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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1997
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 NO. 0-16071
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CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0888312
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
2411 W. LA PALMA AVENUE 92803
ANAHEIM, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714 ) 821-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value as of March 10, 1998, of Common Stock held by
non-affiliates of the Registrant: $24,007,884 based on the last reported sale
price on the National Market System as reported by NASDAQ, Inc.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 10, 1998:
47,073,050
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PART I
ITEM 1. BUSINESS
CalComp Technology, Inc. ("CalComp Technology" or the "Company"), formerly
Summagraphics Corporation ("Summagraphics"), was incorporated under Delaware
law in 1972. The mailing address of the Company's principal executive office
is 2411 W. La Palma Avenue, Anaheim, California 92803. The Company's telephone
number is (714) 821-2000. Except where the context indicates otherwise,
references to an entity include its consolidated subsidiaries.
The Company is a supplier of both input and output computer graphics
peripheral products consisting of (i) printers (including plotters), (ii)
cutters, (iii) digitizers, and (iv) large format scanners. In general, the
Company's products are designed for use in the computer aided design and
manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets,
both domestically and internationally. The Company also maintains service,
product support and technical assistance programs for its customers and sells
software, supplies and after-warranty service.
In recent years, the Company began transitioning its traditional pen,
electrostatic and most thermal technology products to inkjet plotters and
printers. Generally, inkjet technology products provide increased user
productivity compared to traditional pen plotters and solid area fill
capability for applications requiring graphic imaging. By the fourth quarter
of 1997, the Company had substantially completed its strategy to discontinue
its non-inkjet printer and plotter products.
Further, in the fourth quarter of 1997, the Company completed the
development of a new line of wide-format digital printers based on its
proprietary piezo inkjet technology obtained through the acquisition of
Topaz Technologies, Inc. ("Topaz") in 1996. This new line of printers will be
marketed under the "CrystalJet(TM)" name and will be targeted to the graphic
arts industry. The Company began shipping the initial market development and
demonstration units of these printers in the first quarter of 1998. Volume
shipments to customers are scheduled for the second quarter. The Company
believes this new line of wide-format printers will be the first of a new
generation of products based on its new technology.
The Company plans to continue to market CalComp branded printers as well as
CrystalJet(TM) print head technology. In addition, the Company expects to
expand the market for its printers and print heads through the sale of
complete printers or print heads to strategic partners, who will in turn
leverage their existing brand names and distribution channels in various new
markets such as the photographic, industrial packaging and textile printing
markets. The products marketed through the Company's strategic partners,
whether sold under the CalComp name or under private label, will contain the
CrystalJet(TM) technology logo to establish CrystalJet(TM) technology brand
awareness. The Company will also pursue various non-manufacturing licensing
and royalty agreements for the CrystalJet(TM) technology and related inks.
The Company believes this strategy will enable it to use its new
CrystalJet(TM) technology to penetrate sizable new markets beyond graphic arts
and create significant product differentiation opportunities due to print
speeds, ink and media types associated with the new technology. The Company's
strategy is to position itself as a leading-edge image marking company that,
through continued development of proprietary piezo based print heads, ink,
media, and printers, will capture substantial consumable sales in high ink
consumption markets.
In line with the Company's strategy, in December 1997, the Company and IRIS
Graphics, a wholly-owned subsidiary of Scitex Corporation Ltd. ("IRIS
Graphics"), jointly announced an agreement under which the Company will
provide IRIS Graphics with wide-format color printers targeted at the high-end
graphic and fine arts markets, featuring the Company's CrystalJet(TM) inkjet
technology. In addition, in March of 1998, the Company and Eastman Kodak Co.
("Kodak"), entered into a joint development agreement covering the joint
development of a range of CrystalJet(TM) based products, printers and
consumables. See "Recent Developments." The Company anticipates that these
will be the first of several strategic partnerships that it will enter into in
furtherance of its market expansion plans. See "Risk Factors Affecting the
Company."
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BACKGROUND OF THE BUSINESS
CalComp Inc. The principal business of the Company derives from that of
CalComp Inc., formerly California Computer Products, Inc. ("CCP") which was
incorporated in September 1958 to manufacture and market computer graphics
products for the U.S. Government's NIMBUS Weather Satellite Program. In 1959,
CCP introduced the world's first drum plotter, which translated computer
output into visual data such as drawings, charts and graphics. CCP expanded
its product offerings by introducing new plotters and controllers through the
1960's and 1970's. CCP added its first electrostatic plotter to its product
line in 1979. During the 1980's and 1990's, CCP and subsequently CalComp Inc.,
continued to expand its product line through adapting various technologies to
new products, including thermal transfer technology in printers, laser
technology in printers/plotters, LED technology in plotters, bubble inkjet
technology in plotters, and direct thermal technology in printers and
plotters. CCP added the digitizer product line in 1980 through the acquisition
of Talos Systems, Inc.
In 1980, CCP was acquired by Sanders Associates, Inc., a defense electronics
company in Nashua, New Hampshire. At the end of 1983, CCP was merged with and
into Sanders Associates, Inc. and the business was conducted thereafter under
the name of CalComp Group. In 1986, Sanders Associates, Inc. was acquired by
Lockheed Corporation ("Lockheed") at which time CalComp Group became an
operating unit of Lockheed's Information Systems Group. CalComp Inc. was
incorporated in 1987 under California law to acquire the assets and
liabilities of CalComp Group from Sanders Associates, Inc., and to operate as
a separate legal entity and a wholly-owned indirect subsidiary of Lockheed. In
March 1995, the businesses of Lockheed and Martin Marietta Corporation were
combined to form Lockheed Martin Corporation, at which time CalComp Inc.
became a subsidiary of Lockheed Martin in the Information and Technology
Services Sector.
Commencing in 1991 and continuing into 1996, CalComp Inc. experienced
substantial net operating losses principally due to the negative impact on
margins resulting from the migration of the hard copy output device industry
to inkjet technology products and CalComp Inc.'s late entry into the inkjet
market in fiscal 1994. In late 1995, Lockheed Martin Corporation and
Summagraphics Corporation began discussions concerning a proposed combination
of CalComp Inc. and Summagraphics Corporation which resulted in the
combination of the companies on July 23, 1996. See "The Exchange."
Summagraphics Corporation. Summagraphics Corporation manufactured and sold
input and output computer graphics peripheral products, many of which competed
with CalComp Inc. In 1996, Summagraphics encountered significant financial
difficulties primarily due to problems with its output products. Due to
continuing losses and pressure from its lenders and vendors, Summagraphics
pursued various activities to raise additional capital including the sale of
part or all of the Company.
The Exchange. The Company, then Summagraphics Corporation, entered into a
Plan of Reorganization and Agreement for the Exchange of Stock of CalComp Inc.
for Stock of the Company (dated as of March 19, 1996 and subsequently as
amended April 30, 1996 and June 5, 1996) pursuant to which the Company issued
to Lockheed Martin Corporation ("Lockheed Martin" or the "Majority
Shareholder") 40,742,957 shares of the Common Stock of the Company,
representing 89.7% of the total outstanding shares of Common Stock of the
Company following such issuance, in exchange for all of the outstanding
capital stock of CalComp Inc. (the "Exchange"). The closing of the Exchange
occurred on July 23, 1996 following approval of the Exchange by the
stockholders of the Company. As a result of the Exchange, Lockheed Martin
acquired control of the Company and CalComp Inc. became a wholly-owned
subsidiary of the Company. In connection with the Exchange, the Company also
changed its name from Summagraphics Corporation to CalComp Technology, Inc.
and changed its year end from May 31 to a fifty-two, fifty-three week fiscal
year ending on the last Sunday of December.
The Exchange was accounted for as a "reverse acquisition," whereby CalComp
Inc. was deemed to have acquired the Company, for financial reporting
purposes. However, the Company remains the continuing legal entity and
registrant for Securities and Exchange Commission ("SEC") filing purposes.
Consistent with reverse acquisition accounting, the historical financial
statements of the Company presented for the period ended
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December 31, 1995, are the consolidated financial statements of CalComp Inc.,
and differ from the consolidated financial statements of the Company
previously reported. In addition, the historical stockholders' equity as of
December 31, 1995, has been retroactively restated to reflect the equivalent
number of shares issued in connection with the Exchange. The accounts and
results of operations of the Company have been included in the financial
statements for the period ended December 29, 1996, from the date of the
Exchange and reflect purchase price allocations and adjustments recorded as a
result of the Exchange. Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.
Immediately following the Exchange, each of the then directors and executive
officers of the Company resigned and Lockheed Martin, as the owner of a
majority of outstanding shares of the Common Stock of the Company, adopted a
resolution by written consent increasing the size of the Board of Directors
from six to seven members and elected seven new directors. The Board then
appointed officers to fill the vacant offices.
For so long as Lockheed Martin continues to beneficially own more than 50%
of the outstanding voting stock of the Company, Lockheed Martin will be able
to control the Board of Directors and approve any other matter submitted to a
vote of the stockholders without the consent of the other stockholders of the
Company. In addition, in connection with the Exchange, the Company entered
into agreements providing for, among other things, a long term line of credit
and cash advances for long term financing and operating requirements,
administrative support in selected areas and the filing of a consolidated tax
return.
CalComp Technology, Inc. Subsequent to the Exchange, the Company moved its
executive offices from Austin, Texas to Anaheim, California and substantially
completed its business plan to reduce duplicative work force and corporate
overhead between the companies, integrate manufacturing operations and
eliminate certain unprofitable product lines. The Company also substantially
completed efforts to rationalize CalComp Inc.'s and Summagraphics' respective
sales, product support, distribution and marketing organizations, and to
integrate each company's product offering and development activities.
In November 1996, the Company acquired Topaz, a privately held company
located in Sunnyvale, California, in exchange for 1,500,000 shares of the
Company's Common Stock and $750,000 in cash. Subsequent to the acquisition,
Topaz became a wholly-owned subsidiary of CalComp Technology, Inc. Topaz is a
developer and manufacturer of the proprietary piezo inkjet printing technology
which the Company is currently marketing under the "CrystalJet(TM)" name.
RECENT DEVELOPMENTS
On March 29, 1998, the Company and Kodak entered into a Patent License and
Joint Development Agreement (the "Joint Development Agreement") covering a
project (the "Project") for the joint development of the Company's existing
CrystalJet(TM) piezo inkjet technology into a range of piezo inkjet products,
printers and consumables for commercial application. The Joint Development
Agreement has a term of five years and provides for the contribution by Kodak
to the Project of up to $36,000,000, with $20,000,000 having been advanced
upon the signing of the Joint Development Agreement and up to an additional
$16,000,000 to be funded incrementally over the term upon the achievement of
certain milestones and the occurrence of certain events. The Joint Development
Agreement also provides for royalties to be paid by Kodak to the Company in
respect of licenses granted thereunder by the Company to Kodak which allow
Kodak under certain circumstances to exploit the inkjet technology developed
pursuant to the Project. The Joint Development Agreement provides that Kodak
will also provide technical personnel to work on the project, but that except
as otherwise contemplated by the Joint Development Agreement, the Company will
fund all other development and manufacturing expenses relating to the Project.
If, during the term of the Joint Development Agreement, the Company desires to
sell any of the CrystalJet(TM) assets related to the assets acquired by the
Company from Topaz Technologies, Inc. (the "Topaz Assets"), the Company will
be required to offer Kodak a right of first refusal to purchase such Topaz
Assets. The Joint Development Agreement also includes OEM Agreements between
the parties providing for the sale of future developed products by the Company
to Kodak and the mutual purchase of certain inks and related media products
developed in connection with the Project.
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Pursuant to the Joint Development Agreement, the Company issued to Kodak a
warrant (the "Warrant") to purchase 8,000,000 shares (the "Warrant Shares") of
the Company's Common Stock (or approximately 15% of the Company's outstanding
shares after giving effect to the issuance of the Warrant Shares) at an
exercise price of $3.88 per share. The Warrant has a term of seven years and
will become exercisable as to 4,000,000 of the Warrant Shares on March 29,
1999, and as to the remaining 4,000,000 Warrant Shares on March 29, 2000 (each
a "Vesting Date"); provided, however, that in the event the Joint Development
Agreement is terminated prior to a Vesting Date, the Warrant will terminate as
to any unvested Warrant Shares. The Warrant contains standard adjustment
provisions and piggyback registration rights covering the Warrant Shares.
During the 24-month period after the issuance of the Warrant (and so long as
the Joint Development Agreement has not been terminated), upon the issuance by
the Company of additional shares of Common Stock, the number of Warrant Shares
will be proportionately increased so that the number of Warrant Shares will
continue to represent 15% of the issued and outstanding shares of the
Company's Common Stock; provided, however that the exercise price of any
additional Warrant Shares will be the same as the price of the additional
shares of Common Stock issued by the Company. No adjustments will be required
with respect to 1) shares of Common Stock issued to any employee, consultant,
advisor, officer or director of the Company pursuant to a Board-approved plan;
or shares issued in connection with stock dividend or stock split; or 2)
shares issued in connection with certain merger, exchange, or acquisition of
assets transactions. The Warrant also provides Kodak with a right of first
refusal with respect to proposed issuances of the Company's capital stock
during the 24-month period after the date of issuance of the Warrant.
In connection with the Joint Development Agreement, Lockheed Martin
Corporation, the Company's majority stockholder, has agreed, among other
things, to vote its shares for the election of a Kodak-designated director to
the Company's Board of Directors during the term of the Joint Development
Agreement.
PRODUCTS
Through 1997, the Company continued to distribute graphics peripheral
products targeted at CAD/CAM printing and publishing and graphic arts markets.
The Company's products fall into two general product lines: (1) hard copy
output products, consisting primarily of printers and plotters, and graphics
cutters; and (2) input devices, consisting of digitizers and scanners. The
Company also sells after-warranty service and supplies which support its
product lines.
HARD-COPY OUTPUT DEVICES
The Company historically has produced and sold a wide variety of hard-copy
output devices of which the two principal classes of products are printers
(including plotters) and vinyl-cutting plotters ("cutters"). Printers are
devices that place raster images (oriented dots) on various types of output
media (either paper or film) producing text, pictures and/or graphic images.
Plotters are devices that translate computer output data into hard-copy media,
such as schematics, charts, maps, and computer-aided design ("CAD") drawings,
pictures, and other images. The basic unit consists of a microprocessor, a
controller, and a marking mechanism. These output devices are often
interchangeable, with the difference between plotters and printers often being
the firmware-based connectivity solutions. A cutter performs a function
similar to a plotter, but rather than drawing an image onto a sheet of paper,
it accurately cuts on various media (such as vinyl) along a programmed image
employing the same technique as a plotter, except using a knife instead of a
pen.
Printers and Plotters
CrystalJet(TM). In the fourth quarter, the Company completed the development
of the first products in a new line of wide-format piezo inkjet digital
printers, which are expected to be brought to market in the first half of
1998. These CrystalJet(TM) printers will be offered initially in 42" and 54"
sizes and will be marketed primarily to the graphic arts industry. The key
market applications benefiting from this new technology are ones requiring
fast throughput of digital printed images at the highest level of print
resolution and quality. The Company believes that this emerging market for
"on-demand" digital color printing will replace many of the current
traditional printing technologies. The Company expects that the new technology
and products will have key strengths against the current field of competition
participating in these markets.
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The CrystalJet(TM) wide-format printers contain four print heads, one for
each of the four process colors. The print heads can be adjusted to two
different heights above the media: 1.0 mm or 2.5 mm, which allows for a range
of media options. Each print head, which contains 256 nozzles, is spaced at
1/180th-inch intervals yielding a print swath of 1.4 inches per color. This
unique feature gives the user the ability to control the resolution and print
speed. Users can select, on a job by job basis, 180, 360, or 720 dots per inch
("dpi"); 2, 4 or 8 interleaved passes; bi-directional or unidirectional
printing; and pixel drop size. The CrystalJet(TM) printers can print a 360 dpi
resolution image at 120 square feet per hour and a 720 dpi resolution image at
70 square feet per hour. These printing speeds are believed to be three to
four times faster than traditional thermal inkjet printers. In addition, the
technology supports different droplet sizes providing users the capability of
printing high quality images at various resolutions for numerous market
applications not currently available with competing thermal or piezo
technology. For a further discussion of the risks relating to the Company's
transition to the CrystalJet(TM) product lines, see "Risk Factors Affecting
the Company."
Historical Output Products. Printers and plotters represented 24%, 28% and
35% of total revenue of the Company for fiscal years 1997, 1996 and 1995,
respectively. In connection with the Company's plan to transition
substantially all of its output products to its new CrystalJet(TM) technology,
the Company has announced it will end-of-life substantially all of its non-
CrystalJet(TM) based thermal inkjet output products. However, the Company will
continue to offer these products into fiscal 1998 as it liquidates its
existing inventories.
Cutters
The Company's cutter business which was acquired from Summagraphics in
connection with the Exchange represented 7% of revenues in 1997. Cutters
represented 23% and 16% of the revenues of Summagraphics prior to the Exchange
for the fiscal years ended May 1996 and 1995, respectively. Cutters are output
devices, similar in construction to a pen plotter, but employ a knife in place
of a pen to cut vinyl for signs and banners, art film for screen printing, and
various stencil materials for etching text and images into glass, wood and
stone via an abrasive etching process. Cutter performance is primarily
measured by speed, acceleration, and guaranteed accuracy. Additional features
include knife type, tool pressure and software compatibility. Speed is
measured by how many inches the knife moves per second. Acceleration is
measured by how quickly the knife reaches its top speed and, therefore, is
important since most signs consist of short lines. Guaranteed accuracy depends
on the drive mechanism, either friction or sprocket, in the cutter. There are
currently two types of knife systems used to cut material: drag and
tangential. Drag knife units typically cost less, have less knife pressure
capability, and are used for general sign applications. Tangential knife units
are typically more expensive, with more knife pressure, greater precision
cutting abilities and the ability to cut a wider variety of material.
The Company's cutter products include:
SummaSign Series. Combines high performance cutting with an advanced
media handling system offering both sprocket and friction drive, and is
capable of handling plain media, as well as half-inch industry standard
punched media.
SummaCut Series. A family of cutters designed for small, independent sign
shops that produce a limited quantity of vinyl signs.
The Company believes that the Summagraphics cutter products will continue to
complement the existing CalComp Inc. product offerings by giving the Company a
proven output device in its established marketing and distribution channels.
INPUT DEVICES
Digitizers
Digitizers accounted for 25%, 22% and 17% of the revenues of the Company for
fiscal years 1997, 1996 and 1995, respectively. Fiscal 1997 and part of fiscal
1996 included sales of Summagraphics products subsequent to the Exchange. Uses
for digitizers include desktop publishing, image processing, simple mouse
replacement
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and pen-based computing. The Company's primary markets for digitizers are in
computer-aided design, engineering and manufacturing (CAD/CAE/CAM).
Digitizers typically are used with personal computers and workstations and
support a broad range of software applications which include high-end computer
aided publishing, construction management and costing, graphics design and
animation, mapping and geographic information systems (GIS) and
geological/seismic analysis. They also are used frequently with software
systems such as AutoCAD. Newspaper publishers, for example, use the Company's
digitizers as part of their complete computer-aided publishing systems for
publication layout. Animation and graphics design uses for digitizers vary
widely and include use in cinema productions, colorization of black and white
movies and television weather and sports analysis. The cost of digitizers has
come down significantly over the past few years, making them a viable mouse
replacement.
Digitizers offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, and touchpanels in graphics intensive
applications, due to their high level of precision, greater functionality and
increased productivity. Keyboards are primarily used to input text and
numerical information and are not well suited for graphics applications. Mice
are low accuracy, relative pointing devices commonly used with icon-based
operating systems and low-resolution graphics applications. By contrast,
digitizers are capable of inputting X-Y coordinate data to communicate an
absolute position to within several thousandths of an inch. Absolute
positioning allows accurate drawing and selection of discrete points on the
surface of the digitizing tablet. The latter is critical to high accuracy
tasks such as digitizing a map or an existing CAD drawing.
The Company's digitizer products are primarily based on electromagnetic
technology, whereby a cursor or a grid generates an electromagnetic field
which is sensed by built-in electronic circuitry. This technical approach
results in digitizers capable of higher resolution than other commonly-used
technologies. Electromagnetic tablets offer the additional advantage of being
relatively unaffected by temperature, humidity, electrical noise and the
presence of conductive materials on the digitizing surface.
Traditionally, customers using CAD applications, mapping applications and
GIS applications have perceived the need for the high precision input offered
by digitizers. Recent software releases in the CAD industry, whereby mouse
input devices are interchangeable with digitizer tablets for CAD applications,
have significantly reduced the customer need for digitizer products. This
trend is expected to continue. Graphic arts applications have in the past
favored mouse input devices. Customers in the graphic arts market have
recently begun broader use of digitizers, which use is expected to continue to
expand. Failure of the Company to replace or renew demand for CAD digitizer
products could have an adverse impact on the Company's input device business.
The Company's digitizer products include:
DrawingBoard(TM) Digitizer Tablets. A family of high performance, low cost
digitizer tablets which are designed for CAD, mapping, and GIS
applications, and can be used in drawing, tracing, and presentation
graphics applications. These digitizers come in a range of sizes and
accuracies. The Company also produces a backlit version of this tablet.
UltraSlate(TM) Digitizer Tablets. A family of small format digitizers which
are thin and lightweight and have a pressure sensitive, cordless,
batteryless pen for variable line weight input. These tablets are directed
toward the graphic arts markets.
SummaSketch(TM) III Digitizer Tablets. A family of digitizers which offer
accuracy, reliability and ease of use. This product is primarily used in
the CAD market for drawing and tracing.
SummaGrid(TM) IV Digitizing Tablets. A set of high performance large format
tablets that support CAD, GIS and mapping applications.
Scanners
Scanners are input devices which detect images on input media and translate
the images into raster data for a computer. The Company markets a family of
large format scanners, the ScanPlus(TM) III large format scanners
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that are capable of fast, high volume scanning. These units, which can scan
documents up to 36" wide, come in resolutions from 300 to 1000 dpi. The large
format monochrome/color scanner addresses the needs of users who have to
transfer hard copy drawings into a digital form. Applications for large format
scanning include architectural engineering and construction (AEC), document
management, mapping/GIS, and facilities management. Traditionally, converting
to a digital form has been accomplished by either totally recreating the
original drawing, utilizing a computer aided drafting package within the
computer, or digitizing the original drawing using a large format digitizer.
SUPPLIES
The Company markets an extensive line of consumable inks and media for its
printers and plotters. Supplies represented 25%, 26% and 26% of the revenues
of the Company for fiscal years 1997, 1996 and 1995, respectively.
Summagraphics had no supplies sales before the Exchange.
In connection with the release of the new CrystalJet(TM) products, the
Company intends to introduce a full line of ink and media supplies. The
Company plans to market inks, under the name "CrystalInk", which will contain
a complete set of both indoor dye-based ink and outdoor pigment-based ink. In
addition, the Company intends to offer a full line of media products including
opaque matte bond, premium bond, graphics presentation, glossy, adhesive-
backed vinyl, canvas, and overlaminate material. The CrystalJet(TM) ink and
media will be matched to provide the best possible image quality for
CrystalJet(TM) products and will be specially formulated to fast dry,
accommodating CrystalJet(TM) high speed printing. This matched ink and media
system provides customers with one source for their printing needs.
The Company's strategy for its new line of CrystalJet(TM) products is to
establish a CrystalJet(TM) based-consumables business. The Company believes
that the CrystalJet(TM) consumables business should replace and, as the
installed base grows, exceed the Company's existing non-CrystalJet(TM)
consumables business. The demands of the marketplace are extreme and require
not only the ability to print fast with high resolution, but also require inks
and substrates that can accommodate a full spectrum of color with outdoor
durability. See "Risk Factors Affecting the Company--CrystalJet Technology".
SERVICE AND SUPPORT
The Company, through its North American Channels group, its international
subsidiaries and selected third party providers, provides an extensive range
of customer service and technical support for the Company's products. Service
revenues accounted for 17%, 18% and 20% of the Company's revenues in 1997,
1996 and 1995, respectively. Technical support and customer service are
provided through a twelve hour, five day telephone response network that
provides customers with continuous access to trained technical support
personnel. In addition, the Company provides product support and service
through repair, exchange or replacement of products. The Company also
maintains a staff of service technicians that are available for on-site
service calls. During the past three years, the Company had entered certain
agreements under which third parties provided service and technical support
for the Company's traditional printer/plotter products. However, in view of
the increased complexity of the Company's inkjet printer products, together
with the need for increased emphasis on providing better response times to
calls for service, the Company has moved away from using third parties in
favor of its in-house service staff where feasible.
RESEARCH AND DEVELOPMENT
During each of the years 1997, 1996 and 1995, the Company expended funds for
research and development activities of $23.3 million, $20.7 million and $17.3
million, respectively. The Company intends to continue to invest funds to
develop technologies, such as the CrystalJet(TM) inkjet technology, that are
expected to expand its product offerings. A significant portion of research
and development funds in the output device market involve expanding inkjet
technology and related platforms, with an emphasis on improving the Company's
position in the area of image marking technology. For a discussion of the
Company's research and development project with Kodak, see "Recent
Developments." Additional funds are expected to be utilized to develop
proprietary after-
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market products such as inks and media. Research and development funds in the
digitizer and cutter markets, where the Company has proprietary core
technology, are expected to be devoted to developing new products and
improving product performance while maintaining competitive pricing.
PATENTS AND PROPRIETARY INFORMATION
The Company owns numerous patents and patent applications, including
domestic and foreign applications covering the CrystalJet(TM) technology,
which are used in the operation of the Company's business and has developed a
variety of proprietary information that is necessary for its business. While
such patents, patent applications and other proprietary information are, in
the aggregate, important to the operation of the Company's business,
management of the Company does not believe that any individual patent, patent
application or other intellectual property right is of such significance to
the business of the Company that its loss or termination would materially
affect the business of the Company.
SALES AND DISTRIBUTION
The Company sells hardware, supplies and service through a variety of
distribution channels. Domestically, in 1997, the Company continued the
ChannelWorks two-tiered distribution network introduced two years earlier.
Through ChannelWorks, the number of domestic distributors was limited to those
with broad market penetration capabilities and high efficiencies in their
operations and logistics. Under ChannelWorks, products are generally sold
through a limited number of distributors to value-added resellers serving the
market applications targeted by the Company's products.
Internationally, sales and distribution activities are determined by
international sales management in coordination with in-country distributors
and resellers to insure that sales and distribution efforts are appropriate
for the country's market. In countries where the Company does not have a sales
presence, orders are handled either by a local distributor or under a master
distributor who is managed by the Company. See Note 12 of the "Notes to
Consolidated Financial Statements."
In 1998, the Company is modifying its distribution strategy for output
products to sell its branded products through value-added resellers. The
Company believes it can achieve an overall higher level of customer
satisfaction with this approach. In addition, the Company intends to sell the
new CrystalJet(TM) technology products to various strategic partners, such as
IRIS Graphics and Kodak, who, in turn, will distribute such products under
their private label. The Company believes this strategy will enable the
Company to penetrate new markets and better service customer needs. See "Risk
Factors Affecting the Company."
COMPETITION
General. The Company encounters extensive competition in all of its lines of
business with numerous other parties, depending on the particular product or
market environment. The Company's business involves rapidly changing
technologies resulting in continued performance improvements at lower customer
prices. The Company competes not only with other manufacturers of similar
technologies, but also with firms that make products that may be substituted
or exchanged for the Company's products. The parties with whom the Company
competes differ depending on whether the product at issue is in the hard-copy
plotter, printer and cutter market, or the digital input technology market.
Many of the Company's competitors have larger technical staffs, larger
marketing and sales organizations and significantly greater financial
resources than the Company. The Company also faces additional competition from
many smaller competitors. There can be no assurance that the products of
existing or new competitors will not obtain greater market acceptance than the
Company's products.
Wide-Format Hard Copy Output Market. The wide-format hard copy output market
is comprised of professional printing products having media handling
capability of greater than 17" print width. The Company has historically
competed in this market with the following four technologies: pen plotter,
inkjet plotters and printers, direct thermal plotters and LED plotters. The
parties with whom the Company competes vary depending on the nature of the
technology and markets involved. The Company competes with a wide variety of
competitors
9
<PAGE>
in product performance, features and price in connection with the sale of its
hard-copy output products. Traditional competitors in the wide-format hard
copy market are: Hewlett Packard, Xerox, Encad, JDL, Oce, JRL and Mutoh.
CrystalJet(TM) Products. In the fourth quarter of 1997, the Company
announced its new line of wide-format digital printers featuring
CrystalJet(TM) technology. The key market applications benefiting from this
new technology are ones requiring fast throughput of digital printed images at
the highest level of print resolution and quality. The Company anticipates
that an emerging market for "on-demand" digital color printing will replace
many of the current traditional printing technologies. The Company believes
that the CrystalJet(TM) technology and products have a technical and
competitive advantage over the current field of competitive products
participating in these markets. Nevertheless, the traditional competitors in
the wide-format hard copy market such as the companies listed in the prior
paragraph are expected to compete on price, in an attempt to hold market
share. It is also expected that current and new competitors with piezo
technology capability, such as Brother, Epson, Xerox, Raster Graphics, Brady
and Mimaki, may compete in these high productivity market segments. There is
no assurance that new products of existing or new competitors will not obtain
greater market acceptance than the Company's new products.
Cutters. The flexible adhesive cutter market is a worldwide market with many
competitors. Gerber Scientific and Roland claim the largest overall market
share, while the Company is the major cutter company in Europe. The rest of
the market is divided among a dozen or so companies, including the Company,
Ioline, Graphtec and Mutoh.
