<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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 SEPTEMBER 27, 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
----------------
CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-0888312
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2411 W. LA PALMA AVENUE,
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
(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 OCTOBER 23, 1998
------------ -------------------------------
<S> <C>
$.01 par value 47,120,650
</TABLE>
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<PAGE>
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 September 27, 1998
(Unaudited) and December 28, 1997............................ 3
Unaudited Condensed Consolidated Statements of Operations for
the three and nine months ended September 27, 1998 and
September 28, 1997........................................... 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the nine months ended September 27, 1998 and September 28,
1997......................................................... 5
Notes to Unaudited Condensed Consolidated Financial
Statements................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 19
Item 2. Changes in Securities and Use of Proceeds..................... 19
Item 6. Exhibits and Reports on Form 8-K.............................. 19
Signatures............................................................. 20
</TABLE>
2
<PAGE>
CALCOMP TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
1998 1997
------------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash.............................................. $ 4,296 $ 6,494
Accounts receivable, net.......................... 18,738 26,208
Accounts receivable from affiliates............... 835 4,428
Inventories (Note 4).............................. 34,968 43,069
Prepaids and other current assets................. 4,209 4,783
--------- ---------
Total current assets............................ 63,046 84,982
Property, plant and equipment, net.................. 29,323 29,048
Goodwill, net....................................... 75,468 79,994
Other assets........................................ 15,230 15,433
--------- ---------
Total assets.................................... $ 183,067 $ 209,457
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................. $ 18,145 $ 14,395
Accounts payable to affiliates.................... 3,006 5,591
Deferred revenue (Note 7)......................... 7,672 6,828
Accrued restructuring costs (Note 3).............. 2,667 5,049
Accrued reorganization costs...................... 6,035 6,878
Accrued salaries and related expenditures......... 5,803 4,487
Line of credit with Majority Shareholder (Note
5)............................................... 16,322 --
Other current liabilities......................... 22,683 22,600
--------- ---------
Total current liabilities....................... 82,333 65,828
Other long-term liabilities......................... 7,859 8,371
Line of credit with Majority Shareholder (Note 5)... -- 59,525
Contingencies (Notes 2, 8 and 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 1,000,000 issued and outstanding on
September 27, 1998............................... 60,000 --
Common stock, $.01 par value, 60,000,000 shares
authorized, 47,120,650 and 47,070,950 shares
issued and outstanding on September 27, 1998 and
December 28, 1997, respectively.................. 471 471
Additional paid-in capital........................ 292,804 287,322
Accumulated deficit............................... (265,345) (217,145)
Accumulated other comprehensive income:
Cumulative translation adjustment................ 5,410 5,550
Less: Treasury stock, at cost, 49,000 shares...... (465) (465)
--------- ---------
Total stockholders' equity........................ 92,875 75,733
--------- ---------
Total liabilities and stockholders' equity...... $ 183,067 $ 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 NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue................. $ 35,547 $ 47,336 $ 114,913 $ 159,919
Cost of revenue......... 32,289 45,360 102,095 135,780
---------- ---------- ---------- ----------
Gross profit.......... 3,258 1,976 12,818 24,139
Operating expenses:
Research and develop-
ment................. 3,766 7,592 9,971 16,858
Selling, general and
administrative....... 13,472 15,419 44,605 46,867
Corporate expenses
from Majority
Shareholder.......... 1,273 725 3,273 2,175
Gain on disposal of
facilities (Note 6).. -- -- -- (5,873)
---------- ---------- ---------- ----------
Loss from operations.... (15,253) (21,760) (45,031) (35,888)
Interest expense........ (431) (845) (2,868) (2,920)
Other expense, net...... (69) (909) (141) (993)
---------- ---------- ---------- ----------
Loss before income
taxes.................. (15,753) (23,514) (48,040) (39,801)
Provision for income
taxes.................. 95 225 160 752
---------- ---------- ---------- ----------
Net loss................ $ (15,848) $ 23,739) $ (48,200) $ (40,553)
========== ========== ========== ==========
Basic and diluted loss
per share (Note 1)..... $ (0.34) $ (0.51) $ (1.02) $ (0.86)
========== ========== ========== ==========
Weighted-average shares
outstanding............ 47,120,650 46,943,435 47,100,606 46,913,578
========== ========== ========== ==========
</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>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net loss......................................... $(48,200) $(40,553)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 11,836 9,100
Restructuring payments......................... (2,382) (6,683)
Investee income................................ (219) (913)
Gain on disposal of facilities................. -- (5,873)
Net changes in operating assets and
liabilities................................... 21,406 5,244
-------- --------
Net cash used in operating activities........ (17,559) (39,678)
Investing activities:
Purchase of property, plant and equipment........ (6,888) (6,071)
Dividends received............................... 121 168
Proceeds from disposition of property, plant and
equipment....................................... -- 867
Proceeds from disposal of facilities............. -- 21,121
-------- --------
Net cash (used in) provided by investing
activities.................................. (6,767) 16,085
Financing activities:
Net proceeds from line of credit with Majority
Shareholder..................................... 16,797 16,394
Issuance of warrant to purchase common stock..... 5,360 --
Exercise of stock options........................ 122 306
Reduction in revolving line of credit............ -- (2,948)
-------- --------
Net cash provided by financing activities.... 22,279 13,752
Effect of exchange rate changes on cash............ (151) (536)
-------- --------
Change in cash..................................... (2,198) (10,377)
Cash at beginning of period........................ 6,494 15,290
-------- --------
Cash at end of period.............................. $ 4,296 $ 4,913
======== ========
Supplementary disclosures of cash flow information:
Net income taxes received........................ $ (869) $ (263)
Interest paid.................................... $ 3,020 $ 2,948
</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 nine
month periods ended September 27, 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 nine months ended September 27,
1998, and September 28, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net loss................................................ $(48,200) $(40,553)
Foreign currency translation adjustment................. (140) (1,798)
-------- --------
Comprehensive loss...................................... $(48,340) $(42,351)
======== ========
</TABLE>
2. OPERATIONS AND FINANCING
The Company's operations have resulted in net losses of $48.2 million, $75.2
million and $56.6 million for the nine months ended September 27, 1998 and the
years ended December 28, 1997 and December 29, 1996, respectively. The
Company's main source of financing has been a line of credit with Lockheed
Martin Corporation (the "Majority Shareholder") which is made up of the
Revolving Credit Agreement and the Cash Management Agreement, collectively
referred to as the "Credit Agreements". Additional sources of financing have
included cash received pursuant to the signing of a Joint Development
Agreement with Eastman Kodak Company ("Kodak"), and the proceeds from the sale
of the Company's headquarters facility.
6
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 "Debt Exchange"). In connection with the Debt
Exchange, the Revolving Credit Agreement was amended to reduce the amount of
borrowing available to the Company from $73 million to $13 million. In August
and September 1998, the Cash Management Agreement was twice amended to
increase the amount of borrowing available to the Company from $2 million to
$14 million. At September 27, 1998, the Company had drawn a total of $16.3
million against the Credit Agreements. In November 1998, the Cash Management
Agreement was further amended to increase the amount of borrowing available to
the Company from $14 million to $30 million. The Company, based on currently
projected operating requirements, anticipates that it will have fully drawn
down the $43 million of credit line available under the Credit Agreements
during January 1999, and will have a need for additional funding thereafter.
Pending the outcome of its on-going review of the Company's operations, the
Majority Shareholder has agreed to consider loaning the Company additional
funds to satisfy the Company's near term operating requirements.
The Company is aware the Majority Shareholder, in its Quarterly Report on
Form 10-Q for the period ended September 30, 1998, which was filed with the
Securities and Exchange Commission on November 2, 1998, disclosed the
following:
"The Corporation [Majority Shareholder] has been reviewing its
relationship with CalComp [the Company]. This review, which has not
been completed, has included assessments of CalComp's [the Company's]
business strategy and proposed operating plans, CalComp's [the
Company's] role in the Corporation's [Majority Shareholder's] overall
business strategy, and the Corporation's [Majority Shareholder's] role
as the primary source of financing for CalComp's [the Company's]
operations. If, upon completion of this review, the Corporation
[Majority Shareholder] should adopt a plan to terminate its role as a
funding source or otherwise reduce its involvement with CalComp [the
Company], significant charges in addition to those described in the
preceding paragraph [see Note 9 for clarification of aforementioned
charges] would likely be recognized by the Corporation [Majority
Shareholder] in its consolidated financial statements at the time of
plan adoption. These charges, which could range from $60 million to
$100 million based on the preliminary data available, would be
associated with the value of the Corporation's [Majority Shareholder's]
investment and estimated costs related to the specific actions required
by the plan."
