purchase price not satisfied by the tender of Common Stock shall
be paid in full in cash upon such exercise. No fractional shares shall be
issued. As soon as possible following receipt of payment to the Corporation,
the optionee (or other person entitled to exercise the option) shall receive a
certificate or certificates for such shares, subject to the provisions of
Section 6(c).
(iii) No person shall have the rights of a stockholder with respect to
shares subject to an option until the date the option is exercised.
(c) Limitations on Transfer of Shares
The Corporation shall not be required, upon the exercise of any
option, to issue or deliver any shares of stock prior to (a) the authorization
of such shares for listing on any stock exchange on which CalComp Technology,
Inc.'s Common Stock may then be listed and (b) such registration or other
qualification of such shares under applicable securities laws as the Corporation
shall determine to be necessary or advisable. If shares
<PAGE>
issuable on the exercise of options have not been registered under the
Securities Act of 1933 ("the Act") or there is not available a current
Prospectus meeting the requirements of the Act with respect thereto, grantees
may be required to represent at the time of each exercise of options that the
shares purchased are being acquired for investment and not with a view to
distribution; and the Corporation may place a legend on the stock certificate to
indicate that the stock may not be sold or otherwise disposed of except in
accordance with the Act, as amended, and the rules and regulations promulgated
thereunder.
7. Stock Appreciation Rights
(a) Grant of Rights
The total number of rights that may be granted under the Plan may not
exceed 2,000,000, except as provided in paragraph 8 below.
(b) Exercise of Rights
Subject to the limitations set forth herein, upon exercise, a grantee
holder shall be entitled to receive payment in cash for rights granted under
this Plan equal to the excess, if any, of the fair market value of a share of
CalComp Technology, Inc. Common Stock on the exercise date over the grant value
of the right. The cash payment will be in consideration of services performed
for the Corporation or for its benefit by the grantee.
8. Adjustment Upon Changes in Stock
(a) If there shall be any change affecting the stock subject to the
Plan or to any option or right granted thereunder through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split or combination, or
otherwise, the Board of Directors shall make appropriate proportional
adjustments in the aggregate number of shares subject to the Plan, the number or
exercise price of rights granted under Plan, the number of shares and the price
per share subject to outstanding options, and may assume old options or
substitute new options for old options, regardless of whether the price of any
such option or right resulting from the proportional adjustment is less than the
then fair market value of the subject shares.
(b) In the event of a Change of Control, the vesting date of all
outstanding options and rights shall be accelerated so as to cause all
outstanding options and rights to become exercisable. For purposes of this Plan,
a Change of Control shall include and be deemed to occur upon the following
events:
(i) A tender offer or exchange offer is consummated for the ownership
of securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding voting securities
entitled to vote in the
<PAGE>
election of directors of the Corporation.
(ii) The Corporation is merged, combined, consolidated, recapitalized
or otherwise reorganized with one or more other entities that are not
Subsidiaries and, as a result of the merger, combination, consolidation,
recapitalization or other reorganization, less than 75% of the outstanding
voting securities of the surviving or resulting corporation shall
immediately after the event be owned in the aggregate by the stockholders
of the Corporation (directly or indirectly), determined on the basis of
record ownership as of the date of determination of holders entitled to
vote on the action (or in the absence of a vote, the day immediately prior
to the event).
(iii) Any person (as this term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act, but excluding any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder), becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 25%
or more of the combined voting power of the Corporation's then outstanding
securities entitled to vote in the election of directors of the
Corporation.
(iv) At any time within any period of two years after a tender offer,
merger, combination, consolidation, recapitalization, or other
reorganization or a contested election, or any combination of these events,
the "Incumbent Directors" shall cease to constitute at least a majority of
the authorized number of members of the Board. For purposes hereof,
"Incumbent Directors" shall mean the persons who were members of the Board
immediately before the first of these events and the persons who were
elected or nominated as their successors or pursuant to increases in the
size of the Board by a vote of at least three-fourths of the Board members
who were then Board members (or successors or additional members so elected
or nominated).
(v) The stockholders of the Corporation approve a plan of liquidation
and dissolution or the sale or transfer of substantially all of the
Corporation's business and/or assets as an entirety to an entity that is
not a Subsidiary.
