<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-16071
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CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0888312
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2411 W. LA PALMA AVENUE, 92801
ANAHEIM, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 821-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OF COMMON STOCK OUTSTANDING AT JULY 24, 1998
--------------------- ----------------------------
<S> <C>
$.01 par value 47,120,650
</TABLE>
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CALCOMP TECHNOLOGY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 28, 1998
(Unaudited) and December 28, 1997.......................... 3
Unaudited Condensed Consolidated Statements of Operations
for the three and six months ended June 28, 1998 and June
29, 1997................................................... 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended June 28, 1998 and June 29, 1997... 5
Notes to Unaudited Condensed Consolidated Financial
Statements................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 2. Changes in Securities and Use of Proceeds................... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures.......................................................... 19
</TABLE>
2
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CALCOMP TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash................................................ $ 4,913 $ 6,494
Accounts receivable, net............................ 18,711 26,208
Accounts receivable from affiliates................. 2,117 4,428
Inventories (Note 4)................................ 36,087 43,069
Prepaids and other current assets................... 4,854 4,783
--------- ---------
Total current assets.............................. 66,682 84,982
Property, plant and equipment, net.................... 30,404 29,048
Goodwill, net......................................... 76,977 79,994
Other assets.......................................... 15,647 15,433
--------- ---------
Total assets.......................................... $ 189,710 $ 209,457
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................... $ 15,680 $ 14,395
Accounts payable to affiliates...................... 2,810 5,591
Deferred revenue (Note 7)........................... 15,349 6,828
Accrued restructuring costs (Note 3)................ 3,418 5,049
Accrued reorganization costs........................ 6,262 6,878
Accrued salaries and related expenditures........... 5,645 4,487
Line of credit with Majority Shareholder (Note 5)... 2,430 --
Other current liabilities........................... 21,574 22,600
--------- ---------
Total current liabilities......................... 73,168 65,828
Other long-term liabilities........................... 7,876 8,371
Line of credit with Majority Shareholder (Note 5)..... 60,000 59,525
Contingencies (Notes 2 and 8)......................... -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued............................ -- --
Common stock, $.01 par value, 60,000,000 shares
authorized, 47,120,650 and 47,070,950 shares issued
and outstanding on June 28, 1998 and
December 28, 1997, respectively.................... 471 471
Additional paid-in capital.......................... 292,805 287,322
Accumulated deficit................................. (249,497) (217,145)
Accumulated other comprehensive income (loss):
Cumulative translation adjustment.................. 5,352 5,550
Less: Treasury stock, at cost, 49,000 shares........ (465) (465)
--------- ---------
Total stockholders' equity.......................... 48,666 75,733
--------- ---------
Total liabilities and stockholders' equity........ $ 189,710 $ 209,457
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
3
<PAGE>
CALCOMP TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue........................ $ 41,532 $ 52,060 $ 79,366 $ 112,583
Cost of revenue................ 33,669 41,824 69,806 90,420
---------- ---------- ---------- ----------
Gross profit................. 7,863 10,236 9,560 22,163
Operating expenses:
Research and development..... 3,482 5,628 6,205 9,266
Selling, general and
administrative.............. 16,438 15,853 31,133 31,448
Corporate expenses from
Majority Shareholder........ 1,000 725 2,000 1,450
Gain on disposal of
facilities (Note 6)......... -- (5,873) -- (5,873)
---------- ---------- ---------- ----------
Loss from operations........... (13,057) (6,097) (29,778) (14,128)
Interest expense............... (1,180) (1,130) (2,437) (2,011)
Other income (expense), net.... 401 136 (72) (148)
---------- ---------- ---------- ----------
Loss before income taxes....... (13,836) (7,091) (32,287) (16,287)
Provision for income taxes..... 237 234 65 527
---------- ---------- ---------- ----------
Net loss....................... $ (14,073) $ (7,325) $ (32,352) $ (16,814)
========== ========== ========== ==========
Basic and diluted loss per
share (Note 1)................ $ (0.30) $ (0.16) $ (0.69) $ (0.36)
========== ========== ========== ==========
Weighted-average shares
outstanding................... 47,105,080 46,898,650 47,090,584 46,898,650
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
4
<PAGE>
CALCOMP TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
JUNE 28, JUNE 29,
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(32,352) $(16,814)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 7,643 5,939
Restructuring payments.................................. (1,631) (5,355)
Gain on disposal of facilities.......................... -- (5,873)
Investee income......................................... (361) (523)
Net changes in operating assets and liabilities......... 22,212 (5,529)
-------- --------
Net cash used in operating activities................. (4,489) (28,155)
Investing activities:
Purchase of property, plant and equipment................. (5,690) (4,678)
Proceeds from disposition of property, plant and
equipment................................................ -- 635
Dividends received........................................ 121 168
Proceeds from disposal of facilities...................... -- 21,121
-------- --------
Net cash (used in) provided by investing activities... (5,569) 17,246
Financing activities:
Net proceeds from line of credit with Majority
Shareholder.............................................. 2,905 7,731
Reduction in revolving line of credit..................... -- (2,948)
Exercise of stock options................................. 123 --
Issuance of warrant to purchase common stock.............. 5,360 --
-------- --------
Net cash provided by financing activities............. 8,388 4,783
Effect of exchange rate changes on cash................... 89 (596)
-------- --------
Change in cash............................................ (1,581) (6,722)
Cash at beginning of period............................... 6,494 15,290
-------- --------
Cash at end of period..................................... $ 4,913 $ 8,568
======== ========
Supplementary disclosures of cash flow information:
Net income taxes received............................... $ 2 $ 361
Interest paid........................................... $ 2,381 $ 2,116
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
5
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 28, 1998, are not necessarily indicative of the results
that may be expected for the Company's fiscal year or any other interim
period. Certain reclassifications of prior year amounts have been made to
conform to the current period presentation.
It is suggested that the financial statements be read in conjunction with
the information contained in the Company's Annual Report for the year ended
December 28, 1997, on Form 10-K/A, filed with the Securities and Exchange
Commission.
The Company has adopted SFAS 128, "Earnings Per Share," and applied this
pronouncement to all periods presented. This statement requires the
presentation of both basic and diluted net income (loss) per share for
financial statement purposes. Basic net income (loss) per share is computed by
dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss) per
share includes the effect of the potential shares outstanding, including
dilutive stock options and warrants, using the treasury stock method. Because
the impact of options and warrants are antidilutive, there is no difference
between the loss per share amounts computed for basic and diluted purposes.