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.
In March 1998, the Company entered into the Joint Development Agreement with
Kodak that provided an initial payment of $20 million in April 1998 and
contemplates 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 September 1998, the first milestone was achieved and a
receivable of $2 million was recorded. For further discussion of the Joint
Development Agreement, see Note 7.
In July 1998, the Company engaged Solomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the decision to focus its efforts and
resources on the CrystalJet(TM) product line and to divest its Input
Technologies, Cutter, and non-CrystalJet Service and Support businesses as
these businesses were considered non-strategic. In connection with this
decision, the Company will record a one-time non-cash impairment charge in the
fourth quarter of approximately $60 million to write-down the carrying value
of the net assets of these businesses to their estimated fair value. In
7
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
addition, the Company is currently evaluating the business model and strategy
of its continuing operations. As a result, in the fourth quarter, the Company
expects to record non-cash charges of approximately $30 to $35 million related
to the impairment of certain long-lived assets, including goodwill. These non-
cash charges will have no effect on the Company's current or future cash
flows. Subject to obtaining sufficient financing to continue its operations,
the Company is also evaluating the need to realign and restructure its
continuing operations. The Company plans to complete this evaluation in the
fourth quarter of 1998 and, if required, record the appropriate realignment
and restructuring charges during that quarter.
The Company has continued its focus on improving the Company's competitive
position by resuming shipments of the new line of CrystalJet piezo inkjet
printers. In addition, the Company has instituted additional improvements in
the CrystalJet manufacturing process to allow for increased production and
better operating performance of the CrystalJet product. However, no assurances
can be given that the Company will be successful in realizing its goals for
manufacturing and marketing the CrystalJet products. Further, even if the
Company was to meet these goals, the Company anticipates that it would
continue to incur operating losses at least through the first two quarters of
1999. 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 worldwide operations and provided a charge of approximately
$4.8 million consisting primarily of $2.9 million for the elimination of 91
positions, relating to further realignment of the Company's international
operations, and $1.9 million for lease termination and fixed asset disposition
costs for certain international facilities. During the first nine months of
1998, the Company incurred cash expenditures aggregating $2.4 million that
were applied against the reserve. At September 27, 1998, the restructuring
accrual approximates $2.7 million, consisting of $1.9 million from the 1997
restructuring plan and $0.8 million remaining from the 1996 restructuring
plan. The remaining amount of the 1997 plan principally relates to severance
and lease termination obligations and that of the 1996 plan to lease
termination obligations. Although subject to future adjustment, the Company
believes that the amounts accrued at September 27, 1998 are adequate to
complete these restructuring plans.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and purchased components........... $11,050 $11,042
Work in process.................................. 546 434
Finished goods................................... 23,372 31,593
------- -------
$34,968 $43,069
======= =======
</TABLE>
5. INDEBTEDNESS
Credit Agreements with Majority Shareholder
In July 1996, the Company and the Majority Shareholder entered into two
separate agreements, a Revolving Credit Agreement and a Cash Management
Agreement. The Revolving Credit Agreement was subsequently
8
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 contains 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. In July 1998, in connection with the Debt Exchange, the Revolving
Credit Agreement was amended to reduce the amount of borrowing available to
the Company from $73 million to $13 million.
The Cash Management Agreement originally provided 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. In August and September 1998, the
Cash Management Agreement was twice amended to increase the amount of
borrowing available to the Company from $2 million to $14 million. On November
10, 1998, the Cash Management Agreement was further amended to increase the
amount of borrowing available to the Company from $14 million to $30 million.
The Revolving Credit Agreement provides for interest on borrowings, 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. Borrowings under the Cash Management Agreement bear interest equal
to the Federal Funds Rate.
As of September 27, 1998, the Company had an aggregate outstanding balance
of $16.3 million under the Credit Agreements, with interest rates ranging from
5.0% to 8.5%.
The Debt Exchange
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 owed by the Company to the Majority
Shareholder under the Revolving Credit Agreement was exchanged for 1,000,000
shares of Preferred Stock. In connection with the Debt Exchange, the Revolving
Credit Agreement was amended to reduce the amount of borrowing available to
the Company from $73 million to $13 million. The Company and the Majority
Shareholder effected the Debt Exchange for the purpose of strengthening the
Company's balance sheet and ensuring that the Company continued 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 Debt Exchange was fair and reasonable to all of the Company's
common stockholders.
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
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$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 paid in
April 1998 and an additional $16 million upon the achievement of certain
milestones and the occurrence of certain events. In September 1998, the first
milestone was achieved and a receivable of $2 million was recorded which was
paid in October 1998. 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 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 September 27,
1998, the amount of deferred revenue amortized to income was $12.2 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. 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
10
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 English High
Court of Justice ("High Court") in London 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 ("'703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and 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 sale of CrystalJet printers in the U.K. does not infringe
any valid claims of this patent. The Company has also counterclaimed for an
order revoking the '703 Patent. The Company intends to defend itself against
all claims made and to pursue its counterclaim for the revocation of the '703
Patent.
On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "'590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the '703 Patent.
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
11
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CALCOMP TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 September 27, 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.
9. SUBSEQUENT EVENT
On October 27, 1998, the Company made the decision to focus its efforts and
resources on the CrystalJet product line and to divest its Input Technologies,
Cutter, and non-CrystalJet Service and Support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
will record a one-time non-cash impairment charge in the fourth quarter of
approximately $60 million to write-down the carrying value of the net assets
of these businesses to their estimated fair value. The Company will not
depreciate or amortize any of the long-term assets of these businesses while
they are held for disposal. Together, these businesses recorded sales of $53.4
million and $76.9 million for the nine months ended 1998 and 1997,
respectively. The Company anticipates completing these divestiture efforts
during 1999.
In addition, the Company is currently evaluating the business model and
strategy of its continuing operations. As a result, in the fourth quarter, the
Company expects to record non-cash charges of approximately $30 to $35 million
related to the impairment of certain long-lived assets, including goodwill.
Subject to obtaining sufficient financing to continue its operations, the
Company is also evaluating the need to realign and restructure its continuing
operations. The Company plans to complete this evaluation in the fourth
quarter of 1998 and, if required, record the appropriate realignment and
restructuring charges during that quarter.
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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 is a supplier of both input and output computer graphics
peripheral products consisting of printers (including plotters), cutters,
digitizers, and large format scanners. The Company's products and services
have historically competed in several markets including CAD/CAE/CAM,
presentation graphics, graphic arts, and printing and publishing. In 1997, the
Company introduced its new CrystalJetTM 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. In October 1998, the Company made the decision to divest its
Input Technologies, Cutter and non-CrystalJet Service and Support businesses
in order to focus the Company's efforts and resources on the CrystalJet
product line and the graphic arts market.
The Company's future product offerings will be limited to the 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.
The Company's ability to successfully maintain or increase its share of the
graphic arts market 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 its business. 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 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 September 27, 1998, declined $11.8
million, or 25%, to $35.5 million from the same period in 1997. Product
revenues were down 46% and service revenue was down 28% versus the same period
in 1997. The decline in product and service revenue was offset by $8.2 million
of revenue recognized in the third quarter of 1998 from the Joint Development
Agreement which consists of $6.2 million of royalty revenue and $2.0 million
from milestone achievements for which there was no corresponding amount in the
same period in 1997. 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
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<PAGE>
from the Company's discontinuance of certain output products in anticipation
and preparation for the CrystalJet product lines, as well as from delays in
volume shipments of the CrystalJet wide format digital inkjet printers.
Digitizer input product revenue also declined as a result of the impact of
increasing interchangeability of mouse input devices as an 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 current
economic situation in Asia has also contributed to the decrease in revenue.
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. When the Company completes the
divestitures of the Input Technologies, Cutter and non-CrystalJet Service and
Support businesses, the related revenues will no longer be reflected in the
results. For discussion of the Company's plans to divest these businesses, see
Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements.