Input Devices. There are many suppliers of input devices with which the
Company competes. A myriad of other signal-sensing devices are all capable of
direct computer input and, to some extent, are interchangeable with other
input devices. Various features distinguish the competitive products in this
market. The input device selected by a customer will vary based upon intended
application, price and performance.
Major vendors in the worldwide digitizer market include the Company, along
with Wacom, Seiko and Hitachi. In addition, there are many smaller companies
such as ACECAD, Mutoh, GTCO and Graphtec. The Company is one of the largest
providers of both small and large format digitizers. Wacom is the largest
worldwide provider of small format tablets for the graphic arts market, while
the Company is the largest supplier in the CAD market. Major providers in the
scanner market are Vidar, Ideal, Contex and Oce.
Market position is usually dictated by advertising, pricing and channel
awareness rather than product differentiators.
There can be no assurance that products of existing or new competitors will
not obtain greater market acceptance than the Company's products or that the
Company will be able to maintain its market share in the hard copy output,
graphic cutter or input devices markets.
RISK FACTORS AFFECTING THE COMPANY
CrystalJet(TM) Technology
In the fourth quarter of 1997, the Company completed the development of what
is expected to be the first of a new generation of products based on its new
CrystalJet(TM) piezo proprietary technology. The first of these piezo based
products will be a new line of wide format digital printers which are expected
to be brought to market in the first half of 1998. However, there can be no
assurance that this product, or future products, will be accepted by the
market place or that the Company will be able to manufacture these units in
volume at costs which will make the large scale production of these products
economically feasible.
In conjunction with the introduction of the Company's new CrystalJet(TM)
piezo inkjet technology, the Company intends to transition out of
substantially all of its current thermal inkjet printer products by the end of
1998. Although the Company has recorded substantial reserves to reduce this
end-of-life inventory to its estimated net realizable value, there can be no
assurance that the Company will be able to liquidate this inventory at its
current carrying value.
10
<PAGE>
The Company's sales related to the end-of-life printer product lines
represented 24%, 28% and 35% of the total revenues of the Company for fiscal
1997, 1996 and 1995, respectively. By the end of 1998, the Company's inkjet
output product offerings will be limited to the new CrystalJet(TM) line of
wide-format digital color printers. Failure to achieve market acceptance for
these new products or the inability to timely achieve required production
volumes at acceptable costs, could have a material adverse impact on the
Company's business.
Additionally, the Company's strategy for its new line of CrystalJet(TM)
products is to establish a CrystalJet(TM) based-consumables business. The
Company believes that the CrystalJet(TM) consumables business should replace
and, as the installed base grows, exceed the Company's existing non-
CrystalJet(TM) consumables business. There can be no assurance that the
Company's will achieve this strategic goal.
CrystalJet(TM) Technology and Manufacturing Risks
The Company's CrystalJet(TM) manufacturing processes are highly complex,
require the use of expensive and technically sophisticated equipment and will
be continuously subject to modification in an effort to improve manufacturing
yields and product quality. Technical or other difficulties in the
manufacturing process can lower such manufacturing yields and result in
products being less profitable than anticipated. Manufacturing difficulties
and capacity limitations could also delay the Company's ability to deliver
products in a timely manner. Delays or technical difficulties associated with
new CrystalJet(TM) product introductions or product enhancements could have a
material adverse effect on the Company's business.
In addition to the technical and manufacturing risks inherent in the
Company's new technology, the Company's believes that any significant business
interruption affecting the Company's single CrystalJet(TM) manufacturing
facility in Sunnyvale, California could materially and adversely affect
CrystalJet(TM) product yields.
Strategic Partnership Agreements
The Company's CrystalJet(TM) strategy also is dependent on its ability to
sign strategic partnership agreements with other companies, enabling it to
leverage their established brand names and distribution channels. The Company
has recently signed an agreement with IRIS Graphics to provide them with wide-
format color printers, has entered into the Joint Development Agreement with
Kodak, and has also had discussions with several other companies regarding
strategic partnerships. The Company believes the strength of the
CrystalJet(TM) technology will enable it to complete additional strategic
agreements. However, there can be no assurance that the Company will be able
to conclude such agreements.
Contract Manufacturers
The Company is dependent on various contract manufacturers to produce or
assemble certain critical sub assemblies or products. There can be no
assurance that the Company will be able to continue these third party
relationships or that the contract manufacturers will continue to perform
under their current contractual agreements. Any material interruption in these
relationships could have a significant impact on the Company's ability to
deliver products to customers, and therefore could have a material adverse
impact on the Company's operations.
Product Development
The markets in which the Company's products compete are subject to rapid
technological development. This rapid technological change results in the need
to continually develop and bring to market new products to compete with
competitive product offerings. The Company intends to continue investing in
the development of new products and technology to enable it to aggressively
compete within its various market segments; however, the availability of
research and development funds is dependent on the Company's ability to
internally fund its development and/or obtain continued external financing
with respect to which no assurance can be given.
11
<PAGE>
Suppliers
The Company contracts with various outside vendors to obtain both component
parts for its manufacturing process and for the acquisition of ink and media
for its supplies business. Although the Company believes alternative vendors
are available, any disruption in the relationship with these vendors could
have an adverse impact on the Company's operations. In addition, any
significant change in component price or delay in component availability could
also negatively impact the Company's operations.
Liquidity
The Company's main sources of financing have been a $75 million line of
credit with the Majority Shareholder under the Revolving Credit and Cash
Management Agreements ("Credit Agreements") and the cash proceeds from the
sale of the Company's headquarters facility. At December 28, 1997, the Company
had drawn $59.5 million against that line which was scheduled to mature in
July 1998. The Company was also in violation of certain financial ratio
covenants under the Credit Agreements. In January 1998, the Majority
Shareholder waived compliance with those covenants, and in March 1998, the
Credit Agreements were amended to extend the maturity date 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
Credit Agreements upon 120 days prior written notice, and to remove the
security interest of the Majority Shareholder in the assets of the Company.
After determining that remaining amounts available under the line were not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March, 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000. In addition, in March, 1998, the Company entered into the Joint
Development Agreement with Kodak that provided $20 million in cash upon
signing of the agreement and an additional $16 million in cash over the term
to be funded incrementally upon the achievement of certain milestones and the
occurrence of certain events. Management believes these financial resources
will be sufficient to satisfy the Company's liquidity requirements through
1998. If not, the Company will be required to seek additional financing from
others or pursue other financing alternatives. No assurance can be given that,
if required, additional financing will be available on acceptable terms or at
all. Failure to obtain future financing or to have available continued access
to such financing could result in material liquidity problems for the Company.
For additional discussion of liquidity see "Item 7. Management's Discussion
and Analysis Of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Foreign Market Risk
Approximately 47%, 51%, and 53% of the Company's revenues in 1997, 1996 and
1995, respectively, were made internationally. International sales involve
risks that are not necessarily applicable to domestic activities, such as
exposure to currency fluctuations, offset obligations and changes in foreign
economic and political environments. In addition, international transactions
often involve increased financial and legal risks arising from widely
different legal systems and customs. For additional information regarding the
Company's revenue, operating profits and identifiable assets attributable to
the Company's domestic and foreign operations, see Note 12 of the "Notes to
Consolidated Financial Statements."
ORGANIZATION
The Company's business organization consists of two business units, the
Input Technologies Division located in Scottsdale, Arizona which manufactures
and/or distributes digitizers and scanners and the Digital Printing Systems
Division located in Anaheim and Sunnyvale, California and Gistel, Belgium
which manufactures and sells output products consisting of printers and
cutters. Sales and service are organized geographically for both divisions,
while the following functions are included within each division:
Product Management is responsible for defining product requirements and
remains responsible for the product through development, manufacturing and
sales, to provide continuity to the Company's market commitment.
12
<PAGE>
Product Development is charged with the design of an economically
manufacturable product which meets the specifications originated by Product
Management. Topaz is the development center for printers and printing
technology for the Digital Printing Systems Division.
Manufacturing performs all of the manufacturing operations, including the
purchasing of materials, manufacturing, testing, packaging and shipping of
products. Manufacturing consists of a blend of internal and outsourced
capabilities.
Marketing and Sales is responsible for the selection, management and support
of distribution channels. Additionally, the North America Sales organization
manages sales in territories where the Company has no operating subsidiaries
or distributors through Budde International, Inc., a Master Distributor
located in Anaheim, California.
The Company's European operations are headquartered in Neuss, Germany. The
Company's activities in the Asia/Pacific region are conducted through
subsidiaries in Hong Kong, China and Australia. The Company is a party to a
joint venture in Japan in which it has a 44% equity interest. Nippon Steel
Corporation owns 51% and Sumitomo Corporation owns 5%. The joint venture, NS
CalComp Corp., is the exclusive distributor for nearly all of the Company's
products in Japan. See Note 6 of the "Notes to Consolidated Financial
Statements."
EMPLOYEES
As of December 28, 1997, the Company employed approximately 885 people
worldwide, of which 146 employees are involved in product development,
manufacturing, marketing and headquarters operations in Anaheim, California.
Approximately 191 employees are employed in the sales and service of the
Company's products and are located at various strategic sites throughout North
America, with many located in Anaheim, California. The Company employs
approximately 137 people in support of its digitizer operations in Scottsdale,
Arizona, and 133 people in support of inkjet products in Sunnyvale,
California. In addition, there are approximately 252 employees in Europe and
26 employees in Asian operations, primarily involved with the importation,
sales and service of the Company's products into their local geographic
regions.
ITEM 2. PROPERTIES
The Company owns its Input Technologies Division facility in Scottsdale,
Arizona which is comprised of a 68,000 square foot building on seven acres of
land, and its cutter facility in Gistel, Belgium which is comprised of a
43,180 square foot building.
During the fourth quarter of 1996, the Company decided to sell its 27.9 acre
headquarter facility in Anaheim, California and wrote the facility down to its
then current appraised value, less costs to sell, of $15,119,000 resulting in
a loss of $10,908,000. 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 $21,500,000, less associated costs to sell. The
headquarters sale resulted in a gain on disposal of $5,873,000. Proceeds from
the sale of the property were used to reduce outstanding borrowings under a
line of credit the Company has with the Majority Shareholder. The Company has
leased back approximately 138,500 square feet of space, or two of the ten
buildings located on the property. The Company has 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.
The Company also leases space at several field locations in the United
States. These leased facilities are located in Sunnyvale, California; Livonia,
Michigan; Bensalem, Pennsylvania; New Braunfels, Texas; Houston, Texas; and
Macedonia, Ohio totaling approximately 51,532 square feet. The Company's
Canadian subsidiary leases 13,815 square feet of space in Richmond Hill,
Ontario. The Company leases 37,986 square feet of space in Europe, at
locations in Vienna, Austria; Neuss, Germany; Bologna, Spain; Milan, Italy;
Twyford, Berkshire, England; Paris, France; Madrid, Spain; Sollentuna, Sweden;
and Amstelveen, Netherlands. Asian operations
13
<PAGE>
occupy 10,340 square feet of space collectively in Sydney and Melbourne,
Australia; Quarry Bay, Hong Kong; and Beijing, China.
Prior to the move of the Company's corporate headquarters to Anaheim,
California as a result of the Exchange, the Company's executive offices were
located in a leased building in Austin, Texas having a total of 96,400 square
feet of space. The Company is currently negotiating to terminate the lease on
this vacant facility. The Company is also currently renegotiating certain
European facility leases to reduce or eliminate excess space currently
occupied by the Company's European subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
A complaint was filed on January 25, 1997, by Raster Graphics, Inc. ("Raster
Graphics"), against Topaz, the former shareholders of Topaz, Andreas Bibl,
Deane Gardner and John Higginson (the former "Shareholders"), and the Company
in California Superior Court in Santa Clara County. The complaint alleged,
among other things, misappropriation of trade secrets, breach of fiduciary
duty, unfair competition, breach of contract and conversion arising from the
employment by Raster Graphics of the former Topaz Shareholders who founded
Raster Graphics in 1987 where they participated in the development of certain
inkjet technology. On April 18, 1997, Raster Graphics filed an amended
complaint, dismissing its claims against the Company and amending the
complaint to focus on technology relating to a test fixture that had been
developed at Raster Graphics. The complaint seeks unspecified compensatory
damages, punitive damages, costs and injunctive relief. The Company continues
to believe that the inkjet printing technology developed by Topaz is
proprietary to the Company and is not based on Raster Graphics technology, and
that this lawsuit is without merit.
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the
Company, in the U.S. District Court for the Central District of California.
The complaint alleged among other things, that CalComp Inc.'s sale of
ULTRASLATE digitizer tablets infringes U.S. Patents Nos. 4,878,553 (now
Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes
Wacom's common law trademark ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of the first two of 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.
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 business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock currently is traded on the NASDAQ National Market
System under the symbol "CLCP." The following table sets forth the high and
low closing bid prices of the Common Stock for the periods, since the
consummation of the Exchange, as reported by the NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year Ended December 28, 1997:
Fourth Quarter............................................... 6 1/16 3 1/2
Third Quarter................................................ 5 1/2 1 7/8
Second Quarter............................................... 2 7/8 1 3/8
First quarter................................................ 2 3/4 2 3/16
Year Ended December 29, 1996:
Fourth Quarter............................................... 3 2
Third Quarter................................................ 3 3/16 1 5/8
</TABLE>
As of March 10, 1998, there were 311 record holders of the Company's Common
Stock (which shares are believed to be beneficially owned by approximately
1,892 persons).
The Company has never paid any dividends with respect to its Common Stock.
Any future payment of dividends will be at the discretion of the Board of
Directors and will depend on the financial condition and capital requirements
of the Company, as well as other factors that the Board of Directors deems
relevant. It is currently anticipated that the Company will retain future
earnings, if any, to finance the operation and growth of its business. As long
as Lockheed Martin continues to own 50 percent or more of the Common Stock, it
will be able to elect the entire Board of Directors of the Company and,
therefore, will be able to control all decisions with respect to its dividend
policy.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected statement of operations and balance sheet data for each of the
five years in the periods set forth below are derived from CalComp Technology,
Inc.'s audited consolidated financial statements. The comparability of the
selected financial data presented is significantly affected by the Exchange
and the items discussed in the footnotes below. This selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of CalComp Technology, Inc. and related notes thereto included
elsewhere herein. The following data is presented in thousands, except for per
share data:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 25, DECEMBER 26,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $200,158 $235,916 $281,655 $294,548 $300,151
Loss from operations.... (69,691)(3) (59,580)(2) (9,088) (23,464) (48,622)
Net loss................ (75,188) (56,604) (10,718) (23,226) (46,639)
Weighted average shares
used in computing per
share amounts.......... 46,951 42,946 40,743 40,743 40,743
Basic and diluted loss
per share(1)........... $ (1.60) $ (1.32) $ (0.26) $ (0.57) $ (1.14)
BALANCE SHEET DATA:
Total assets............ $209,457 $276,085 $231,564 $228,312 $257,746
Long-term liabilities... 67,896 33,909 8,720 8,548 4,967
</TABLE>
- --------
(1) Loss per share amounts for all years prior to 1997 have been restated, as
required, to conform with the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The adoption of
Statement No. 128 resulted in no changes in per share amounts previously
reported.
(2) Loss from operations includes charges of $10,090,000, related to the
restructuring of the Company's operations and $10,908,000 related to the
loss on the sale of the Company's headquarters facility. (See Note 2 of
the "Notes to Consolidated Financial Statements").
(3) Loss from operations includes net charges of $3,788,000 related to
additional restructuring of the Company's operations and $10,800,000 to
reduce certain end-of-life product inventory to its estimated net
realizable value. In addition, loss from operations includes a $5,873,000
realized gain on the sale of the Company's headquarters facility. (See
Note 2 of the "Notes to Consolidated Financial Statements").
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Report on Form 10-K contains statements which, to the extent that they
are not recitations of historical facts, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward looking statements involve risks and uncertainties. The
forward looking statements in this Report on Form 10-K have been made subject
to the safe harbor protections provided by Sections 27A and 21E.
The following table sets forth, for the Company's fiscal years ended
December 28, 1997, December 29, 1996, and December 31, 1995, items in the
consolidated statements of operations of the Company as percentages of total
revenue. The table and the subsequent discussion should be read in conjunction
with the consolidated financial statements and related notes thereto of
CalComp Technology included elsewhere herein. For more detailed information
concerning the Company after consummation of the Exchange, see Item 1.
Business and Note 2 of "Notes to the Consolidated Financial Statements".
PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Hardware and supplies.................. 74% 68% 67%
Service................................ 17 18 20
Sales to affiliates.................... 9 14 13
--- --- ---
Total revenue........................ 100 100 100
Cost of revenue:
Hardware and supplies.................. 93 76 72
Service................................ 89 82 72
Sales to affiliates.................... 80 70 73
--- --- ---
Total cost of revenue................ 91 76 72
--- --- ---
Gross profit:
Hardware and supplies.................. 7 24 28
Service................................ 11 18 28
Sales to affiliates.................... 20 30 27
--- --- ---
Total gross profit................... 9 24 28
Operating expenses:
Research and development............... 12 9 6
Selling, general and administrative.... 32 30 22
Corporate expenses from Majority
Shareholder........................... 1 1 3
(Gain) loss on disposal of facilities.. (3) 5 --
Restructuring charge................... 2 4 --
--- --- ---
Total operating expenses............. 44 49 31
--- --- ---
Loss from operations.................... (35) (25) (3)
--- --- ---
Interest expense........................ 2 1 0
Other expense (income), net............. 1 (1) 0
--- --- ---
Loss before income taxes................ (38) (25) (3)
Provision for (benefit of) income taxes. -- (1) 1
--- --- ---
Net loss................................ (38)% (24)% (4)%
=== === ===
</TABLE>
GENERAL
The Company's products and services compete in several markets including
CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing.
The Company's ability to successfully market its products requires adapting
new technologies, such as the CrystalJet(TM) technology, and leveraging the
channels of
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<PAGE>
distribution in order to remain competitive. The Company encounters extensive
competition in all of its lines of business with numerous other parties,
depending on the particular product or market environment. The Company's
business involves rapidly changing technologies resulting in continued
performance improvements at lower customer prices. The companies that
participate in the industry are highly competitive. Reduced unit selling
prices and shortened product life cycles are expected to continue to place
pressure on 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. See Item 1. "Business--
Risk Factors Affecting the Company".
On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp
Inc., a wholly-owned subsidiary of Lockheed Martin Corporation ("Lockheed
Martin" or the "Majority Shareholder"), effected a plan of reorganization for
the exchange of CalComp Inc. stock for Summagraphics stock, after which
Summagraphics changed its name to CalComp Technology, Inc. ("Company") (the
"Exchange"). The newly reorganized Company adopted a fiscal year ending on the
last Sunday of December. For accounting purposes, CalComp Inc. was treated as
the acquiring company. Therefore, the historical financial statements are
those of CalComp Inc. with the accounts and results of Summagraphics included
from the date of the Exchange (See Note 2 of Notes to the Consolidated
Financial Statements). During fiscal 1997, the purchase price allocation for
the Exchange was adjusted to reflect the differences between the current and
preliminary estimate of costs incurred to terminate facility leases and actual
costs incurred related to various acquisition related liabilities. These
purchase price allocation revisions resulted in an adjustment to increase
goodwill by $3.6 million.
In 1997, the Company introduced its new CrystalJet(TM) product line and
initiated a transition plan to eliminate certain existing output product lines
and accelerate the Company's end-of-life process for those products that will
be discontinued. As a result, in the third and fourth quarters of 1997, the
Company recorded credit memos of $5.2 million against revenue and inventory
reserves of $12.4 million to cost of sales aggregating $17.6 million,
primarily to reduce accounts receivable and certain end-of-life inventories to
their estimated net realizable values, respectively. Although the Company has
recorded these additional reserves to reflect their estimated net realizable
values, there can be no assurance that the Company will be able to liquidate
this inventory and collect these receivables at their current carrying values.
In addition, as the Company's sales related to these end-of-life product lines
represented 24%, 28%, and 35% of the revenues of the Company for fiscal 1997,
1996 and 1995, respectively, the Company's diversity of inkjet product
offerings, by the end of 1998, will be limited to the new CrystalJet(TM) line
of wide-format digital printers until subsequent CrystalJet(TM) 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. See Item 1
"Business--Risk Factors Affecting the Company".
In addition, the Company's strategy for its new products focuses on
capturing consumable sales through establishing a strong installed base of
CrystalJet(TM) 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.
RESULTS OF OPERATIONS
Comparison of 1997 to 1996
Revenues. Revenues for 1997 declined $35.8 million, or 15%, to $200.2
million from the previous year, with hardware and supplies and sales to
affiliates (collectively "product revenue") down 14% and service revenue down
19%. For purposes of Management's Discussion and Analysis of the Results of
Operations, revenue and gross profit from sales to affiliates have been
combined with hardware and supplies revenues and gross profit, since such
sales have been consummated at prices and terms that are consistent with
prices and terms available to unrelated third parties. The decline in product
revenue resulted primarily from decreases in product
18
<PAGE>
demand due to the maturity of the Company's output products compared to its
competitors, the associated price reductions necessary to maintain market
position and lower customer demand due to the Company's announcement of its
intent to discontinue certain output products in anticipation of the release
of the new CrystalJet(TM) product lines. These decreases were partially offset
by increases in sales of the Company's cutter products resulting primarily
from a full year of sales in 1997 compared to five months in 1996 subsequent
to the Exchange. The lower service revenue compared to the prior year is a
result primarily of fewer service contracts being generated due to the lower
product revenue base, a lower rate of service contract renewals as older
generation products are retired from service and the transition of customers
to lower cost products, which traditionally do not capture the level of
service contract renewals as higher priced products. The Company's foreign
sales declined 23% in 1997, compared to the prior year, reflecting the
decrease in demand for the Company's mature output products and the Company's
responses to significant competitor pricing pressures.
Gross Profit. Gross profit for 1997 decreased to 9% from 24% in 1996.
Product gross profit decreased to 8% from 25% in the prior year while service
gross profit decreased to 11% in 1997 from 18% in 1996. The decline in gross
profit margin was attributable primarily to manufacturing inefficiencies
resulting from decreased production volumes due to lower customer demand for
the Company's mature output products, and selling price reductions for these
mature products, necessitated by competitive pressures. The decrease in
service gross profit is attributable to the transition to lower cost products
which do not carry the same level of service margin as the older generation
higher cost products which they replaced. The decline in gross profit was
further impacted by the $17.6 million charge associated with the Company's
decision to accelerate the transition from its current products to its new
proprietary inkjet products. Excluding the effect of these charges, the gross
profit percentage was 17%.
Operating Expenses. Total operating expenses, excluding restructuring
charges and the sale of the Company's headquarters facility, were $89.3
million in 1997, or 45% of revenue, compared to $94.1 million, or 40% of
revenue, in 1996.
Research and development expenses increased $2.6 million in 1997, to 12% of
revenue from 9% of revenue in 1996. This higher spending level reflects costs
incurred to develop the Company's new CrystalJet(TM) product line, which is
expected to be the first of a new generation of products based on the
Company's proprietary inkjet technology. The first of the CrystalJet(TM)
products is expected to be released in the first half of 1998. The markets in
which the Company's products compete are subject to rapid technological
development. This rapid technological change results in the need to
continually develop and bring to market new products to compete with its
competitors' product offerings. The Company intends to continue its investment
in the development of new products and technology to enable it to aggressively
compete within its various market segments; however, the availability of
research and development funds is dependent on the Company's ability to
increase its revenue base, control expenses and return to profitability.
Further, the availability of funds is heavily dependent on the Company's
ability to obtain continued financing while it transitions to its new
CrystalJet(TM) products.
Selling, general and administrative expenses decreased $6.7 million in 1997,
to 32% of revenue from 30% of revenue in 1996. The decline in spending
resulted primarily from the benefits of staffing and facility consolidation as
a result of restructuring actions taken in 1996 and 1997 to streamline the
Company's infrastructure, as well as reductions in advertising and marketing
spending as the Company phases out certain output product lines. These cost
savings were partially offset by increased expenses related to a new
management information systems, litigation and higher amortization expense
resulting from additional intangible assets associated with the Summagraphics
and Topaz acquisitions in 1996.
Corporate expenses from Lockheed Martin decreased $0.7 million to $2.9
million in 1997 from $3.6 million in 1996. This decrease is attributable to
the effect of recent acquisitions by Lockheed Martin on corporate charges
whereby expenses are allocable over a larger base thereby reducing the
corporate charge.
Restructuring and Sale of Headquarters Facility. In the fourth quarter of
1996, the Company initiated a plan to restructure its operations worldwide and
incurred a charge of approximately $10.1 million consisting of
19
<PAGE>
$6.9 million for the elimination of an estimated 285 positions worldwide and
$3.2 million for lease termination and related fixed asset disposition costs
for the reorganization of the Company's European operations. During 1997, the
Company incurred cash expenditures aggregating $8.0 million and non-cash
charges of $0.1 million, related to severance payments, asset writedowns and
lease payments for closed facilities. As of December 31, 1997, approximately
$6.7 million of the 1996 restructuring charge utilized related to severance
payments made to the 283 employees who have been terminated under the 1996
plan. As of December 28, 1997, substantially all of the 1996 restructuring
plan had been completed, although certain lease obligations will continue
through 1998. The Company recorded a $1.0 million credit in the fourth quarter
of 1997 after concluding that most of the 1996 restructuring plan activities
were completed or adequately provided for within the remaining restructuring
accrual.
In the fourth quarter of 1997, the Company expanded its plan to restructure
its operations worldwide and incurred a charge of approximately $4.8 million
consisting of $2.9 million for the elimination of an additional 91 positions
relating to further realignment of the Company's international operations, and
$1.9 million for lease termination and related fixed asset disposition costs
for certain international facilities. During the fourth quarter, the Company
incurred cash expenditures aggregating $0.6 million related to severance
actions taken prior to year end. At December 31, 1997, the restructuring
accrual approximated $5.0 million consisting of $4.2 million from the 1997
plan and $0.8 million remaining from the 1996 plan.
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 current appraised value, less costs to sell, of $15.1 million
resulting in a loss of $10.9 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 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 a line of credit the Company has with the
Majority Shareholder. The Company has leased back approximately 138,500 square
feet of space, or two of the ten buildings located on the property. The
Company entered 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.
The 1997 restructuring is expected to reduce operating expenses and
streamline the Company's infrastructure, resulting in approximately $3.5
million annually in reduced administrative and support expenses.
Interest Expense. Interest expense increased to $3.0 million in 1997 from
$1.0 million in 1996 due substantially to increases in the Company's
outstanding balances under a line of credit with the Majority Shareholder.
Also, interest expense in 1997 includes a full year of expense compared to
five months in 1996 subsequent to the Exchange.
Other Expense (Income), net. Other expense (income), net, declined $2.9
million to $1.4 million of net expense in 1997 compared to $1.5 million of net
income in 1996. This decrease resulted primarily from foreign exchange
transaction losses of $1.9 million in 1997 compared to a loss of $0.5 million
in 1996, resulting from the strength of the U.S. dollar and its impact on the
Company's international subsidiaries' U.S. dollar denominated liabilities. In
addition, during 1996, the Company recorded interest income of $1.1 million
resulting from a favorable determination by U.K. taxing authorities. Earnings
for the Company's Japanese joint venture, which is accounted for on the equity
method in other income, were consistent with the prior year.
Income Taxes (Benefit). The 1997 net tax expense of $38,000 relates
primarily to state tax expense of $0.3 million from the Company's combined
state tax sharing allocations with Lockheed Martin, partially offset by the
foreign tax loss carryback benefit from the Company's foreign operations. As
the Company sustained a net loss in 1997, no federal income tax provision was
necessary, nor was a tax benefit recorded as management determined that it was
appropriate to increase the valuation allowance for deferred tax assets. It is
the intention of management to assess the continued need for the valuation
allowance for each period. In 1996, the income tax benefit of $2.5 million
related primarily to the carryback benefit of foreign tax losses from the
Company's foreign operations.
20
<PAGE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting (SFAS) No. 131, "Disclosures about Segments
of and Enterprise and Related Information." SFAS 131 establishes standards for
the way in which publicly-held companies report financial and descriptive
information about its operating segments in financial statements for both
interim and annual periods. The Statement also requires additional disclosures
with respect to products and services, geographic areas of operation and major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997. The adoption of SFAS 131 will have no impact on the Company's
consolidated results of operations, cash flows or financial position, but may
increase the level of disclosure of segment information.
COMPARISON OF 1996 TO 1995
Revenue. Revenues for 1996 declined $45.7 million, or 16%, to $235.9 million
from the previous year, with product revenue down 15% and service revenues
down 21%. The decline in product revenue during 1996 was $34.1 million
consisting of revenue declines of approximately $55.2 million resulting
primarily from continuing competitive pressures on output products, pricing
actions, continuing difficulties with implementation of the ChannelWorks
distribution program and difficulties and delays associated with new product
introductions. Such revenue declines were partially offset by revenue growth
of approximately $21.1 million resulting primarily from the addition of the
Summagraphics' cutter and digitizer product lines. Service revenue declines
resulted from the drop in after-market service contract sales resulting from
the decline in hardware sales and the transition to lower cost products, which
traditionally do not capture the same level of service contract revenue as
higher cost products.