As of December 29, 1997, the Company adopted SFAS 130, "Reporting
Comprehensive Income". SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or stockholders'
equity. SFAS 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in stockholder's equity, to be
included in other comprehensive income.
The components of comprehensive loss for the six months ended June 28, 1998,
and June 29, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net loss.............................................. $(32,352) $(16,814)
Foreign currency translation adjustment............... (198) (1,924)
-------- --------
Comprehensive loss.................................... $(32,550) $(18,738)
======== ========
</TABLE>
2. OPERATIONS AND FINANCING
The Company's recent operations have resulted in net losses of $32.4
million, $75.2 million and $56.6 million for the six months ended June 28,
1998 and the years ended December 28, 1997 and December 29, 1996,
respectively. The Company's main sources of financing have been a $75 million
line of credit with Lockheed Martin Corporation (the "Majority Shareholder")
which is made up of the Revolving Credit Agreement of $73 million and the Cash
Management Agreement of $2 million, collectively referred to as the "Credit
Agreements", and the proceeds from the sale of the Company's headquarters
facility. In March 1998, the Credit Agreements were amended to extend the
maturity dates to January 31, 1999. Additionally, the Revolving Credit
Agreement was amended to eliminate the requirement for compliance with certain
financial ratio covenants, to eliminate the right of the Majority Shareholder
to cancel the Credit Agreements upon 120 days prior written notice, and to
remove the security interest of the Majority Shareholder in the assets of the
Company. At June 28, 1998, the Company had drawn $62.4 million against that
line.
6
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
In March 1998, the Company entered into the Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided $20 million which was due on
signing and was paid to the Company in April 1998 and an additional $16
million in cash over the term to be funded incrementally upon the achievement
of certain milestones and the occurrence of certain events. For further
discussion of the Joint Development Agreement, see Note 7.
In July 1998, the Company entered into an Exchange Agreement with the
Majority Shareholder, pursuant to which, the Company exchanged $60 million of
outstanding debt owed to the Majority Shareholder under the Revolving Credit
Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred
Stock") of the Company (the "Exchange"). In connection with the Exchange
Agreement, the Revolving Credit Agreement was amended to reduce the amount of
borrowing available to the Company under the Revolving Credit Agreement from
$73 million to $13 million. The Company and the Majority Shareholder effected
the Exchange for the purpose of strengthening the Company's balance sheet and
ensuring that the Company continues to meet the requirements for its common
shares to trade on NASDAQ's National Market System. The Company received a
fairness opinion from an outside financial advisor that the Exchange was fair
and reasonable to all of the Company's common stockholders. For further
discussion of the Exchange, see Note 5.
The Company had previously entered into a letter of intent with a bank which
contemplated an additional $25 million senior line of credit; however, the
Company was not able to reach an agreement with the bank and negotiations were
recently terminated. The Company anticipates that it will fully draw down the
full $13 million of credit line available under the Revolving Credit Agreement
to meet operating requirements during the fiscal quarter ending September 27,
1998.
In an effort to address this issue, the Company has approached the Majority
Shareholder, which has stated that it will loan additional funds to the
Company in an amount sufficient to fund the day-to-day operations of the
Company pending a review of the Company's business strategy. In addition, the
Majority Shareholder has agreed to consider loaning the Company additional
funds thereafter depending upon the results of this review. The Company
conducted a review with its Board of Directors on July 28, 1998, but to-date,
has not concluded discussions with the Majority Shareholder regarding
additional funding. The Company anticipates that these discussions will be
concluded in September 1998. The Company has engaged Solomon Smith Barney as
an investment advisor to assist it in the consideration of strategic
alternatives. Management notes that, even if the Majority Shareholder does
agree to extend funds, the terms under which it would do so and the period of
operations that such funds would permit are not now determined. Failure to
obtain additional funding will result in material liquidity problems for the
Company.
The Company has implemented plans to improve the Company's competitive
position by introducing a new line of CrystalJet(TM) piezo inkjet printers and
improving operating efficiencies through the restructuring of its worldwide
operations. The Company is currently in the process of making enhancements to
the CrystalJet manufacturing process to allow for increased production of the
CrystalJet product. The Company anticipates that these efforts will result in
improved gross margins and operating results during the second half of fiscal
1998. However, no assurances can be given that the Company will be successful
in realizing these goals. Failure to achieve market acceptance of these
products or the inability to timely achieve required production volumes at
acceptable costs could have a further material adverse impact on the Company's
consolidated financial position, results of operations and cash flows.
3. RESTRUCTURING
During the fourth quarter of 1997, the Company expanded its plan to
restructure its operations worldwide and provided a charge of approximately
$4,788,000 consisting primarily of $2,900,000 for the elimination of
7
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
91 positions, relating to further realignment of the Company's international
operations, and $1,888,000 for lease termination and fixed asset disposition
costs for certain international facilities. During the first six months of
1998, the Company incurred cash expenditures aggregating $1,388,000 and non-
cash charges aggregating $243,000 that were applied against the reserve. At
June 28, 1998, the restructuring accrual approximates $3,418,000, consisting
of $2,620,000 from the 1997 restructuring plan and $798,000 remaining from the
1996 restructuring plan. The remaining amount of the 1996 plan principally
relates to lease termination obligations. Although subject to future
adjustment, the Company believes that the amounts accrued at June 28, 1998 are
adequate to complete the various restructuring plans.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE
28, DECEMBER 28,
1998 1997
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(IN THOUSANDS)
<S> <C> <C>
Raw materials and purchased components............... $10,738 $11,042
Work in process...................................... 460 434
Finished goods....................................... 24,889 31,593
------- -------
$36,087 $43,069
======= =======
</TABLE>
5. INDEBTEDNESS
Credit Agreements with Majority Shareholder
In July 1996, the Company and the Majority Shareholder entered into two
separate agreements, the Revolving Credit Agreement and the Cash Management
Agreement. The Revolving Credit Agreement was subsequently amended and
restated, pursuant to which the Majority Shareholder was to provide, from time
to time, financing of up to $73 million for repayment of specified
indebtedness and general corporate purposes, including financing the working
capital needs of the Company and its subsidiaries. The Revolving Credit
Agreement contained negative and affirmative covenants. As of December 28,
1997, the Company was in breach of certain of these financial covenants. On
January 22, 1998, the Majority Shareholder waived compliance with these
covenants. In March 1998, the Revolving Credit Agreement was further amended
to extend the maturity date from July 22, 1998, to January 31, 1999, to
eliminate the requirement for compliance with certain financial ratio
covenants, to eliminate the right of the Majority Shareholder to cancel the
Revolving Credit Agreement upon 120 days prior written notice, and to remove
the security interest of the Majority Shareholder in the assets of the
Company.