Revenue for the nine months ended September 27, 1998 declined $45.0 million,
or 28%, to $114.9 million compared to the same period in 1997. Product
revenues were down 40% and service revenue was down 23%. The decline in
product and service revenue was offset by $14.2 million of revenue recognized
from the Joint Development Agreement consisting of $12.2 million of royalty
and $2.0 million from milestone achievements. The decline in revenue for the
nine-month period compared to the same period in 1997 was due to the factors
that were discussed for the quarter.
Gross Profit. In the third quarter of 1998, amounts recognized from the
Joint Development Agreement made up $14.2 million of the gross profit for
which there was no corresponding amount in the prior year. Excluding the
profit from the Joint Development Agreement, gross profit as a percentage of
revenue was a loss of 18% for the third quarter and a loss of 1% for the first
nine months of 1998 compared to profit of 4% and 15%, respectively, 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 CrystalJet wide format
inkjet printers.
Operating Expenses. Operating expenses for the third quarter of 1998
decreased 22%, or $5.2 million, to $18.5 million compared to the same period
in 1997. Excluding the one time gain of $5.9 million from the sale of the
Company's headquarters facility during the second quarter last year, operating
expenses decreased $8.1 million, or 12%, for the nine-month period. These
decreases resulted primarily from the benefits of cost reductions done to
reduce staffing and facility expenses as well as to narrow the Company's focus
on new technologies.
Research and development expenses decreased $3.8 million in the third
quarter of 1998 compared to the same period in 1997 and decreased $6.9 million
in the first nine months of 1998 compared to the same period in 1997. As a
percentage of net revenue research and development expense decreased 2% from
11% for the first nine months of 1997 to 9% for the first nine months of 1998.
These decreases reflect the benefits of cost reductions resulting from the
Company's decision to narrow its focus to its new technologies.
Selling, general and administrative expenses decreased $1.9 million in the
third quarter of 1998 compared to the same period in 1997. As a percentage of
revenue, these expenses increased to 38% in the third quarter of 1998 compared
to 33% for the third quarter of 1997. Spending decreased as a result of the
reduced staffing and facility expenses from the 1997 restructuring actions and
the Company's continuing efforts to reduce spending in relation to revenue.
However, even with these efforts, spending increased as a percentage of
revenue as the reduced spending is being compared to a significantly smaller
revenue base. In the first nine months of 1998, selling, general and
administrative expenses decreased $2.3 million as compared to the same period
in 1997. The decline in spending was due to the same reasons noted for the
quarter. As a percentage of revenue, these expenses increased to 39% compared
to 29% for the same period in the prior year. The expenses did not
commensurately decrease with revenue as legal expenses increased during 1998
resulting from the defense of current lawsuits.
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Corporate expenses from the Majority Shareholder increased $0.5 million to
$1.3 million and $1.1 million to $3.3 million in the third quarter and first
nine 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 decreased to $0.4 million for the third
quarter of 1998 from $0.9 million in the same period in 1997 as the Company's
outstanding balances under the Credit Agreements were substantially reduced
during the third quarter of 1998 compared to the third quarter of 1997 due to
the conversion of debt to equity effected in July 1998. Interest expense
remained flat at $2.9 million for the first nine months of 1998 and 1997 due
to the fact that while the Company's outstanding balances under the Credit
Agreements fluctuated during the periods, the average balances were
approximately the same for both periods.
Income Tax Provision. Income tax provision of $0.1 million decreased for the
third quarter of 1998 compared to the same period in 1997. For the nine-month
period of 1998, income tax provision decreased to $0.2 million compared to
$0.8 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 operations have resulted in net losses of $48.2 million, $75.2
million and $56.6 million for the nine months ended September 27, 1998 and the
years ended December 28, 1997 and December 29, 1996, respectively. The
Company's main source of financing has been a line of credit with Lockheed
Martin Corporation (the "Majority Shareholder") which is made up of the
Revolving Credit Agreement and the Cash Management Agreement, collectively
referred to as the "Credit Agreements". Additional sources of financing have
included cash received pursuant to a Joint Development Agreement with Eastman
Kodak Company ("Kodak") and the proceeds from the sale of the Company's
headquarters facility.
In August and September 1998, the Cash Management Agreement was twice
amended to increase the amount of borrowing available to the Company from $2
million to $14 million. At September 27, 1998, the Company had drawn a total
of $16.3 million against the Credit Agreements. In November 1998, the Cash
Management Agreement was further amended to increase the amount of borrowing
available to the Company from $14 million to $30 million. The Company, based
on currently projected operating requirements, anticipates that it will have
fully drawn down the $43 million of credit line available under the Credit
Agreements during January 1999, and will have a need for additional funding
thereafter. Pending the outcome of its on going review of the Company's
operations, the Majority Shareholder has agreed to consider loaning the
Company additional funds to satisfy the Company's near term operating
requirements.
The Company is aware the Majority Shareholder, in its Quarterly Report on
Form 10-Q for the period ended September 30, 1998, which was filed with the
Securities and Exchange Commission on November 2, 1998, disclosed the
following:
"The Corporation [Majority Shareholder] has been reviewing its
relationship with CalComp [the Company]. This review, which has not been
completed, has included assessments of CalComp's [the Company's] business
strategy and proposed operating plans, CalComp's [the Company's] role in
the Corporation's [Majority Shareholder's] overall business strategy, and
the Corporation's [Majority Shareholder's] role as the primary source of
financing for CalComp's [the Company's] operations. If, upon completion of
this review, the Corporation [Majority Shareholder] should adopt a plan to
terminate its role as a funding source or otherwise reduce its involvement
with CalComp [the Company], significant charges in addition to those
described in the preceding paragraph [see Note 9 for clarification of
aforementioned charges] would likely be recognized by the Corporation
[Majority Shareholder] in its consolidated financial statements at the time
of plan adoption. These charges, which could range from $60 million to $100
million based on the preliminary data available, would be associated with
the value of the Corporation's [Majority Shareholder's] investment and
estimated costs related to the specific actions required by the plan."
15
<PAGE>
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.
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 "Debt Exchange"). In connection with the Debt
Exchange, 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 Debt Exchange for the purpose of strengthening the Company's balance sheet
and ensuring that the Company continued 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 Debt
Exchange was fair and reasonable to all of the Company's common stockholders.
For further discussion of the Debt Exchange, see Note 5 of the Notes to
Unaudited Condensed Consolidated Financial Statements.
In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the decision to focus its efforts and
resources on the CrystalJet product line and to divest its Input Technologies,
Cutter, and non-CrystalJet Service and Support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
will record a one-time non-cash impairment charge in the fourth quarter of
approximately $60 million to write-down the carrying value of the net assets
of these businesses to their estimated fair value. The Company anticipates
completing these divestiture efforts in 1999. In addition, the Company is
currently evaluating the business model and strategy of its continuing
operations. As a result, in the fourth quarter, the Company expects to record
non-cash charges of approximately $30 to $35 million related to the impairment
of certain long-lived assets, including goodwill. These non-cash charges will
have no effect on the Company's current or future cash flows. Subject to
obtaining sufficient financing to continue its operations, the Company is also
evaluating the need to realign and restructure its continuing operations. The
Company plans to complete this evaluation in the fourth quarter of 1998 and,
if required, record the appropriate realignment and restructuring charges
during that quarter.
The Company has continued its focus on improving the Company's competitive
position by resuming shipments of the new line of CrystalJet piezo inkjet
printers. The Company has instituted additional improvements in the CrystalJet
manufacturing process to allow for increased production and better operating
performance of the CrystalJet product. However, no assurances can be given
that the Company will be successful in realizing its goals for manufacturing
and marketing the CrystalJet products. Further, even if the Company was to
meet these goals, the Company anticipates that it would continue to incur
operating losses at least through the first two quarters of 1999. 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 nine months of 1998, the Company used $17.6 million of cash
in its operations primarily to fund its continuing net losses of $48.2
million, net of depreciation and amortization of $11.8 million, offset by
$21.4 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 September 27, 1998, the balance in deferred revenue from the
Kodak Joint Development Agreement was $2.4 million. In addition, $6.9 million
was expended on plant and equipment, relating primarily to purchases of
tooling and equipment for the development and manufacture of the 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 net borrowings from the
Majority Shareholder of $16.8 million, pursuant to the Credit Agreements.