Gross Profit. The Company's gross profit for 1996 decreased to 24% from 28%
in 1995. Product gross profit decreased to 25% from 28%, while service gross
profit decreased to 18% from 28%. The decrease in product gross profit is
attributable to continued competitive pricing pressure, continued shift in the
mix of products sold towards lower cost, lower margin products, higher costs
associated with the introduction of new products, and the phase out of mature,
end of life products at reduced selling prices. The decrease in service gross
profit is attributable to the transition to lower cost products which do not
carry the same level of service margin as the older generation higher cost
products which they replaced. In addition, service costs increased during the
period as a result of customer usage rates higher than product specifications
on LED/laser products requiring additional service calls and replacement
parts, as well as from costs associated with product quality issues related to
products introduced at the end of 1995 and in the first half of 1996.
The companies that participate in the industry are highly competitive.
Reduced unit selling prices and shortened product life cycles are expected to
continue to place pressure on the Company's margins.
Operating Expenses. Total operating expenses were $115.1 million in 1996, an
increase of 31% or $27.0 million from the prior year and include a one-time
restructuring charge of $21.0 million for facility write-downs and
restructuring expenses. Total operating expenses prior to certain
restructuring charges and facility writedowns were $94.1 million in 1996, a 7%
increase from 1995 to 40% of revenue in 1996 versus 22% in 1995. Product
development expenses increased $3.4 million to 9% of revenue from 6% in 1995.
The increase resulted from ongoing new product development as well as expenses
incurred to address product quality issues related to products introduced at
the end of 1995 and in the first half of 1996. Selling, general and
administrative expenses increased $7.3 million to 30% of revenue from 22% in
1995. Selling, general and administrative expense increases are attributable
to expenses related to the Exchange; marketing and promotional expenses
incurred to meet competitive pressures; costs associated with new management
information systems; litigation; as well as the increase in goodwill
amortization resulting from the Exchange and the decision to shorten CalComp
Inc.'s existing goodwill amortization period from 40 years to 25 years.
Corporate expenses from Lockheed Martin decreased $4.7 million to 1% of
revenue from 3% in 1995 as a result of Lockheed Martin's decision to
discontinue its practice of interest allocation to affiliates. The interest
allocation in 1995 under this method was $4.6 million.
21
<PAGE>
Restructuring Charges. The restructuring charges incurred in the fourth
quarter of 1996, of $21.0 million, consisted of $10.9 million for the write-
down of the Company's headquarters facility to its estimated fair market
value, in anticipation of sale, lease termination and fixed asset disposition
costs of $3.2 million related to the exiting from certain facilities, and
severance costs of $6.9 million associated with the elimination of
285 positions worldwide. In the fourth quarter of 1996, approximately 68
employees were terminated resulting in payouts of approximately $0.7 million.
Interest Expense. The Company's interest expense for the year was $1.0
million relating primarily to borrowings by the Company from Lockheed Martin
made pursuant to the Credit Agreements (as defined below) entered into as part
of the Exchange. There were no such charges or agreements in place in 1995.
Other Income, net. Other income, net, declined $0.4 million to $1.5 million
in 1996 from $1.9 million in 1995, as a result of a reduction in earnings of
$0.9 million of a Japanese joint venture which is accounted for on the equity
method in other income, foreign exchange transaction losses of $0.5 million
versus a gain of $0.4 million in the prior year resulting from the strength of
the U.S. dollar and its impact on the Company's international subsidiaries'
U.S. dollar denominated liabilities, partially offset by increases in interest
income of $1.1 million resulting primarily from a favorable determination by
U.K. taxing authorities that the Company is entitled to interest on certain
tax amounts refunded.
Income Taxes (Benefit). The income tax benefit of $2.5 million for 1996
relates primarily to the carryback benefit of foreign tax losses from the
Company's foreign operations. As the Company sustained a net loss in 1996, no
federal income tax provision was necessary, nor was a tax benefit recorded as
management determined that it was appropriate to increase the valuation
allowance for deferred tax assets. In 1995, the Company's provision for income
tax was $3.6 million relating primarily to the provision for foreign taxes on
the Company's profitable foreign locations.
SUPPLEMENTAL INFORMATION
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1997 and 1996 each contained fifty-two weeks.
Fifty-three weeks were included in Fiscal 1995.
The Company believes that the effects of inflation on its operations and
financial condition are minimal.
See Note 7 of Notes to Consolidated Financial Statements contained in Item 8
of this Annual Report for information with respect to outstanding litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's recent operations have resulted in net losses of $75.2
million, $56.6 million and $10.7 million for the years ended December 28,
1997, December 29, 1996 and December 31, 1995, respectively. The Company's
main sources of financing have been a $75 million line of credit with the
Majority Shareholder under the Revolving Credit and Cash Management Agreements
("Credit Agreements") and the proceeds from the sale of the Company's
headquarters facility. At December 28, 1997, the Company had drawn $59.5
million against that line which was scheduled to mature in July 1998. The
Company was also in violation of certain financial ratio covenants under the
Credit Agreements. In January 1998, the Majority Shareholder waived compliance
with those covenants, and in March 1998, the Credit Agreements were amended to
extend the maturity date 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 Credit Agreements upon 120 days prior
written notice, and to remove the security interest of the Majority
Shareholder in the assets of the Company.
After determining that remaining amounts available under the line are not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000. In addition, in March 1998, the Company entered into the Joint
Development
22
<PAGE>
Agreement with Kodak that provided $20 million in cash upon signing of the
agreement and an additional $16 million in cash over the term to be funded
incrementally upon the achievement of certain milestones and the occurrence of
certain events. Management believes these financial resources will be
sufficient to satisfy the Company's liquidity requirements through 1998. If
not, the Company will be required to seek additional financing from others or
pursue other financing alternatives. No assurance can be given that, if
required, additional financing will be available on acceptable terms or at
all.
The Company is implementing plans to improve the Company's competitive
position by introducing a new line of CrystalJet(TM) piezo inkjet printers in
the first half of 1998, as well as increasing operating efficiencies. The
Company anticipates that these efforts will result in improved gross margins
and operating results during fiscal 1998. However, no assurances can be given
that the Company will be successful in realizing these goals. Failure to
achieve market acceptance for these products or the inability to timely
achieve required production volumes at acceptable costs could have a material
adverse impact on the Company's business.
During fiscal 1997, the Company used $47.5 million of cash in its operations
primarily to fund its continuing net losses which included $10.5 million in
payments relating to the Company's reorganization and restructuring plans
announced in 1996 and 1997. In addition, $10.9 million was expended on
property, plant and equipment, relating primarily to purchases of tooling and
equipment for the development and manufacture of the new CrystalJet(TM)
product line, and $2.9 million was expended to repay preexisting Summagraphics
debt. These uses of cash were funded substantially by borrowings from the
Company's Majority Shareholder of $30.6 million, pursuant to the Credit
Agreements, $21.1 million in net proceeds from the sale of the Company's
headquarters facility in Anaheim, California and $1.1 million in net proceeds
from the sale of fixed assets.
During 1997, the Company spent $0.7 million in the implementation of new
management information systems, primarily with respect to its international
locations. During 1997, the Company continued to invest heavily in fixed
assets at the Topaz facility, and during 1998 will use the proceeds
contributed by Kodak pursuant to the Joint Development Agreement to support
the development and manufacture of the new CrystalJet(TM) products. The
Company has no other significant commitments for capital expenditures.
Although the Company believes that cost savings from the restructuring of
its worldwide operations, which will be substantially completed in the first
half of 1998, combined with the introduction of its proprietary new CrystalJet
product line, will allow the Company to better respond to intense industry
competition, no assurance can be given that such goals will be realized. The
Company anticipates operating losses to continue through 1998.
For a discussion of risk factors, see Item 1. "Business--Risk Factors
Affecting the Company".
Year 2000 Compliance. Many existing computer systems, applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
Such systems and applications could fail or create erroneous results unless
corrected to process data related to the Year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major
aspects of its business, including systems (such as general ledger, accounts
payable and payroll modules), customer services, infrastructure, embedded
computer chips, networks and telecommunications equipment. The Company also
relies, directly and indirectly, on external systems of business enterprises
such as customers, suppliers, creditors, financial organizations and
governmental entities, both domestic and international, for accurate exchange
of data.
The Company has been investigating and continues to assess the impact, if
any, which Year 2000 issues may have on its internal computer systems.
Although the assessment process is not complete, based on information and
estimates currently available, Year 2000 issues related to these systems will
not have a material adverse effect on the operations of or on the financial
results of the Company. The inability of customers, suppliers and other
external enterprises with which the Company interacts to make timely changes
to their own systems could have an adverse impact on the Company.
The Company believes all of its products are Year 2000 compliant.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... 25
Consolidated Balance Sheets at December 28, 1997 and December 29, 1996... 26
Consolidated Statements of Operations for the Years Ended December 28,
1997, December 29, 1996 and December 31, 1995........................... 27
Consolidated Statements of Stockholders' Equity for the Years Ended
December 28, 1997, December 29, 1996 and December 31, 1995.............. 28
Consolidated Statements of Cash Flows for the Years Ended December 28,
1997, December 29, 1996 and December 31, 1995........................... 29
Notes to Consolidated Financial Statements............................... 30
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated balance sheets of CalComp
Technology, Inc. as of December 28, 1997 and December 29, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 28, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CalComp
Technology, Inc. at December 28, 1997 and December 29, 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 28, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Orange County, California
January 19, 1998, except for Notes 1, 7, 8 and 13,
as to which the date is March 30, 1998
25
<PAGE>
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash............................................... $ 6,494 $ 15,290
Accounts receivable (less allowance for doubtful
accounts of $3,367 in 1997 and $4,603 in 1996).... 26,208 48,230
Accounts receivable from affiliates................ 4,428 8,633
Inventories (Note 3)............................... 43,069 57,765
Net assets held for sale (Note 2).................. -- 15,119
Prepaid expenses and other current assets.......... 4,783 5,866
-------- --------
Total current assets............................. 84,982 150,903
Property, plant and equipment, net (Note 3).......... 29,048 26,891
Investments (Note 6)................................. 5,682 5,022
Goodwill (net of accumulated amortization of $26,050
in 1997 and $20,324 in 1996)........................ 79,994 82,080
Other intangibles (net of accumulated amortization of
$1,894 in 1997 and $271 in 1996).................... 5,857 7,866
Other assets......................................... 3,894 3,323
-------- --------
Total assets..................................... $209,457 $276,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................... $ 14,395 $ 27,554
Accounts payable to affiliates..................... 5,591 4,704
Deferred revenue................................... 6,828 9,217
Accrued salaries and related expenditures.......... 4,487 7,398
Accrued restructuring costs (Note 2)............... 5,049 9,355
Accrued reorganization costs (Note 2).............. 6,878 5,595
Line of credit..................................... -- 2,948
Other liabilities.................................. 22,600 22,901
-------- --------
Total current liabilities........................ 65,828 89,672
Line of credit with Majority Shareholder (Note 8).... 59,525 28,880
Other long-term liabilities.......................... 8,371 5,029
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued........................... -- --
Common stock, $.01 par value, 60,000,000 shares
authorized, 47,070,950 and 46,898,650 shares
issued and outstanding on December 28, 1997 and
December 29, 1996, respectively................... 471 469
Additional paid-in capital......................... 287,322 286,860
Accumulated deficit................................ (217,145) (141,957)
Cumulative translation adjustment.................. 5,550 7,597
Less: Treasury stock, at cost, 49,000 shares....... (465) (465)
-------- --------
Total stockholders' equity....................... 75,733 152,504
-------- --------
Total liabilities and stockholders' equity....... $209,457 $276,085
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Hardware and supplies................. $ 148,157 $ 161,083 $ 188,880
Service............................... 34,827 43,208 54,860
Sales to affiliates................... 17,174 31,625 37,915
----------- ----------- -----------
Total revenue....................... 200,158 235,916 281,655
Cost of revenue:
Hardware and supplies................. 138,061 122,649 135,880
Service............................... 30,831 35,498 39,233
Sales to affiliates................... 13,699 22,228 27,555
----------- ----------- -----------
Total cost of revenue............... 182,591 180,375 202,668
----------- ----------- -----------
Gross profit........................ 17,567 55,541 78,987
Operating Expenses:
Research and development.............. 23,314 20,713 17,343
Selling, general and administrative... 63,129 69,843 62,507
Corporate expenses from Majority
Shareholder (Note 5)................. 2,900 3,567 8,225
(Gain) loss on disposal of facilities
(Note 2)............................. (5,873) 10,908 --
Restructuring charge (Note 2)......... 3,788 10,090 --
----------- ----------- -----------
Loss from operations.................... (69,691) (59,580) (9,088)
Interest expense........................ 4,037 989 --
Other expense (income), net (Note 4).... 1,422 (1,507) (1,942)
----------- ----------- -----------
Loss before income taxes................ (75,150) (59,062) (7,146)
Provision for (benefit of) income taxes
(Note 9)............................... 38 (2,458) 3,572
----------- ----------- -----------
Net loss............................ $ (75,188) $ (56,604) $ (10,718)
=========== =========== ===========
Basic and diluted loss per share of
common stock....................... $ (1.60) $ (1.32) $ (0.26)
=========== =========== ===========
Weighted-average number of shares
outstanding (Note 1)............... 46,951,243 42,945,581 40,742,957
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL CUMULATIVE RECEIVABLE
----------------- PAID-IN ACCUMULATED TRANSLATION TREASURY MAJORITY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK SHAREHOLDER EQUITY
---------- ------ ---------- ----------- ----------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 25,
1994................... 40,742,957 $ 407 $ 265,243 $ (61,067) $ 5,955 $ -- $(48,056) $162,482
Net decrease in
receivable from
stockholder........... -- -- -- -- -- -- 12,403 12,403
Translation adjustment. -- -- -- -- 2,576 -- -- 2,576
Net loss............... -- -- -- (10,718) -- -- -- (10,718)
---------- ----- --------- ---------- ------- ------ -------- --------
Balance at December 31,
1995................... 40,742,957 407 265,243 (71,785) 8,531 -- (35,653) 166,743
Net decrease in
receivable from
stockholder........... -- -- -- -- -- -- 22,085 22,085
Deemed dividend of
receivable from
stockholder (Note 1).. -- -- -- (13,568) -- -- 13,568 --
Issuance of stock for
acquisitions.......... 6,155,693 62 21,617 -- -- -- -- 21,679
Acquired treasury
stock................. -- -- -- -- -- (465) -- (465)
Translation adjustment. -- -- -- -- (934) -- -- (934)
Net loss............... -- -- -- (56,604) -- -- -- (56,604)
---------- ----- --------- ---------- ------- ------ -------- --------
Balance at December 29,
1996................... 46,898,650 469 286,860 (141,957) 7,597 (465) -- 152,504
Exercise of stock
options............... 172,300 2 462 -- -- -- -- 464
Translation adjustment. -- -- -- -- (2,047) -- -- (2,047)
Net loss............... -- -- -- (75,188) -- -- -- (75,188)
---------- ----- --------- ---------- ------- ------ -------- --------
Balance at December 28,
1997................... 47,070,950 $ 471 $ 287,322 $ (217,145) $ 5,550 $ (465) $ -- $ 75,733
========== ===== ========= ========== ======= ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss.............................. $(75,188) $(56,604) $(10,718)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization....... 15,041 12,631 9,845
Restructuring charge................ 3,788 10,090 --
Restructuring payments.............. (8,094) (735) --
(Gain) loss on disposal of
facilities......................... (5,873) 10,908 --
Investee income..................... (828) (815) (1,645)
Net changes in operating assets and
liabilities........................ 23,625 (8,690) 11,406
-------- -------- --------
Net cash (used in) provided by
operating activities............. (47,529) (33,215) 8,888
Investing activities:
Net cash acquired in connection with
acquisitions......................... -- 1,962 --
Purchase of property, plant and
equipment............................ (10,942) (6,593) (10,824)
Proceeds from disposition of property,
plant and equipment.................. 1,093 135 841
Proceeds from sale of asset held for
sale................................. 21,121 -- --
Dividends received.................... 168 311 672
-------- -------- --------
Net cash provided by (used in)
investing activities............. 11,440 (4,185) (9,311)
Financing activities:
Proceeds from line of credit with
Majority Shareholder................. 30,645 15,380 --
Net cash received from Majority
Shareholder.......................... -- 24,600 2,978
Reduction in revolving line of credit. (2,948) (1,664) --
Exercise of stock options............. 464 -- --
-------- -------- --------
Net cash provided by financing
activities....................... 28,161 38,316 2,978
Effect of exchange rate changes on cash. (868) (200) 770
-------- -------- --------
Change in cash.......................... (8,796) 716 3,325
Cash at beginning of year............... 15,290 14,574 11,249
-------- -------- --------
Cash at end of year..................... $ 6,494 $ 15,290 $ 14,574
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
CalComp Technology, Inc. (the "Company") is an 86.6% owned subsidiary of
Lockheed Martin Corporation ("Lockheed Martin" or the "Majority Shareholder").
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. The financial statements do not include the
accounts of AGT Holdings, Inc. and Access Graphics, Inc., which were
transferred to the Majority Shareholder effective May 15, 1996. This
transaction has been treated as a change in the reporting entity since the two
entities are in dissimilar businesses to that of the Company and historically
have been managed and financed separately by the Majority Shareholder. In
addition, effective November 17, 1997, the Majority Shareholder sold its
ownership interest in AGT Holdings, Inc. to an unrelated third party (Note 5).
The acquisition of the Company by Lockheed Martin in August 1986 was
accounted for as a purchase and a new basis of accounting was established for
the Company's financial statements. This new basis resulted in certain assets
and liabilities being recorded at their then fair market value. Accumulated
depreciation, retained earnings, and cumulative translation adjustments
reflect activity from August 1, 1986. For tax purposes, no revaluation
occurred as a result of the business combination.
On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp
Inc., a wholly-owned subsidiary of Lockheed Martin Corporation at that time,
effected a plan of reorganization for the exchange of CalComp Inc. stock for
Summagraphics stock, after which Summagraphics changed its name to CalComp
Technology, Inc. ("CalComp" or "the Company") ("the Exchange"). The newly
reorganized Company adopted a fiscal year ending on the last Sunday of
December. For accounting purposes, CalComp Inc. was treated as the acquiring
company. Therefore, the historical financial statements are those of CalComp
Inc. with the accounts and results of Summagraphics included from the date of
the Exchange (Note 2).
The equity method of accounting is used when the Company has a significant,
but less than majority ownership interest in another company. Under the equity
method, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee companies,
which is recognized as a component of other income in the consolidated
statements of operations. The Company's investment in NS CalComp Corporation
(NSCC) is accounted for under the equity method. A portion of the profit on
product sales to NSCC is deferred until realized through sales to third party
customers.
Operations and Financing
The Company's recent operations have resulted in net losses of $75.2
million, $56.6 million and $10.7 million for the years ended December 28,
1997, December 29, 1996 and December 31, 1995, respectively. The Company's
main sources of financing have been a $75 million line of credit with the
Majority Shareholder under the Revolving Credit and Cash Management Agreements
("Credit Agreements") and the proceeds from the sale of the Company's
headquarters facility. At December 28, 1997, the Company had drawn $59.5
million against that line which was scheduled to mature in July 1998. The
Company was also in violation of certain financial ratio covenants under the
Credit Agreements. In January 1998, the Majority Shareholder waived compliance
with those covenants, and in March 1998, the Credit Agreements were amended to
extend the maturity date 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 Credit Agreements upon 120 days prior
written notice, and to remove the security interest of the Majority
Shareholder in the assets of the Company.
30
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After determining that remaining amounts available under the line are not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000. In addition, in March 1998, the Company entered into the Joint
Development Agreement with Kodak that provided $20 million in cash upon
signing of the agreement and an additional $16 million in cash over the term
to be funded incrementally upon the achievement of certain milestones and the
occurrence of certain events. Management believes these financial resources
will be sufficient to satisfy the Company's liquidity requirements through
1998. If not, the Company will be required to seek additional financing from
others or pursue other financing alternatives. No assurance can be given that,
if required, additional financing will be available on acceptable terms or at
all.
The Company is implementing plans to improve the Company's competitive
position by introducing a new line of CrystalJet(TM) piezo inkjet printers, in
the first half of 1998, as well as increasing operating efficiencies. The
Company anticipates that these efforts will result in improved gross margins
and operating results during fiscal 1998. However, no assurances can be given
that the Company will be successful in realizing these goals. Failure to
achieve market acceptance for these products or the inability to timely
achieve required production volumes at acceptable costs could have a material
adverse impact on the Company's consolidated financial position, results of
operations and cash flows.
Business
The Company develops, manufactures, distributes and supports a wide variety
of computer graphics products which it markets in the United States and
throughout the world. The Company's principal products are printers and
plotters, digitizers and cutters. Printers are units that place raster images
on output media, either paper or film, by placing small dots on the media,
while plotters are devices that translate computer output into hard copy
visual data such as schematics, maps, charts and other drawings. Digitizers
are devices that convert points, lines and drawings to digital impulses that
can be input into a computer. Cutters are output devices, similar in
construction to a pen plotter, but employ a knife in place of a pen to cut
vinyl for signs and banners, art film for screen printing, and various stencil
materials for etching text and images into glass, wood and stone via an
abrasive etching process. The Company is dependent on certain distributors in
North America and Asia through which it transacts a majority of its hardware
sales.
In management's opinion, other sources of distribution on comparable terms
would be available if there was a disruption in the business relationship with
these distributors. The Company is dependent on certain limited source
suppliers for key technology components used in its products. Loss of such
vendor relationships could have a significant impact on the Company's near
term operating results. The Company also derives a significant portion of its
revenues from the sale of services and supplies related to its hardware
products. The Company's products and services compete in several markets
including computer aided design ("CAD"), presentation graphics, graphic arts
and printing and publishing. Each of these markets have several competitors,
some of them larger than the Company. The Company's ability to successfully
market its products requires adapting new technologies and leveraging the
channels of distribution in order to remain competitive.
Use of Estimates
The development and use of estimates is inherent in the preparation of
financial statements that are presented in accordance with generally accepted
accounting principles. Significant estimations are made relative
31
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the valuation of accounts receivable, inventories, income taxes, and
certain accrued liabilities, including, among others, those for warranties and
contingent liabilities where an unfavorable outcome is considered probable and
the amount of the loss is estimable. Actual results may differ from amounts
estimated.
Revenue Recognition
Revenue is recognized from product sales when shipments are made and from
services over the term of the service contract. In certain circumstances, the
Company provides customers with stock rebalancing and price protection rights
that permit these distributors, retailers, and dealers to return slow-moving
products to the Company for credit or to receive price adjustments if the
Company lowers the price of selected products within certain time periods.
Stock rebalancing programs allow customers to return product and receive
credit for the invoiced price less any post-sale pricing reductions. The
effect of these programs is estimated and current period sales and cost of
sales are reduced accordingly.
Fiscal Year
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1997 and 1996 each contained fifty-two weeks.
Fifty-three weeks were included in fiscal 1995.
Concentration of Credit Risk
The Company sells the majority of its products throughout the United States,
Canada, Europe and Asia. Sales to the Company's recurring customers are
generally made on an open account term while sales to occasional customers are
made on a C.O.D. basis. The Company performs periodic credit evaluations of
its ongoing customers and generally does not require collateral. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations. No single customer represented more than 10% of
sales in any year presented. Accounts receivable from the Company's two
largest distributors amounted to $6,702,000 and $8,016,000 at December 1997
and 1996, respectively.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. The Company reserves for inventory that is
determined to be obsolete or substantially in excess of forecasted demand.
Property, Plant and Equipment
Property, plant and equipment acquired are stated at cost less accumulated
depreciation. Equipment under capital leases is stated at the lower of the
present value of future minimum lease payments or fair value at the inception
of the lease. Depreciation (including amortization of assets covered by
capital leases) is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings.......................... 33 1/3 years
Building improvements.............. 5 to 15 years
Machinery and equipment............ 3 to 8 years
Furniture and fixtures............. 5 to 8 years
</TABLE>
Depreciation expense for fiscal years 1997, 1996 and 1995 totaled
$7,692,000, $7,792,000 and $8,190,000, respectively.
32
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Intangible assets, consisting of goodwill, patents and other intangibles
(which include developed technology and an assembled workforce) are being
amortized using the straight-line method over the estimated useful lives
ranging from five to twenty-five years.
As of January 1, 1996, the Company re-evaluated its remaining useful life of
the goodwill related to the 1986 purchase of CalComp Inc. by Lockheed Martin,
which was being amortized over forty years. The Company estimated the
remaining useful life at that date to be fifteen years. Accordingly, the
amortization period was adjusted to reflect this change in the estimated
useful life, resulting in additional goodwill amortization of approximately
$1,635,000 beginning in 1996.
Recoverability of Long Lived Assets
In accordance with SFAS No. 121, long-lived assets and certain identifiable
intangibles held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicated that the carrying amount of an
asset may not be recoverable. The recoverability test is performed at a
consolidated level based on undiscounted net cash flows because the assets
being tested do not have identifiable cash flows that are largely independent
of other asset groupings. Based upon its analysis, the Company believes that
no impairment of the carrying value of its long-lived assets inclusive of
goodwill existed at December 28, 1997. The Company's analysis was based on an
estimate of future undiscounted cash flows using forecasts contained in the
Company's operating plan. It is at least reasonably possible that the
Company's estimate of future undiscounted cash flows may change during fiscal
1998. In addition, if the Company's estimate of future undiscounted cash flows
should change or if the operating plan is not achieved, future analyses may
indicate insufficient future undiscounted net cash flows to recover the
carrying value of the Company's long-lived assets, in which case such assets
would be written down to estimated fair value.
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, in accounting for its employee stock options because, as
discussed in Note 11, the alternative fair value accounting provided for under
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123) requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Translation of Foreign Currencies
The assets and liabilities of the Company's foreign subsidiaries, whose cash
flows are primarily in their local currency, have been translated into U.S.
dollars using the current exchange rates at each balance sheet date. The
operating results of these foreign subsidiaries have been translated at
average exchange rates that prevailed during each reporting period.
Adjustments resulting from translation of foreign currency financial
statements are reflected as cumulative translation adjustments in the
consolidated balance sheet.
Exchange gains and losses resulting from foreign currency transactions
(transactions denominated in a currency other than that of the entity's
primary cash flow) are included in operations in the period in which they
occur.
Warranty Reserve
The Company provides warranties on its products for various periods. The
Company reserves for future warranty costs based on historical failure rates
and repair costs.
33
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company's operations are included in consolidated federal and combined
state income tax returns of the Majority Shareholder. The provision for income
taxes is calculated on a separate return basis, pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax assets and liabilities
based on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the current year presentation.
Per Share Data
Loss per share for fiscal 1997, 1996 and 1995 was computed based on the
weighted average number of common shares outstanding during each period since
common stock equivalents are antidilutive.
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.
Also, the adoption of SFAS 128 resulted in no change in amounts previously
reported.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenditures
for the years 1997, 1996 and 1995 were $5,228,000, $8,980,000 and $5,847,000,
respectively.
Supplementary Cash Flow Information
Changes in operating assets and liabilities are as follows for the years
ended in December:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable.......................... $ 24,500 $ 7,176 $ 9,618
Accounts receivable from affiliates.......... 1,270 3,599 (8,090)
Inventories.................................. 12,683 (9,122) 4,353
Prepaid expenses and other current assets.... 1,249 (540) 487
Other assets................................. 630 902 (2,046)
Accounts payable............................. (12,232) (648) (2,308)
Accounts payable to affiliates............... 887 4,704 --
Accrued salaries and related expenditures.... (2,446) (369) (906)
Deferred revenue............................. (2,389) (905) (2,678)
Accrued reorganization costs................. (2,357) 5,595 --
Other liabilities............................ 1,766 (15,212) 3,379
Other long-term liabilities.................... 64 (1,355) 172
Decrease (increase) in net receivable from
Majority Shareholder.......................... -- (2,515) 9,425
-------- -------- -------
Net changes in operating assets and
liabilities................................... $ 23,625 $ (8,690) $11,406
======== ======== =======
</TABLE>
34
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the acquisition of Summagraphics Corporation (Note 2),
the Company reclassified the net receivable as of the transaction date of
$13,568,000 from the Majority Shareholder to accumulated deficit to reflect a
deemed dividend of the Company's net receivable from the Majority Shareholder.
Changes in operating assets and liabilities presented in the Consolidated
Statements of Cash Flows are net of the effect of the acquisitions discussed
in Note 2.
Net income taxes paid to (received from) the Majority Shareholder and
foreign governments were $(1,231,000), $1,424,000, and $2,638,000 for 1997,
1996 and 1995, respectively.
Interest paid was $4,154,000, $445,000 and $0 for 1997, 1996 and 1995,
respectively.
Pending Adoption of New Accounting Standard
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information
(SFAS 131)." SFAS 131 establishes standards for the way in which publicly held
companies report financial and descriptive information about its operating
segments in financial statements for both interim and annual periods. The
Statement also requires additional disclosures with respect to products and
services, geographic areas of operation and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. The Company's
adoption of SFAS 131 will have no impact on the Company's consolidated results
of operations, cash flows or financial position but may increase the level of
disclosure of segment information.