The Revolving Credit Agreement bears interest, at the Company's option, at
either (1) a rate per annum equal to the higher of the federal funds rate as
published in the Federal Reserve System plus 0.5% or the rate publicly
announced from time to time by Morgan Guaranty Trust Company of New York as
its "prime" rate or (2) LIBOR plus 2.0%. There is no required prepayment or
scheduled reduction of availability of loans under the Agreement.
The Cash Management Agreement provides cash advances of up to $2 million to
the Company by the Majority Shareholder for cash shortfalls. In March 1998,
the Cash Management Agreement was amended to extend the maturity date from
June 1, 1998, to January 31, 1999. The agreement bears interest equal to the
Federal Funds Rate.
As of June 28, 1998, the Company had an aggregate outstanding balance of
$62,430,000 on the Revolving Credit Agreement, with interest rates ranging
from 5.0% to 7.7%.
8
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
Conversion of Debt to Preferred Stock
On July 15, 1998, at the request of the Company, the Company and the
Majority Shareholder effected an exchange of debt for equity whereby $60
million of outstanding indebtedness owing by the Company to the Majority
Shareholder under the Revolving Credit Agreement was exchanged for
1,000,000 shares of Preferred Stock. As a result, this amount is classified as
a long-term item as of June 28, 1998 because it will not require the use of
working capital to satisfy the indebtedness. In connection with the Exchange,
the Revolving Credit Agreement was amended to reduce the amount of borrowing
available to the Company from $73 million to $13 million.
The Majority Shareholder, as holder of the Preferred Stock, is entitled to
receive, when and if declared by the Board of Directors, and in preference to
the holders of Common Stock, a cumulative annual dividend of $4.80 per share.
The Preferred Stock has no conversion rights and is non-voting with certain
exceptions. The Preferred Stock may be redeemed at the Company's option at $60
per share plus any accumulated, but unpaid dividends. Upon liquidation, the
holders of the Preferred Stock are entitled to receive $60 per share plus any
accumulated but unpaid dividends, prior to any distribution being made to the
holders of Common Stock. After the occurrence of a change of control, as
defined, the dividend rate on the Preferred Stock would be increased to $9.00
per share per annum plus 15% per annum on any accumulated but unpaid dividends
(the "Adjusted Dividend Rate"). The Adjusted Dividend Rate would apply until
the earlier of (1) the redemption by the Company of the Preferred Stock or (2)
the acquisition of the combined voting power of the then outstanding voting
stock of the Company.
6. DISPOSAL OF HEADQUARTERS FACILITY
During the fourth quarter of 1996, the Company decided to sell its 27.9 acre
headquarters facility in Anaheim, California and wrote the facility down to
its then appraised value, less costs to sell, of $15.1 million. On June 24,
1997, the Company completed the sale of the facility to Lincoln Property
Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for
$21.5 million, less associated costs to sell. The headquarters facility sale
resulted in a gain on disposal of $5.9 million. Proceeds from the sale of the
property were used to reduce outstanding borrowings under the Revolving Credit
Agreement. The Company has leased back approximately 138,500 square feet of
space, or two of the ten buildings located on the property, under a one year
lease with an option to continue the lease for an additional year. In
accordance with the lease agreement, the Company has exercised this option to
extend the lease through June 23, 1999.
7. PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT
On March 29, 1998, the Company entered into a five-year Patent License and
Joint Development Agreement with Kodak covering the joint development of the
Company's CrystalJet technology into a range of products, printers and
consumables for commercial applications. Under the terms of the agreement,
Kodak will contribute up to $36 million, $20 million of which was due at
signing and was paid to the Company in April 1998. The additional $16 million
in contributions will be funded incrementally upon the achievement of certain
milestones and the occurrence of certain events. The agreement also calls for
Kodak to pay royalties in respect of licenses granted thereunder which allow
Kodak under certain circumstances to exploit the inkjet technology developed
under the terms of the agreement.
In addition to the license, the Company granted to Kodak a warrant for 8
million shares of its Common Stock with an exercise price of $3.88, vesting 50
percent on the first anniversary of the agreement and 50 percent on the second
anniversary of the agreement. The warrant expires on the seventh anniversary
of the agreement. At the date of grant, the fair market value of the stock
warrant was $5.4 million, based on an independent
9
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CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
appraisal, and has been reflected as an increase to additional paid-in capital
in the accompanying condensed consolidated balance sheet. The remaining $14.6
million was recorded as deferred revenue and will be amortized into income as
certain expenditures related to the Joint Development Agreement are incurred.
As of June 28, 1998, the amount of deferred revenue amortized to income was
$6.0 million.
8. CONTINGENCIES
Legal
A complaint was filed on January 25, 1997, in California Superior Court in
Santa Clara County by Raster Graphics, Inc. ("Raster Graphics"), against Topaz
Technologies, Inc., the Company's wholly-owned subsidiary ("Topaz"), the
former shareholders of Topaz, and the Company. The complaint alleged, among
other things, misappropriation of trade secrets, breach of fiduciary duty,
unfair competition, breach of contract and conversion arising from the
employment by Raster Graphics of the former Topaz shareholders who founded
Raster Graphics in 1987 while they participated in the development of certain
inkjet technology. On June 17, 1998, the Court entered an order dismissing all
claims in this suit following a settlement agreement which was entered into by
all parties to the suit.
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp., against CalComp Inc., a wholly-owned subsidiary of the
Company, in the U.S. District Court for the Central District of California.
The complaint alleged, among other things, that CalComp Inc.'s sale of
ULTRASLATE digitizer tablets infringes three patents and infringes Wacom's
common law trademark, ULTRAPEN. Wacom's request for a preliminary injunction
concerning infringement of two of the three patents was denied by the Court on
February 12, 1998. Wacom is also seeking damages and permanent injunctive
relief with respect to alleged infringement of the three patents, pre-judgment
interest and, among other things, has requested an award of its attorneys'
fees and costs. The Company does not believe that any of the allegations made
by Wacom in this suit have merit and intends to defend itself against all the
claims.
On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit against the
Company, CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat.
Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus. The complaint also alleges that the Defendants have induced others
to infringe these patents. The complaint seeks preliminary and permanent
injunctive relief against infringement of the Xaar patents, increased damages
for willful infringement of those patents, interest and award of its
attorneys' fees and costs. The Company has reviewed these patents and believes
that the Company will prevail over Xaar's claims, that the Company's
piezoelectric technology is proprietary to the Company and that the Company's
manufacture and sale of CrystalJet piezoelectric printheads does not infringe
any valid claims of either of these patents. Further, the Company intends to
defend itself against all claims in this lawsuit.
In a separate action, on July 6, 1998, Xaar filed suit in the London High
Court of Justice alleging that the Defendants and CalComp Ltd., a U.K.
subsidiary of CalComp Inc., have infringed or caused, enabled, or assisted
others to infringe, European patent (UK) number EP 0 277 703, which covers
certain pulsed droplet deposition apparatus and certain processes for
manufacturing pulsed droplet deposition apparatus in connection with the
manufacture and sale of the Company's CrystalJet printers. The complaint seeks
damages or profits resulting from the alleged infringement and, among other
things, interest on any sums due Xaar and an award of its costs. The Company
has reviewed the patent in suit, believes that the Company will prevail over
Xaar's claims in this suit and that the Company's manufacture and sale of
CrystalJet printheads does not infringe any valid claims of this patent. The
Company intends to defend itself against all claims made.
10
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
The Company is also party to other legal actions in the normal course of its
business. The Company does not believe that the disposition of any of these
matters will have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
Environmental Matters
In connection with the June 1997 sale of the Company's headquarters facility
in Anaheim, California, the Company agreed to remain obligated to address
certain environmental conditions which existed at the site prior to the
closing of the sale. In addition, the Majority Shareholder has guaranteed the
performance of the Company under this environmental agreement.
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 contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct off-site water investigations and on-
site soil remediation. The initial phase of work commenced in January 1998. As
of June 28, 1998, the Company has established reserves which it considers to
be adequate to cover the cost of investigations and tests required by the
Water Board, any additional remediation that may be requested and potential
costs of continued monitoring of soil and groundwater contamination, if
required.
The Company believes that it has adequately accrued for any future
expenditures in connection with environmental matters and that such
expenditures will not have a materially adverse effect on its consolidated
financial condition, results of operation or cash flows.
11
<PAGE>
CALCOMP TECHNOLOGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-Q 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-Q have been made subject
to the safe harbor protections provided by Sections 27A and 21E.
GENERAL
The Company's products and services compete in several markets including
CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing.
The Company's ability to successfully market its products requires adapting
new technologies, such as its proprietary CrystalJet technology, and
leveraging the channels of distribution in order to remain competitive. The
Company encounters extensive competition in all of its lines of business,
depending on the particular product or market environment. The Company's
business involves rapidly changing technologies requiring continued
performance improvements at lower customer prices. The companies that
participate in the industry are highly competitive and reduced unit selling
prices and shortened product life cycles are expected to continue to place
pressure on the Company's margins. Many of the Company's competitors have
larger technical staffs, larger marketing and sales organizations and
significantly greater financial resources than the Company. There can be no
assurance that the products of existing or new competitors will not obtain
greater market acceptance than the Company's products.
In 1997, the Company introduced its new CrystalJet product line and
initiated a transition plan to eliminate certain existing output product lines
and accelerate the Company's end-of-life process for those products that will
be discontinued. As a result, the Company's diversity of inkjet product
offerings, by the end of 1998, will be limited to the new CrystalJet line of
wide-format digital printers until subsequent CrystalJet product offerings are
introduced. Failure to achieve market acceptance for these products or the
inability to increase manufacturing volumes to achieve production
efficiencies, could have a material adverse impact on the Company's
consolidated financial position and results of operations.
In addition, the Company's strategy for its new products focuses on
capturing consumable sales through establishing a strong installed base of
CrystalJet products, both through CalComp branded products and through the
various channels provided by the Company's strategic partners. However, there
can be no assurance that the Company will be able to achieve this strategic
goal.
For a further discussion of risk factors related to the Company's
operations, see Item 1. "Business--Risk Factors Affecting the Company"
contained in the Company's Annual Report for the year ended December 28, 1997,
on Form 10-K/A, filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Revenues. Revenues for the quarter ended June 28, 1998, declined $10.5
million, or 20%, to $41.5 million from the same period in 1997. Product
revenues were down 34% and service revenue was down 24% versus the same period
in 1997. The decline in product and service revenue was offset by $6.0 million
of royalty revenue recognized from the Kodak Joint Development Agreement for
which there was no corresponding amount in prior year. The decline in product
revenues resulted primarily from decreases in product demand for input and
output products. Output product revenues declined primarily due to the
maturity of the output products compared to competitors' products and lower
customer demand resulting from the Company's discontinuance of certain output
products in anticipation and preparation for the new CrystalJet product lines,
as well as from delays in volume shipments of the new CrystalJet wide format
digital inkjet printers. Digitizer input product revenue also declined
primarily as a result of the impact of increasing interchangeability of mouse
input devices as an
12
<PAGE>
alternative to digitizer tablet input devices made possible by recent releases
of CAD application software. This trend is expected to continue but may be
somewhat offset by broader use of digitizers in graphic arts applications. The
decrease in service revenue compared to the same period in 1997 is primarily a
result of fewer service contracts being generated due to the lower product
revenue base and a lower rate of service contract renewals as older generation
products are retired from service.
Revenue for the six months ended June 28, 1998 declined $33.2 million, or
30%, to $79.4 million for the same period in 1997. Product revenues were down
38% and service revenue was down 21%, for the same reasons discussed above.
Gross Profit. In 1998, royalty recognized from the Joint Development
Agreement made up $6.0 million of the gross profit for which there was no
corresponding amount in the prior year. Excluding the royalty, gross profit as
a percentage of revenue was 4% for the second quarter and first six months of
1998 compared to 20% for the same periods in 1997. These declines, exclusive
of the royalty recognized from the Joint Development Agreement, were primarily
due to lower revenues, selling price reductions required to transition out of
mature and end-of-life products, the manufacturing inefficiencies resulting
from decreased production volumes on the Company's mature output products,
start up cost inefficiencies on new products, and delays in volume shipments
of the new CrystalJet wide format inkjet printers.
Operating Expenses. Operating expenses for the second quarter of 1998
increased 28%, or $4.6 million, to $20.9 million compared to the same period
in 1997. The increase was primarily due to the recognition of the one time
gain of $5.9 million from the sale of the Company's headquarters facility
during the second quarter last year. Excluding the gain, operating expenses
decreased $1.3 million, or 6%, and $2.8 million, or 7%, for the quarter and
six month period, respectively. These decreases resulted primarily from the
benefits of staffing and facility consolidation as a result of restructuring
actions taken in 1996 and 1997 to streamline the Company's infrastructure.