16
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During the fourth quarter of 1997, the Company expanded its plan to
restructure its operations worldwide and provided a charge of approximately
$4.8 million consisting primarily of $2.9 million for the elimination of 91
positions, relating to further realignment of the Company's international
operations, and $1.9 million for lease termination and fixed asset disposition
costs for certain international facilities. During the first nine months of
1998, the Company incurred cash expenditures aggregating $2.4 million that
were applied against the reserve. At September 27, 1998, the restructuring
accrual approximates $2.7 million, consisting of $1.9 million from the 1997
restructuring plan and $0.8 million remaining from the 1996 restructuring
plan. The remaining amount of the 1997 plan principally relates to severance
and lease termination obligations and that of the 1996 plan to lease
termination obligations. Although subject to future adjustment, the Company
believes that the amounts accrued at September 27, 1998 are adequate to
complete these restructuring plans.
Year 2000 Compliance. Many existing computer systems and 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.
Others do not correctly process "leap year" dates. As a result, such systems
and applications could fail or create erroneous results unless corrected to
process data related to the year 2000 and beyond. The problems are expected to
increase in frequency and severity as the year 2000 approaches, and are
commonly referred to as the "Year 2000 Problem." 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 is continuing to assess the impact that the Year 2000 Problem
may have on its operations and has identified the following four key areas of
its business that may be affected:
Products. The Company has completed Year 2000 compliance testing on its
currently supported products. The products were classified into two
categories: category I having no date related processing and category II
having internal date clocks which will properly handle and roll-over calendar
data. Based upon the evaluation and testing completed, the Company believes
that its currently supported products are Year 2000 compliant. The Company's
testing did not assess compliance of products modified by customers or third
parties nor did it assess compliance of products connected to individual
customer work environments. The Company has listed its currently supported
products and test data on its Internet site.
Internal Business Systems. The Year 2000 Problem could affect the systems,
transaction processing computer applications and devices used by the Company
to operate and monitor all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll), customer
services, infrastructure, materials requirement planning, master production
scheduling, networks and telecommunications systems. The Company has completed
its assessment phase and believes that it has identified substantially all of
the major systems, software applications and related equipment used in
connection with its internal operations that must be modified or upgraded in
order to minimize the possibility of a material disruption to its business.
The Company is currently in its remediation phase of modifying and upgrading
identified systems and expects to complete this phase by the beginning of the
fourth quarter of 1999. The Company estimates that it will be Year 2000
compliant by the end of the fourth quarter of 1999. However, any unforeseen
problems which occur during the testing phase may adversely effect the
Company's Year 2000 readiness.
Third-Party Suppliers. The Company relies, directly and indirectly, on
external systems utilized by its suppliers for products used in the
manufacture of its products. The Company will request confirmation from its
suppliers of their Year 2000 compliance; however, there can be no assurance
that these suppliers will resolve any or all Year 2000 Problems with their
systems in a timely manner. Any failure of these third parties to resolve
their Year 2000 Problems in a timely manner could result in the material
disruption of the business of the Company. Any such disruption could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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Facility Systems. Systems such as heating, sprinklers, elevators, test
equipment and security systems at the Company's facilities may also be
affected by the Year 2000 Problem. The Company has contacted the Anaheim
facility owners seeking assurances of Year 2000 compliance. The Company has
not yet assessed its facilities at other locations.
The Company has incurred $0.3 million as of the nine-month period ended
September 27, 1998 to address its Year 2000 issues. The Company presently
estimates that the total cost of addressing its Year 2000 issues will be
approximately $1.5 million to $2 million. This estimate was derived utilizing
numerous assumptions, including the assumption that the Company has already
identified its most significant Year 2000 issues, its Input Technologies,
Cutter and non-CrystalJet Service and Support businesses would be sold and
that the plans of its third party suppliers will be fulfilled in a timely
manner without cost to the Company. However, there can be no guarantee that
these assumptions are accurate, and actual results could differ materially
from those anticipated.
The Company recognizes the need for developing contingency plans to address
the Year 2000 issues that may pose a significant risk to its on-going
operations. Such plans could include the implementation of manual procedures
to compensate for system deficiencies. During the remediation phase of the
internal business systems, the Company will be evaluating potential failures
and attempt to develop responses in a timely manner. However, there can be no
assurance that any contingency plans evaluated and potentially implemented by
the Company would be adequate to meet the Company's needs without materially
impacting its operations, that any such plan would be successful or that the
Company's results of operations would not be materially and adversely affected
by the delays and inefficiencies inherent in conducting operations in an
alternative manner.
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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 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.
10.12 Employment Offer and Agreement between the Company and John J.
Millerick dated July 12, 1996, as amended through July 31, 1998.
10.43 Amendment Nos. 1-3 dated March 20, 1998, August 24, 1998 and September
25, 1998, respectively, to Cash Management Agreement by and between the
Company and Lockheed Martin Corporation dated as of July 23, 1996. (The
Cash Management Agreement was filed as Exhibit 10.3 to the Company's
Form 10-Q for the quarterly period ended September 29, 1996, and is
incorporated herein by reference.)
10.44 Exchange Agreement entered into as of July 15, 1998, by and between the
Company and Lockheed Martin Corporation.
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 third quarter ended September 27, 1998 were as follows:
Form 8-K dated July 17, 1998 filed on July 17, 1998, reporting under Item
5 the Company's Exchange Agreement with Lockheed Martin Corporation.
Form 8-K dated September 25, 1998 filed on October 1, 1998, reporting
under Item 5 the Company's Amendment to the Cash Management Agreement with
Lockheed Martin Corporation.
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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: November 11, 1998
/s/ John J. Millerick
_____________________________________
John J. Millerick
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
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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
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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
<PAGE>
EXHIBIT 10.12
[LETTERHEAD OF CALCOMP]
July 11, 1996
Mr. John J. Millerick
22 Putnam Road
Acton, MA 01720
Dear Mr. Millerick:
This letter is to confirm our offer of employment for the position of Senior
Vice President, Chief Financial Officer reporting to me at our Anaheim facility.
Your starting base salary will be $3,847 weekly with a $25,000 sign-on bonus.
Your salary will be reviewed at twelve (12) month intervals. Presently, all
merit reviews are conducted at the end of the third quarter of our fiscal year.
We have a Management Incentive Compensation Plan and Stock Options Plan that are
being recommended to our Board of Directors when we are a public company. The
MICP Plan provides for a bonus opportunity at target of 40% and will be prorated
for the year based on the number of months worked in 1996. However, in order for
a partial payment of the MICP to be implemented, you must start work by August
15, 1996. The Stock Options Plan would offer 50,000 options the first year. The
Stock Options Plan intent is to provide options that would be loaded heavily in
the first year. The remainder of the options that are planned are 75,000 to be
allocated in equal shares over a four year period subject to Board of Directors
approval.
I have been told that an Employment Agreement will be approved by the Board. It
will be two years in duration and provide one year of severance if other than
for just cause. This will be approved by the Board of Directors at a later
Board meeting.
The Company will arrange for the relocation of your family and household
belongings under provisions of the Lockheed Martin Policy CPS-538. Your
relocation costs will be covered up to $100,000, which also includes a home
purchase offer. Temporary lodging, daily meal allowance (per diem) and car will
be extended to you for one year. You will also be provided with two (2) round
trips home each month during this one year period. You will be eligible for the
relocation benefit during the first 18 months of your employment. Additionally,
with respect to Section 10.0 Loss on Sale, in the Relocation Policy, capital
improvements will be considered when calculating loss on sale.
If not either pre-arranged or completed, this offer of employment is contingent
upon your satisfactorily passing a pre-employment physical examination,
including a drug screen urinalysis. If you have any questions, please call
Roberta Diebold at (714) 821-2294.
Employers are required to verify work authorization and identification for all
new hires. We would appreciate your cooperation by bringing with you on the
first day of employment documents to comply with this law.
<PAGE>
John J. Millerick
July 11, 1996
Page 2
It is CalComp policy not to improperly use the intellectual property rights of
others. You are requested not to bring or disclose any proprietary/confidential
information of your former employers(s) to CalComp at any time.
Among the benefits you will enjoy as a full-time CalComp employee, subject to
certain eligibility requirements and waiting periods, is a program of Company
paid group insurance which provides for basic life as well as accidental death
and dismemberment. Employee paid benefits eligible to you are comprehensive
medical, dental and vision coverage for you and your eligible dependents, and a
program of income protection in case of long-term disability. In addition, you
may obtain supplemental life insurance coverage for yourself and your
dependents. Other benefits include paid sick leave, 12 paid holidays per year,
paid vacation, pension plan, thrift plan, credit union and college tuition
support programs. You will be entitled to three (3) weeks of vacation per year.