Notwithstanding the foregoing, the transaction contemplated in the
Plan of Reorganization and Agreement for the Exchange of Stock of CalComp, Inc.
for Stock of Summagraphics Corporation, dated March 19, 1996, as amended, and
Lockheed Martin Corporation's or its subsidiaries' resulting ownership of shares
of the Corporation, shall not constitute, or be, an event which can give rise to
a Change in Control.
9. Death, Disability, Termination of Employment, or Retirement
(a) Death and Disability
If a grantee dies or becomes disabled while employed by the
Corporation or dies within three months after termination of employment, all of
the grantee's outstanding options shall become vested. In case of death,
options and rights may be exercised by the persons referred to in Section 5(c)
only within three years from the date
<PAGE>
of death or, if shorter, the remaining exercise period. In case of disability,
options and rights may be exercised during the remaining exercise period. For
purposes of this section a grantee shall be considered disabled if he or she is
eligible to receive disability benefits under the Lockheed Sanders Retirement
Plan, or its successor, or if the grantee is not enrolled in such plan, any
other Corporation sponsored plan which provides disability benefits. If the
grantee is not enrolled in a Corporation sponsored plan which provides
disability benefits, the grantee will be considered disabled if he or she is
unable to perform the duties of any position for which he or she is qualified by
reason of education, training and experience, as determined by the Committee in
its sole discretion.
(b) Layoff or Retirement
If a grantee separates from service by reason of a layoff (i.e.,
termination for lack of work and the expectation that the position will not be
filled for the next 12 months) or early or normal retirement, all of the
grantee's options and rights that have been outstanding for 18 months or more
will vest as though the grantee had remained in the employ of the Corporation.
Options or rights that were outstanding for less than 18 months on the grantee's
layoff or retirement date and are not then exercisable shall be forfeited.
Vested options and rights may be exercised during the remaining exercise period.
(c) Termination or Resignation
In all other cases of a grantee's resignation or termination of
employment by the Corporation, with or without cause, all unvested options and
rights are forfeited. Vested options and rights must be exercised within 6
months of the grantee's separation from service.
Nothing contained in the Plan or in any option or right granted hereunder
shall confer upon any employee any right of continued employment by the
Corporation nor limit in any way the right of the Corporation to terminate the
employee's employment at any time.
10. Leave of Absence
For purposes of the Plan, an employee on an approved leave of absence will
be considered as still in the employ of the Corporation unless otherwise
provided in an agreement between the employee and the Corporation.
11. Purchase or Exercise Price; Withholding
The exercise or purchase price (if any) of the stock issuable pursuant to
any option grant and any withholding obligation under applicable tax laws shall
be paid in cash or, subject to the Committee's express authorization and the
restrictions, conditions and
<PAGE>
procedures as the Committee may impose, any one or combination of (i) cash, (ii)
the delivery of shares of stock, (iii) a reduction in the amount of stock or
other amounts otherwise issuable or payable pursuant to a grant, or (iv) the
delivery of a promissory note, or other obligation for the future payment in
money, the terms and conditions of which shall be determined by the Committee.
In the case of a payment by the means described in clause (ii) or (iii) above,
the stock to be so delivered or offset shall be determined by reference to the
fair market value of the stock on the date as of which the payment or offset is
made.
12. Administration
(a) Stock Option Committee
(i) This Plan and all grants under this Plan shall be administered by
the Stock Option Committee which shall be the Compensation Committee of the
Board or such other committee of the Board as may be designated by the Board and
constituted so as to permit this Plan to comply with the disinterested
administration of Directors requirements of Rule 16b-3 under the Exchange Act
and the "outside director" requirement of Code Section 162(m). The members of
the Committee shall be designated by the Board of Directors. A majority of the
members of the Committee (but not fewer than two) shall constitute a quorum. The
vote of a majority of a quorum or the unanimous written consent of the Committee
shall constitute action by the Committee.
(ii) The Committee shall determine the employees who will participate
in the Plan, the number of shares and rights subject to each grant, and shall
have the authority to adopt rules and regulations for administering the Plan.
<PAGE>
(iii) As and to the extent authorized by the Board of Directors or
the By-Laws, the Committee may exercise the powers and authority related to the
Plan which are vested in the Board of Directors. The Committee may delegate to
the officers or employees of the Corporation the authority to execute and
deliver documents and to take such other steps deemed necessary or convenient
for the efficient administration of the Plan.