2. RESTRUCTURING AND ACQUISITIONS
Restructuring of Operations and Sale of Headquarters Facility
In the fourth quarter of 1996, the Company initiated a plan to restructure
its operations worldwide and provided a charge of approximately $10,090,000,
consisting primarily of $6,940,000 for the elimination of an estimated 285
positions worldwide and $3,150,000 for lease termination and related fixed
asset disposition costs for the reorganization of the Company's European
operations. During 1997, the Company incurred cash expenditures aggregating
$7,986,000 and non-cash charges of $108,000, related to severance payments,
asset writedowns and lease payments for closed facilities. As of December 31,
1997, approximately $6,736,000 of the 1996 restructuring charge utilized
relates to severance payments made to the 283 employees who have been
terminated under the 1996 plan. As of December 28, 1997, the majority of the
1996 restructuring plan has been completed although certain lease obligations
will continue through 1998. The Company recorded a $1,000,000 credit in the
fourth quarter of 1997 after concluding that most of the 1996 restructuring
plan activities were completed or adequately provided for within the remaining
restructuring accrual.
In the fourth quarter of 1997, the Company expanded its plan to restructure
its operations worldwide and provided a charge of approximately $4,788,000
consisting primarily of $2,900,000 for the elimination of an additional 91
positions, relating to further realignment of the Company's international
operations, and $1,888,000 for lease termination and fixed asset disposition
costs for certain international facilities. During the fourth quarter, the
Company incurred cash expenditures aggregating $615,000 related to severance
actions taken prior to year end. At December 31, 1997, the restructuring
accrual approximates $5,049,000, consisting of $4,173,000 from the 1997 plan
and $876,000 remaining from the 1996 plan.
Also in 1997, the Company initiated a transition plan to rationalize certain
existing output product lines and accelerate the Company's end-of-life process
for those products that will be discontinued as a result of the introduction
of a new generation of inkjet products based on the Company's proprietary
CrystalJet(TM) technology.
35
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result, in the third and fourth quarters of 1997, the Company recorded
credit memos of $5,200,000 against revenue and inventory reserves of
$12,400,000 to cost of sales in the accompanying 1997 statement of operations
to reduce accounts receivable and certain end-of-life product inventory to
their estimated net realizable values, respectively.
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 $15,119,000, resulting in a
loss of $10,908,000. 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 $21,500,000, less associated costs to sell. The
headquarters sale resulted in a gain on disposal of $5,873,000. Proceeds from
the sale of the property were used to reduce outstanding borrowings under a
line of credit the Company has with the Majority Shareholder. 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.
The restructuring and sale of the headquarters facility are expected to
reduce operating expenses and streamline the Company's infrastructure.
Acquisition of Summagraphics Corporation
In July 1996, the Company completed a Plan of Reorganization (the
"Exchange") for the exchange of Stock of CalComp Inc. for Stock of
Summagraphics Corporation. Pursuant to this Exchange, the Company issued to
Lockheed Martin 40,742,957 shares of Common Stock of the Company, representing
89.7% of the total outstanding shares of Common Stock of the Company following
such issuance, in exchange for all of the outstanding capital stock of CalComp
Inc. As a result of the exchange, Lockheed Martin acquired control of the
Company and CalComp Inc. became a wholly-owned subsidiary of the Company. In
connection with the Exchange, the Company changed its name to CalComp
Technology, Inc. and changed its year end from May 31 to the last Sunday of
December.
The purchase was accounted for as a "reverse acquisition" whereby CalComp
Inc. was deemed to have acquired CalComp Technology, Inc. (formerly
Summagraphics Corporation) for financial reporting purposes. However, CalComp
Technology, Inc. remains the continuing legal entity and registrant for
Securities and Exchange Commission filing purposes. Consistent with reverse
acquisition accounting, the historical financial statements of the Company
presented for the year ended December 31, 1995 are the consolidated financial
statements of CalComp Inc. and differ from the consolidated financial
statements of the Company previously reported. In addition, the historical
stockholders' equity as of December 31, 1995 has been retroactively restated
to reflect the equivalent number of shares issued in connection with the
Exchange. The accounts and results of operations of CalComp Technology, Inc.
have been included in the financial statements from the date of acquisition
and reflect purchase price allocations and adjustments.
In connection with the Exchange, the Company had accrued $7,358,000 relating
to the termination of facility leases and other costs and $4,612,000 related
to severance costs. During 1996, the Company made all severance payouts.
During 1997, the purchase price allocation for the Exchange was adjusted to
reflect differences between the current and preliminary estimate of costs
incurred to terminate facility leases and to reflect actual costs incurred
related to various acquisition liabilities. This purchase price allocation
adjustment resulted in an increase to goodwill and the reorganization accrual
on the consolidated balance sheet of $3,640,000. The Company has expended
$2,357,000 and $1,763,000 in 1997 and 1996, respectively, related to lease
termination and rent payments on these facilities.
36
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisition of Topaz Technologies, Inc.
In November 1996, the Company acquired Topaz Technologies, Inc. ("Topaz"), a
privately held company located in Sunnyvale, California in exchange for
1,500,000 shares of the Company's Common Stock and $750,000 in cash. Topaz
became a wholly owned subsidiary of CalComp Technology, Inc. As a result of
the acquisition, which was accounted for using the purchase method of
accounting, the Company acquired $5.9 million in assets and assumed $1.6
million in liabilities and the results of operations of Topaz are consolidated
with the Company's subsequent to the acquisition date. Topaz is a developer
and manufacturer of proprietary inkjet printing technology. The Company
anticipates the introduction of a new generation of CrystalJet(TM) inkjet
products based on this new proprietary technology in the first half of 1998.
The CrystalJet(TM) products being introduced will replace most existing output
products.
3. BALANCE SHEET INFORMATION
Additional information for certain balance sheet accounts is as follows as
of December:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net inventories:
Raw materials and purchased components.............. $ 11,042 $ 16,719
Work in process..................................... 434 699
Finished goods...................................... 31,593 40,347
-------- --------
$ 43,069 $ 57,765
======== ========
Property, plant and equipment:
Land, buildings and building improvements........... $ 6,330 $ 6,330
Machinery and equipment............................. 40,982 47,090
Furniture and fixtures.............................. 3,183 7,423
-------- --------
50,495 60,843
Less accumulated depreciation....................... (21,447) (33,952)
-------- --------
$ 29,048 $ 26,891
======== ========
</TABLE>
4. OTHER EXPENSE (INCOME), NET
Other expense (income) consists of the following components for the years
ended in December:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
The Company's share of equity investee
earnings..................................... $ (828) $ (815) $(1,645)
Foreign exchange transaction loss (gain)...... 1,891 544 (360)
Interest income............................... (245) (1,388) (268)
Other expense, net............................ 604 152 331
------ ------- -------
Total..................................... $1,422 $(1,507) $(1,942)
====== ======= =======
</TABLE>
5. TRANSACTIONS WITH MAJORITY SHAREHOLDER AND AFFILIATES
The Majority Shareholder has billed the Company for certain corporate
general and administrative costs under a formula acceptable for the United
States Department of Defense contracting purposes. Additionally, prior to
1996, the Majority Shareholder had billed the Company for interest based on
the Majority Shareholder's cost
37
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of borrowed funds. This allocation of interest is included in corporate
expenses from Majority Shareholder on the consolidated statement of
operations. Subsequent to July 23, 1996, the Majority Shareholder has charged
the Company interest based on the terms of the credit agreement between the
parties (Note 8). The interest expense, subsequent to July 23, 1996, based on
the credit agreement, is included in interest expense on the consolidated
statement of operations. Amounts charged to the Company, and included in
Corporate expenses from Majority Shareholder were as follows for the years
ended in December:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Corporate general and administrative................ $2,900 $3,567 $3,578
Interest............................................ -- -- 4,647
------ ------ ------
$2,900 $3,567 $8,225
====== ====== ======
</TABLE>
Additionally, the Company has entered into support agreements with the
Majority Shareholder. The agreements provide, among other things, that the
Majority Shareholder undertake to provide certain services for and at the
request of the Company including, but not limited to, administration of the
pension and savings plan, legal and other general administrative services, and
group medical, liability and workers' compensation insurance. Expenses are
allocated to the Company based on actual amounts incurred on behalf of the
Company plus estimated overhead related to such amounts. Amounts billed to the
Company were $4,223,000, $2,988,000 and $3,981,000 for 1997, 1996 and 1995,
respectively. Such amounts are allocated to various cost elements in the
financial statements based on relevant factors which include headcount and
square footage.
The Company purchases certain components from Lockheed Martin Commercial
Electronics, a division of the Majority Shareholder. Purchases amounted to
$4,273,000, $10,059,000 and $10,503,000 for the years ended December 1997,
1996 and 1995, respectively. Purchases from Lockheed Martin Commercial
Electronics were made at prices and terms similar to those available from
unrelated vendors.
Accounts payable to these affiliates aggregated $5,591,000 and $4,704,000 as
of December 1997 and 1996, respectively.
The Majority Shareholder had, until July 23, 1996, a centralized domestic
cash management system whereby the Company's cash surplus was transferred to
the Majority Shareholder's accounts on a daily basis and cash disbursements
were funded by the Majority Shareholder, as needed, to maintain the
disbursement account at a zero balance. Since that date, the Company requests
cash as needed to fund operations based on the credit agreement (Note 8) with
the Majority Shareholder. These requests are processed as borrowings against
the credit agreement with the Majority Shareholder. Excess funds are
transferred to the Majority Shareholder as payments toward previous
borrowings. On July 23, 1996, the Company reclassified the net receivable of
$13,568,000 from the Majority Shareholder to accumulated deficit to reflect a
deemed dividend of the Company's net receivable from the Majority Shareholder.
The Company sells computer graphics equipment to Access Graphics, Inc.
("Access Graphics") for resale. The Company transferred its ownership interest
in AGT Holdings, Inc., the parent company of Access Graphics, to the Majority
Shareholder on May 15, 1996. In addition, effective November 17, 1997, the
Majority Shareholder sold its ownership interest in AGT Holdings, Inc. to an
unrelated third party. As a result, sales to Access Graphics for 1997,
aggregating $6,401,000, are included in hardware and supplies revenue on the
consolidated statement of operations. Sales to Access Graphics for 1996 and
1995 are included in sales to affiliates on the consolidated statements of
operations and totaled $9,055,000 and $19,722,000, respectively.
End user sales to other affiliated companies, including sales to NS CalComp
KK (Note 6), were $17,174,000, $22,570,000 and $18,193,000 during 1997, 1996,
and 1995, respectively. Sales to related parties have been consummated at
prices and terms consistent with similar transactions with unrelated third
parties.
38
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts receivable from these affiliates related to such sales aggregated
$4,428,000 and $8,633,000 as of December 1997 and 1996, respectively.
6. INVESTMENT IN NS CALCOMP KK
In 1990, the Company sold a 56% interest in a previously wholly owned
Japanese subsidiary, Nippon CalComp KK (now referred to as NSCC) to Nippon
Steel Corporation (NSC) and Sumitomo Corporation. The Company's remaining 44%
ownership interest in NSCC is accounted for under the equity method based on
financial information for the twelve months ended in November. Summarized
financial information for NSCC for the years ended in December is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Balance sheets:
Current assets.................................. $33,760 $30,231 $35,534
Total assets.................................... 36,617 33,508 39,581
Current liabilities............................. 18,050 13,896 20,351
Total liabilities............................... 18,421 14,264 20,813
Statements of operations:
Net sales....................................... $57,172 $60,184 $66,703
Gross profit.................................... 20,332 21,790 26,872
Net earnings.................................... 1,514 1,765 2,727
</TABLE>
As of December 28, 1997, the carrying value of the Company's investment is
less than the underlying equity in NSCC's net assets due to the profit in
NSCC's inventory that has not been realized through sales to third party
customers, a cumulative translation gain and differences resulting from stock
sales by NSCC. As of December 28, 1997, $5,945,000 of consolidated retained
earnings was represented by the undistributed net earnings of NSCC. Sales to
NSCC amounted to $16,130,000, $20,602,000 and $16,815,000 in 1997, 1996, and
1995, respectively. Accounts receivable from NSCC are $4,399,000 and
$5,608,000 as of December 1997 and 1996, respectively, and are included in
accounts receivable from affiliates in the consolidated balance sheets.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases various operating facilities and equipment under
noncancelable operating leases. Most leases contain renewal options at
stipulated amounts for varying periods. Certain agreements contain options for
the purchase of equipment at a stipulated amount, which will approximate
market at the end of the lease. Additionally, certain leases provide for
periodic rental adjustments based on the Consumer Price Index or fair market
values.
Minimum rental payments under noncancelable operating leases are $3,194,000
in 1998, $2,613,000 in 1999, $1,920,000 in 2000, $1,729,000 in 2001,
$1,099,000 in 2002 and $1,855,000 thereafter. However, due to the Company's
restructuring program (Note 2), certain operating leases are being
renegotiated to reduce or eliminate commitments and, if successful, these
future minimum rental payments could be substantially reduced.
Rent expense was $4,075,000, $2,200,000 and $3,700,000 in 1997, 1996 and
1995, respectively.
Legal Proceedings
A complaint was filed on January 25, 1997, by Raster Graphics, Inc. ("Raster
Graphics"), against Topaz, the former shareholders of Topaz, Andreas Bibl,
Deane Gardner and John Higginson (the former
39
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Shareholders"), and the Company in California Superior Court in Santa Clara
County. The complaint alleged, among other things, misappropriation of trade
secrets, breach of fiduciary duty, unfair competition, breach of contract and
conversion arising from the employment by Raster Graphics of the former Topaz
Shareholders who founded Raster Graphics in 1987 while they participated in
the development of certain inkjet technology. On April 18, 1997, Raster
Graphics filed an amended complaint, dismissing its claims against the Company
and amending the complaint to focus on technology relating to a test fixture
that had been developed at Raster Graphics. The complaint seeks unspecified
compensatory damages, punitive damages, costs and injunctive relief. The
Company continues to believe that the inkjet printing technology developed by
Topaz is proprietary to Topaz and is not based on Raster Graphics technology
and that this lawsuit is without merit.
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the
Company, in the U.S. District Court for the Central District of California.
The complaint alleged, among other things, that CalComp Inc.'s sale of
ULTRASLATE digitizer tablets infringes U.S. Patents Nos. 4,878,553 (now
Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes
Wacom's common law trademark ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of the first 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.
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, Lockheed Martin, the Company's Majority
Shareholder, has guaranteed the performance of the Company under this
environmental agreement.
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board ("the Water Board") relating to its facility in Anaheim,
California. This plan contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct offsite water investigations and onsite
soil remediation. The initial phase of work commenced in January 1998. As of
December 28, 1997, 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 or results of operations.
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accounts' Statement of Position (SOP) No. 96-1,
"Environmental Remediation Liabilities." In addition to providing a
nonauthoratative discussion of major federal legislation dealing with
environmental matters, SOP 96-1 also provides authoritative guidance on
certain remediation liabilities. The impact of the adoption of this SOP was
not material to the Company's consolidated results of operations, financial
position or cash flows.
40
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INDEBTEDNESS
Credit Agreements with Majority Shareholder
In July 1996, the Company and the Majority Shareholder entered into two
separate agreements; the Revolving Credit Agreement and the Cash Management
Agreement, collectively referred to as the "Credit Agreements". The Revolving
Credit Agreement was subsequently amended and restated, pursuant to which the
Majority Shareholder will provide, from time to time, financing of up to
$73,000,000 for repayment of specified indebtedness and general corporate
purposes, including financing the working capital needs of the Company and its
subsidiaries. The Revolving Credit Agreement contained certain 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 Agreements upon 120
days prior written notice, and to remove the security interest of the Majority
Shareholder in the assets of the Company.
The Revolving Credit Agreement bears interest, at the Company's option, at
either (1) a rate per annum equal to the higher of the federal funds rate as
published in the Federal Reserve System plus 0.5% or the rate publicly
announced from time to time by Morgan Guaranty Trust Company of New York as
its "prime" rate or (2) LIBOR plus 2.0%. There is no required prepayment or
scheduled reduction of availability of loans under the Agreement.
The Cash Management Agreement provides cash advances of up to $2,000,000 to
the Company by the Majority Shareholder for cash shortfalls. In March 1998,
the Cash Management Agreement was amended to extend the maturity date from
June 1, 1998 to January 31, 1999. The agreement bears interest equal to the
Federal Funds Rate.
As of December 28, 1997, the Company has an aggregate outstanding balance
under the Credit Agreements of $59,500,000 with interest rates ranging from
5.29% to 7.69%.
Secured Agreement with Bank
After determining that remaining amounts available under the line were not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March, 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000.
9. TAXES BASED ON INCOME
The provision for (benefit of) income taxes consists of the following for
years ended in December:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ -- $ --
State........................................... 334 (201) (54)
Foreign......................................... (296) (2,257) 3,626
----- ------- ------
$ 38 $(2,458) $3,572
===== ======= ======
</TABLE>
41
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on loss before income taxes and equity in income from
subsidiaries excluded from the Exchange:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income taxes using statutory tax
rate....................................... $(26,303) $(20,672) $(2,501)
Increases (reduction) from:
Operating losses without current tax
benefit.................................. 16,701 9,259 3,932
Foreign taxes at rates other than
statutory rate........................... 7,988 3,573 1,765
Goodwill amortization..................... 1,347 1,686 550
State taxes, net of federal benefit....... 217 (131) (82)
Minority interest......................... (211) (251) (576)
Write down of facility without current tax
benefit.................................. -- 4,078 --
Foreign withholding tax................... -- -- 484
Other..................................... 299 -- --
-------- -------- -------
$ 38 $ (2,458) $ 3,572
======== ======== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's deferred tax assets and liabilities at December 28, 1997 and
December 29, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities related to:
Excess of purchase book value over tax basis of property,
plant and equipment..................................... $ 1,729 $ 3,435
Depreciation methods..................................... 2,072 2,072
Prepaid pension costs.................................... 986 1,143
-------- --------
4,787 6,650
Deferred tax assets related to:
Inventories.............................................. 12,145 15,433
Accumulated postretiree medical benefit obligation....... 1,838 1,476
Accrued liabilities...................................... 5,660 5,311
Accrued compensation and benefits........................ 869 2,901
Accounts receivable...................................... 1,421 1,287
Foreign net operating loss carryover..................... 8,750 --
Net operating loss carryover............................. 50,567 20,505
Foreign tax credit carryover............................. 16,671 22,305
Other, net............................................... 2 212
-------- --------
97,923 69,430
-------- --------
Valuation allowance for deferred tax assets.............. (93,136) (62,780)
-------- --------
$ -- $ --
======== ========
</TABLE>
The Company has provided a valuation allowance for its net deferred tax
assets because of the likelihood that it will not be able to realize those
assets during their carry forward or turnaround periods.
42
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a net operating loss for federal income tax purposes of
$119,000,000 expiring in years through 2012. The Federal net operating loss
also includes $25,000,000 of expired tax credit carryover that was converted
into net operating loss carry forward in 1997. Also, the Company has foreign
net operating loss carry forwards in various European countries aggregating
$23,000,000. Additionally, the Company has foreign tax credits of $16,700,000
expiring in years 1998 to 2001.
For financial reporting purposes, loss before income taxes and equity in
income from subsidiaries excluded from the exchange included the following
components for the years ended in December:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income (loss):
United States................................... $(51,929) $(42,404) $(11,079)
Foreign......................................... (23,221) (16,658) 3,933
-------- -------- --------
$(75,150) $(59,062) $ (7,146)
======== ======== ========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $15,000,000 at December 28, 1997. Approximately $9,000,000 of
those earnings are considered to be indefinitely reinvested. Distribution of
foreign earnings, including the cumulative translation adjustment component,
would not create a residual U.S. tax liability due to the availability of
foreign tax credits to offset U.S. taxes. Withholding taxes of approximately
$260,000 would be payable upon the remittance of the portion of the foreign
earnings which is considered permanently reinvested.
10. EMPLOYEE BENEFIT PLANS
A. Defined Benefit Plan
Substantially all of the Company employees are covered by a contributory
defined benefit plan sponsored by the Majority Shareholder. Normal retirement
age is 65, but provision is made for earlier retirement. Benefits are based on
salary and years of service. Substantially all benefits are paid from funds
previously provided to trustees. The Majority Shareholder's funding policy is
to make contributions that are consistent with U.S. government cost
allowability and Internal Revenue Service deductibility requirements, subject
to the full funding limits of the Employee Retirement Income Security Act of
1974 (ERISA). Contributions made by the Majority Shareholder on behalf of the
Company's employees are billed to the Company. In accordance with Statement of
Financial Accounting Standards No. 87 "Employers' Accounting for Pensions,"
(SFAS 87), the cumulative net difference for all periods since SFAS 87 was
adopted between amounts contributed to the plan and amounts recorded as net
pension cost is recorded in the consolidated balance sheet. The Company has a
supplemental executive retirement plan which is not material. Under this plan,
benefits are paid directly by the Company and charged against liabilities
previously accrued.
Net pension cost for the years ended in December, as determined in
accordance with SFAS 87, was:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits accrued during the
year........................................ $ 1,776 $ 2,016 $ 1,954
Interest cost on projected benefit
obligation.................................. 2,902 2,794 2,756
Actual return on plan assets................. (8,943) (6,689) (2,824)
Net amortization and deferral................ 4,703 2,916 (341)
Employee contributions....................... (281) (359) (479)
------- ------- -------
$ 157 $ 678 $ 1,066
======= ======= =======
</TABLE>
43
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An analysis of the funded status of the plan follows as of December:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Plan assets at fair value.............................. $58,291 $50,805
Actuarial present value of benefit obligation:
Vested benefits...................................... 32,170 29,946
Nonvested benefits................................... 848 1,118
------- -------
Accumulated benefit obligation......................... 33,018 31,064
Effect of future salary increases...................... 4,375 4,464
------- -------
Projected benefit obligation........................... 37,393 35,528
------- -------
Plan assets in excess of projected benefit obligation.. $20,898 $15,277
------- -------
Consisting of:
Unrecognized net asset at initial application of SFAS
87.................................................. $ 222 $ 497
Unrecognized prior service cost...................... (303) (49)
Unrecognized net gain................................ 18,333 12,026
Prepaid pension asset................................ 2,646 2,803
------- -------
$20,898 $15,277
======= =======
</TABLE>
Plan assets are comprised of approximately 55% equity securities and 45%
fixed income securities including cash equivalents. Actuarial determinations
were based on various assumptions as illustrated in the following table. Net
pension costs in 1997, 1996 and 1995 were based on assumptions in effect at
the end of the respective preceding year. Benefit obligations as of the end of
each year reflect assumptions in effect as of those dates.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount rate on benefit obligations................... 7.50% 7.75% 7.50%
Average of full-career compensation increases for those
employees whose benefits are affected by compensation
levels................................................ 6.00% 6.00% 6.00%
Expected long-term rate of return on plan assets....... 9.25% 9.00% 8.80%
</TABLE>
Neither the Majority Shareholder nor the Company has any present intention
of terminating any of its pension plans. However, if a qualified defined
benefit plan is terminated, the Company would be required to vest all
participants and purchase annuities with plan assets to meet the accumulated
benefit obligation for such participants.
B. Retiree Medical Plan
The Company currently provides medical benefits under a contributory group
medical plan sponsored by the Majority Shareholder for certain early (pre-65)
retirees and under a noncontributory group Medicare supplement plan for
retirees aged 65 and over (post-65) with greater than ten years of service.
Under the accrual accounting methods of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits other
than Pensions," (SFAS 106), the present value of the actuarially determined
expected future cost of providing medical benefits is attributed to each year
of employee service. The service and interest cost recognized each year is
added to the accumulated postretiree medical
44
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
benefit obligation. Net retiree medical benefit costs as determined under SFAS
106 for the years ended in December were:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year....... $ 276 $ 325 $ 304
Interest cost on accumulated post retiree medical
benefit obligation................................. 534 492 590
Actual return on plan assets........................ (289) (194) (129)
Net amortization.................................... (20) (20) --
----- ----- -----
$501 $ 603 $ 765
===== ===== =====
</TABLE>
The Company has implemented funding approaches to help manage future retiree
medical costs. A 401(h) trust and a VEBA trust have been established to pre-
fund benefit payments. At December 28, 1997, this trust held $3,872,000 in
short term investment fund accounts. Earnings on trust assets are recorded as
a reduction to annual SFAS 106 costs.
Under SFAS 106, actual medical benefit payments to retirees reduce the
Company's accumulated postretiree medical benefit obligation, and any trust
funding reduces the unfunded portion of this obligation on the Company's
balance sheet. An analysis of the funded status of the retiree medical benefit
plan follows for the years ended December:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees............................................. $ 8,116 $ 4,767
Employees eligible to retire......................... 823 789
Employees not eligible to retire..................... 1,612 1,646
------- -------
Accumulated postretirement benefit obligation.......... 10,551 7,202
Plan assets at fair value.............................. (3,872) (2,902)
------- -------
Accumulated postretirement benefit obligation in excess
of plan assets........................................ 6,679 4,300
Unrecognized net loss.................................. (3,360) (721)
Unrecognized prior service cost........................ 138 158
------- -------
Accrued postretirement benefit unfunded liability...... $ 3,457 $ 3,737
======= =======
</TABLE>
Actuarial determinations were based on various assumptions, as illustrated
in the following table. Net retiree medical costs were based on assumptions in
effect at the end of the respective preceding years. Benefit obligations as of
the end of each year reflect assumptions in effect as of those dates.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................... 7.75% 7.75% 7.50%
Expected long-term rate of return on plan assets........ 9.25% 9.00% 8.80%
Range of medical trend rates:
Initial:
Pre-65 retirees..................................... 8.00% 8.00% 8.00%
Post-65 retirees.................................... 8.00% 8.00% 8.00%
Ultimate:
Pre-65 retirees..................................... 4.50% 4.50% 4.50%
Post-65 retirees.................................... 2.00% 2.00% 2.00%
</TABLE>
45
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term medical trend rates are applicable to the calculation of benefit
obligations for pre-65 and post-65 retirees after 6 and 11 years,
respectively, in 1997, 7 and 12 years, respectively, in 1996 and 8 and 13
years, respectively, in 1995.
An increase of one percentage point in the assumed medical trend rates would
result in a 10.4% increase in accumulated postretirement benefit obligation to
$11,647,000 at December 28, 1997, and a 1997 net retiree medical benefit cost
under SFAS 106 of approximately $610,000. The Company believes that the cost
containment features the Majority Shareholder has previously adopted and the
funding approaches under way will allow it to effectively manage its retiree
medical expenses. The Company and the Majority Shareholder will continue to
monitor the costs of retiree medical benefits and may further modify the plans
if circumstances warrant.
C. Defined Contribution Plan
The Company's Majority Shareholder maintains contributory 401(k) savings
plans for salaried and hourly employees of the Majority Shareholder and its
subsidiaries, which cover substantially all employees. Employees' eligible
contributions are matched by the Majority Shareholder at a 50% rate. The
Majority Shareholder charged to the Company expenses of $1,034,000, $1,131,000
and $1,152,000 in 1997, 1996 and 1995, respectively, for contributions made on
behalf of the Company's employees.
11. STOCK PLANS
A. Common Stock Reserved
The following shares of common stock are reserved for issuance at December
28, 1997:
<TABLE>
<S> <C>
1996 stock option plan......................................... 1,990,500
1987 stock option plan......................................... 367,000
Warrants....................................................... 52,500
---------
2,410,000
=========
</TABLE>
B. Stock Option Plans
The Company's Board of Directors has adopted the CalComp Technology, Inc.
1996 Stock Option Plan for Key Employees ("the Plan"). Under the terms of the
Plan, eligible key employees can receive options to purchase the Company's
common stock or stock appreciation rights at prices not less than the fair
value of the Company's common stock on the date of grant. Options and rights
granted under the Plan generally vest over a three year period and expire ten
years after the date of grant or six months after termination of employment.
In connection with its acquisition of Summagraphics Corporation, the Company
assumed 705,662 options outstanding under the Summagraphics 1987 Stock Plan at
prices ranging from $.01 to $9.00 per share and which expire through 2005.
46
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of changes in stock issuable under employee option plans follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995.............. --
Options assumed through acquisition......... 705,662 $4.48
Granted..................................... 885,500 1.91
Canceled.................................... (132,273) 4.13
--------- -----
Outstanding at December 29, 1996.............. 1,458,889 2.95
Granted..................................... 573,000 2.85
Exercised................................... (172,300) 2.70
Canceled.................................... (323,139) 2.74
--------- -----
Outstanding at December 28, 1997.............. 1,536,450 $2.99
========= =====
</TABLE>
As of December 28, 1997, there were 821,050 shares available for future
grants under the plan.