Extra time will be granted by mutual agreement between you and me.
Unfortunately, the plan document for the Lockheed Savings Plan Plus requires you
to wait 12 months before being eligible to contribute, and this cannot be
waived.
It is a pleasure to make you this offer to join CalComp. We look forward to
your association with the Company and know you will find it both personally and
professionally rewarding.
Please sign below and return this letter to us indicating your acceptance and
start date. An additional copy is included for your records.
Sincerely,
/s/ GARY LONG
- -------------
Gary Long
President
ved
Enclosure
/s/ JOHN J. MILLERICK 8-12-96
--------------------- ------------------
John J. Millerick Start Date
[President's Stamp]
<PAGE>
[LETTERHEAD OF CALCOMP]
July 12, 1996
Mr. John Millerick
22 Putnam Road
Acton, MA 01720
Dear John:
The following is provided as an addendum to my letter to you of July 11 and
specifically addresses your interest in adding a severance clause to our offer
letter.
If, prior to the expiration of the two-year term of this agreement,
employee's employment is terminated by the company other than for cause
or due to death or disability, the company shall provide employee the
following:
a. One year's base salary plus one year's MICP at 100% in a lump sum in
cash within thirty (30) days of the date termination.
b. One year's benefits continuation as currently provided for company
officers.
c. Payment for executive out-placement services with the cost not to
exceed ten percent (10%) of employee's annual base salary. Payment
to be made as billed by the provider.
Please acknowledge acceptance of this addendum by signing below and returning
the signed copy to me.
Regards,
/s/ GARY R. LONG
- ----------------
Gary R. Long
Accepted: /s/ JOHN J. MILLERICK 7-12-96
---------------------- ----------------
/s/ John J. Millerick Date
[Stamp of President]
<PAGE>
[LOGO OF THE COMPANY]
INTEROFFICE COMMUNICATION
TO: JOHN MILLERICK IOC NO.: 96-AMEND
FROM: KEVIN COLEMAN DATE: AUGUST 16, 1996
SUBJECT: AMENDMENT MS/EXT: 17/2622
This is an amendment to your offer of employment dated July 11, 1996. CalComp
will reimburse you for COBRA payments through December 1996. All other
conditions remain the same as stated in the previous letter.
Sincerely,
/s/ KEVIN COLEMAN
- -----------------
Kevin Coleman
Director
Human Resources
<PAGE>
[LOGO OF CALCOMP INC.]
INTEROFFICE COMMUNICATION
TO: John Millerick IOC NO.:
FROM: Kevin Coleman DATE: November 21, 1996
SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622
The following is provided as an addendum to your offer letter dated July 11,
1996 and is specifically related to the relocation benefit you were offered.
Your relocation maximum benefit will be increased to $140,000. Temporary
lodging, daily meal allowance (per diem), and car allowance will be extended to
you for two years. You will also be provided with two round trips home each
month during this two year period. You will be eligible for the relocation
benefit during the first 30 months of employment.
/s/ KEVIN COLEMAN
Kevin Coleman
Director
Human Resources
cc: G. Long
Accepted: /s/ JOHN J. MILLERICK 11/21/96
--------------------------------- --------------
John J. Millerick Date
<PAGE>
[LOGO OF CALCOMP]
INTEROFFICE COMMUNICATION
TO: JOHN MILLERICK IOC NO.:
FROM: KEVIN COLEMAN DATE: DECEMBER 1, 1997
SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622
The following is provided as an addendum to your offer letter dated July 11,
1996 and an addendum that was written on November 21, 1996, and is specifically
related to the relocation benefit you were offered.
Your relocation maximum benefit is increased to $450,000.
/s/ KEVIN COLEMAN
Kevin Coleman
Vice President
Human Resources
cc: J. Batterton
/s/ JOHN J. MILLERICK 12/1/97
- ------------------------------------ -------------------
Accepted: John J. Millerick-Sr. Vice President Date
and Chief Financial Officer
<PAGE>
[LETTERHEAD OF CALCOMP]
INTEROFFICE COMMUNICATION
TO: John Millerick IOC NO.:
FROM: Kevin Coleman DATE: July 31, 1998
SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622
The following is provided as an addendum to my letter to you of July 31, 1998
and specifically addresses your interest in adding a severance clause to your
addendum letter.
If, prior to the expiration of the twelve month term of this agreement,
employee's employment is terminated by the company other than for cause or
due to death or disability, the company will provide the employee the
following:
a. One year's base salary plus one year's MICP at 100% in a lump sum
(minus applicable taxes) in cash within thirty (30) days of the
termination.
b. One year's benefits continuation as currently provided for company
officers.
c. Payment for executive out-placement services with the cost not to
exceed ten percent (10%) of employee's annual base salary. Payment to
be made as billed by the provider.
Please acknowledge acceptance of this addendum by signing below and returning
the signed copy to me.
Kevin Coleman
Vice President
Human Resources
cc: J. Batterton
Accepted:
---------------------------------- --------------
John J. Millerick Date
<PAGE>
[LETTERHEAD OF CALCOMP]
INTEROFFICE COMMUNICATION
TO: John Millerick IOC NO.:
FROM: Kevin Coleman DATE: July 31, 1998
SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622
The following is provided as an addendum to your offer letter dated July 11,
1996 and addendums dated November 21, 1996 and December 1, 1997 and is
specifically related to the relocation benefit you were offered. You will be
eligible for relocation benefits for the first forty-two months of employment.
Temporary lodging, daily meal allowance(per diem), and car allowance will be
extended to you for one additional year beginning August 12, 1998. You will
also be provided with two round trips home each month during this one year
period. Specifics to this agreement include:
- -The purchase of your temporary household furniture for CalComp will result in a
substantial savings for the company and is an excellent idea. It should be
noted, however, that even though you are making this purchase and being
reimbursed this expense plus gross-up, the furniture purchased from the
furniture rental company is CalComp property. You will have the right, at your
option, to purchase certain pieces at original cost.
- -The reimbursement for upgrade certificates for your personal travel to and from
Boston should be reduced to once a month.
- -To capture the resulting cost savings, please exchange your full-size rental
car for a mid-size rental.
- -Going forward your per diem will be up to $25.00 a day while on temporary
housing.
Please indicate your acceptance of the above modifications to your temporary
housing agreement by signature below and return to me at your convenience.
Kevin Coleman
Vice President
Human Resources
cc: J. Batterton
T. Powell
Accepted:
---------------------------------- --------------
John J. Millerick Date
<PAGE>
EXHIBIT 10.43
FIRST AMENDMENT
TO
CASH MANAGEMENT AGREEMENT
This is the First Amendment ("First Amendment"), dated as of March 20, 1998, to
the Cash Management Agreement ("Agreement") dated as of July 23, 1996 between
CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and
LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin").
WHEREAS, the parties have agreed to extend the termination date of the Agreement
to coincide with the Termination Date of the Amended and Restated Credit
Agreement dated as of December 20, 1996 among CalComp Technology, CalComp, Inc.,
and Lockheed Martin, as amended (the "Revolving Credit Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed
Martin hereby agree as follows:
1. Section 4(a) of the Agreement is hereby amended by adding at the beginning of
the second sentence thereof the clause "Subject to the provisions of Section
5(c) hereof."
2. Section 5(c) of the Agreement is hereby amended to read as follows:
"The maximum principal amount of Advances to be made by Lockheed Martin
hereunder shall be $12,000,000 outstanding at any time, provided,
--------
however, if on any date on or prior to April 3, 1998 the net cash
-------
balance in the Concentration Account equals or exceeds $10,000,000,
then the net cash balance shall, notwithstanding Section 4(a) of the
Agreement, first be applied to reduce the Advances to $2,000,000. After
April 3, 1998 or earlier application of the net cash balance as
described in the preceding sentence, the maximum principal amount of
Advances to be made by Lockheed Martin hereunder shall be $2,000,000
outstanding at any time."
3. Section 12 of the Agreement is hereby amended by substituting the phrase
"January 31, 1999" for the phrase "June 1, 1998".
4. To the extent additional indebtedness of CalComp is created by or pursuant to
this First Amendment, Lockheed Martin hereby waives compliance with Section
6.8 of the Revolving Credit Agreement.
5. This First Amendment shall be governed by and construed in accordance with
the laws of the jurisdiction which govern the Agreement and its construction.