Research and development expenses decreased $2.1 million in the second
quarter of 1998 compared to the same period in 1997 and decreased $3.1 million
in the first six months of 1998 compared to the same period in 1997 reflecting
the benefits of cost reductions resulting from the Company's decision to
narrow its focus to its new technologies. Research and development expense as
a percentage of net revenue remained relatively flat at 8% for the first six
months of 1998 and 1997 as the reduced spending is being compared to a smaller
revenue base in the first six months of 1998.
Selling, general and administrative expenses increased $0.6 million in the
second quarter of 1998 compared to the same period in 1997. As a percentage of
revenue, these expenses increased to 40% in the second quarter of 1998
compared to 30% for the second quarter of 1997. The slight increase in
spending was due to the Company incurring legal costs to defend itself against
current lawsuits. In the first half of 1998, selling, general and
administrative expenses decreased $0.3 million as compared to the same period
in 1997. As a percentage of revenue, these expenses increased to 39% compared
to 28% for the same period in the prior year. The decline in spending was due
primarily to reduced staffing and facility expenses from the restructuring
actions taken in 1996 and 1997 to streamline the Company's infrastructure. The
expenses did not commensurately decrease with revenue as legal expenses
slightly increased during 1998 resulting from the defense of current lawsuits
and marketing and advertising costs slightly increased during 1998 to support
the introduction of CrystalJet into the marketplace.
Corporate expenses from the Majority Shareholder increased $0.3 million to
$1.0 million and $0.6 million to $2.0 million in the second quarter of 1998
and six months of 1998, respectively, compared to the same periods in 1997 as
a result of allocations received from the Majority Shareholder.
Interest Expense. Interest expense remained flat at $1.2 million and $1.1
million for the second quarter of 1998 and 1997, respectively, as the
Company's outstanding balances under the Revolving Credit Agreement
13
<PAGE>
were substantially the same during the second quarter of 1998 compared to the
second quarter of 1997. Interest expense increased to $2.4 million for the
first six months of 1998 from $2.0 million for the same period in 1997 due
substantially to increases during the first quarter of 1998 in the Company's
outstanding balances under the Revolving Credit Agreement compared to first
quarter of 1997.
Income Tax Provision. Income tax provision of $0.2 million remained flat for
the second quarter of 1998 compared to the same period in 1997. For the six
month period of 1998, income tax provision decreased to $0.1 million compared
to $0.5 million for the same period in 1997. In 1998, the income tax provision
resulted primarily from the provision of foreign taxes on profitable
international locations offset by a state tax refund recorded in the first
quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's recent operations have resulted in net losses of $32.4
million, $75.2 million and $56.6 million for the six months ended June 28,
1998 and the years ended December 28, 1997 and December 29, 1996,
respectively. The Company's main sources of financing have been a $75 million
line of credit with Lockheed Martin Corporation (the "Majority Shareholder")
which is made up of the Revolving Credit Agreement of $73 million and the Cash
Management Agreement of $2 million, collectively referred to as the "Credit
Agreements", and the proceeds from the sale of the Company's headquarters
facility. In March 1998, the Credit Agreements were amended to extend the
maturity dates to January 31, 1999. Additionally, the Revolving Credit
Agreement was amended to eliminate the requirement for compliance with certain
financial ratio covenants, to eliminate the right of the Majority Shareholder
to cancel the Credit Agreements upon 120 days prior written notice, and to
remove the security interest of the Majority Shareholder in the assets of the
Company. At June 28, 1998, the Company had drawn $62.4 million against that
line.
In March 1998, the Company entered into the Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided $20 million which was due on
signing and was paid to the Company in April 1998 and an additional $16
million in cash over the term to be funded incrementally upon the achievement
of certain milestones and the occurrence of certain events.
In July 1998, the Company entered into an Exchange Agreement with the
Majority Shareholder, pursuant to which, the Company exchanged $60 million of
outstanding debt owed to the Majority Shareholder under the Revolving Credit
Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred
Stock") of the Company (the "Exchange"). In connection with the Exchange
Agreement, the Revolving Credit Agreement was amended to reduce the amount of
borrowing available to the Company under the Revolving Credit Agreement from
$73 million to $13 million. The Company and the Majority Shareholder effected
the Exchange for the purpose of strengthening the Company's balance sheet and
ensuring that the Company continues to meet the requirements for its common
shares to trade on NASDAQ's National Market System. The Company received a
fairness opinion from an outside financial advisor that the Exchange was fair
and reasonable to all of the Company's common stockholders. For further
discussion of the Exchange, see Note 5 of the Notes to Unaudited Condensed
Consolidated Financial Statements.
The Company had previously entered into a letter of intent with a bank which
contemplated an additional $25 million senior line of credit; however, the
Company was not able to reach an agreement with the bank and these
negotiations were recently terminated. The Company anticipates that it will
fully draw down the full $13 million of credit line available under the
Revolving Credit Agreement to meet operating requirements during the fiscal
quarter ending September 27, 1998.
In an effort to address this issue, the Company has approached the Majority
Shareholder, which has stated that it will loan additional funds to the
Company in an amount sufficient to fund the day-to-day operations of the
Company pending a review of the Company's business strategy. In addition, the
Majority Shareholder has agreed to consider loaning the Company additional
funds thereafter depending upon the results of this review. The Company
conducted a review with its Board of Directors on July 28, 1998, but to-date,
has not concluded discussions with the Majority Shareholder regarding
additional funding. The Company anticipates that these
14
<PAGE>
discussions will be concluded in September 1998. The Company has engaged
Solomon Smith Barney as an investment advisor to assist it in the
consideration of strategic alternatives. Management notes that, even if the
Majority Shareholder does agree to extend additional funds, the terms under
which it would do so and the period of operations that such funds would permit
are not now determined. Failure to obtain additional funding will result in
material liquidity problems for the Company.
The Company has implemented plans to improve the Company's competitive
position by introducing a new line of CrystalJet piezo inkjet printers and
improving operating efficiencies through the restructuring of its worldwide
operations. The Company is currently in the process of making enhancements to
the CrystalJet manufacturing process to allow for increased production of the
CrystalJet product. The Company anticipates that these efforts will result in
improved gross margins and operating results during the second half of fiscal
1998. However, no assurances can be given that the Company will be successful
in realizing these goals. Failure to achieve market acceptance of these
products or the inability to timely achieve required production volumes at
acceptable costs could have a further material adverse impact on the Company's
consolidated financial position, results of operations and cash flows.