The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of
December 28, 1997, were as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------- --------------------
WEIGHTED WEIGHTED
NUMBER OF WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF SHARES REMAINING EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.75 to $2.31... 680,100 8.76 $1.94 206,800 $1.94
$2.38 to $3.13... 548,250 8.40 $2.88 92,730 $2.97
$3.50 to $9.00... 308,100 1.80 $5.50 274,434 $5.60
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions; risk-free interest rate of 6.3%; dividends yield of 0%;
volatility of the expected market price of the Company's common stock of 1.1;
and a weighted-average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
47
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted-average fair values of options granted to employees during 1997
and 1996 were $2.85 and $1.64, respectively. The Company granted no options in
1995. For pro forma purposes, the estimated fair value of the Company's stock-
based awards to employees is amortized over the vesting period of the
underlying instruments. The results of applying SFAS 123 to the Company's
stock-based awards to employees would approximate the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
------------ ------------
<S> <C> <C>
Pro Forma:
Net loss.................................... $ (76,113) $ (56,849)
Basic and diluted loss per Common Share..... $ (1.62) $ (1.32)
</TABLE>
C. Warrants
The terms of warrants to acquire shares of common stock are as follows at
December 28, 1997:
<TABLE>
<CAPTION>
WARRANTS PRICE EXPIRATION DATE
-------- ----- ---------------
<S> <C> <C>
15,000 $2.00 March 7, 2006
37,500 $1.75 December 6, 2000
------
52,500
======
</TABLE>
48
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FINANCIAL INFORMATION RELATING TO SEGMENTS AND FOREIGN AND DOMESTIC
OPERATIONS
The Company operates in one industry segment, the manufacture, sale and
support of computer graphics products. A summary of the Company's net sales,
loss from operations and identifiable assets by geographic area is as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 28, 1997
----------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $ 88,170 $ 78,445 $16,369 $ -- $ -- $182,984
Sales to affiliated cus-
tomers................. 17,174 -- -- -- -- 17,174
Transfers between geo-
graphical areas........ 74,839 9,055 -- (83,894) -- --
-------- -------- ------- -------- ------- --------
Net sales............... $180,183 $ 87,500 $16,369 $(83,894) $ -- $200,158
======== ======== ======= ======== ======= ========
Income (loss) from oper-
ations................. $(42,105) $(25,424) $ (84) $ 822 $(2,900) $(69,691)
======== ======== ======= ======== ======= ========
Identifiable assets..... $113,459 $ 66,311 $35,513 $ (5,826) $ -- $209,457
======== ======== ======= ======== ======= ========
<CAPTION>
YEAR ENDED DECEMBER 29, 1996
----------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $ 84,522 $101,405 $18,364 $ -- $ -- $204,291
Sales to affiliated
customers.............. 31,625 -- -- -- -- 31,625
Transfers between
geographical areas..... 78,441 6,216 -- (84,657) -- --
-------- -------- ------- -------- ------- --------
Net sales............... $194,588 $107,621 $18,364 $(84,657) $ -- $235,916
======== ======== ======= ======== ======= ========
Income (loss) from
operations............. $(36,452) $(18,814) $ (969) $ 222 $(3,567) $(59,580)
======== ======== ======= ======== ======= ========
Identifiable assets..... $148,065 $ 95,288 $39,652 $ (6,920) $ -- $276,085
======== ======== ======= ======== ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $ 95,821 $122,177 $25,742 $ -- $ -- $243,740
Sales to affiliated
customers.............. 37,915 -- -- -- -- 37,915
Transfers between
geographical areas..... 83,579 -- -- (83,579) -- --
-------- -------- ------- -------- ------- --------
Net Sales............... $217,315 $122,177 $25,742 $(83,579) $ -- $281,655
======== ======== ======= ======== ======= ========
Income (loss) from
operations............. $ (6,035) $ 1,974 $ 1,966 $ 1,232 $(8,225) $ (9,088)
======== ======== ======= ======== ======= ========
Identifiable assets..... $145,186 $ 78,966 $15,023 $ (7,611) $ -- $231,564
======== ======== ======= ======== ======= ========
</TABLE>
In determining net income (loss) from operations for each geographic area,
sales and purchases between geographic areas have been accounted for on the
basis of internal transfer prices set by the Company. Identifiable assets by
geographic area are those assets that are used in the Company's operations in
each location.
49
<PAGE>
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
13. SUBSEQUENT EVENT
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 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 advanced to the Company
upon signing of the agreement, and the reminder of which will be funded
incrementally upon the achievement of certain milestones and the occurrence of
certain events. The agreement also calls for Kodak to pay royalties on the net
selling price of Kodak products sold that use the licensed technology.
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.
14. VALUATION AND QUALIFYING ACCOUNTS
For the years ended in December 1997, 1996 and 1995, certain supplementary
information regarding valuation and qualifying accounts follows (in
thousands):
<TABLE>
<CAPTION>
BALANCES AT CHARGED BALANCES
BEGINNING TO COST AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful
receivables:
1997........................ $ 4,603 $ 320 $ 1,556 $ 3,367
1996........................ $ 4,102 $ 536 $ 35 $ 4,603
1995........................ $ 3,411 $ 1,192 $ 501 $ 4,102
Reserves for excess and
obsolete inventory:
1997........................ $30,393 $21,405 $20,600 $31,198
1996........................ $26,822 $ 4,854 $ 1,283 $30,393
1995........................ $29,898 $ 4,522 $ 7,598 $26,822
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has no disagreements on accounting or financial disclosure
matters with its independent auditors.
PART III
Information required under Item 10 "Directors and Executive Officers of the
Company," Item 11 "Executive Compensation," Item 12 "Security Ownership of
Certain Beneficial Owners and Management," and Item 13 "Certain Relationships
and Related Transactions" has been omitted from this report. Such is hereby
incorporated by reference from the Company's Proxy Statement for its Annual
Meeting of Stockholders to be held on June 11, 1998, which the Company intends
to file with the Securities and Exchange Commission no later than April 27,
1998.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
The following consolidated financial statements of the Company and the
report of independent auditors are on pages 25 through 50 hereof.
Report of Independent Auditors
Consolidated Balance Sheets--December 28, 1997 and December 29, 1996
Consolidated Statements of Operations--Years ended December 28, 1997,
December 29, 1996 and December 31, 1995
Consolidated Statements of Stockholders' Equity--Years ended December
28, 1997, December 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows--Years ended December 28, 1997,
December 29, 1996 and December 31, 1995
Notes to Consolidated Financial Statements
All Financial Statement Schedules have been omitted because they are not
applicable or because the applicable disclosures have been included in the
Consolidated Financial Statements or in the Notes thereto.
(2) Lists of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 Plan of Reorganization and Agreement for the Exchange of Stock
of CalComp Inc. for Stock of Summagraphics Corporation by and
among Lockheed Martin Corporation, a Maryland corporation,
CalComp Inc., a California corporation, and Summagraphics Corpo-
ration, a Delaware corporation, as amended (filed as Exhibit 2
to the Company's Form 10-K for the fiscal year ended May 31,
1996 and incorporated herein by reference).
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Form 10-K for the
fiscal year ended May 31, 1996 and incorporated herein by refer-
ence).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Form 10-K for the fiscal year ended May 31, 1996 and incorpo-
rated herein by reference).
10.1 Registration Rights Agreement dated as of July 23, 1996 between
the Company and Lockheed Martin Corporation (filed as Exhibit
10.1 to the Company's Form 10-Q for the quarterly period ended
September 29, 1996, and incorporated herein by reference).
10.2 Intercompany Services Agreement dated as of July 23, 1996 be-
tween the Company and Lockheed Martin Corporation (filed as Ex-
hibit 10.2 to the Company's Form 10-Q for the quarterly period
ended September 29, 1996, and incorporated herein by reference).
10.3 Cash Management Agreement dated as of July 23, 1996 between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.3
to the Company's Form 10-Q for the quarterly period ended Sep-
tember 29, 1996, and incorporated herein by reference).
10.4 Tax Sharing Agreement dated as of July 23, 1996 between the Com-
pany and Lockheed Martin Corporation (filed as Exhibit 10.4 to
the Company's Form 10-Q for the quarterly period ended September
29, 1996, and incorporated herein by reference).
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.5 Amended and Restated Revolving Credit Agreement dated as of De-
cember 20, 1996 between the Company and Lockheed Martin Corpora-
tion (filed as Exhibit 99.1 to the Company's Current Report on
Form 8-K dated December 20, 1996, and incorporated herein by
reference).
10.6 Corporate Agreement dated as of July 23, 1996 between the Com-
pany and Lockheed Martin Corporation (filed as Exhibit 10.6 to
the Company's Form 10-Q for the quarterly period ended September
29, 1996, and incorporated herein by reference).
10.7 CalComp Technology, Inc. 1996 Stock Option Plan for Key Employ-
ees (filed as Exhibit 10.7 to the Company's Form 10-Q for the
quarterly period ended September 29, 1996, and incorporated
herein by reference).
10.10 Senior Executive Retirement Plan ("SERP") Agreement between
Lockheed Martin Corporation and Gary R. Long dated November 8,
1995 (filed as Exhibit 10.10 to the Company's Form 10-Q for the
quarterly period ended September 29, 1996, and incorporated
herein by reference).
10.11 Employment Agreement (with Temporary Assignment Memorandum) be-
tween the Company and Winfried Rohloff dated June 25, 1996
(filed as Exhibit 10.11 to the Company's Form 10-Q for the quar-
terly period ended September 29, 1996, and incorporated herein
by reference).
10.12 Employment Offer and Agreement between the Company and John J.
Millerick dated July 12, 1996 (filed as Exhibit 10.12 to the
Company's Form 10-Q for the quarterly period ended September 29,
1996, and incorporated herein by reference).
10.15 OEM Agreement for Asahi and Absolut plotters between the Company
and Copyer Co., Ltd. dated September 19, 1996 (filed as Exhibit
10.15 to the Company's Form 10-Q for the quarterly period ended
September 29, 1996, and incorporated herein by reference).
10.19 Change of Control Termination Benefit Agreement between the Com-
pany and Harold H. Simeroth dated December 13, 1996 (filed as
Exhibit 10.19 to the Company's Form 10-K for the fiscal year
ended December 29, 1996 and incorporated herein by reference).
10.20 Change of Control Termination Benefit Agreement between the Com-
pany and John J. Millerick dated December 13, 1996 (filed as Ex-
hibit 10.19 to the Company's Form 10-K for the fiscal year ended
December 29, 1996 and incorporated herein by reference).
10.22 Agreement and Plan of Reorganization entered into as of November
18, 1996, by and among the Company, CalComp Acquisition Sub,
Inc., Topaz Technologies, Inc., Andreas Bibl, Deane Gardner and
John Higginson (filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K dated November 18, 1996, and incorporated
herein by reference).
10.23 Termination Agreement between the Company and John C. Batterton
dated March 7, 1997, (filed as Exhibit 10.23 to the Company's
Form 10-Q for the quarter ended March 30, 1997, and incorporated
herein by reference).
10.24 Change of Control Termination Agreement between the Company and
John C. Batterton dated March 7, 1997, (filed as Exhibit 10.24
to the Company's Form 10-Q for the quarter ended March 30, 1997,
and incorporated herein by reference).
10.25 Headquarters Lease Agreement dated as of June 24, 1997, between
the Company and Lincoln--RECP Anaheim, OPCO, LLC (filed as Ex-
hibit 10.25 to the Company's Form 10-Q for the quarter ended
June 29, 1997, and incorporated herein by reference).
10.26 Agreement of Purchase and Sale and Joint Escrow Instructions
dated as of April 4, 1997, between the Company and Lincoln Prop-
erty Company, N.C. Inc. (filed as Exhibit 10.25 to the Company's
Form 10-Q for the quarter ended June 29, 1997, and incorporated
herein by reference).
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.29 1997 Second Amendment to 1994 Addendum to Joint Venture
Relationships between CalComp Inc., Nippon Steel Corpora-
tion, Sumitomo Corporation and NS CalComp Corp., dated
September 10, 1997 (filed as Exhibit 10.29 to the
Company's Form 10-Q for the quarter ended September 28,
1997, and incorporated herein by reference).
10.30 Relocation Agreement for John C. Batterton, dated Septem-
ber 16, 1997 (filed as Exhibit 10.30 to the Company's Form
10-Q for the quarter ended September 28, 1997, and incor-
porated herein by reference).
10.31 Termination Agreement with Addendum for Winfried Rohloff,
dated November 25, 1997.
10.32 Settlement Agreement and General Release for Harold
Simeroth, dated January 28, 1998.
10.33 Change of Control Termination Benefit Agreement between
the Company and James R. Bell dated April 1, 1998.
10.34 Patent License and Joint Development Agreement dated March
29, 1998, between the Company and Eastman Kodak Co.
10.35 Warrant to Purchase Common Stock of the Company issued to
Eastman Kodak Co., March 29, 1998.
10.36 Agreement Regarding Election of Directors between Lockheed
Martin Corporation (the Company's Majority Shareholder)
and Eastman Kodak Co., dated March 29, 1998.
10.37 Amendment No. 1, dated March 20, 1998, to Amended and Re-
stated Revolving Credit Agreement between the Company and
Lockheed Martin Corporation.
10.38 First Amendment, dated March 20, 1998, to Cash Management
Agreement between the Company and Lockheed Martin Corpora-
tion.
10.39 CalComp Technology, Inc. 1998 Management Incentive Compen-
sation plan, approved January 27, 1998.
10.40 CalComp Technology, Inc. 1998 Deferred Management Incen-
tive Compensation Plan, approved January 27, 1998.
10.41 Waiver of Rights, dated April 1, 1998, by Lockheed Martin
Corporation, under Amended and Restated Revolving Credit
Agreement between the Company and Lockheed Martin Corpora-
tion.
21 Subsidiaries (filed as Exhibit 21 to the Company's Form
10-K for the fiscal year ended December 29, 1996 and in-
corporated herein by reference).
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
Reports on Form 8-K filed by the Company during the fourth quarter of the
Company's fiscal year ended December 28, 1997 were as follows:
None.
53
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, CALCOMP TECHNOLOGY, INC. HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CalComp Technology, Inc.
/s/ John C. Batterton
By: _________________________________
John C. Batterton
President and Chief Executive
Officer
April 9, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF CALCOMP TECHNOLOGY,
INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John C. Batterton President and Chief April 9, 1998
____________________________________ Executive Officer
John C. Batterton
/s/ John J. Millerick Senior Vice President and April 9, 1998
____________________________________ Chief Financial Officer
John J. Millerick (Principal Financial and
Accounting Officer)
/s/ Arthur E. Johnson Chairman of the Board of April 9, 1998
____________________________________ Directors
Arthur E. Johnson
/s/ Gary P. Mann Director April 9, 1998
____________________________________
Gary P. Mann
/s/ Terry F. Powell Director April 9, 1998
____________________________________
Terry F. Powell
/s/ Gerald W. Schaefer Director April 9, 1998
____________________________________
Gerald W. Schaefer
Director
____________________________________
Jeb S. Hurley
/s/ Kenneth R. Ratcliffe Director April 9, 1998
____________________________________
Kenneth R. Ratcliffe
/s/ Walter E. Skowronski Director April 9, 1998
____________________________________
Walter E. Skowronski
</TABLE>
54
<PAGE>
EXHIBIT 10.31
[LOGO OF CALCOMP]
INTEROFFICE COMMUNICATION
TO: W. ROHLOFF IOC NO.:
FROM: J. BATTERTON DATE: NOVEMBER 25, 1997
SUBJECT: TERMINATION OF THE CONTRACT OF EMPLOYMENT
The following is an addendum to the Termination Agreement dated November 25,
1997:
Mr. Rohloff shall also receive all amounts due him under the Lockheed
Martin and CalComp Deferred MICP Plans and shall have all rights with
respect to stock options granted to him (under the terms of the Lockheed
Martin and CalComp stock option plans) which exist at the time of his
termination.
/s/ John C. Batterton
- --------------------------------------
John C. Batterton
President and Chief Executive Officer
CalComp Technology, Inc.
<PAGE>
[LETTERHEAD OF CALCOMP]
TERMINATION AGREEMENT
between
CalComp GmbH, Hermann-Klammt-Strasse 1, 41460 Neuss, Germany, represented by its
sole shareholder, CalComp Technology, Inc., 2411 West LaPalma Avenue, Anaheim,
California 92801, USA, the latter being represented by John C. Batterton,
President and Chief Executive Officer of CalComp Technology, Inc.
- hereinafter referred to as the "Company" -
and
Winfried Rohloff, Im Wingert 19, 40699 Erkrath, Germany.
1. The parties agree that Mr. Rohloff's employment contract with the Company
shall be terminated effective December 31, 1997. The termination takes
place upon request of the Company.
2. Mr. Rohloff will resign as Geschaeftsfuehrer (Managing Director) of the
Company effective December 31, 1997. Also effective December 31, 1997, he
will resign from all other positions and offices held by him for the
Company or CalComp Technology, Inc. or other CalComp companies. CalComp
Technology, Inc. assures Mr. Rohloff that it will formally approve of all
his actions in his capacity of Geschaeftsfuehrer (Managing Director) of the
Company and in the performance of his other positions and offices.
3. The employment contract will be duly performed through December 31, 1997,
i.e., the Company shall pay to Mr. Rohloff the monthly base salary, settle
accounts in relation to the MICP component and pay the amount following
from this and make payment in lieu of the remaining vacation time. The
Company will reimburse Mr. Rohloff for all travel and relocation expenses
remaining to be paid as well as expenses arising in connection with the
return to Germany in accordance with the Lockheed Martin Corporate Policy
No. CPS-539. Mr. Rohloff will receive final tax assistance through
CalComp's agent, presently Ernst & Young, under the provisions covered by
the Lockheed Martin Corporate policy.
4. The Company shall pay to Mr. Rohloff a severance indemnity as final
compensation for the loss of his job in the amount of DM 1,090,535 (gross).
This compensation shall be due for payment on December 31, 1997, taxed in
accordance with (S)(S) 3 Ziff. 9, 24, 34, 39 b Abs. 3 Nr. 10 EStG (Income
Tax Act).
5. The Company acknowledges to Mr. Rohloff the non-forfeitable pension claims
according to the employment contract of December 1, 1987 and the
Versorgungsordnung (Pension Plan) of the Company as amended on January 1,
1988. The parties agree that the pension commitment has existed since July
1, 1980. The Company will inform Mr. Rohloff in a separate letter pursuant
to (S) 2 Abs. 6 BetrAVG (Company Pension Act) of the amount of the non-
forfeitable pension claims, the calculation of the amount being based on
December 31, 1997 as the termination date.
<PAGE>
6. Mr. Rohloff will return to the Company everything in his possession owned
by the Company, CalComp Technology, Inc. and other CalComp companies,
including all documents relating to the affairs of the companies, including
business correspondence and any copies.
7. Upon the performance of this agreement all mutual claims of the parties
arising from the employment contract and its termination shall have been
discharged and settled forever. This also concerns all U.S. companies and
all foreign subsidiaries of CalComp.
Anaheim: November 25, 1997 Anaheim: November 25, 1997
for CalComp GmbH
/s/ John C. Batterton /s/ Winfried Rohloff
- ------------------------------------- -----------------------------
John C. Batterton Winfried Rohloff
President and Chief Executive Officer
CalComp Technology, Inc.
<PAGE>
EXHIBIT 10.32
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This is a Settlement Agreement and General Release ("Agreement") between
CalComp (as defined below) and Harold Simeroth ("Employee") and is effective
when signed by both parties.
CALCOMP AND EMPLOYEE AGREE AS FOLLOWS:
1. Definitions:
a. "CalComp," as used in this Agreement, includes CalComp Technology,
Inc., a California corporation, its parent, subsidiaries, affiliates and
divisions; the officers, directors, agents, representatives, attorneys and
employees of each of them; and all predecessors, successors, heirs,
administrators, executors and assigns of each of them.
b. "Employee," as used in this Agreement, includes Employee and
his/her heirs, administrators, executors, agents, representatives and
assigns.
2. This Agreement is a good faith settlement of an actual and/or
potential dispute between CalComp and Employee and is entered into only for the
purpose of resolving any differences and to avoid the burden, expense, delay and
uncertainties of litigation and administrative actions. It is not an admission
of fault, misconduct, or other wrongdoing by either CalComp or Employee, nor is
it an admission that CalComp has committed any act of discrimination or violated
any other Federal, State or Local law, regulation or ordinance (including, but
not limited to, the Age Discrimination in Employment Act of 1967, commonly
referred to as ADEA, or the Americans with Disabilities Act, commonly referred
to as ADA), or that Employee's termination was unwarranted, unjustified,
discriminatory or otherwise unlawful.
3. Employee's Termination Date is February 13, 1998. Employee's last day
worked is January 23, 1998. On the last day worked, CalComp will pay employee:
(1) All vacation earned through the Termination Date; and
(2) 3 weeks of base pay as ordinary severance/termination pay in lieu of
notice.
When both parties have signed this Agreement, CalComp will pay Employee, as
a lump sum, an amount equivalent to an additional forty weeks of his/her base
salary/wages (less applicable withholding) as the full, complete and final
settlement of all of Employee's claims and potential claims against CalComp as
defined above, including but not limited to: wages, salary, overtime pay, back
pay, reinstatement, pay in lieu of notice, commissions, bonuses, vacation, sick
pay, benefits, insurance, business expense reimbursement, compensatory and
punitive and liquidated damages, attorneys fees and other costs and expenses,
one week of which is expressly consideration for waiver of potential ADEA
claims. CalComp may offset from such additional amount any funds under any
contract, Promissory Note, relocation agreement, expense reimbursement, or other
obligation owed by Employee to CalComp, and will remit the remainder to the
Employee.
4. In the event Employee violates any provision of this Agreement or if
any of the representations made by Employee herein were false when made,
including but not limited to the waiver of claims provisions, CalComp may either
(a) rescind this Agreement and demand that Employee remit the entire sum
specified in Paragraph 3, plus interest accrued at the rate of 10% per annum,
within 10 calendar days after receipt of notice to do so from CalComp, or (b)
demand and receive specific performance of this Agreement and recover all
damages from Employee caused to CalComp by his/her breach of this Agreement,
including any loss, cost, damage, or expense, including attorneys fees.
5. Employee further agrees that as a condition of this Agreement, his/her
employment relationship with CalComp has been permanently and irrevocably
severed. Employee understands and expressly agrees that CalComp has no
obligation, contractual or otherwise, to rehire, reemploy, recall or hire
Employee in the future.
6. Additional Provisions. Employee also agrees, for the total equivalent
---------------------
period of pay specified in Paragraph 3, in weeks, following the Termination
Date, to refund to CalComp any amount of such pay which represents pay for any
period after he/she begins employment with any other CalComp company (mitigation
of damages).
7. In consideration of the payment by CalComp to Employee referenced in
Paragraph 3 and the benefits referenced in Paragraph 11, and also any special
provisions added to this Agreement, Employee hereby irrevocably and
<PAGE>
unconditionally releases and forever discharges CalComp of and from any and all
actions, causes of actions, suits, debts, charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages, and
expenses (including attorney's fees and other costs naturally occurred), of any
nature whatsoever in law or equity, which he/she ever had, now has, or may
hereinafter have against CalComp. Employee further agrees that he/she expressly
waives any right to make any claim, file any action, or recover any damages or
other relief in any legal proceeding against or from CalComp, and further agrees
to forebear from filing any complaint, allegation, charge or lawsuit with
respect to any matter, including but not limited to breach of contract, false
claims, statutorily created employee rights, and claims under ADEA and ADA
occurring prior to the effective date of this Settlement Agreement and General
Release.
8. CalComp encourages Employee to disclose the contents of this Agreement
to, and discuss it with, his/her attorneys, accountants, tax advisors and
immediate family.
9. Employee acknowledges that this Agreement resolves, discharges and
extinguishes all claims which he/she has against CalComp, whether known or
---
unknown, and which accrue prior to or in connection with the execution of this
Agreement. Employee expressly waives any and all rights under Section 1542 of
the California Civil Code, which reads as follows:
"(Certain claims not affected by general release.) A general release does
-------------------------------------------------
not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which if known by him
must have materially affected his settlement with the debtor."
10. This Agreement is the entire agreement between the parties and
supersedes all prior negotiations, agreements and understandings regarding all
matters (whether relating to or occurring during the hiring, employment or
termination of Employee by CalComp). This Agreement is to be construed as a
whole, according to its fair meaning and not strictly for or against any of the
parties, excluding only such provisions as are specifically determined by any
court to be illegal or invalid, and any such exclusion will not affect the
validity of the remaining parts, terms or provisions.
11. Employee's medical benefits will expire on February 28, 1998. If
Employee is a member of the 401k Savings and/or Pension Plans, those benefits
will terminate in accordance with the current provisions of the applicable plan.
Employee will also have all rights required under the Consolidated Omnibus
Budget Reconciliation Act of 1986 (commonly referred to as "COBRA"), including
the right to continued group health care coverage for a limited period at
Employee's expense. A notification of those rights, along with the applicable
election forms, will be mailed to Employee within the applicable time.
Both parties, by their signature below, acknowledge and represent that (a)
they have carefully read this entire Agreement, have understood all of its
provisions and have been afforded an opportunity to review this Agreement with
their respective attorneys as desired, (b) they voluntarily accept all of the
provisions of this Agreement, (c) no binding oral representations concerning the
terms or effects of this Agreement have been made by the other party, and (d)
this Agreement is being executed voluntarily and without duress or undue
influence. This Agreement may not be signed by both CalComp and Employee on the
same day. Employee can accept this offer only by signing and returning this
form to CalComp within twenty-one (21) days of Employee's initial receipt of
this offer. Even after signature, Employee may rescind (cancel) this agreement
by returning the Agreement on or before THE 7TH DAY AFTER RECEIPT OF THE FUNDS,
and by returning the funds paid to Employee for the release of all claims, and
stating in writing that Employee wishes to cancel the Agreement.
CALCOMP TECHNOLOGY, INC. EMPLOYEE
By: /s/ Kevin Coleman By: /s/ Harold Simeroth
----------------------------- ------------------------
Title: V.P. Human Resources
--------------------------
Vice President - Human Resources Date: 1/28/98
----------------------
Date: January 23, 1998
---------------------------
<PAGE>
EXHIBIT 10.33
[LETTERHEAD OF CALCOMP]
April 1, 1998
Mr. James R. Bell
Sr. Vice President and General Manager
Input Technologies Division
RE: CALCOMP TECHNOLOGY, INC. - CHANGE OF CONTROL
TERMINATION BENEFIT AGREEMENT
Dear Jim:
CalComp Technology, Inc. ("CalComp") is a publicly held corporation. Lockheed
Martin Corporation ("Lockheed Martin") currently owns more than 50% of the
voting securities of CalComp. If at any future time Lockheed Martin, one or
more subsidiaries of Lockheed Martin, or a combination thereof ceases to own or
control (directly or indirectly) more than 50% of the voting securities of
CalComp, or if the Input Technologies Division is sold, then, for the purposes
of this letter a "change of control" of CalComp shall be deemed to have
occurred. The term "voting securities" shall mean securities able to vote for
directors or securities convertible into or exchangeable or exercisable for
securities able to vote for directors.
We understand that the prospect of a change of control may trouble you, but as a
key and valued employee we want you to remain with the Company to help keep the
Company running properly. That is why we are offering you the benefits
described in this agreement.
If a change of control occurs and if within 18 months from the date of the
change of control (1) you are involuntarily terminated by the Company or any
successor owner (except for terminations for cause) or; (2) you are removed from
the position held immediately prior to the change and the effect is a material
reduction of status, responsibilities or duties and you then terminate your
employment within 60 days after having your status reduced or; (3) your base
salary in effect at the time of the change of control is reduced, and you then
terminate your employment within 60 days after having your salary reduced, then
you will be eligible to receive the benefits described below. No other
severance or similar benefits will be paid to you.
1. SEVERANCE BENEFIT
You will be eligible for a lump-sum severance payment determined under the
following formula: an amount equal to one and a half (1 1/2) years' annual base
salary immediately prior to the change of control plus an amount equal to one
year's Management Incentive Compensation Plan Award at your target level, all
less statutory deductions but excluding voluntary deductions, such as for
savings plans. (Example: If your salary is $100,000 and your target is 20%, you
will receive $150,000 + $20,000 for a total of $170,000, less withholdings).
2. ACCRUED VACATION BENEFIT
You will be eligible for a lump-sum cash payment, if applicable, for any
vacation earned but not taken through the Effective Date of termination.
<PAGE>
JAMES R. BELL
APRIL 1, 1998
PAGE 2
3. OUTPLACEMENT
You also will receive outplacement assistance from a firm selected by the
Company. This assistance will include: (1) group job search and training by a
professional outplacement firm; and (2) resume preparation and secretarial
assistance. Cost not to exceed $20,000.00.
4. MEDICAL/DENTAL COVERAGE
You will be eligible for up to 18 months' continuation of your current
medical/dental coverage in accordance with the Company's customary COBRA
procedures. As part of your benefits, the Company will, at no charge to you,
continue your medical/dental coverage, including coverage for your dependents,
for the first 12 months following the date your employment with the Company ends
or, if earlier, until you become eligible for coverage under a health plan of
another employer. Alternatively, a lump sum payment can be made in lieu of
continuation of benefits coverage.
5. ADDITIONAL PAYMENT TO SUPPLEMENT LOSS OF PENSION EARNINGS
If a change in control occurs, we understand your participation in the Pension
Plan could cease and the pension you will be entitled to receive will be less
than what you had expected if you had remained a participant through age 60. To
address this issue, we will pay you an additional payment of $52,593.24, which
is taxable.
6. AMENDMENTS
The Company has the right to modify any of the terms set forth in this letter to
clarify unclear provisions or remedy omissions, but it will not make any change
that it determines would materially reduce the value of the benefits offered to
you under this letter.
Thank you in advance for your continued service.
Sincerely,
/s/ John C. Batterton
John C. Batterton
President and CEO
ACCEPTED:
/s/ James Bell
- ----------------------
James Bell
<PAGE>
EXHIBIT 10.34
CALCOMP/KODAK
PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT
<PAGE>
PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT
THIS PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT ("Agreement") is made
and entered into as of this 29th day of March, 1998 (the "Effective Date"), by
and between Calcomp Technology, Inc. ("CALCOMP"), a Delaware corporation having
a principal place of business at 2411 West La Palma Avenue, Anaheim, California
92801, and Eastman Kodak Company ("KODAK"), a New Jersey corporation having a
principal place of business at 343 State Street, Rochester, New York 14650.
R E C I T A L S :
- ---------------
A. CALCOMP has developed new technology related to drop-on-demand piezo
inkjet printheads and associated drop-on-demand piezo inkjet print engines
(herein referred to as "Printheads" and "Print Engines", respectively, as
defined below).