6. This First Amendment may be executed in any number of counterparts each of
which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC.
By: /s/ WALTER E. SKOWRONSKI By: /s/ JOHN J. MILLERICK
------------------------------ -------------------------------
W.E. Skowronski John J. Millerick
Vice President and Treasurer Sr. Vice President and
Chief Financial Officer
<PAGE>
SECOND AMENDMENT
TO
CASH MANAGEMENT AGREEMENT
This is the Second Amendment ("Amendment"), dated as of August 24, 1998, to the
Cash Management Agreement ("Agreement") dated as of July 23, 1996 between
CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and
LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin").
WHEREAS, the parties have agreed to an increase in the amount available as
Advances under the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed
Martin hereby agree as follows:
1. Section 4(a) of the Agreement is hereby amended by deleting from the second
sentence thereof the clause "Subject to the provisions of Section 5(c)
hereof."
2. Section 5(c) of the Agreement is hereby amended to read as follows:
"The maximum principal amount of Advances to be made by Lockheed
Martin hereunder shall be $5,500,000 outstanding at any time."
3. To the extent additional indebtedness is created by or pursuant to this
Amendment, Lockheed Martin hereby waives compliance with Section 6.8 of the
Amended and Restated Credit Agreement dated as of December 20, 1996, as
amended, among CalComp Technology, CalComp, Inc., and Lockheed Martin.
4. This Amendment shall be governed by and construed in accordance with the
laws of the jurisdiction which govern the Agreement and its construction.
5. This Amendment may be executed in any number of counterparts each of which
shall be an original, but such counterparts shall together constitute but
one and the same instrument.
LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC.
By: /s/ W. E. SKOWRONSKI By: /s/ JOHN J. MILLERICK
-------------------- ---------------------
W. E. Skowronski John J. Millerick
Vice President and Treasurer Sr. Vice President and
Chief Financial Officer
<PAGE>
THIRD AMENDMENT
TO
CASH MANAGEMENT AGREEMENT
This is the Third Amendment ("Amendment"), dated as of September 25, 1998, to
the Cash Management Agreement ("Agreement") dated as of July 23, 1996 between
CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and
LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin").
WHEREAS, the parties have agreed to an increase in the amount available as
Advances under the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed
Martin hereby agree as follows:
1. Section 4(a) of the Agreement is hereby amended by deleting from the second
sentence thereof the clause "Subject to the provisions of Section 5(c)
hereof."
2. Section 5(c) of the Agreement is hereby amended to read as follows:
"The maximum principal amount of Advances to be made by Lockheed
Martin hereunder shall be $14,000,000 outstanding at any time."
3. To the extent additional indebtedness is created by or pursuant to this
Amendment, Lockheed Martin hereby waives compliance with Section 6.8 of the
Amended and Restated Credit Agreement dated as of December 20, 1996, as
amended, among CalComp Technology, CalComp, Inc., and Lockheed Martin.
4. This Amendment shall be governed by and construed in accordance with the laws
of the jurisdiction which govern the Agreement and its construction.
5. This Amendment may be executed in any number of counterparts each of which
shall be an original, but such counterparts shall together constitute but
one and the same instrument.
LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC.
By: /s/ W. E. SKOWRONSKI By: /s/ JOHN J. MILLERICK
----------------------- ------------------------
W. E. Skowronski John J. Millerick
Vice President and Treasurer Sr. Vice President and Chief Financial
Officer
<PAGE>
EXHIBIT 10.44
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "Agreement") is dated as of July 15, 1998, by
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and among CalComp Technology, Inc., a Delaware corporation (the "Company"),
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CalComp Inc., a California corporation (the "Subsidiary") and Lockheed Martin
----------
Corporation, a Maryland corporation ("Lockheed Martin").
---------------
WITNESSETH
WHEREAS, the Company, the Subsidiary and Lockheed Martin are parties to the
Amended and Restated Revolving Credit Agreement, dated as of December 20, 1996,
as amended March 20, 1998 (the "Credit Agreement") pursuant to which Lockheed
----------------
Martin has agreed to extend up to $73,000,000 in loans to the Company and the
Subsidiary;
WHEREAS, there is approximately $65,000,000 of indebtedness of the Company
and the Subsidiary (the "Debt") outstanding under the Credit Agreement;
----
WHEREAS, the Company and the Subsidiary have requested Lockheed Martin to
exchange up to $60 million of the Debt for shares of the Company's Series A
Cumulative Redeemable Preferred Stock (the "Exchange"); and
WHEREAS, Lockheed Martin has agreed to effect the Exchange and in
connection therewith the parties desire to decrease the commitment under the
Credit Agreement from $73,000,000 to $13,000,000.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Authorization and Exchange of the Series A Preferred Stock.
----------------------------------------------------------
1.1. Authorization of the Series A Preferred Stock. Prior to Closing
---------------------------------------------
(as defined in Section 1.3), the Company shall designate 1,000,000 shares of its
Series A Cumulative Redeemable Preferred Stock (the "Preferred Shares"). The
----------------
Preferred Shares shall have the designations, preferences, voting powers,
relative, participating, optional, or other special rights and privileges, and
the qualifications, limitations and restrictions set forth in the Certificate of
Designation (the "Certificate") attached hereto as Exhibit A. Prior to Closing,
-----------
the Company shall authorize for issuance hereunder 1,000,000 Preferred Shares.
Prior to Closing, the Certificate shall be filed with the Secretary of State of
the State of Delaware.
1.2. Issuance of Series A Preferred Stock. At the Closing, and
------------------------------------
pursuant to the terms and subject to the conditions of this Agreement, the
Company agrees to issue and deliver to Lockheed Martin and Lockheed Martin
agrees to acquire from the Company, 1,000,000 Preferred Shares, in full
repayment of $60 million of the Debt then outstanding under the Credit
Agreement.
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<PAGE>
1.3 Closing and Delivery of Shares. (a) The closing of the Exchange
------------------------------
(the "Closing") shall take place at such time and place on or prior to July 20,
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1998 as the Company and Lockheed Martin shall agree.
(b) At the Closing, the Company shall deliver to Lockheed Martin one
or more stock certificates representing 1,000,000 Preferred Shares, duly
executed and registered by the Company in the name of Lockheed Martin, and
Lockheed Martin shall deliver to the Company an acknowledgement of the repayment
of $60 million of the Debt in form and content attached hereto as Exhibit C.
(c) At Closing, the Company shall deliver a Secretary's Certificate
in form and content reasonably satisfactory to Lockheed Martin to the effect
that (i) the Preferred Shares are validly authorized, duly issued, fully paid
and non-assessable shares of the Company entitled to the rights set forth in the
Certificate; (ii) the representations and warranties of the Company set forth in
this Agreement are true and correct; (iii) the Company has complied in all
material respects with all of its covenants and agreements contained in the
Agreement; and (iv) the Company's Fourth Amended and Restated Certificate of
Incorporation (together with the Certificate) in the form attached to the
Secretary's Certificate is in full force and effect.
2. Amendment to Credit Agreement. At the Closing, each of the Company,
-----------------------------
the Subsidiary and Lockheed Martin shall execute and deliver Amendment No. 2 to
the Credit Agreement in the form set forth in Exhibit B.
---------
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Lockheed Martin that:
3.1 Due Authorization. Each of the Company and the Subsidiary has the
-----------------
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and the
issuance and exchange of the Preferred Shares have been duly authorized by the
Board of Directors of the Company. No further approval or authorization of the
Board of Directors or the shareholders of the Company will be required for the
issuance and exchange of the Preferred Shares as contemplated herein. This
Agreement has been duly executed and delivered by each of the Company and the
Subsidiary, and constitutes a legal, valid and binding obligation of the Company
and the Subsidiary enforceable against the Company and the Subsidiary in
accordance with its terms.
3.2 Corporate Organization and Other Related Matters.
------------------------------------------------
(a) Each of the Company and the Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has the requisite corporate power and authority to own,
lease, and operate its assets, properties and business and to carry on its
business as it is now being
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<PAGE>
conducted or proposed to be conducted. The Company owns 100% of the outstanding
capital stock of the Subsidiary.
(b) The Company has full corporate power and authority to enter
into this Agreement, to issue the Preferred Shares and to carry out and perform
its obligations under the terms of this Agreement.