During the first six months of 1998, the Company used $4.5 million of cash
in its operations primarily to fund its continuing net losses of $32.4
million, net of depreciation and amortization of $7.6 million, offset by $20.6
million provided primarily from the receipt of $20 million from the Joint
Development Agreement of which $14.6 million was recorded in deferred revenue.
As of June 28, 1998, the balance in deferred revenue from the Kodak Joint
Development Agreement was $7.7 million. In addition, $5.7 million was expended
on plant and equipment, relating primarily to purchases of tooling and
equipment for the development and manufacture of the new CrystalJet product
line. These uses of cash for operating and investing activities were funded
substantially by the issuance of the stock warrant of $5.4 million to Kodak
under the Joint Development Agreement and borrowings from the Majority
Shareholder of $2.9 million, pursuant to the Credit Agreements.
During the fourth quarter of 1997, the Company expanded its plan to
restructure its operations worldwide and provided a charge of approximately
$4,788,000, consisting primarily of $2,900,000 for the elimination of
91 positions relating to further realignment of the Company's international
operations, and $1,888,000 for lease termination and fixed asset disposition
costs for certain international facilities. During the first six months of
1998, the Company incurred cash expenditures aggregating $1,388,000 and non-
cash charges aggregating $243,000 that were applied against the reserve. At
June 28, 1998, the restructuring accrual approximated $3,418,000, consisting
of $2,620,000 from the 1997 restructuring plan and $798,000 remaining from the
1996 restructuring plan. The remaining amount of the 1996 plan principally
relates to lease termination obligations.
Although the Company believes that cost savings from the restructuring of
its worldwide operations, which has been substantially completed in the first
half of 1998, with the exception of certain severance and operating lease
payments, combined with the introduction of its proprietary new CrystalJet
product line, will allow the Company to better respond to intense industry
competition, no assurance can be given that such goals will be realized. The
Company anticipates operating losses to continue through 1998.
Year 2000 Compliance. Many existing computer systems, applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
Such systems and applications could fail or create erroneous results unless
corrected to process data related to the Year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major
aspects of its business, including systems (such as general ledger, accounts
payable, and payroll modules), customer services, infrastructure, embedded
computer chips, networks and telecommunications equipment. The Company also
relies, directly and indirectly, on external systems of business enterprises
such as customers, suppliers, creditors, financial organizations and
governmental entities, both domestic and international, for accurate exchange
of data.
The Company has been investigating and continues to assess the impact, if
any, which Year 2000 issues may have on its internal computer systems.
Although the assessment process is not complete, based on
15
<PAGE>
information and estimates currently available, Year 2000 issues related to
these systems will not have a material adverse effect on the operations,
financial condition, financial results, or cash flows of the Company. The
inability of customers, suppliers, and other external enterprises with which
the Company interacts to make timely changes to their own systems could have
an adverse impact on the Company.
The Company believes all of its current products are Year 2000 compliant.
16
<PAGE>
CALCOMP TECHNOLOGY, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 8 Contingencies--Legal of
the Notes to Unaudited Condensed Consolidated Financial Statements in Part I,
which is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
For a discussion of changes in securities, see Note 2 Operations and
Financing of the Notes to Unaudited Condensed Consolidated Financial
Statements in Part I, which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 Annual Meeting of Shareholders of CalComp Technology, Inc. was held
on June 11, 1998.
A total of 45,100,218 of the Company's shares were present or represented by
proxy at the meeting. This represented more than 95.764% of the Company's
shares outstanding.
The individuals named below were elected to serve one year terms as
Directors of the Company.
<TABLE>
<CAPTION>
TOTAL VOTE FOR TOTAL VOTE WITHHELD
NAME EACH DIRECTOR FROM EACH DIRECTOR
---- -------------- -------------------
<S> <C> <C>
Arthur E. Johnson....................... 44,668,542 431,676
John C. Batterton....................... 44,673,442 426,776
Jeb S. Hurley........................... 44,673,442 426,776
Gary P. Mann............................ 44,661,942 438,276
Terry F. Powell......................... 44,662,442 437,776
Kenneth R. Ratcliffe.................... 44,668,542 431,676
Gerald W. Schaefer...................... 44,673,942 426,276
Walter E. Skowronski.................... 44,673,242 426,976
</TABLE>
The amendment of the Company's Certificate of Incorporation to increase the
total authorized shares of Common Stock from 60,000,000 to 125,000,000 was
approved, with 44,516,671 shares voting for, 552,642 shares voting against,
and 30,905 shares abstaining.
The amendment of the Company's 1996 Stock Option Plan for Key Employees (the
"Plan") to increase the maximum aggregate number of shares of Common Stock
available for grant under the Plan from 2,000,000 to 4,000,000 shares was
approved, with 44,858,068 shares voting for, 213,706 shares voting against,
and 28,444 shares abstaining.
The election of Ernst & Young L.L.P. as independent accountants was
ratified, with 45,059,753 shares voting for, 23,700 shares voting against, and
16,765 shares abstaining.
17
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits--The following exhibits are included herein:
3.1 Certificate of Amendment of Fourth Amended and Restated Certificate of
Incorporation of the Company, filed on July 8, 1998.
3.2 Certificate of Designation of Series A Cumulative Redeemable Preferred
Stock of the Company, filed on July 15, 1998.
27 Financial data schedule.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Company during and subsequent to the
Company's second quarter ended June 28, 1998 were as follows:
Form 8-K dated March 29, 1998 filed on March 30, 1998, reporting under
Item 5 the Company's Patent License and Joint Development Agreement with
Eastman Kodak Co.
Forms 8-K dated July 17, 1998 filed on July 17, 1998, reporting under
Item 5 the Company's Exchange Agreement with Lockheed Martin Corporation.
18
<PAGE>
CALCOMP TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Calcomp Technology, Inc
(Registrant)
Date: August 7, 1998
/s/ John J. Millerick
------------------------------------
John J. Millerick
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
19
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CALCOMP TECHNOLOGY, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
CalComp Technology, Inc., a Delaware corporation (the "Corporation"), does
hereby certify that the first sentence of Article 4 of the Corporation's Fourth
Amended and Restated Certificate of Incorporation is amended to read in its
entirety as follows:
The total number of shares of stock which the Corporation shall
have authority to issue is One Hundred Thirty Million (130,000,000)
shares, of which One Hundred Twenty-Five Million (125,000,000) shares of
the par value of One Cent ($.01) per share, amounting in the aggregate
to One Million Two Hundred Fifty Thousand Dollars ($1,250,000), shall be
Common Stock and Five Million (5,000,000) shares of the par value of One
Cent ($.01) per share, amounting in the aggregate to Fifty Thousand
Dollars ($50,000), shall be Preferred Stock .