B. KODAK has developed new technology related to certain inks, paper and
other media (herein referred to as "Inks", and "Media", respectively, as defined
below) for use in inkjet printing systems, and which, therefore, is believed
should also be useful in the new CALCOMP technology.
C. KODAK desires a license to make, use and sell Printheads and associated
Print Engines and inkjet printers (herein referred to as "Printers" as defined
below) which use the new CALCOMP technology and the new KODAK technology.
D. CALCOMP and KODAK desire to jointly develop additional Printheads and
associated Print Engines for various applications and certain related Inks, and
to cross-license one another to the foregoing technology developed in such joint
development effort.
E. CALCOMP and KODAK desire to purchase for resale and to distribute
certain of each other's Inks for use in certain applications, and CALCOMP also
desires to purchase for resale certain of KODAK's Media for use in certain
applications.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, CALCOMP and KODAK hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms, whether used
-----------
in the singular or the plural shall have the following meaning:
1.1 Affiliate shall mean any company, partnership, joint venture, or
---------
other entity which directly or indirectly controls, is controlled by or is
under common control with a party. Control shall mean the possession of
fifty percent (50%) or more of the voting stock or the power to direct or
cause the direction of the management and policies
<PAGE>
2
of the controlled entity, whether through the ownership of voting
securities, by contract or otherwise, but only for so long as such control
exists. Provided, however, that any such Affiliate of KODAK shall agree in
writing with KODAK, and any such Affiliate of CALCOMP shall agree in
writing with CALCOMP, to abide by the terms of this Agreement.
1.2 Inks means solvent-based pigmented inks, water-based pigmented
----
inks, or dye-based inks for use in Printers.
1.3 Print Engine means a system comprising one or more Printheads, a
------------
Printhead and carriage support system, an Ink reservoir and system for
supplying such Ink from the reservoir to the Printhead, a Printhead
maintenance and capping station, drive electronics for the Print Engine,
and which also may or may not include as mutually agreed in writing by the
Project General Managers of the parties identified in Article X ("Joint
Development Direction") with respect to a specific Print Engine, a Media
drive system and a mechanical horizontal beam structure.
1.4 Printhead means a drop-on-demand piezo inkjet printhead in which
---------
individual ink drops are selectively expelled by activating corresponding
individually associated ink channels, each channel having two or more walls
formed from piezo materials, through corresponding individually associated
nozzles, and assemblies thereof.
1.5 CALCOMP Background Technology means technical information,
-----------------------------
inventions, concepts, product designs, component designs, trade secrets,
know-how, techniques, designs, processes, communications protocols,
software algorithms (whether patentable or not), patents, patent
applications, including any patents issuing thereon and any and all
divisions, continuations and continuations-in-part thereof, and any and all
reissues and reexaminations of any such patents, copyrights, copyright
registrations and applications, and all other intellectual property rights
(excluding, however, trade names or trademarks) conceived, originated,
discovered, developed or otherwise made by CALCOMP, solely or jointly with
others, or by others under CALCOMP's direction, and which are related to
Printheads, Print Engines or Printers, or to dye-based or solvent-based
pigmented Inks, and which were so made (i) prior to March 29, 1998, or (ii)
independently of and during the term of the Joint Development Project.
1.6 Exclusive Field: See Exhibit J(1) for this Section 1.6.
---------------
1.7 Improvement means inventions, concepts, products, components,
-----------
trade secrets, know-how techniques, designs, processes communications
protocols, software, whether patentable or not, patents, patent
applications, including any patents issuing thereon and any and all
divisions, continuations and continuations-in-part thereof, and any and all
reissues and reexaminations of any such patents, copyrights, copyright
registrations and applications, and all other intellectual property rights
(excluding, however, trade names or trademarks) which (i) are conceived,
discovered, developed or
<PAGE>
3
otherwise made by or on behalf of either CALCOMP or KODAK or jointly by the
parties, (ii) are so made in the conduct of the Joint Development Project,
and (iii) are related to Printheads, Print Engines, Printers, or Ink or
Media.
1.8 Joint Development Project means the development project between
-------------------------
KODAK and CALCOMP for the development of certain Printheads and associated
Print Engines, if required, and which may also include mutually agreed upon
Printers, Inks or Media as further described in the Operating Work Plan to
be prepared for the Joint Development Project as described in Section
X.3(d) of this Agreement.
1.9 Media means paper and other media on which the Ink used in a
-----
Printer is printed.
1.10 KODAK Background Technology means technical information,
---------------------------
inventions, concepts, product designs, component designs, trade secrets,
know-how, techniques, designs, processes, communications protocols,
software algorithms (whether patentable or not), patents, patent
applications, including any patents issuing thereon and any and all
divisions, continuations and continuations-in-part thereof, and any and all
reissues and reexaminations of any such patents, copyrights, copyright
registrations and applications, and all other intellectual property rights
(excluding, however, trade names and trademarks) conceived, originated,
discovered or developed by KODAK, solely or jointly with others, or by
others under KODAK's direction, and which are related to water-based
pigmented Inks or Media, and were so made (i) prior to March 29, 1998 or
(ii) independently of and during the term of the Joint Development Project.
1.11 Nonexclusive Field is as defined in Section 3.2 of this
------------------
Agreement.
1.12 Master OEM Agreement No. 1 means that certain OEM Agreement
--------------------------
between KODAK and CALCOMP, dated March 29, 1998, covering OEM sales of
Printheads, Print Engines, Printers, Inks, and Media, if any, by CALCOMP to
KODAK.
1.13 Master OEM/Supply Agreement No. 2 means that certain Agreement
---------------------------------
between KODAK and CALCOMP, dated March 29, 1998, covering CALCOMP-branded
sales of Inks and Media by KODAK to CALCOMP and supply of KODAK-branded
Inks and KODAK-branded Media by KODAK to CALCOMP.
1.14 Printer means a system with printing capability that
-------
incorporates a Printhead and/or a Print Engine.
1.15 Net Sales means the amount of monies received by a party or its
---------
Affiliates in the sale or any other transfer of the product in question to
independent unrelated third parties in bona fide arm's length commercial
transactions, excluding commission payments to third parties, discounts,
freight allowances, returns, refunds, bad debts, installation costs,
training costs, technical assistance costs and taxes applicable thereto;
<PAGE>
4
provided, however, that if a party transfers the product in question to (i)
an Affiliate for its own internal commercial use in the Exclusive Field or
Nonexclusive Field, or (ii) to any unrelated third party (other than an
Affiliate) for non-monetary consideration for purposes other than trade or
beta testing, the amount of money to be used in determining the applicable
Net Sales on such product shall be equal to the amount that such party
would have received in a sale of the same volume of such product to an
unrelated third party in a bona fide arm's length commercial transaction.
1.16 ULC Printhead: See Exhibit J(2) for this Section 1.16.
-------------------------------------------------------
1.17 Topaz Assets means those assets acquired by CALCOMP through its
------------
acquisition of Topaz Technologies, Inc., and any substitution, additions,
replacements, improvements, betterments and developments thereto, as more
fully described on Exhibit G attached hereto.
--------------------------
2. JOINT DEVELOPMENT
-----------------
2.1 Scope of Joint Development. CALCOMP agrees to use its best
--------------------------
efforts to achieve the goals and complete the Joint Development Project.
KODAK agrees to work jointly with CALCOMP as set forth in this Agreement to
support it in achieving the goals and completing the Joint Development
Project. The parties acknowledge and agree that CALCOMP has the primary
responsibility for achieving the goals and completing the Joint Development
Project and in particular Milestones #1 and #2 as described on Exhibit B to
this Agreement.
2.2 Term. The Joint Development Project will begin March 29, 1998
----
and shall continue until completion of development of the ULC Printhead,
unless earlier terminated or extended by written agreement of the parties
or as otherwise provided under Article 14 of this Agreement ("Term and
Termination").
2.3 Costs of Joint Development Project: See Exhibit J(3) for this
----------------------------------
Section 2.3.
X. JOINT DEVELOPMENT DIRECTION
---------------------------
X.1 Joint Development Managers. Upon signing of this Agreement, the following
--------------------------
two Project General Managers for each party shall be appointed to direct
the overall conduct of the Joint Development Project activities:
For KODAK: A. Gable
For CALCOMP: A. Bibl
<PAGE>
5
Each party shall also appoint a Technical Director to manage day-to-day
technical activities of the Joint Development Project but such appointees
shall not have authority to decide on issues or proposals which reasonably
would be expected to have a material effect on the overall conduct of the
Joint Development Project in the absence of, or in lieu of, the written
approval of the Project General Managers. The Technical Director for KODAK
shall be A. Lubinsky, and the Technical Director for CALCOMP shall be D.
Gardner. Any change in the designated Program General Managers or
Technical Directors shall require advance written notice to the other
party. The Project General Managers and Technical Directors shall have no
authority to modify or amend the terms of this Agreement.
X.2 Joint Development Decisions. All decisions with regard to any material
---------------------------
proposal, issue, or course of action under the Joint Development Project
shall be by mutual written agreement of the Project General Managers,
unless otherwise specified Agreement.
X.3 Joint Development Responsibilities. The Project General Managers shall be
----------------------------------
responsible for the following:
a) Overall direction of the Joint Development Project;
b) Staffing and facility requirements of the Joint Development Project;
c) Scheduling and conducting at least quarterly reviews of the Joint
Development Project, the Operating Work Plan for the Joint Development Project,
and preparation of suitable progress reports of the project results, including
an annual overall written review of the Joint Development Project for the
parties; and
d) Preparing, updating, modifying if necessary, and reviewing the
Operating Work Plan for the Joint Development Project in accordance with the
milestones and project work set forth in Exhibit A. The first such Operating
Work Plan shall be prepared by the parties within sixty (60) days from the
Effective Date of this Agreement.
X.4 Joint Development Personnel. Each party agrees to make its employees and
---------------------------
nonemployee consultants reasonably available at their respective places of
employment to consult with the other party on issues arising from work
performed on the Printheads and Print Engines of the Joint Development
Project, including without limitation technical performance, manufacturing
materials and manufacturing process, manufacturing costs, and related
issues.
X.5 Joint Development Facilities. During the Joint Development Project, a
----------------------------
small number of representatives of each party may, upon reasonable notice
and at times reasonably acceptable to the other party, (i) visit the
facilities where the Joint Development Project is being conducted, (ii)
consult informally, during such visits and by telephone, with personnel of
the other party performing work on the Joint Development Project, and (iii)
<PAGE>
6
work in the facilities and with the representatives of the other party who
are performing work on the Joint Development Project. Each party at the
request of the other party shall cause appropriate individuals working on
the Joint Development Project to be reasonably available for meetings at
the location of the facilities where such individuals are employed at times
reasonably convenient to the party responding to such request.
X.6 Joint Development Records. Each party shall keep complete, accurate and
-------------------------
authentic notes, data and records of the work performed on the Printheads
and Print Engines under the Joint Development Project in accordance with
its established company practices and shall be obligated to provide all
such documentation to the other party upon written request at reasonable
intervals. Each party shall further have the right to inspect and make
copies of such notes, data and records so maintained by persons carrying
out the Joint Development Project at reasonable times; provided, however,
that such inspection and copying shall not confer upon the inspecting or
copying party any ownership rights with respect to such notes, data or
records except as expressly provided in this Agreement.
Y. Ownership of Improvements
-------------------------
Y.1 By CALCOMP. CALCOMP shall own all right, title and interest in and to any
----------
Improvements developed by CALCOMP or KODAK, solely or jointly, which relate
to Printheads, Print Engines, Printers, dye based Inks, and/or solvent-
based pigmented Inks, including all intellectual property rights (excluding
trade names and trademarks), and CALCOMP shall have the right to apply for
copyrights, patents (including utility and design patents), or other
protection for such intellectual property rights anywhere in the world
under its own name and at its own expense. If KODAK makes any Improvement
related to Printheads, Print Engines, Printers, dye-based Inks and/or
solvent-based pigmented Inks, KODAK shall, and hereby does, transfer to
CALCOMP all right, title and interest in and to such Improvement. KODAK
agrees that it shall promptly notify CALCOMP of any Improvement and shall
take all actions and execute all documents as CALCOMP may reasonably
request, to effectuate the acknowledgment of CALCOMP's ownership of the
Improvement and the vesting in CALCOMP of complete and exclusive ownership
of any such Improvement. KODAK shall secure, maintain and defend for
CALCOMP's benefit, all rights in such Improvements, including the right to
submit any patent or copyright or application or registration.
Notwithstanding the foregoing, KODAK shall have the right to develop
independently from CALCOMP and without use of any of the CALCOMP Background
Technology, its own inkjet printheads and associated print engines and
printers as well as dye-based Inks, solvent-based pigmented Inks and other
Media or water-based pigmented Inks and will own all rights therein,
including all intellectual property rights. In connection with KODAK's
right to develop independently from CALCOMP its own dye-based Inks and
solvent-based pigmented Inks and maintain KODAK's ownership of all rights
therein, the parties acknowledge that KODAK may use CALCOMP Background
Technology with respect to Printheads, Print
<PAGE>
7
Engines and Printers and prototypes thereof developed in the Joint
Development Project; provided, however, that such KODAK independent
development activity shall not use CALCOMP Background Technology directed
to dye-based Inks or solvent-based pigmented Inks.
Y.2 By KODAK. KODAK shall own all right, title and interest in and to any
--------
Improvements developed by KODAK or CALCOMP, solely or jointly, which relate
to water-based pigmented Inks or Media, including all intellectual property
rights (excluding trade names or trademarks), and KODAK shall have the
right to apply for copyrights, patents (including utility and design
patents), or other protection for such intellectual property rights
anywhere in the world under its own name and at its own expense. If
CALCOMP makes any Improvement related to water-based pigmented Inks or
Media, CALCOMP shall, and hereby does, transfer to KODAK all right, title
and interest in and to such Improvement. CALCOMP agrees that it shall
promptly notify KODAK of any Improvement and shall take all actions and
execute all documents as KODAK may reasonably request, to effectuate the
acknowledgment of KODAK's ownership of the Improvement and the vesting in
KODAK of complete and exclusive ownership of any such Improvement. CALCOMP
shall secure, maintain and defend for KODAK's benefit, all rights in such
Improvements, including the right to submit any patent or copyright or
trademark application or registration. Notwithstanding the foregoing,
CALCOMP shall have the right to develop independently from KODAK and
without use of any of the KODAK Background Technology, its own water-based
pigmented Inks and Media and will own all rights therein, including all
intellectual property rights. In connection with CALCOMP's right to
develop independently from KODAK its own dye-based, solvent-based pigmented
Inks, and water-based pigmented Inks and maintain CALCOMP's ownership of
all rights therein, the parties acknowledge that CALCOMP may conduct such
independent development with respect to dye-based, solvent-based pigmented
Inks, or water-based pigmented Inks using Printheads, Print Engines and
Printers and prototypes thereof developed in the Joint Development Project;
provided, however, that such CALCOMP independent development activity shall
not use KODAK Background Technology directed to dye-based, solvent-based
pigmented Inks, or water-based pigmented Inks.
3. LICENSES
--------
3.1 Exclusive License to KODAK. CALCOMP hereby grants to KODAK and its
--------------------------
Affiliates, subject to KODAK's and its Affiliates' compliance with its material
obligations under this Agreement, a perpetual, exclusive, worldwide license
under the CALCOMP Background Technology and under all Improvements owned by
CALCOMP, subject to the provisions of paragraph 3.7 below, to make and have made
the Printheads, Print Engines, and Printers and to use and sell the Printheads
and Print Engines, and Printers within the Exclusive Field. Such license shall
be fully paid-up with respect to Improvements owned by CALCOMP and shall be
royalty-bearing as set forth in Section 4.2 with respect to CALCOMP Background
Technology.
<PAGE>
8
3.2 Nonexclusive License to KODAK. CALCOMP hereby further grants to KODAK
-----------------------------
and its Affiliates, subject to KODAK's and its Affiliates' compliance with its
material obligations under this Agreement, a perpetual, non-exclusive, worldwide
license under the CALCOMP Technology and under all Improvements owned by
CALCOMP, subject to the provisions of paragraph 3.7 below, to make and have made
the Printheads, Print Engines, and Printers and to use and sell the Printheads,
Print Engines, and Printers within the Nonexclusive Field. Such license shall
be fully paid-up with respect to Improvements owned by CALCOMP and shall be
royalty-bearing as set forth in Section 4.2 with respect to CALCOMP Background
Technology. The Nonexclusive Field includes the worldwide markets for products
and services outside of the Exclusive Field and the ULC Printhead with the
exception of the following applications:
3.2.1 Industrial Packaging Printing Applications which mean specially
configured monochrome or color piezo inkjet printing systems using a flat-
bed printer having a print area of at least 3 feet by 3 feet for printing
onto corrugated paper packaging, paper board packaging and other similar
packaging substrates;
3.2.2 Label/Ticket Printing Applications which mean specially
configured monochrome or color piezo inkjet printing systems for printing
labels or tickets onto substrates having a print width of less than 6
inches;
3.2.3 Postal Printing Applications which mean specially configured
monochrome or color piezo inkjet printing systems primarily intended for
printing on postal envelopes or franking printing for postage stamp
applications;
3.2.4 Design and Pattern Printing Applications which mean monochrome
or color, high volume, production piezo inkjet printing systems which print
recurring designs and patterns directly on textile fabrics, fabric-like
substrates and similar home furnishing materials such as wall and floor
coverings. Design and Pattern Printing Applications shall not include
short-run piezo inkjet printing systems for proofing designs or patterns or
piezo inkjet printing systems for signage or displays or piezo inkjet
printing systems which print via sublimation onto cloth or other
substrates; and
3.2.5 CAD/CAM Applications which mean monochrome and/or color piezo
ink jet printing devices, primarily for engineering, architectural,
manufacturing, design and construction markets, which create two
dimensional line drawings and three dimensional color renderings to provide
hard copy working documents.
The applications specifically excluded from the Nonexclusive Field in the
foregoing Sections 3.2.1 through 3.2.5 shall not be construed to limit or
in any way restrict the rights granted to KODAK under this Agreement with
respect to the Exclusive Field or the ULC Printhead.
<PAGE>
9
3.3 Certain Third Party Rights. KODAK acknowledges that CALCOMP has
--------------------------
granted certain exclusive rights, for a period of up to six (6) months to a
third party solely with respect to 25 picoliter contone Printheads.
------
Accordingly, KODAK agrees that until the foregoing exclusive rights granted to
the third party terminate, its non-exclusive license rights under this Agreement
solely with respect to such 25 picoliter contone Printheads shall be expressly
subject to the third party's exclusive rights.
3.4 Exclusive License For ULC Printhead: See Exhibit J(4) for this
---------------------------------------------------------------
Section 3.4.
- ------------
3.5 Nonexclusive License for Inks to KODAK. CALCOMP hereby further grants
--------------------------------------
to KODAK and its Affiliates, subject to KODAK's and its Affiliates' compliance
with its material obligations under this Agreement, a non-exclusive, worldwide
license under the CALCOMP Background Technology and under all Improvements owned
by CALCOMP, to make, have made, use and sell dye-based Inks and solvent-based
pigmented Inks. Such license shall be fully paid-up with respect to
Improvements owned by CALCOMP and shall be royalty-bearing as set forth in
Section 4.2 with respect to CALCOMP Background Technology.
3.6 Nonexclusive License For Inks to CALCOMP. KODAK hereby grants to
----------------------------------------
CALCOMP and its Affiliates, subject to CALCOMP's and CALCOMP'S Affiliates'
compliance with its material obligations under this Agreement, a perpetual, non-
exclusive, worldwide license under the KODAK Background Technology and under all
Improvements owned by KODAK, to make, have made, use and sell water-based
pigmented Inks. Such license shall be fully paid-up with respect to
Improvements owned by KODAK and shall be royalty-bearing as set forth in Section
4.3 with respect to KODAK Background Technology. Notwithstanding the foregoing
license grant, CALCOMP and its Affiliates shall not have the right to make or
have made (other than by KODAK or its Affiliates) water-based pigmented Inks
covered by KODAK Background Technology which are the subject of the Joint
Development Project and are successfully completed prior to the termination of
the Joint Development Project, meaning that a jointly developed water-based
pigmented Ink is available for sale in commercial volumes, until five (5) years
after such water-based pigmented Ink is first made available for sale in
commercial volumes; provided that CALCOMP and its Affiliates shall have the
right to make any other water-based pigmented Ink covered by KODAK Background
Technology in the Nonexclusive Field five (5) years after the effective date of
this Agreement. Notwithstanding the foregoing, in the event that KODAK fails to
meet its performance, minimum volume and/or pricing obligations relating to the
supply of water-based pigmented Inks (which were the subject of the Joint
Development Project and were successfully completed prior to the termination of
the Joint Development Project), to CALCOMP or its Affiliates for a continuous
period of more than ninety (90) days, and following receipt of notice from
CALCOMP or its Affiliates of the ninety (90) day default, fails to cure such
default within ninety (90) additional days, CALCOMP and its Affiliates shall
thereafter have the right to make or have made such water-based pigmented Inks.
3.7 KODAK's Right to Make and Have Made. KODAK and its Affiliates shall
-----------------------------------
not have the right to make or have made (other than by CALCOMP), Printheads or
Print Engines covered by CALCOMP Background Technology which are the subject of
the Joint Development
<PAGE>
10
Project and are successfully completed prior to termination of the Joint
Development Project, meaning that each of a jointly-developed Printhead and its
associated Print Engine, if any is required, is available for sale in commercial
volumes, until five (5) years after such Printhead and associated Print Engine
are first made available for sale in commercial volumes; provided that KODAK and
its Affiliates shall have the right to make any other Printhead or Print Engine
not part of the Joint Development Project (including other piezo and non-piezo
printheads and print engines) in the Exclusive Field or Nonexclusive Field five
(5) years after the effective date of this Agreement. Notwithstanding the
foregoing, in the event that CALCOMP fails to meet its performance, minimum
volume and/or pricing obligations relating to the supply of Printheads, or Print
Engines (which were the subject of the Joint Development Project and were
successfully completed prior to the termination of the Joint Development
Project), to KODAK or its Affiliates for a continuous period of more than ninety
(90) days, and following receipt of notice from KODAK or its Affiliates of the
ninety (90) day default, fails to cure such default within ninety (90)
additional days, KODAK and its Affiliates shall thereafter have the right to
make or have made such Printheads or Print Engines.
4. LICENSE FEES AND ROYALTIES
--------------------------
4.1 License Fees and Milestone Payments to CALCOMP. In partial
----------------------------------------------
consideration for the licenses and other rights granted to KODAK by this
Agreement and the Master OEM Agreement No. 1, and for CALCOMP's joint
development obligations set forth in this Agreement, KODAK shall pay to CALCOMP
the License Fee payments set forth on Exhibit B to this Agreement according to
the Schedule set forth in such Exhibit B.
4.1.1 Other Payments. KODAK shall also pay to CALCOMP the other
--------------
payments set forth on Exhibit B to this Agreement upon achievement and
completion of the associated Milestone events specified on Exhibit B.
4.1.2 Partial Performance. Partial performance of a Milestone does
-------------------
not obligate KODAK for partial payment of the payment for such Milestone.
Otherwise, failure to perform a Milestone shall be handled as set forth in
Section 14.3 of this Agreement.
4.1.3 Independent Events. Each of the payments set forth in Exhibit
------------------
B is independent of the other payments such that CALCOMP's failure to meet
one Milestone does not excuse KODAK's obligation to make future milestone
payments, unless the Agreement is terminated by KODAK pursuant to Article
14 of this Agreement ("Term and Termination").
4.2 Royalties to CALCOMP: See Exhibit J(5) for this Section 4.2.
-------------------------------------------------------------
4.3 Royalties to KODAK: See Exhibit J(6) for this Section 4.3.
-----------------------------------------------------------
<PAGE>
11
4.4 Termination of all Royalties. Notwithstanding the foregoing Sections
----------------------------
4.1 through 4.3, neither party shall owe any royalties under this Agreement to
the other seven (7) years after the termination of the Joint Development
Project, which may be extended pursuant to Section 2.2 of this Agreement.
4.5 Royalty-Bearing Products. Except as set forth in Sections 4.2 and
------------------------
4.3, neither party shall pay royalties to the other party on any other products
made under the licenses granted under this Agreement.
5. AGREEMENT TO PURCHASE CALCOMP WARRANTS
--------------------------------------
Simultaneously with the execution of this Agreement, CALCOMP will grant
warrants to KODAK in the form of the Common Stock Purchase Warrant attached
hereto as Exhibit C.
6. CALCOMP'S AND KODAK'S COMMITMENTS
---------------------------------
6.1 Supply of Printheads and Print Engines. Until KODAK has the right to
--------------------------------------
make and have made Printheads, and Print Engines, which are the subject of the
Joint Development Project, CALCOMP will supply to KODAK and KODAK will purchase
from CALCOMP, KODAK's reasonable requirements of such Printheads, and Print
Engines under Master OEM Agreement No. 1, at preferred OEM pricing subject to
the terms and conditions set forth in such Master OEM Agreement No. 1.
6.2 Minimum Purchase Volumes for Print Engines. If in any year KODAK
------------------------------------------
fails to purchase the minimum purchase volumes as mutually agreed upon under
Master OEM Agreement No. 1 of a specific Printhead and associated Print Engine
which has been designated in writing by the Project General Managers for use in
the Exclusive Field, the exclusive license set forth in Section 2.1 of this
Joint Development Agreement will automatically become a non-exclusive license
solely with respect to that specific Printhead.
6.3 Supply of Inks. Until CALCOMP has the right to make and have made
--------------
water-based pigmented Inks which are developed as a part of the Joint
Development Project, KODAK will supply to CALCOMP and CALCOMP will purchase from
KODAK, CALCOMP's reasonable requirements of such water-based pigmented Inks
under Master OEM/Supply Agreement No. 2 at preferred OEM pricing subject to the
terms and conditions, including mutually agreed upon pricing and specifications,
set forth in such Master OEM/Supply Agreement No. 2.
6.4 Supply of Printers. CALCOMP agrees to supply KODAK upon request with
------------------
its reasonable requirements of Printers which are used or developed in the Joint
Development Project in connection with the Printheads and Print Engines which
are the subject of the Joint
<PAGE>
12
Development Project at preferred OEM pricing, subject to the terms and
conditions, including mutually agreed upon pricing and specifications, set forth
in Master OEM Agreement No. 1.
6.5 Supply of Media. CALCOMP agrees to purchase from KODAK its reasonable
---------------
requirements of KODAK-branded Media or CALCOMP-branded Media which is used or
developed in the Joint Development Project in connection with the Printheads and
Print Engines which are the subject of the Joint Development Project at
preferred pricing, subject to the terms and conditions, including mutually
agreed upon pricing and specifications, set forth in Master OEM/Supply Agreement
No. 2.
6.6 Purchase of Inks from CALCOMP. CALCOMP agrees to sell KODAK upon
-----------------------------
request its reasonable requirements of dye-based Inks and solvent-based
pigmented Inks which are used or developed under the Agreement in connection
with the Printheads and Print Engines which are the subject of the Joint
Development Project at preferred OEM pricing, subject to the terms and
conditions, including mutually agreed upon pricing and specifications, set forth
in Master OEM Agreement No. 1.
6.7 Distribution of Inks. Each party (as herein designated in this
--------------------
Section 6.7 a "First Party") hereby appoints the other party (as herein
designated in this Section 6.7 a "Second Party") as a distributor of the Inks
which are jointly developed under the Joint Development Project and made or have
made by the First Party for distribution and resale of such Inks by the Second
Party or its Affiliates in the Nonexclusive Field; provided, however, that for
each such Ink sold under the Second Party's or its Affiliate's own brand or the
brand of a reseller, the Second Party will on the label and packaging of the Ink
and in the marketing and sales activities and promotional literature associated
with the Ink, designate the Ink for use only in Printheads, and associated Print
Engines and Printers, developed under the Joint Development Project and sold
under the Second Party's or its Affiliate's own brand or under the brand of a
third party reseller who is reselling Printheads, and associated Print Engines
and Printers, developed under the Joint Development Project which have been
purchased from the Second Party or its Affiliates.
6.8 CALCOMP Commitment of Funds. CALCOMP hereby commits that it will
---------------------------
devote all of the funds it has committed to use in the Joint Development Project
in calendar years 1998 and 1999 as specified in Section 2.3.2 of this Agreement
and all of the monies and all of the payments specified in Exhibit B (except the
payment(s) in item B thereof) to the conduct of the Joint Development Project in
accordance with the provisions in Section 2.3.2 of this Agreement, and that it
will provide KODAK in each of calendar years 1998 and 1999 within sixty (60)
days of the close of each calendar quarter an accounting and a written report
confirming the foregoing expenditures for the Joint Development Project. Such
accounting and written report shall be subject to audit by KODAK in accordance
with Section 8.1 of this Agreement.
6.9 KODAK Pigments. KODAK will consider, but makes no binding commitment,
--------------
to supply pigments for purchase by CALCOMP for use in the manufacture of Inks.
<PAGE>
13
(Article 7 is not used.)