(c) Subject to receiving the authorizations, approvals and
permits, if any, of the type described in subsection 5.1(b) of this Agreement
and except as otherwise contemplated by the Certificate attached hereto as
Exhibit A, none of the execution and delivery of this Agreement, the issuance of
- ---------
the Preferred Shares, the performance by the Company of its obligations
hereunder, or the consummation of the transactions contemplated hereby will (i)
violate any provision of the Company's Fourth Amended and Restated Certificate
of Incorporation or bylaws, (ii) with or without the giving of notice or the
passage of time, or both, violate, or be in conflict with, or constitute a
default under, or cause or permit the termination or the acceleration of the
maturity of, any debt or obligation of the Company or any of its subsidiaries;
(iii) require notice to or the consent of any party to any agreement or
commitment, including, without limitation, any lease or license to which the
Company or any of its subsidiaries is a party, or by which any of them or their
properties are bound or subject; (iv) result in the creation or imposition of
any security interest, lien or other encumbrance upon any property or assets of
the Company or any of its subsidiaries under any agreement or commitment to
which it is a party or by which it or its properties is bound or subject which,
individually or in the aggregate, would have a material or adverse effect on the
Company and its business; or (v) violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company or any of its assets or properties is bound or the subject
which, individually or in the aggregate, would have a material adverse effect on
the Company and its business.
3.3 Capitalization. The Company has authority to issue up to
--------------
125,000,000 shares, par value $.01 per share, of common stock and up to
5,000,000 shares, par value $.01 per share, of preferred stock. At the Closing
the authorized capitalization of the Company, and shares of capital stock
outstanding shall consist of:
(a) Preferred Stock. A total of 5,000,000 shares, par value $.01
---------------
per share, of preferred stock, 1,000,000 shares of which shall be designated as
Series A Cumulative Redeemable Preferred Stock. 1,000,000 Preferred Shares shall
be issued and outstanding immediately following Closing.
(b) Common Stock. A total of 125,000,000 shares Common Stock,
------------
approximately 47,120,650 of which shall be issued and outstanding. In addition,
at Closing there will be outstanding warrants or options to acquire
approximately 8,108,131 additional shares of Common Stock.
Except as set forth above, at the Closing, there shall be no other securities of
the Company outstanding.
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<PAGE>
3.4 Securities Act. Subject to the accuracy of Lockheed Martin's
--------------
representations in Section 4, the Exchange of the Preferred Shares in conformity
with the terms of this Agreement constitutes a transaction exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "Securities Act").
--------------
3.5 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the valid execution, delivery and
performance of this Agreement or the Exchange of the Preferred Shares, except
for the qualification (or the taking of such action as may be necessary to
secure an exemption from qualification, if available) of the Exchange under
applicable blue sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner; provided, however, that solely with respect to
the federal securities laws and the state "blue sky" securities laws, the
representations and warranties of the Company provided in this Section 3.5 shall
be subject to the accuracy of the representations of Lockheed Martin set forth
in Section 4 hereof.
3.6 Valid Issuance of the Preferred Stock. The Preferred Shares, when
-------------------------------------
issued in accordance with this Agreement, will be duly and validly issued and
will be nonassessable capital shares of the Company and will have the
designations, preferences, voting powers, relative, participating, optional, or
other special rights and privileges, and the qualifications, limitations and
restrictions set forth in the Certificate and will be fully paid capital shares
of the Company. The Preferred Shares, when issued, will be free of any liens,
claims, encumbrances or restrictions on transfer other than the restrictions on
transfer under applicable state and federal securities laws.
3.7 Litigation, etc. Except as set forth on Schedule 3.7, there is no
---------------
action, proceeding or investigation pending or, to the best of the Company's
knowledge, threatened (or any basis therefor known to the Company), that
questions the validity of this Agreement or any of the transactions contemplated
hereby or the Preferred Shares to be issued pursuant to this Agreement or which
could have a material adverse effect on the financial condition, results of
operations, business or properties of the Company and its subsidiaries, taken as
a whole.
3.8 Disclosure. No representation or warranty of the Company
----------
contained in this Agreement or in any written certificate furnished or to be
furnished to Lockheed Martin pursuant hereto or thereby, when read together,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
3.9 No Violation. Neither the Company's execution and delivery of
------------
this Agreement nor the consummation by the Company of the transactions
contemplated hereby will breach a material agreement to which the Company or any
subsidiary of the
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<PAGE>
Company is a party or by which its or any of its subsidiaries' assets are bound,
or cause any such violation or breach, or accelerate or allow any person to
accelerate, terminate, modify or cancel any material rights under any such
agreement, or will result in the creation of any material lien on the assets or
properties of the Company or any of its subsidiaries. Such execution, delivery
and consummation will not violate or breach or constitute a default under any
law, judgment, order, or decree to which the Company or any of its subsidiaries
is subject or by which the properties or assets of the Company or any of its
subsidiaries are bound.
4. Representations and Warranties of Lockheed Martin. Lockheed Martin
-------------------------------------------------
represents and warrants that:
4.1 Authorization. This Agreement constitutes Lockheed Martin's valid
-------------
and legally binding obligation, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or affecting enforcement
of the rights and remedies of creditors or by general principles of equity
(whether applied at law or in equity); and Lockheed Martin has full corporate
power and authority to enter into this Agreement.
4.2 Purchase for Own Account. Lockheed Martin is acquiring the
------------------------
Preferred Shares for its own account and not with a view to or for sale in
connection with any distribution of the Preferred Shares.
4.3 Disclosure of Information. Lockheed Martin has received from the
-------------------------
Company all information it has requested and considers necessary or appropriate
for deciding whether to acquire the Preferred Shares in exchange for $60.0
million of the Company's Debt. Lockheed Martin has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the Exchange of the Preferred Shares.
4.4 Restricted Securities. Lockheed Martin understands that the
---------------------
Preferred Shares will be "restricted securities" under the Securities Act
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering, and that, under the Securities Act and applicable
regulations thereunder, such securities may be resold without registration under
the Securities Act only in certain limited circumstances.
4.5 Legends. Lockheed Martin understands that the certificates
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evidencing the securities will bear the legend set forth below, together with
any other legends required by applicable state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT FOR THE HOLDER'S OWN ACCOUNT AND NOT WITH A VIEW TO OR FOR SALE
IN CONNECTION WITH ANY DISTRIBUTION OF THE SECURITIES.
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<PAGE>
THE SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED, AS APPLICABLE, UNDER
THE SECURITIES ACT OF 1933 ("SECURITIES ACT") OR UNDER ANY APPLICABLE STATE
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SECURITIES LAW ("BLUE SKY LAWS"). AN OFFER TO SELL OR TRANSFER OR THE SALE
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OR TRANSFER OF THESE SECURITIES IS UNLAWFUL UNLESS MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR PERMIT, AS APPLICABLE UNDER THE
SECURITIES ACT OR APPLICABLE BLUE SKY LAWS, OR UNLESS AN EXEMPTION FROM
REGISTRATION AND/OR QUALIFICATION UNDER THE SECURITIES ACT AND APPLICABLE
BLUE SKY LAWS (INCLUDING, WITHOUT LIMITATION, REGULATION S THEREUNDER) IS
AVAILABLE.
The legend set forth above shall be removed by the Company from any certificate
evidencing Securities upon delivery to the Company of an opinion, in form and
substance and by counsel reasonably satisfactory to the Company, that a
registration statement under the Securities Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which the Preferred Shares were issued.
5. Conditions to Closing.
---------------------
5.1 Conditions to Lockheed Martin's Obligations at the Closing.
----------------------------------------------------------
Lockheed Martin's obligation to purchase the Preferred Shares at the Closing is
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Representations and Warranties True: Performance of
----------------------------------------------------
Obligations. Except for representations and warranties that by their terms speak
- -----------
only as of a specified date, the representations and warranties made by the
Company in Section 3 hereof shall be true and correct in all material respects
as of the Closing with the same force and effect as if they had been made as of
the Closing, and the Company and the Subsidiary shall have performed all
obligations and conditions herein required to be performed or observed by them
on or prior to the Closing.
(b) Securities Law Compliance. All authorizations, approvals and
-------------------------
permits, if any, of every governmental authority or regulatory body of the
Untied States or of any state that is required in connection with the Exchange
pursuant to this Agreement shall have been duly obtained and shall be effective
on and as of the Closing.
(c) Corporate Documents. The Company shall have delivered to
-------------------
Lockheed Martin or its counsel, copies of all corporate documents of the Company
as Lockheed Martin shall reasonably request.