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of
Amendment on this 6th day of July, 1998.
---
CALCOMP TECHNOLOGY, INC.
By: _________________________
John C. Batterton
Chief Executive Officer
Attest:
_________________________
William F. Porter, Jr.
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION
OF
SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
OF
CALCOMP TECHNOLOGY, INC.
CalComp Technology, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, (the "Corporation"), certifies
that the following resolution has been duly adopted by the Board of Directors of
the Corporation:
RESOLVED, that under the authority contained in Article 4(a) of the Fourth
Amended and Restated Certificate of Incorporation of the Corporation, the Board
of Directors of the Corporation hereby designates 1,000,000 unissued shares of
the Preferred Stock of the Corporation as 1,000,000 shares of "Series A
Cumulative Redeemable Preferred Stock" having the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations of such preferences and/or rights as set by the
Board of Directors of the Corporation as follows:
Section 1. Designation and Amount.
----------------------
The shares of such series shall be designated as Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock"), par value $0.01 per
share, and the number of shares constituting such series shall be 1,000,000.
Section 2. Dividends.
---------
(A) Subject to the prior and superior rights of any shares of any series of
preferred stock ranking prior and superior to the Series A Preferred Stock in
respect of dividends, the holders of shares of the Series A Preferred Stock, in
preference to the holders
1
<PAGE>
of shares of Common Stock, par value $0.01, of the Corporation (the "Common
Stock") and any other stock of the Corporation ranking junior to the Series A
Preferred Stock as to dividends, shall be entitled to receive, when as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, cumulative dividends payable at the annual rate of $4.80
per share, and, subject to the provisions of Section 3 below, no more, in equal
quarterly payments on March 31, June 30, September 30 and December 31 (or if any
of such days is not a Business Day, the next succeeding Business Day) in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date that is at least
30 days after the date of original issue of the shares of Series A Preferred
Stock. A holder of Series A Preferred Stock shall be entitled to receive payment
of dividends by wire transfer by giving written instructions to the Corporation
at least two business days prior to the payment date.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the date of original issue of the
shares. Dividends shall accrue and be payable based on the number of days in
each year and the numbers of days actually elapsed. Accrued but unpaid dividends
payable under this Section 2 or any other Section of this Certificate of
Designation shall accrue additional dividends at the rate of 8% per annum on the
accrued but unpaid amount, and references in this Certificate of Designation to
accrued but unpaid dividends shall be deemed to include such additional
dividends. Dividends paid on the shares of Series A Preferred Stock in an amount
less than the total amount of dividends at the time accrued and payable on the
shares of Series A Preferred Stock shall be allocated pro rata on a share-by-
share basis among all the shares at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend declared thereon,
which record date shall be no more than 45 days and no less than 10 days prior
to the date fixed for the payment thereof.
Section 3. Increase in Dividend Rate On Change of Control.
----------------------------------------------
(A) Notwithstanding the provisions of Section 2, after the occurrence of a
Change of Control (as defined below), the dividend rate on shares of Series A
Preferred Stock then outstanding shall be increased to $9.00 per share per annum
plus 15% per annum on any accrued but unpaid dividends (and additional
dividends, if any) (the "Adjusted Dividend Rate"). The Adjusted Dividend Rate
shall apply until the earlier to occur of (i) the redemption by the Corporation
of the Series A Preferred Stock or (ii) the acquisition of shares of Series A
Preferred Stock by any Person (or group of Persons) who acquires more than 50%
of the combined voting power of the then outstanding voting stock of the
Corporation entitled to vote generally in the election of directors, if any, but
the Adjusted Dividend Rate shall only be terminated to the extent that such
Series A Preferred Stock is owned by such Person (or group of Persons).
(B) For purposes of this Certificate of Designation, "Change in Control"
shall mean a reduction in ownership by Lockheed Martin Corporation and its
subsidiaries to 50% or below in the combined voting power of the then
outstanding voting stock of the Corporation entitled to vote generally in the
election of directors.
2
<PAGE>
Section 4. Voting Rights.
-------------
Subject to the right to consent in certain limited circumstances as set
forth in Section 5 below, the holders of shares of Series A Preferred Stock
shall have no voting rights.
Section 5. Certain Restrictions.
--------------------
(A) For so long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock ("Junior Stock");
(ii) declare or pay dividends on or make any other distributions on
any shares of other stock ranking in parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock
("Parity Stock"), except dividends paid ratably on the Series A Preferred Stock
and all such Parity Stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for consideration any
shares of Parity Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such Parity Stock in exchange for
shares of any Junior Stock.
(B) Without the prior written consent of the holders of a majority of the
Series A Preferred Stock, the Corporation shall not issue any shares of capital
stock ranking senior with respect to dividends or other distributions or in the
event of dissolution, liquidation or winding up or in any way amend this
Certificate of Designation or the Fourth Amended and Restated Certificate of
Incorporation of the Corporation in any manner that would have an adverse effect
on the rights of holders of Series A Preferred Stock.
(C) The Corporation shall not permit any subsidiary of the Corporation or
any employee stock ownership plan (or related trust) or other employee benefit
plan (or related trust) for the employees of the Corporation or any subsidiary
(other than, with respect to any plans other than an employee stock ownership
plan, (i) in the normal operation of a plan qualified under Section 401(k) of
the Internal Revenue Code of 1986, as amended, (ii) any plan (or related trust)
in existence on the date of this Certificate of Designation or (iii) any plan
(or related trust) subsequently approved by the Corporation's stockholders), to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 5,
purchase or otherwise acquire such shares at such time and in such manner.
3
<PAGE>
Section 6. Redemption.
----------
(A) Provided that there are no dividend arrearages on the Series A
Preferred Stock and the Corporation is in full compliance with the terms and
conditions of this Certificate of Designation, the Corporation shall have the
right, at its sole option and election, to redeem all or, subject to the
provisions of the following sentence, a portion of the outstanding shares of the
Series A Preferred Stock by paying therefor in cash $60 per share plus any
unpaid dividends to the date of redemption (the "Redemption Price"). In the
event that less than all of the outstanding shares of Series A Preferred Stock
are to be redeemed, the aggregate Redemption Price for any such redemption shall
be not less than $1,000,000.