- ------------------------
8. REPORTS AND PAYMENT
-------------------
8.1 Records. Each of KODAK and CALCOMP will keep complete, true, and
-------
accurate books of account and records for the purpose of showing the derivation
of all amounts payable to the other party under this Agreement and the use of
funds provided by the other party for which a specific use is required by this
Agreement. Such books and records will be kept at such party's principal place
of business for at least two (2) years following the end of the calendar quarter
to which they pertain. Upon reasonable advance notice by the other party and
not more than once per year, such books and records will be open during
reasonable business hours for audit for the sole purpose of verifying royalty
statements, or compliance with the permitted uses of funds specified in Section
2.3 and Exhibit B in this Agreement or required contributions of funds and other
resources specified in Section 2.3 by a certified public accounting firm who is
retained on other than a contingent fee basis, who has agreed to be bound by the
confidentiality provisions of Article 12 of this Agreement ("Confidentiality"),
and who is reasonably acceptable to the party being audited.
8.2 Written Reports. Each party agrees to make quarterly written reports
---------------
to the other party within sixty (60) days after the end of each calendar quarter
during the life of this Agreement for which the reporting party is required to
make such report, and as of such dates, stating in each such report the Net
Sales accruing during the preceding three (3) calendar months and upon which
royalty is payable as provided in Article 4 of this Agreement ("License Fee and
Royalties"). The first such report shall be due for a party in the calendar
quarter following the quarter in which such party makes available for sale
products on which royalty is payable under Article 4 and shall include the
entire Net Sales which accrued prior to the date of such report.
8.3 Payment Of Royalties. At the time each party provides a quarterly
--------------------
written report as set forth in Section 8.2 ("Written Reports"), the reporting
party shall pay to the other party royalties in United States dollars by wire
transfer.
8.4 Cost of Audits. Audits shall be at the expense of the auditing party
--------------
unless a variation or error exceeding U.S. $10,000, or the equivalent, is
discovered in the course of any such inspection, whereupon all costs relating
thereto shall be paid by the party being audited. Furthermore, the audited
party will promptly pay to the other party the full amount of any underpayment.
9. PROPRIETARY RIGHTS
------------------
9.1 CALCOMP Background Technology. Subject to the rights and licenses
-----------------------------
granted to KODAK and its Affiliates hereunder, CALCOMP retains all rights,
title, and interest in the
<PAGE>
14
CALCOMP Background Technology, including, without limitation, all patents,
copyrights, trade secrets, and any other intellectual property and proprietary
rights.
9.2 KODAK Background Technology. Subject to the rights and licenses
---------------------------
granted to CALCOMP and its Affiliates hereunder, KODAK retains all rights,
title, and interest in the KODAK Background Technology, including, without
limitation, all patents, copyrights, trade secrets, and any other intellectual
property and proprietary rights.
10. TRADEMARKS AND LOGOS
--------------------
Except as provided in this Article 10 ("Trademarks and Logos"), nothing
contained in this Agreement shall be construed as granting any right or license
to either party to use the trade names or trademarks of the other.
10.1 Logo. Each Printer incorporating a Printhead, Print Engine, or ULC
----
Printhead, which is purchased by KODAK or its Affiliates from CALCOMP or
made by or for KODAK or its Affiliates under the licenses granted by
CALCOMP under Article 3 ("Licenses") of this Agreement, shall bear a logo
referencing the incorporation of CALCOMP's CRYSTALJET technology as
depicted on Exhibit E to this Agreement, as may be amended from time to
time by CALCOMP (the "Technology Logo"). The foregoing requirements with
respect to the use of the Technology Logo shall apply during the term of
this Agreement but only for so long as:
10.1.1 All Printers manufactured and sold by CALCOMP and its
Affiliates bear the Technology Logo;
10.1.2 CALCOMP requires that all printers manufactured for CALCOMP or
its Affiliates or by a third party under license of technology or patents
granted by CALCOMP or its Affiliates bear the Technology Logo, meet or
exceed the applicable Printer, Printhead or Print Engine quality standards
in the Nonexclusive Field by producing a print quality reasonably
comparable to or better than that produced by printers in the top 5
printing products which directly compete with Printers incorporating a
Printhead or Print Engine, and conform to the standards for use of the
Technology Logo set forth in Exhibit E; and
10.1.3 All of the Printers manufactured by CALCOMP or its Affiliates
for KODAK or its Affiliates, in the Nonexclusive Field meet the quality
standards in the Nonexclusive Field by producing a print quality reasonably
comparable to or better than that produced by printers in the top 5
printing products which directly compete with Printers incorporating a
Printhead or Print Engine, and conform to the standards for use of the
Technology Logo set forth in Exhibit E.
<PAGE>
15
In the event that CALCOMP does not comply with the provisions of 10.1.1,
10.1.2 or 10.1.3 above, KODAK AND ITS Affiliates have the right to be released
from the foregoing requirements to use the Technology Logo without incurring any
financial liability or obligation under this Agreement relating to such release.
10.2 License of Technology Logo. CALCOMP hereby grants to KODAK and its
--------------------------
Affiliates a non-exclusive, non-transferable, worldwide, right and license to
use the Technology Logo solely on or in connection with the manufacture,
advertisement, promotion, distribution and sale of Printers incorporating
Printheads, Print Engines, or the ULC Printhead purchased by KODAK or by KODAK's
Affiliates from CALCOMP under Master OEM Agreement No. 1 or made under the
licenses granted by CALCOMP under Article 3 ("Licenses") of this Agreement,
respectively.
10.3 Quality Control for the Technology Logo for Purchased Printheads.
----------------------------------------------------------------
KODAK agrees that all Printers incorporating a Printhead, Print Engine, and/or
ULC Printhead purchased by KODAK or its Affiliates from CALCOMP under Master OEM
Agreement No. 1 and which Printers are manufactured by or for KODAK or its
Affiliates other than by CALCOMP and bear the Technology Logo shall produce a
print quality reasonably comparable to or better than that produced by printers
in the top 5 printing products which directly compete with such Printers and
comply with the standards for use of the Technology Logo set forth in Exhibit E.
KODAK agrees upon reasonable request by CALCOMP, to deliver free of charge to
CALCOMP, a sample of specified models of Printers manufactured by or for KODAK
or its Affiliates other than by CALCOMP and/or photographs clearly showing the
presentation of the Technology Logo on the Printer, provided however that for
each such specified model of Printer KODAK and its Affiliates shall be required
to furnish such samples no more than once in any consecutive six (6) month
period during the term of this Agreement. Should CALCOMP at any time determine
that the quality of any of the Printers bearing the Technology Logo manufactured
by or for KODAK or its Affiliates other than by CALCOMP does not reasonably
conform to the aforementioned print quality set forth in this Section 10.3 and
the standards for use of the Technology Logo set forth in Exhibit E, CALCOMP
will provide written notice to KODAK specifying the nature of the
nonconformance. Upon receipt of such notice, KODAK shall use commercially
reasonable efforts to correct the nonconformance. If KODAK does not reasonably
correct the nonconformance within ninety (90) days from receipt of written
notice from CALCOMP, KODAK shall stop shipping the aforesaid Printers.
10.4 Quality Control for Technology Logo for Licensed Printheads. KODAK
-----------------------------------------------------------
agrees that each Printer incorporating a Printhead, Print Engine, or ULC
Printhead manufactured by or for KODAK or its Affiliates under the licenses
granted by CALCOMP under Article 3 ("Licenses") of this Agreement and bearing
the Technology Logo shall produce a print quality reasonably comparable to or
better than that produced by the printheads in the top 5 printing products which
directly compete with such Printer and comply with the standards for use of the
Technology Logo set forth in Exhibit E. KODAK agrees upon reasonable request by
CALCOMP, to deliver free of charge to CALCOMP, a sample of specified models of
each
<PAGE>
16
Printhead, Print Engine, and/or ULC Printhead manufactured by or for KODAK other
than by CALCOMP, samples of prints produced by such Printhead, and photographs
clearly showing the presentation of the Technology Logo on the Printer in which
such Printhead is used, provided however that for each such specified model of
Printhead KODAK and its Affiliates shall be required to furnish such samples no
more than once in any consecutive six (6) month period during the term of this
Agreement. Should CALCOMP at any time determine that the quality of any of the
aforesaid Printers bearing the Technology Logo manufactured by or for KODAK or
its Affiliates other than by CALCOMP does not reasonably conform to the
aforementioned print quality set forth in this Section 10.4 and the standards
for use of the Technology Logo set forth in Exhibit E, CALCOMP will provide
written notice to KODAK specifying the nature of the nonconformance. Upon
receipt of such notice, KODAK shall use commercially reasonable efforts to
correct the nonconformance. If KODAK does not reasonably correct the
nonconformance within ninety (90) days from receipt of written notice from
CALCOMP, KODAK shall stop shipping the aforesaid Printers.
10.5 Use of the Technology Logo. KODAK agrees that the presentation and
--------------------------
image of the Technology Logo shall be reasonably uniform, and consistent and
presented in a manner reasonably conforming to CALCOMP's standards (as set forth
in Exhibit E) for the use and display of the Technology Logo with respect to all
models of Printers (within a specified line of Printers) bearing the Technology
Logo. The Technology Logo will be readily visible to a user of the Printer and
may not be used on or in reference to any product other than Printers
incorporating a Printhead, Print Engine or a ULC Printhead purchased by KODAK or
by KODAK's Affiliates from CALCOMP under Master OEM Agreement No. 1 or
manufactured by or for KODAK or KODAK's Affiliates under the Licenses granted
under Article 3 ("Licenses") of this Agreement.
10.6 Advertising. During the period specified in Section 10.1 above,
-----------
KODAK agrees that it will include in substantially all KODAK advertisements for
the Printers the Technology Logo in clearly visible form and a statement that
the Printers incorporate CRYSTALJET technology under license from CALCOMP.
KODAK agrees to promptly review any and all advertisements which include the
Technology Logo to which CALCOMP has objected in writing with respect to KODAK's
use of the Technology Logo and will use commercially reasonable efforts to
correct that portion to which CALCOMP has reasonably objected.
10.6 Ownership. KODAK hereby agrees that it shall acquire no ownership
---------
interest in the Technology Logo by virtue of this Agreement.
10.7 Warranty and Indemnification. CALCOMP warrants to KODAK and its
----------------------------
Affiliates that the Technology Logo does not violate the rights of any third
party and that it has full power to make this Agreement and to grant the rights
as provided herein. CALCOMP agrees to defend and indemnify KODAK and its
Affiliates against any claims (and to pay any damages and attorneys' fees
awarded) based on allegations that use of the Technology Logo infringes the
trademark rights of any third party, which allegations, if true, would
constitute a breach of the foregoing express warranty, provided that CALCOMP is
--------
promptly notified of and tendered the
<PAGE>
17
defense to such claims with counsel of its own choosing and no settlement is
made without CALCOMP's prior written consent.
11. PURCHASE AND SALE
-----------------
The terms and conditions relating to the purchase and sale of products
between the parties are to be governed by Master OEM Agreement No. 1 and Master
OEM/Supply Agreement No. 2 as appropriate, entered into between the parties
concurrently with this Agreement.
12. CONFIDENTIALITY
---------------
12.1 CALCOMP's Confidential Information. KODAK agrees to maintain the
----------------------------------
confidential nature of trade secrets and proprietary information relating to the
Joint Development Project belonging to CALCOMP (i) which is disclosed to KODAK
by CALCOMP in tangible form clearly labeled as confidential at the time of
disclosure, or (ii) which is disclosed to KODAK by CALCOMP initially in non-
tangible form and identified as confidential at the time of disclosure and,
within thirty (30) days following the initial disclosure, is summarized and
designated as confidential in a written memorandum delivered to KODAK
("CALCOMP's Confidential Information"). KODAK shall not use CALCOMP's
Confidential Information for any purpose other than exercising the rights
granted to KODAK under and in the performance of this Agreement. KODAK shall
not disclose CALCOMP's Confidential Information to any third party without the
prior written consent of CALCOMP.
12.2 KODAK's Confidential Information. CALCOMP agrees to maintain the
--------------------------------
confidential nature of trade secrets and proprietary information relating to the
Joint Development Project belonging to KODAK (i) which is disclosed to CALCOMP
by KODAK in tangible form clearly labeled as confidential at the time of
disclosure, or (ii) which is disclosed to CALCOMP by KODAK initially in non-
tangible form and identified as confidential at the time of disclosure and,
within thirty (30) days following the initial disclosure, is summarized and
designated as confidential in a written memorandum delivered to CALCOMP
("KODAK'S Confidential Information"). CALCOMP shall not use KODAK's
Confidential Information for any purpose other than exercising the rights
granted to CALCOMP under and in the performance of this Agreement. CALCOMP
shall not disclose KODAK's Confidential Information to any third party without
the prior written consent of KODAK.
12.3 Period of, and Exclusions from, Confidentiality Obligations. The
-----------------------------------------------------------
foregoing obligations of confidentiality on the parties under this Article 12
shall apply until seven (7) years after termination of the Joint Development
Project, but these obligations shall not apply to information that:
12.3.1 prior to the transmittal was of general public knowledge;
<PAGE>
18
12.3.2 becomes a matter of general public knowledge otherwise than as
a consequence of a breach under this Agreement;
12.3.3 is made public by the party claiming confidentiality;
12.3.4 is required to be disclosed by applicable law or regulation;
provided however, that the party who may be required to disclose such
information shall notify the other party in sufficient time for the owner
of such Confidential Information to file the appropriate documents with the
court to obtain a protective order to enforce the confidentiality
requirements of this Agreement;
12.3.5 the receiving party can establish by competent proof was in
its possession at the time of disclosure by the disclosing party and was
not acquired, directly or indirectly, from the disclosing party;
12.3.6 is received from a third party; provided, however, that the
receiving party has no reason to know such information was obtained by said
third party, directly or indirectly, from the other party under a
nondisclosure agreement;
12.3.7 the receiving party can establish was independently developed
without recourse to the confidential information of the other party;
12.3.8 is submitted to governmental or non-governmental agencies to
obtain the issuance of marketing or safety approvals for products developed
under the terms of this Agreement;
12.3.9 is disclosed to agents and subcontractors of the parties in
the furtherance of the parties' permitted development, manufacturing or
marketing activities under the terms of this Agreement under
confidentiality provisions which are the same or similar to those set forth
in this Agreement;
12.3.10 is disclosed in patents filed in furtherance of the parties'
permitted development, manufacturing, and marketing activities under the
terms of this Agreement; or
12.3.11 is product-related information which (i) is reasonably
required to be disclosed in connection with the manufacture or marketing of
Printheads, Print Engines, Printers, Inks, or Media developed or
manufactured under the terms of this Agreement and (ii) is disclosed under
confidentiality provisions which are the same or similar to those set forth
in this Agreement where appropriate.
12.4 Injunctive Relief. The parties acknowledge that in certain
-----------------
cases it is possible that neither party may have an adequate remedy at law if
the other party violates the terms of this Article 12 ("Confidentiality") and
that in such cases each party, unless it is in breach of a
<PAGE>
19
material obligation of this Agreement, may have the right to seek injunctive
relief or otherwise to specifically enforce any of the covenants in this Article
12 ("Confidentiality") if the other party fails to perform such covenants.
13. WARRANTIES AND REPRESENTATIONS; DISCLAIMER OF IMPLIED WARRANTIES
----------------------------------------------------------------
13.1 Each party to this Agreement represents and warrants that (i) it has
the full power, right, and authority to enter this Agreement and to grant the
rights and licenses granted hereunder to the other party, (ii) that it has
entered into no prior agreements or undertaken any prior obligations, nor shall
it enter into any such agreements or undertake any such obligations during the
term of this Agreement, which conflict with the performance of its duties and
licenses granted hereunder to the other party, (iii) it is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction in which it was incorporated, and (iv) that it shall guarantee the
performance of its Affiliates under this Agreement.
13.2 CALCOMP represents and warrants as of the Effective Date that there
are no outstanding liens, claims, or other encumbrances on the rights in CALCOMP
Background Technology which are designated for use in the Joint Development
Project to be conducted hereunder with KODAK. A complete list of the patents
and patent applications which are included in CALCOMP's Background Technology as
of the Effective Date of this Agreement is set forth in the attached Exhibit D.
Upon request no more than twice each year during the term of this Agreement,
CALCOMP will provide KODAK with an updated list of its patents and patent
applications included in CALCOMP Background Technology.
13.3 THE FOREGOING WARRANTIES ARE EXCLUSIVE, ARE THE ONLY WARRANTIES MADE
BY THE PARTIES IN CONNECTION WITH THIS AGREEMENT AND ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE AND OF NON-INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF ANY THIRD PARTIES.
14. TERM AND TERMINATION
--------------------
14.1 Term. This Agreement and the Joint Development Project shall remain
----
in effect for a period of five (5) years from the Effective Date specified on
the first page hereof, unless earlier terminated or extended by written
agreement of the parties or earlier terminated under Section 2.2 or this Article
14.
14.2 Termination for Breach. Unless otherwise specified in this
----------------------
Agreement, the default by one party of a material obligation of such party under
this Agreement shall entitle the other party to give the party in default
written notice describing such default in detail (including
<PAGE>
20
supporting documentation) and requiring it to remedy such default. If such
default is not fully remedied within ninety (90) days after the date of such
notice, the notifying party shall be entitled to, in addition to all other
remedies available to such party, terminate this Agreement by a written notice
to the defaulting party.
14.3 Failure to Meet Milestones and Termination. Notwithstanding Section
------------------------------------------
2.1 above, Exhibit B sets forth a completion date for each Milestone.
(a) CALCOMP acknowledges that it is the party primarily responsible
for completing Milestones #1 and #2 under this Agreement. In the event the
failure to complete Milestone #1 or #2 is caused by CALCOMP's failure to meet
its material obligations under this Agreement relating to completion of such
Milestone, KODAK shall notify CALCOMP in writing of the specific nature of the
failure and shall give CALCOMP a cure period of ninety (90) days to cure the
failure and to comply. The deadline for the completion of such Milestone will
be extended by the cure period. If CALCOMP does not cure such failure and
complete such Milestone within such cure period, (i) KODAK shall not make the
payment to CALCOMP for completion of the Milestone, and (ii) KODAK may terminate
this Agreement upon providing written notice to CALCOMP within (60) days of the
completion date for such Milestone, as extended.
(b) The parties acknowledge and agree that Milestone #3 is
substantially dependent upon the efforts of both parties as described in the
Operating Work Plan of the Joint Development Project in Exhibit A. In the event
that the parties are not able to complete Milestone #3 by the completion date
set forth in Exhibit B, and such failure is caused by one party's failure to
meet its material obligations under this Agreement relating to completion of
such Milestone, the other party shall notify the first party of the specific
nature of the failure and shall give the first party a cure period (at least 90
days) to permit the party to cure the failure and to comply. The deadline for
completion of Milestone #3 will be extended by the cure period. In the event,
the failure to complete Milestone #3 is caused by CALCOMP's failure to meet its
obligations under this Agreement relating to completion of such Milestone, then
(i) KODAK shall not make the payment to CALCOMP for completion of the Milestone,
and (ii) KODAK may terminate this Agreement upon providing written notice to
CALCOMP within sixty (60) days of the completion date for such Milestone, as
extended.
(c) In the event that neither party is in default with respect to its
material obligations under this Agreement relating to completion of a Milestone
and such Milestone is not completed by the completion deadline for such
Milestone in Exhibit B, there shall be a reasonable additional period of time at
least ninety (90) days following such date within which the parties will have to
complete the Milestone. If the Milestone is still not completed after
expiration of such additional period, and the parties do not mutually agree in
writing to extend the completion date for such Milestone, then (i) KODAK will
not make the payment to CALCOMP related to completion of such Milestone, and
(ii) KODAK may terminate this Agreement upon providing written notice to CALCOMP
within sixty (60) days of the final completion date for such Milestone, as
extended.
<PAGE>
21
(d) In the event the failure to complete Milestone #1, Milestone #2
or Milestone #3 by the completion date set forth in Exhibit B is caused by
KODAK's failure to meet its material obligations under this Agreement relating
to completion of such Milestone and KODAK does not cure such failure with the
result that CALCOMP is unable to complete the Milestone, CALCOMP shall be
entitled to give KODAK written notice of the specific nature of the failure
(including supporting documentation) and requiring KODAK to remedy such failure.
If such failure is not fully remedied within ninety (90) days after the date of
such notice, KODAK shall promptly pay CALCOMP the full amount of the applicable
Milestone payment.
14.4 Termination on Insolvency. Either party may terminate this Agreement
-------------------------
at any time upon or after the filing against the other party by any third party
of a petition in bankruptcy or insolvency, which proceeding is not discharged
within 120 days, or upon or after any adjudication that the other party is
insolvent, or upon or after the filing by the other party of any petition or
answer seeking reorganization, readjustment or arrangement of the business of
the other party under any law relating to bankruptcy or insolvency, or upon or
after the appointment of a receiver for all or substantially all of the property
of the other party of any assignment or attempted assignment for the benefit of
creditors, or upon or after the institution of any proceedings for the
liquidation or winding up of the other party's business.
<PAGE>
22
14.5 Rights Upon Termination.
-----------------------
14.5.1 In the event of any valid termination of this Agreement under
Sections 14.2, 14.3 or 14.4 hereof, each party's rights under this
Agreement shall be terminated. Except as provided in Section 14.5.2,
Section 14.5.3, and Section 14.5.5 hereof, the termination of the parties'
rights shall include the termination of any rights of each party to
continue to use the technology belonging to the other party. No
termination shall impact either party's rights to collect for accrued or
previously paid royalties.
14.5.2 In the event of any valid termination of this Agreement by one
party under Section 14.2 of this Agreement, unless the one party is in
breach of any material obligation under this Agreement, the licenses
granted to the non-breaching party in this Agreement shall continue in
perpetuity and shall be fully-paid up.
14.5.3 In the event of any valid termination of this Agreement by one
party under Section 14.3 or 14.4 of this Agreement, unless the one party is
in breach of a material obligation under this Agreement, the licenses
granted to the non-breaching party in this Agreement shall continue with
royalties due and payable for the period and on the terms set forth in this
Agreement.
14.5.4 Notwithstanding the above, if this Agreement terminates for
any reason other than breach of KODAK's obligation in Section 10.3 or 10.4
of this Agreement, or if it expires, KODAK may continue to sell for 180
days after termination or expiration the inventory of finished or completed
Printers bearing the Technology Logo which exists as of the termination or
expiration date. If the Agreement terminates due to breach of KODAK's
obligation in Section 10.3 or Section 10.4 of this Agreement, KODAK shall
not have the foregoing right to continue to sell such inventory of
Printers.
14.5.5 In the event of any valid termination of this Agreement other
than termination under Sections 14.2, 14.3, or 14.4 hereof, the licenses
granted to a party under this Agreement shall continue with royalties due
and payable for the period and on the terms set forth in this Agreement,
unless such party is in breach of a material obligation under this
Agreement.
15. DISPUTE RESOLUTION
------------------
The parties will attempt in good faith to resolve any controversy or claim
arising out of or relating to this Agreement, or the breach, termination or
validity hereof promptly by negotiations between executives of the parties who
have authority to settle the controversy or claim and who do not have direct
responsibility for the administration of this Agreement.
The disputing party shall give the other party written notice of the
dispute. Within thirty (30) days after receipt of the notice, the receiving
party shall submit to the disputing party a
<PAGE>
23
written response. The notice and response shall include (a) a statement of each
party's position and a summary of the evidence and arguments supporting its
position, and (b) the name and title of the executive who will represent that
party. The executives shall meet at a mutually acceptable time and place within
forty (40) days of the date of the disputing party's notice and thereafter as
they reasonably deem necessary to exchange relevant information and to attempt
to resolve the controversy or claim.
If the controversy or claim has not been resolved pursuant to the mediation
procedure within ninety (90) days of the commencement of such procedure, or if
either party will not participate in mediation, either party may initiate
litigation in a state or federal court having jurisdiction thereof and located
in the judicial district in which the other party has its principal office. All
statutes of limitation shall be tolled while the alternative dispute resolution
procedures described in this Article are pending.
16. GOVERNMENT APPROVALS
--------------------
KODAK and CALCOMP acknowledge that each party has determined that this
Agreement is not subject to "pre-merger" clearance procedures in the United
States ("US") and the European Community ("EC"). Accordingly, KODAK and CALCOMP
agree that in the event any required clearance for this Agreement is required in
the US or the EC and/or any necessary filing is not approved by any jurisdiction
which requires such a filing, the parties shall amend this Agreement to the
extent necessary to comply with any such required clearance or filing, with such
amendment to contain commercially reasonable provisions which preserve the
economic equity of both parties.
17. PUBLICITY; MUTUAL PRESS RELEASE
-------------------------------
Neither party shall disclose the terms of this Agreement without the prior
written consent of the other party. CALCOMP and KODAK have agreed to the
wording of the press release in the attached Exhibit I. Both parties shall
publish this press release on a mutually agreed-on date. Nothing in this
Section 17 will prevent CALCOMP or KODAK from disclosing matters required to be
disclosed by the Securities and Exchange Commission or other governmental
authorities.
18. MISCELLANEOUS
-------------
18.1 Nonassignability. Except in connection with the sale of all or
----------------
substantially all of the Printhead assets or Printhead business of either party
to which this Agreement relates other than a competitor of the other party
listed in Exhibit H, which the parties may mutually agree to amend in writing
from time to time during the term of this Agreement, and except as contemplated
under Section 18.18, neither party may assign, transfer or sublicense any of the
<PAGE>
24
rights or obligations under this Agreement, without the prior written consent of
the other party. This Agreement will inure to the benefit of and bind each
party's successors and assigns.
18.2 Failure to Enforce. The failure of either party to enforce at any
------------------
time or for any period of time the provisions of this Agreement shall not be
construed to be a waiver of such provisions or of the right of such party to
enforce each and every such provision.
18.3 Governing Law. Except as set forth in Article 15 of this Agreement
-------------
("Dispute Resolution"), this Agreement shall be deemed to have been made in the
State of New York, United States of America, and shall be governed by and
construed according to the laws of the State of New York without reference to
its conflict of laws provisions.
18.4 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be unenforceable, such provisions shall be deleted from this Agreement and
the remaining portions of this Agreement shall remain in full force and effect,
except where the economic equity of both parties hereto is materially affected
by such unenforceability.
18.5 Notice. Any notice required or permitted to be given to the parties
------
hereto shall be given in writing and be either personally delivered, sent by
registered or certified mail, return-receipt requested, postage prepaid (except
during time of postal strike), or sent by facsimile to the other party to the
address set forth below. Any notice sent by personal delivery or registered
mail shall be deemed to be received on the date of delivery. Any notice sent by
facsimile shall be deemed to have been received by the party to whom it was sent
on the first business day following its transmission. Furthermore, while any
party may change its address by written notice to the other party in accordance
with this Section 18.5, all addresses for notice must be addresses to which
notices can be personally delivered.
Address for Notice to KODAK Address for Notice to CALCOMP
--------------------------- -----------------------------
Eastman Kodak Company CalComp Technology, Inc.
343 State Street 14555 North 82nd Street
Rochester, NY 14650-0414 Scottsdale AZ 85260-2599
Attention: President, Kodak Professional Attention: Corporate Secretary
18.6 Force Majeure. Neither party shall be liable to the other party
-------------
hereto for any loss, injury, delay, damages or other casualties suffered or
incurred by such other party due to strikes, riots, storms, fires, acts of God,
or war or any other cause beyond the reasonable control of either party.
<PAGE>
25
18.7 Headings. Headings to articles, paragraphs and sections of this
--------
Agreement are to facilitate reference only, do not form a part of this
Agreement, and shall not in any way affect the interpretation hereof.
18.8 Survival From This Agreement. The rights and obligations of the
----------------------------
parties hereto under Article 9 ("Proprietary Rights") and Article 12
("Confidentiality") of this Agreement shall survive and continue after any
expiration or termination of this Agreement and shall bind the parties and their
representatives, successors, heirs and assignees.
18.9 Exhibits. All exhibits to which this Agreement refers are hereby
--------
incorporated into and made a part of this Agreement.
18.10 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between KODAK and CALCOMP, and there are no other understandings, agreements or
representations, express or implied, written or oral, not specified herein.
This Agreement may only be amended by express written agreement signed by
authorized representatives of both parties.
18.11 Conflicts in Documentation. In the event that a conflict arises
--------------------------
between this Agreement and any work order or purchase order related to the Joint
Development Project, this Agreement shall govern and prevail, and the
conflicting terms and conditions of any such documents shall be deemed deleted,
and shall not be binding upon either party. In connection with the terms of
Articles 1 through 18. of this Agreement and attached Exhibits A through J, the
terms of such Exhibits shall be construed in a manner that is consistent with
the terms of such Articles; and in the event of any conflict between such
Articles and Exhibits, the terms of Articles 1. through 18. shall prevail.
18.12 Independent Contractors. In the performance of the duties
-----------------------
contemplated under this Agreement, the status of the parties including employees
and agents of each, shall be that of independent contractors and not as
employees, agents, or fiduciaries of the other party and as such neither party
shall have any right to make commitments for or on behalf of the other party.
18.13 Acts of Employees. Each party shall be responsible for the safety
-----------------
of its employees and agents with respect to activities relating to the Joint
Development Project under this Agreement and for liability for damages or
personal injuries, including death, resulting from such activities without any
warranty, liability, or indemnification on the part of the other party.
18.14 Loaned Equipment. Each party shall have independent discretion in
----------------
determining which of their own equipment will be furnished in connection with
the Joint Development Project. All such equipment loaned by one party to the
other shall remain the property of the party making such loan and shall be
returned upon request.
18.15 Sample Materials. Each party understands and acknowledges that any
----------------
sample or prototype materials furnished by either party to the other in
connection with the Joint
<PAGE>
26
Development Project are experimental and such samples are provided only for
experimental use without any representation, assurance, or warranty on the part
of either party.