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<PAGE>
(d) Fairness Opinion. Receipt by the Company of an opinion of
----------------
Duff & Phelps as to the fairness, from a financial point of view, of the
transactions contemplated by this Agreement to the stockholders of the Company.
(e) Payment of Interest and Fees. Payment of interest and fees
----------------------------
associated with the portion of the Debt being repaid.
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to exchange the Preferred Shares at the Closing is subject to the
satisfaction, at Closing, to the conditions that (i) the representations and
warranties made by Lockheed Martin in Section 4 hereof shall be true and correct
as of the Closing with the same force and effect as if they had been made as of
the Closing, and (ii) the Company shall have received an opinion of Duff &
Phelps as to the fairness, from a financial point of view, of the transactions
contemplated by this Agreement to the holders of Common Stock of the Company in
form and content reasonably satisfactory to the Company.
6. Miscellaneous.
-------------
6.1 Entire Agreement; Successors and Assigns. This Agreement,
----------------------------------------
together with its exhibits and schedules, shall collectively constitute the
entire agreement among the Company, the Subsidiary and Lockheed Martin relating
to the Exchange of the Preferred Shares and supersede any and all prior or
contemporaneous oral or written agreements, understandings and discussions with
respect thereto. Subject to the limitations hereof, the provisions hereof shall
inure to the benefit of and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
6.2 Expenses. The Company, the Subsidiary and Lockheed Martin will
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each bear their respective legal and other fees and expenses in connection with
the transactions contemplated in this Agreement.
6.3 Governing law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of Delaware without reference
to any conflict of laws provisions of such laws.
6.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 Headings. The headings of the Sections and subsections of this
--------
Agreement are for convenience and shall not by themselves determine the
interpretation of this Agreement.
6.6 Notices. Any notice required or permitted hereunder shall be
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given in writing and shall be conclusively deemed effectively given upon
personal delivery, on the date of receipt if sent by telecopier or overnight
courier, charges prepaid,
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<PAGE>
or five days after deposit in the United States mail, by registered or certified
mail, postage prepaid, or facsimile, receipt confirmed, addressed as follows:
If to the Company or the Subsidiary, addressed to:
CalComp Technology, Inc.
2411 W. La Palma Avenue
Anaheim, CA 92801
Attention: President and Corporate Secretary
Facsimile: 714-821-2074 and
714-821-2470
With a copy (which shall not constitute notice) to:
Hewitt & McGuire, LLP
19900 MacArthur Boulevard
Suite 1050
Irvine, CA 92612
Attention: Charles S. Exon, Esquire
Facsimile: 949-798-0511
If to Lockheed Martin, addressed to:
Lockheed Martin Corporation
6801 Rockledge Drive
Rockville, Maryland 20817
Attention: Treasurer
Facsimile: 301-897-6927
With copies (which shall not constitute notice) to:
Lockheed Martin Corporation
310 North Westlake Boulevard
Suite 200
Westlake Village, CA 91362
Attention: Suzanna Fabos, Esquire
Assistant General Counsel - Finance
Facsimile: 805-381-1455
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
Attention: David A. Gibbons, Esquire
Facsimile: 410-385-3700
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<PAGE>
or at such other address as one party may designate to the others by ten days'
advance written notice to Lockheed Martin or the Company, respectively.
6.7. Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the parties contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing.
6.8. Amendments and Waivers. Any term or provision of this Agreement
----------------------
may be amended and the observance of any term, condition, or provision of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument signed by the
Company, the Subsidiary and Lockheed Martin.
6.9. Severability. If one or more provisions of this Agreement are
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held to be unenforceable under applicable law such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were excluded and shall be enforceable in
accordance with its terms.
6.10. Contract Interpretation. Ambiguities, inconsistencies, and
-----------------------
conflicts in this Agreement shall be resolved by applying the most reasonable
interpretation under the circumstances, giving full consideration to the
parties' intentions at the time this Agreement is entered into. No
consideration shall be given as to the party that actually drafted the
Agreement.
* * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed by their duly authorized representatives as of the date
first written above.
CALCOMP TECHNOLOGY, INC., a
Delaware corporation
By:___________________________________
John J. Millerick
Senior Vice President and Chief
Financial Officer
CALCOMP INC., a California corporation
By:___________________________________
John J. Millerick
Senior Vice President and Chief
Financial Officer
LOCKHEED MARTIN CORPORATION, a
Maryland corporation
By:___________________________________
Walter E. Skowronski
Vice President and Treasurer
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<PAGE>
EXHIBIT A
---------
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.
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(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
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<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.
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<PAGE>
Section 4. Voting Rights.
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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.
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<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
A-14
<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.
A-15
<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."
A-16
<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
A-17
<PAGE>
EXHIBIT B
---------
AMENDMENT NO. 2 TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
Amendment No. 2, dated July 15, 1998 (the "Amendment"), to the Amended and
Restated Revolving Credit Agreement, dated as of December 20, 1996, as amended
March 20, 1998 (the "Credit Agreement"), among CalComp Technology, Inc., a
Delaware corporation ("Technology"), CalComp Inc., a California corporation
("CalComp", and together with Technology, the "Borrowers"), and Lockheed Martin
Corporation, a Maryland corporation (the "Lender"). Capitalized terms used but
not defined herein shall have the meaning given them in the Credit Agreement.
WHEREAS, the Borrowers and the Lender are parties to an Exchange Agreement,
dated July __, 1998 (the "Exchange Agreement"), pursuant to which they have
agreed to (i) exchange all or a portion of the outstanding Loans for shares of
Technology's Series A Cumulative Redeemable Preferred Stock, and (ii) reduce
Lender's Commitment under the Credit Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Exchange Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrowers and the Lender agree as follows:
1. Reduction in Commitment. The definition of "Commitment" contained in Section
-----------------------
1.1 of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
"Commitment" means $13,000,000, as such amount may be reduced from
time to time pursuant to Section 2.7 hereof. The Commitment represents a
reduction in the Original Commitment."
2. April 1998 Waiver. Borrowers and Lender agree that (i) the transactions
-----------------
contemplated by the Exchange Agreement are outside the scope of Section
2.1(c) of the Credit Agreement and thus Lender's April 1, 1998 waiver (the
"April 1998 Waiver") of its rights under Section 2.1(c) of the Credit
Agreement is inapplicable to such transactions, and (ii) with respect to the
Commitment established by this Amendment, the April 1998 waiver shall remain
in effect until January 31, 1999.
3. Additional Waivers. Lender hereby waives any Defaults existing at the date
------------------
hereof. With respect to the transactions contemplated by the Exchange
Agreement, Lender waives compliance with Section 2.8 of the Credit Agreement
to the extent payments of Loan principal are required to be made in
immediately available funds.
B-1
<PAGE>
4. No Other Changes. Except as specifically modified by this Amendment, the
----------------
Credit Agreement shall remain in full force and effect and no additional
changes, modifications, or amendments shall be inferred that are not
expressly set forth herein.
5. Counterparts. This document may be signed in any number of counterparts with
------------
the same effect as if the signatures thereto and hereto were upon the same
instrument.
6. Governing Law. This document shall be construed in accordance with and
-------------
governed by the laws of the State of Maryland, without reference to the
conflict of laws provisions of such laws.
IN WITNESS WHEREOF, the parties have caused this document to be duly executed
and delivered as of the day and year first above written.
LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC.
By: _____________________________ By: _____________________________
Walter E. Skowronski John J. Millerick
Vice President and Treasurer Sr. Vice President and Chief
Financial Officer
CALCOMP INC.
By: _____________________________
John J. Millerick
Sr. Vice President and Chief
Financial Officer
B-2
<PAGE>
EXHIBIT C
---------
ACKNOWLEDGEMENT OF REPAYMENT OF DEBT
Lockheed Martin Corporation ("LMC") hereby acknowledges receipt of 1,000,000
shares of Series A Cumulative Redeemable Preferred Stock of Calcomp Technology,
Inc. (the "Company") in full satisfaction of Sixty Million Dollars ($60,000,000)
of Loans outstanding on the date hereof under the Amended and Restated Revolving
Credit Agreement, dated as of December 20, 1996, as amended, among LMC, the
Company and CalComp Inc., a California corporation.
July 15, 1998 LOCKHEED MARTIN CORPORATION
By: _____________________________
Walter E. Skowronski
Vice President and Treasurer
C-1
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