(B) Notice of any redemption of any shares of Series A Preferred Stock
shall be given by mailing to each holder of shares of Series A Preferred Stock
to be redeemed, at the holder's address as it appears on the books of the
Corporation, written notice of redemption not less than 30 days and not more
than 90 days prior to the date fixed for redemption (the "Redemption Date"). To
facilitate the redemption of shares of Series A Preferred Stock, the Board of
Directors may fix a record date for the determination of shares of Series A
Preferred Stock to be redeemed and holders of shares of Series A Preferred Stock
entitled to notice of redemption, provided that the record date may not be less
than 30 days and may not be more than 60 days prior to the Redemption Date. Any
notice that is mailed in such manner shall be conclusively presumed to have been
duly given, whether or not any holder entitled to notice of redemption actually
receives the notice. The failure of the Corporation to give such notice to any
holder entitled to notice of redemption shall not affect the validity of the
proceedings for the redemption of any shares of Series A Preferred Stock from
any other holder of shares of Series A Preferred Stock.
(C) Notice of redemption shall specify (i) the number of shares of Series
A Preferred Stock shall be redeemed, (ii) the Redemption Date, (iii) the
redemption price (which price shall include accrued but unpaid dividends
thereon), and (iv) the place where payment of the redemption price is to be made
upon surrender of the certificates representing the shares of Series A Preferred
Stock.
(D) In respect of each share of Series A Preferred Stock called for
redemption in accordance with this Section 6, the Corporation shall be obligated
to pay to the registered holder thereof the Redemption Price, upon surrender of
the certificate or certificates representing the shares of Series A Preferred
Stock at the office of the Corporation or any transfer or paying agent specified
for that purpose, on or after the Redemption Date. In the event that less than
all of the outstanding shares of Series A Preferred Stock are redeemed, the
Corporation shall deliver a replacement certificate or certificates representing
any unredeemed shares to the holder tendering such certificates. Unless the
Corporation shall default in the payment of, or in providing for the payment of,
the Redemption Price, dividends on each share of Series A Preferred Stock called
for redemption, shall cease to accrue as of the Redemption Date. Except as
otherwise expressly
4
<PAGE>
provided in the preceding sentence, holders of shares of Series A Preferred
Stock called for redemption shall not be entitled to any interest on the
Redemption Price.
(E) If, after notice of redemption has been given pursuant to paragraph
(B) of this Section 5, on or prior to the Redemption Date in respect of any
shares of Series A Preferred Stock, the Corporation deposits with a bank or
trust company in the United States that, as of the date of the most recent
available financial statements of the bank or trust company, has a capital and
surplus of at least $50,000,000, a sum sufficient to redeem, on the Redemption
Date, the shares called for redemption, with instructions to the bank or trust
company to pay on or after the Redemption Date the redemption price to the
respective holders of shares of Series A Preferred Stock upon surrender of the
certificate or certificates representing the shares of Series A Preferred Stock,
then from and after the date on which such moneys are deposited the deposit
shall be deemed to constitute full payment to the holders for such shares of
Series A Preferred Stock, and the holders shall have no rights in respect of the
shares of Series A Preferred Stock called for redemption except the right to
receive payment of the redemption price from the bank or trust company. Any
moneys or, if applicable, other property held by any such bank or trust company
that shall remain unclaimed by the holders of Series A Preferred Stock at the
end of six years after the Redemption Date shall become the property of and be
paid to the Corporation.
Section 7. Conversion.
----------
The shares of Series A Preferred Stock shall have no conversion rights.
Section 8. Reacquired Shares.
-----------------
Any shares of Series A Preferred Stock redeemed, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of preferred stock and
may be reissued as part of a new series of preferred stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 9. Rank.
----
The Series A Preferred Stock shall rank, with respect to voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof, including, without limitation, with respect to the payment of dividends
and the distribution of assets, whether upon liquidation or otherwise, (i)
equally with respect to all shares of Parity Stock, (ii) prior to all shares of
Junior Stock and to all shares of the Common Stock and (iii) prior to all shares
of any other class or series of preferred stock of the Corporation, unless such
other class or series by its terms ranks equally with or senior to the Series A
Preferred Stock.
5
<PAGE>
Section 10. Liquidation, Dissolution, Winding Up and Other Events.
-----------------------------------------------------
Upon the liquidation (voluntary or otherwise), dissolution, reorganization,
sale of all or any substantial portion of the assets or winding up of the
Corporation, no distribution shall be made to the holders of the Common Stock
unless, prior thereto, the holders of shares of the Series A Preferred Stock
shall have received the product of $60 times any unredeemed shares of the Series
A Preferred Stock, plus any accrued but unpaid dividends to the date of payment
(the "Series A Liquidation Preference"). Following payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of the Series A Preferred Stock. In the event there are not
sufficient assets available to permit payment in full of the Series A
Liquidation Preference, then such remaining assets shall be distributed ratably
to the holders of the Series A Preferred Stock.
Section 11. Definitions.
-----------
For the purposes of the provisions governing the shares of Series A
Preferred Stock, the following terms have the meanings set forth below:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Person" shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity. A Person, together with such person's
Affiliates and Associates (as those terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934), and any Persons acting as a partnership,
limited partnership, joint venture, association, syndicate or other group
(whether or not formally organized), or otherwise acting jointly or in concert
or in a coordinated or consciously parallel manner (whether or not pursuant to
any express agreement), for the purpose of acquiring, holding, voting or
disposing of securities of the Corporation with such Person, shall be deemed a
single "Person."
6
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed in its name and on its behalf on this 14th day of July
1998, by its President who acknowledges that this Certificate of Designation is
the act of the Corporation and that to the best of his knowledge, information
and belief and under penalties for perjury, all matters and facts contained in
this Certificate of Designation are true in all material respects.
ATTEST: CALCOMP TECHNOLOGY, INC.
____________________________ By:_______________________(SEAL)
William F. Porter, Jr. John C. Batterton
Secretary President and Chief Executive Officer
7
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<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-27-1998 DEC-28-1997
<PERIOD-START> DEC-29-1997 DEC-30-1996
<PERIOD-END> JUN-28-1998 JUN-29-1997
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<INCOME-PRETAX> (32,287) (16,287)
<INCOME-TAX> 65 527
<INCOME-CONTINUING> (32,352) (16,814)
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