(b) Finality of Determinations
The Board of Directors and the Committee shall have the power to
interpret the Plan. All interpretations, determinations, and actions by the
Board of Directors or by the Committee, to the extent authorized by the Plan,
the Board of Directors or the By-Laws shall be final, conclusive, and binding
upon all parties.
13. Qualified Incentive Stock Options
If the Committee determines that tax laws warrant granting options that
qualify as incentive stock options under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"), some or all of the options authorized
hereunder may be granted as qualified incentive stock options. The Plan may be
amended by the Board of Directors to comply with Code Section 422 without
further shareholder approval.
14. Amendment and Termination
The Board of Directors shall have the power, in its discretion, to amend,
suspend, or terminate the Plan or options and rights granted under the Plan
(including the power to accelerate vesting) at any time; provided, however, that
amendments to options and rights granted to persons subject to the requirements
of Section 16 of the Exchange Act must be made by the Committee and may not
permit the grantee to exercise the option or right within 181 days of the grant.
It shall not, however, without further action by the stockholders, have the
power to (a) change the class of employees eligible to receive grants under the
Plan, (b) provide for options or rights exercisable more than ten years after
the date granted, or (c) extend the expiration date of the Plan; nor shall it
have the power (except as otherwise provided in the Plan) to (d) increase the
number of shares subject to the Plan or (e) reduce the exercise price of an
option or right below the fair market value of the stock at the time of the
grant. No amendment, suspension, or termination of the Plan or options or
rights granted under the Plan shall, except with the consent of the grantee,
adversely affect an option or right previously granted.
<PAGE>
15. Duration
The Plan shall remain in effect until all options and rights granted under
the Plan have been exercised or terminated under the terms of the Plan, provided
that options and rights under the Plan must be granted within ten years from the
effective date of the Plan.
<PAGE>
[FORM OF PROXY]
SUMMAGRAPHICS CORPORATION
Board of Directors Proxy for the Special Meeting of Stockholders
at 10:00 a.m., Tuesday, July 23, 1996
The undersigned stockholder of Summagraphics Corporation
("Summagraphics") hereby revokes any proxy or proxies previously granted and
appoints Michael S. Bennett and Robert B. Sims as proxies, with full powers of
substitution and resubstitution, to vote the shares of the undersigned at the
above-stated Special Meeting and at any adjournment(s) thereof:
(1) Approval of the Plan of Reorganization and Agreement for the
Exchange of Stock of CalComp Inc. ("CalComp") for Stock of
Summagraphics pursuant to which Summagraphics will issue to
Lockheed Martin Corporation a number of shares of common stock of
Summagraphics (the "Common Stock") which, after such issuance, will
be equal to 89.7% of the issued and outstanding Common Stock of
Summagraphics, on a fully diluted basis and subject to adjustment
in certain events, in exchange for all of the outstanding capital
stock of CalComp.
FOR [_] AGAINST [_] ABSTAIN [_]
(2) Approval of the Fourth Amended and Restated Certificate of
Incorporation of Summagraphics.
FOR [_] AGAINST [_] ABSTAIN [_]
(3) Adoption of the CalComp Technology, Inc. 1996 Stock Option Plan for
Key Employees (with Stock Appreciation Rights).
FOR [_] AGAINST [_] ABSTAIN [_]
(4) Such other business as may properly come before the meeting and any
adjournment thereof, including, without limitation, the authority,
if needed, to adjourn the meeting and seek additional votes in
favor of the proposals set forth above.
FOR [_] AGAINST [_] ABSTAIN [_]
(Please sign on the reverse side)
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE REVERSE SIDE. IF A
CHOICE IS NOT INDICATED WITH RESPECT TO ANY ITEM, THIS PROXY WILL BE VOTED "FOR"
SUCH ITEM. THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTER
REFERRED TO IN ITEM (4). THIS PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS
EXERCISED.
Receipt herewith of Summagraphics Notice of Special Meeting and Proxy and
Information Statement, dated June 24, 1996, is hereby acknowledged.
Dated ,1996.
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(Signature of Stockholder(s))
(Joint owners must EACH sign. Please
sign EXACTLY as your name(s) appear(s)
on this card. When signing as attorney,
trustee, executor, administrator,
guardian, or corporate officer, please
give your FULL title.)
PLEASE SIGN, DATE AND MAIL TODAY.