18.16 Right To Work With Third Parties. Subject to the terms of this
--------------------------------
Agreement, each party shall be free to engage in other work, alone or with
others, and to furnish information to and receive information from others.
18.17 Export Licenses. This Agreement, and any technical information
---------------
provided under this Agreement, may be subject to restrictions concerning the
export or products or technical information from the United States which may be
imposed by the U.S. Government or any other competent authority. Accordingly,
the parties agree that they shall not export or re-export, directly or
indirectly, any technical information acquired under this Agreement or any
products utilizing any such technical information to any country for which the
U.S. Government or other competent authority at the time of export requires an
export license or other approval, without first obtaining the written consent to
do so from the Department of Commerce or other agency of the U.S. Government or
Department of Commerce or other agency of the U.S. Government or from other
competent authority when required by an applicable statute or regulation.
18.18 Right To Sell Topaz Assets. In the event during the term of this
--------------------------
Agreement, CALCOMP desires to sell any of the Topaz Assets (other than in the
ordinary course of its business), CALCOMP shall first offer to KODAK a right to
purchase the Topaz Assets, or such portion thereof to be sold. CALCOMP shall
deliver to KODAK a written notice (the "Sale Notice") of its desire to sell
Topaz Assets, stating with specificity which assets will be sold. Thereafter,
KODAK shall engage an accounting firm or investment banking firm of nationally
recognized standing to render an appraisal as to the value of the Topaz Assets
available for sale. Such appraisal shall be rendered within sixty (60) days
from the Sale Notice and the cost thereof shall be shared equally by KODAK and
CALCOMP. KODAK and CALCOMP shall have a period of thirty (30) days from the
date of such appraisal to negotiate a definitive asset sale agreement containing
terms and conditions standard for transactions of this type. The agreed upon
price for the assets, if any, shall be within ten percent (10%) of the range set
forth in the appraisal. If no definitive agreement can be reached within such
thirty-day period, CALCOMP shall be free to sell the assets to a third party,
provided, however, that the terms of the sale are no more favorable than those
offered to KODAK during the negotiation period.
18.19 Right To Sell A Portion Of Topaz Assets. In the event CALCOMP sells
---------------------------------------
only a portion of the Topaz Assets, whether to KODAK or a third party purchaser,
KODAK's right of first refusal set forth in Section 18.18 above shall continue
with respect to the Topaz Assets still owned by CALCOMP.
<PAGE>
27
18.20 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
CALCOMP TECHNOLOGY, INC.
Signature: /s/ John C. Batterton
--------------------------------
Printed Name: John C. Batterton
Title: President and CEO
EASTMAN KODAK COMPANY
Signature: /s/ Patrick T. Siewert
--------------------------------
Printed Name: Patrick T. Siewert
Title: President, Kodak Professional and
Vice President, Eastman Kodak Company
<PAGE>
EXHIBIT 10.35
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), AND THIS WARRANT CANNOT BE SOLD OR TRANSFERRED AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY ISSUING THIS WARRANT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
8,000,000 Shares
(Subject to Adjustment)
CALCOMP TECHNOLOGY, INC.
COMMON STOCK PURCHASE WARRANT
MARCH 29, 1998
This certifies that, for value received in connection with the Patent
License and Joint Development Agreement dated as of March 29, 1998 (the "Joint
Development Agreement") between Eastman Kodak Company ("Kodak" or
"Warrantholder") and Calcomp Technology, Inc., a Delaware corporation
("Company"), Warrantholder is entitled to subscribe for and purchase from the
Company 8,000,000 shares of the Company's Common Stock, par value $0.01
("Warrant Stock"), at the price of $3.8797 per share (the average closing sales
price of Calcomp Technology, Inc. Common Stock for the period of twenty trading
days ending on the trading day immediately prior to the effective date of the
Joint Development Agreement) ("Exercise Price"), subject to the terms and
conditions stated herein.
1. Exercise of Warrant
-------------------
1.1 Exercisability of Warrant. This Warrant shall become vested as
-------------------------
to one-half (1/2) of the shares of Warrant Stock underlying this Warrant upon
the first anniversary of this Warrant, and the remaining one-half (1/2) upon the
second anniversary hereof (each, a "Vesting Date"); provided, however, that in
the event that the Joint Development Agreement is terminated prior to a Vesting
Date, this Warrant shall not be effective as to any Warrant Stock that was to be
vested on such Vesting Date.
1.2 Manner of Exercise. Subject to Section 1.1, the rights
------------------
represented by this Warrant may be exercised in whole or in part with respect to
the vested shares by the Warrantholder from time to time by the surrender of
this Warrant and delivery of an executed Subscription Agreement in the form
attached hereto as Schedule A to the Company at its principal executive office
located at 2411 West LaPalma Avenue, Anaheim, CA. 92803-3250, or such other
place as the Company shall designate in writing, at any time or times prior to
the Expiration Date (as defined below), accompanied by payment for the Common
Stock so subscribed by wire transfer per the Company's instructions or certified
check payable to the Company. In the event of a partial
<PAGE>
-2-
exercise, the Company shall give a new Warrant with respect to the Warrant
Shares which remain unexercised.
1.3 Expiration Date. This Warrant shall terminate on the date which
---------------
is seven (7) years from the date of this Warrant ("Expiration Date").
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Warrantholder as follows:
2.1 Organization. The Company (i) is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and (ii) has all requisite power and authority to carry on its business, to own
and hold its properties and assets, and to issue and carry out the provisions of
this Warrant.
2.2 Authorization. The execution, delivery and performance by the
-------------
Company of this Warrant have been duly and validly authorized by the Company's
Board of Directors, and no authorization or approval of the Company's
stockholders is required in connection therewith. This Warrant constitutes the
legal, valid and binding obligation of the Company and is enforceable against
the Company in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
2.3 No Conflict. The execution, delivery and performance by the
-----------
Company of this Warrant: (i) will not conflict with, result in a breach of or
constitute a default under any material contract, agreement, indenture, loan or
credit agreement, deed of trust, mortgage, lease, security agreement or other
arrangement to which the Company is a party or by which the Company or any of
its properties or assets is bound or affected; (ii) will not cause the Company
to violate or contravene any provision of its Fourth Amended and Restated
Certificate of Incorporation or Bylaws; or (iii) will not conflict with or
result in a breach of or require any authorization, consent, approval, permit,
exemption or other action by or notice to any court or administrative or
governmental body pursuant to any law, statute, rule or regulation to which the
Company is subject or any material instrument, order, judgment or decree to
which the Company is subject.
2.4 Warrant Stock. All of the shares of Common Stock issuable upon
-------------
exercise of this Warrant have been duly authorized and reserved for issuance
and, upon payment thereon and issuance thereof in accordance with the terms of
this Warrant, will be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and other charges with respect to
the issue thereof. The Company further warrants and agrees that during the
period within which this Warrant may be exercised the Company will at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
2.5 Capitalization. The authorized capital stock of the Company
--------------
consists of 60,000,000 shares of Common Stock ("Common Stock"), of which
approximately 47,092,950 shares are issued and outstanding on the date of this
Warrant, and 5,000,000 shares of Preferred
<PAGE>
-3-
Stock, of which none are issued and outstanding on the date of this Warrant. All
such issued and outstanding shares have been duly authorized and validly issued
and are fully paid and nonassessable. The Company has approximately 108,131
shares of Common Stock reserved for issuance upon exercise of warrants
outstanding prior to the date hereof. The Company has also reserved shares of
Common Stock under the Company's Stock Option Plans for issuance to employees,
officers, directors and consultants of the Company as may be determined by the
Company's Board of Directors from time to time, of which approximately 2,396,591
options to purchase shares of Common Stock are presently outstanding.
3. Restrictions on Transfer.
------------------------
3.1 Restrictions on Transfer and Warrantholder Representations. In
----------------------------------------------------------
acquiring the Warrant and the Warrant Stock (collectively, the "Securities"),
Warrantholder makes the following representations, warranties and agreements:
(a) The Warrant is acquired for Warrantholder's own account for
investment purposes and not with a view to any offering or distribution, and
Warrantholder has no present intention of selling or otherwise disposing of the
Warrant or the Warrant Stock in violation of applicable securities laws. Upon
exercise, Warrantholder will confirm, in respect of securities obtained upon
such exercise, that Warrantholder is acquiring such securities for
Warrantholder's own account and not with a view to any offering or distribution
in violation of applicable securities laws. Warrantholder acknowledges that
shares of Warrant Stock issued upon exercise of this Warrant will not be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will be "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act.
(b) The Securities shall not be sold, assigned, transferred or pledged
except upon the conditions specified in this Warrant, which conditions are
intended, among other things, to ensure compliance with the provisions of the
Securities Act. The Warrantholder will cause any proposed purchaser, assignee,
transferee or pledgee of the Securities held by the Warrantholder to agree to
take and hold such Securities subject to the provisions and upon the conditions
specified in this Warrant.
(c) Warrantholder represents and warrants to the Company the
following:
(i) Warrantholder has received all the information it considers
necessary or appropriate to evaluate the risks and merits of an investment
in the Company, and has had an opportunity to discuss the Company's
business, management, financial affairs and prospects with the Company's
management.
(ii) Warrantholder is able to bear the economic risks related to a
purchase of the Securities. Warrantholder has the capacity to protect its
own interests in connection with the subject transactions.
<PAGE>
-4-
3.2 Restrictive Legend. Each certificate representing (i) the shares
------------------
of Warrant Stock and (ii) any other securities issued in respect of the
securities referenced in clause (i) upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by this Warrant or by law) be stamped or otherwise imprinted
with a legend in the following form (in addition to any legend required under
applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT."
Warrantholder consents to the Company making a notation on its records
and giving instructions to any transfer agent of the securities of the Company
required to bear the legend set forth above in order to implement the
restrictions on transfer established in this Section 3.
4. Adjustments. The number of shares of Common Stock or other
-----------
securities for which Warrantholder is entitled to subscribe and purchase from
the Company pursuant to this Warrant and the Exercise Price for such shares
shall be subject to adjustment from time to time only as follows:
4.1 Adjustments for Stock Splits and Combinations. If the Company at
---------------------------------------------
any time or from time to time after the date hereof effects a subdivision of the
outstanding Common Stock, the number of shares of Common Stock for which
Warrantholder is entitled to subscribe and purchase from the Company upon
exercise of this Warrant shall be proportionately increased and the Exercise
Price then in effect immediately before the subdivision shall be proportionately
decreased, and conversely, if the Company at any time or from time to time after
the date hereof combines the outstanding shares of Common Stock, the number of
shares of Common Stock for which Warrantholder is entitled to subscribe and
purchase from the Company shall be proportionately decreased and the Exercise
Price then in effect immediately before the subdivision shall be proportionately
increased. Any adjustment under this subsection shall become effective at the
close of business on the date the subdivision or combination becomes effective.
4.2 Adjustments for Certain Dividends and Distributions. In the
---------------------------------------------------
event the Company at any time or from time to time after the date hereof makes,
or fixes a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
for which Warrantholder is entitled to subscribe and purchase from the Company
upon exercise of this Warrant shall be proportionately increased and the
Exercise Price then in effect shall be proportionately decreased as of the time
of such issuance or, in the event such a record date is fixed, as of the close
of business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed
<PAGE>
-5-
therefor, the number of shares of Common Stock for which Warrantholder is
entitled to subscribe and purchase from the Company and the Exercise Price
therefor shall be recomputed accordingly as of the close of business on such
record date and thereafter the number of shares of Common Stock then issuable on
exercise of this Warrant and the Exercise Price therefor shall be adjusted
pursuant to this subsection as of the time of actual payment of such dividends
or distributions.
4.3 Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
the Common Stock issuable upon the exercise of this Warrant is changed into the
same or a different number of shares of any class or classes of stock, whether
by reclassification, recapitalization or otherwise (other than a subdivision or
combination of shares or stock dividend or a capital reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 4), then
and in any such event Warrantholder shall have the right thereafter to purchase
the kind and amount of stock and other securities and property receivable upon
such reclassification, recapitalization or other change, by holders of the
number of shares of Common Stock which might have been purchased upon exercise
of this Warrant immediately prior to such reclassification, recapitalization or
change, all subject to further adjustment as provided herein.
4.4 Adjustment for Reorganizations, Mergers, Consolidations or Sales
----------------------------------------------------------------
of Assets. If at any time or from time to time there is a capital
- ---------
reorganization or any merger of the Company with or into any other corporation
or corporations or a sale of all or substantially all of the assets of the
Company to any other person or any voluntary or involuntary liquidation,
dissolution or winding up of the Company (any such transaction referred to
herein as a "Reorganization") involving the Common Stock then, as a part of such
Reorganization, provision shall be made so that Warrantholder shall thereafter
be entitled to receive, upon exercise of this Warrant, the number of shares of
stock or other securities or property of the Company or of the successor
corporation resulting from such Reorganization to which a holder of the number
of shares of Common Stock deliverable upon exercise of this Warrant would have
been entitled on such Reorganization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 4 with
respect to the rights of Warrantholder after such Reorganization to the end that
the provisions of this Section 4 (including adjustments of the Exercise Price
then in effect and number of shares of stock purchasable upon exercise of this
Warrant) shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable.
4.5 Adjustment for Dilutive Effective of New Share Issuances. During
--------------------------------------------------------
the 24 month period after the date of this Warrant, and as long as the Joint
Development Agreement has not been terminated, upon the issuance by the Company
at any time of additional shares of Common Stock, the number of shares of Common
Stock for which the Warrantholder is entitled to subscribe and purchase from the
Company shall be proportionately increased so that the total number of shares of
Common Stock issuable upon exercise of this Warrant plus any shares of Common
Stock purchased by Warrantholder by a partial exercise of this Warrant, shall
equal 15% of the issued and outstanding shares of the Company; provided,
however, that the exercise price of the additional shares of Common Stock
issuable shall be the same as the purchase price of the additional shares of
Common Stock issued by the Company; provided further that no adjustment shall be
necessary with respect to: (1) Shares of Common Stock issued to any employee,
consultant, advisor, officer
<PAGE>
-6-
or director of the Company or any subsidiary thereof pursuant to any incentive
or Compensation agreement, arrangement, or plan approved by the Board of
Directors; (ii) shares of Common Stock issued in connection with any stock
dividend or stock split; and (iii) shares of Common Stock issued in connection
with any merger, exchange, acquisition of assets, or other reorganization
transaction not involving a Reorganization (as defined in Section 4.4). Any
adjustment under this subsection shall become effective as of the close of
business on each date of issuance by the Company of additional shares of Common
Stock.
4.6 Notice of Adjustments. Upon any adjustments of the Exercise
---------------------
Price or the amount or kind of securities or other property issuable upon
exercise of this Warrant, then and in each case the Company shall give written
notice of such adjustment by first class mail, postage prepaid, addressed to the
Warrantholder at its address registered on the books of the Company, which
notice shall state the Exercise Price resulting from such adjustment and the
amount and kind of securities purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
4.7 Notice of Record Date. The Company shall mail or cause to be
---------------------
mailed to the Warrantholder all notices specifying any record date for
shareholders of its Common Stock with respect to any dividend, distribution or
other right, or with respect to any shareholder meeting to be held at which a
vote is to be taken for the purpose of approving any reorganization,
recapitalization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding up of the affairs of the Company. The
Company shall also provide to the Warrant holder all reports, proxy statements
and registration statements that it normally provides to its shareholders.
4.8 Warrantholder's Right to Negotiate for Sales of Company Common
--------------------------------------------------------------
Stock
- -----
(a) If during the 24 month period after the date of this Warrant, and
as long as the Joint Development Agreement has not been terminated, in the event
the Company wishes to sell shares of its capital stock other than to any
employee, consultant, advisor, officer, or director of the Company or any
subsidiary thereof pursuant to any incentive or compensation agreement,
arrangement, or plan approved by the Board of Directors (the "Company Shares"),
it shall first offer the right to purchase such Company Shares to Warrantholder.
(b) The Company and Warrantholder shall negotiate the purchase price
and other selling terms with respect to the Company Shares. The Company and
Warrantholder shall have a period of thirty (30) days to negotiate a purchase
price and other selling terms for the Company Shares. If no agreement on price
and selling terms can be reached within such thirty-day period, the parties
shall jointly select an investment banking firm of nationally recognized
standing to mediate the negotiations between the parties, and the parties shall
have an additional thirty-day period after the investment banking firm is
selected to reach an agreement. If no agreement can be reached within such
additional thirty-day period, the Company shall be entitled to pursue its
offering with respect to the Company Shares so long as the Warrantholder is
included as an offeree provided, that the number of Company Shares to be offered
to the Warrantholder shall be in the sole discretion of the managing underwriter
of such offering.
<PAGE>
-7-
4.9 The Company's Right to Negotiate for Company Stock to be Sold by
----------------------------------------------------------------
Warrantholder.
- --------------
(a) In the event Warrantholder wishes to sell five percent (5%) or
more of its Registerable Securities (as defined under Section 7.1 (a) hereof),
whether through a public offering pursuant to Section 7 or through a private
placement to one or more purchasers, Warrantholder shall first offer such shares
(the "Offered Shares") to the Company. The Company and Warrantholder shall have
a period of thirty (30) days to negotiate a purchase price and other selling
terms for the Offered Shares. If no agreement on price and selling terms can be
reached within such thirty day period, the parties shall jointly select an
investment banking firm of nationally recognized standing to mediate the
negotiations between the parties, and the parties shall have an additional
thirty-day period after the investment banking firm is selected to reach an
agreement. If no agreement can be reached within such additional thirty-day
period, Warrantholder shall be entitled to pursue its offering with respect to
the Offered Shares. For the purposes of computing the five percent threshold
all sales by Warrantholder within any thirteen (13) month period shall be
aggregated.
5. Transfer of Warrant. This Warrant may be assigned or transferred, in
-------------------
whole or in part, subject to compliance with the Securities Act and any
applicable State securities laws, by the Warrantholder to an affiliate of
Warrantholder. Otherwise, all assignments or transfers of this Warrant shall be
with the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed.
6. No Voting Rights. Except as set forth herein, this Warrant shall not
----------------
entitle the Warrantholder to any voting rights or other rights as a stockholder
of the Company, and no dividend or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the shares of
Warrant Stock which may be purchased hereunder until and unless, and except to
the extent that, the Warrantholder has duly exercised its rights under this
Warrant.
7. Registration Rights. Subject to the terms and conditions of the
-------------------
Registration Rights Agreement dated as of July 23, 1996 by and between the
Company and Lockheed Martin Corporation, the Warrantholder shall have the
following registration rights relating to the Warrant Stock:
7.1 Registration Procedures. If, at any time the Company proposes to
-----------------------
register (including for this purpose a registration effected by the Company for
stockholders) any of its securities under the Securities Act in connection with
the public offering of such securities solely for cash (other than a
registration form relating to: (i) a registration of a stock option, stock
purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan; (ii) a registration of
securities proposed to be issued in exchange for securities or assets of or, in
connection with a merger or consolidation with, another corporation; or (iii) a
registration of securities proposed to be issued in exchange for other
securities of the Company), the Company shall, each such time, promptly give the
Warrantholder written notice of such registration. Upon the written request of
the Warrantholder given within 20 days after receipt of such written notice from
the Company, the Company shall, subject to the provisions of Section 7.5 (in the
case of an underwritten offering), cause to be registered under the Securities
Act all of
<PAGE>
-8-
the Registerable Securities that the Warrantholder has requested to be
registered; provided, however, in the event and to the extent the Warrantholder
may freely sell its Registerable Securities without registration under the
Securities Act without regard to any restrictions set forth in Rule 144
promulgated under the Securities Act ("Rule 144") and the person acquiring the
securities does not acquire "restricted securities" within the meaning of Rule
144, the Company may elect not to register such Registerable Securities. For
purposes of this Section 7:
(a) the term "Registerable Securities" means: (i) the Common Stock issued upon
exercise of this Warrant, and (ii) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, this Warrant or such
Common Stock, (iii) other securities issuable upon exercise of this Warrant
pursuant to Section 4 hereof.
(b) the terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with Securities Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission.
7.2 Obligations of the Company. Whenever required under this Warrant
--------------------------
to effect the registration of any Registerable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registerable Securities
and use its best efforts to cause such registration statement to become
effective, and, upon the request of the Warrantholder, keep such registration
statement effective for up to 180 days;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the Warrantholder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Registerable
Securities owned by it;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as the Company believes shall be reasonably appropriate for the
distribution of the securities covered by the registration statement and such
jurisdictions as the Warrantholder shall reasonably request, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such jurisdiction, and further provided that (anything in this Warrant to
the contrary notwithstanding with respect to the bearing of expenses)
<PAGE>
-9-
if any jurisdiction in which the securities shall be qualified shall require
that expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by the Warrantholder and provided there is no
exemption from such requirement by reason of the Company's obligation to pay
such expenses pursuant to the foregoing provisions of this Section 7.2, such
expenses shall be payable by the Warrantholder, to the extent required by such
jurisdiction; and
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering. The Warrantholder
shall also enter into and perform its obligations under such an agreement.
7.3 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Warrant that the
Warrantholder shall furnish to the Company such information regarding itself,
the Registerable Securities held by it, and the intended method of disposition
of such securities as shall be required to effect the registration of their
Registerable Securities. In that connection, the Warrantholder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects.
7.4 Expenses of Registration. All Registration Expenses (as defined
------------------------
below) incurred in connection with any registration, qualification or compliance
pursuant to this Warrant shall be borne by the Company, and Selling Expenses (as
defined below) shall be borne by the Company other than Selling Expenses
applicable to the Registerable Securities, which shall be borne by the
Warrantholder. For purposes of this Warrant, the term "Registration Expenses"
means all expenses incurred by the Company in complying with Section 7.1 hereof,
including, without limitation, all registration and filing fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but not including the
compensation of regular employees of the Company which shall be paid in any
event by the Company), and the term "Selling Expenses" means all underwriting
discounts and selling commissions applicable to the sale of Registerable
Securities and the fees and disbursements of any counsel of the Warrantholder.
7.5 Underwriting Requirements. The right of the Warrantholder to
-------------------------
"piggyback" in an underwritten public offering of the Company's securities
pursuant to this Section 7.5 shall be conditioned upon the Warrantholder's
participation in such underwriting and the inclusion of its Registerable
Securities in the underwriting to the extent provided herein, and
Warrantholder's entering into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of Section 7.1 and this Section 7.5, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may exclude some or all of the
Registerable Securities from such registration and underwriting, provided, that
the Warrantholder shall be allowed to participate in the offering in the same
proportion (based on the total number of securities requested to be registered)
as any other stockholder of the Company existing as of the date of this Warrant
participating in the offering.
<PAGE>
-10-
7.6 Delay of Registration. The Warrantholder shall not have any
---------------------
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Warrant.
7.7 Indemnification. If any Registerable Securities are included in
---------------
a registration statement pursuant to the terms of this Warrant:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Warrantholder, its officers, directors and partners, any
underwriter (as defined in the Securities Act) for the Warrantholder and each
person, if any, who controls the Warrantholder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they or any of them may become subject under the Securities
Act, the 1934 Act or any other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise from or
are based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Warrantholder, and each such officer, director or partner, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity contained in this
Section 7.7 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises from or is based upon a
violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Warrantholder, underwriter or controlling person.
(b) To the extent permitted by law, the Warrantholder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter (within the
meaning of the Securities Act) for the Company, any person who controls such
underwriter, any other person selling securities in such registration statement
("Other Holder") or any of the directors or officers or any person who controls
such Other Holder against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling person,
or underwriter or Other Holder or director, officer or controlling person may
become subject, under the Securities Act, the 1934 Act or any other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise from or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by the Warrantholder
expressly for use in connection with such registration; and the Warrantholder
will reimburse any
<PAGE>
-11-
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or controlling person, Other Holder, or
any such officer, director or controlling person thereof in connection with
investigation or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 7.7(b)
shall not apply to amounts paid in settlement of any such loss, claim damage,
liability or action if such settlement is effected without the consent of the
Warrantholder which consent shall not be unreasonably withheld; provided, that
in no event shall any indemnity under this Section 7.7(b) exceed the gross
proceeds from the offering received by the Warrantholder.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7.7 is
applicable but for any reason is held to be unavailable from the Company or the
Warrantholder, the Company and the Warrantholder shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted) to which
the Company and the Warrantholder may be subject in such proportion so that the
Warrantholder is responsible for that portion of the foregoing amount
represented by the ratio of the proceeds received by the Warrantholder in the
offering to the total proceeds received from the offering by the Company and all
selling stockholders (other than the Warrantholder), and the Company shall be
responsible for the portion represented by the ratio of proceeds received by the
Company to the total proceeds received by the Company and all selling
stockholders (other than the Warrantholder); provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section
7.7(c), each person, if any, who controls the Company or the Warrantholder
within the meaning of the Securities Act, each officer of the Company who shall
have signed the registration statement and each director of the Company shall
have the same rights to contribution as the Company.
(d) No settlement shall be effected without the prior written consent
of the Warrantholder unless (i) the obligations of the Company for
indemnification or contribution pursuant to this Warrant survive and are not
extinguished by reason of the settlement and remain in full force and effect
under applicable federal and state laws, rules, regulations and orders or (ii)
all claims and actions against the Warrantholder and each person who controls a
participating holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act are extinguished by the settlement and the
indemnifying party obtains a full release of all claims and actions against the
Warrantholder and each such control person, which release shall be to the
reasonable satisfaction of the Warrantholder.
(e) Promptly after receipt by an indemnified party under this Section
7.7 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7.7, notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain
<PAGE>
-12-
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent proven to be prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.7, but the omission so to notify the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.7.
7.8 No Assignment of Registration Rights. The rights to cause the
------------------------------------
Company to register Registerable Securities pursuant to this Warrant may not be
assigned.
7.9 "Market Stand-off" Agreement. The Warrantholder hereby agrees
----------------------------
that it shall not, to the extent requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registerable Securities in a market transaction during the 60-day
period following the effective date of a registration statement of the Company
filed under the Securities Act to the extent not included in the Registration
Statement, or such longer period as may be reasonably specified in such
Registration Statement. In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Registerable
Securities of the Warrantholder until the end of such period.
8. Loss or Mutilation. Upon receipt by the Company of evidence
------------------
satisfactory to it in the exercise of reasonable discretion, of the ownership of
and the loss, theft, destruction or mutilation of this Warrant and, in the case
of loss, theft or destruction, of indemnity satisfactory to it in the exercise
of reasonable discretion, and, in the case of mutilation, upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a new
Warrant of like tenor.
9. No Impairment. The Company will not, by amendment of its Fourth
-------------
Amended and Restated Certificate of Incorporation or through reorganization,
consolidation, merger, dissolution, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrantholder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any share of stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise,
and (b) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares upon the exercise of this Warrant at the time outstanding.
10. Reports. The Company shall provide to the Warrantholder,
-------
promptly after filing thereof, copies of all reports, registration statements
and proxy statements which the Company files with the Securities and Exchange
Commission.
<PAGE>
-13-
11. Miscellaneous Matters.
---------------------
(a) As used herein, the term "Common Stock" shall mean the Company's
presently authorized Common Stock and stock of any other class into which such
presently authorized Common Stock may hereafter have been converted.
(b) As used herein, the word "person" shall mean an individual or
entity.
(c) This Warrant shall be governed by and interpreted in accordance
with the internal laws, and not the law of conflicts, of the State of Delaware.
(d) All notices under this Warrant shall be given as set forth in this
Warrant.
(e) The Company will not, at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
CALCOMP TECHNOLOGY, INC.
By: /s/ John C. Batterton
--------------------------------------
John C. Batterton
President and Chief Executive Officer
EASTMAN KODAK COMPANY
By: /s/ Patrick T. Siewert
--------------------------------------
Patrick T. Siewert
Vice President
<PAGE>
-14-
SCHEDULE "A"
SUBSCRIPTION AGREEMENT
____________________, ____
To: Calcomp Technology, Inc.
The undersigned, pursuant to the provisions set forth in the Calcomp
Technology, Inc. Common Stock Purchase Warrant dated as of _____________, hereby
agrees to subscribe for and purchase __________ shares of the Common Stock
covered by such Warrant, and makes payment herewith in full for such Common
Stock at the Exercise Price.
The undersigned represents and warrants to you that the undersigned is
acquiring the shares covered hereby for the undersigned's own account for
investment purposes and not with a view to any offering or distribution in
violation of applicable securities laws.
Signature:________________________
Printed Name
and Title: ________________________
Address:__________________________
<PAGE>
EXHIBIT 10.36
AGREEMENT REGARDING ELECTION OF DIRECTORS
THIS AGREEMENT is dated as of the 29th day of March, 1998 and is by and
between LOCKHEED MARTIN CORPORATION, a Maryland corporation having a principal
place of business at 6801 Rockledge Drive, Bethesda, Maryland 20817 ("Lockheed
Martin") and EASTMAN KODAK COMPANY, a New York Jersey corporation having a
principal place of business at 343 State Street, Rochester, New York 14650
("Kodak").
WHEREAS, Calcomp Technology, Inc., a Delaware corporation and a subsidiary
of Lockheed Martin ("Calcomp"), and Kodak are entering into a certain agreements
regarding the joint development of certain inkjet technology and the
cross-licensing of certain intellectual property (the "Kodak Agreements"); and
WHEREAS, Lockheed Martin owns approximately 86.6% of the outstanding
common stock of Calcomp and has entered into certain agreements with Calcomp
regarding the financing and management of Calcomp's business; and
WHEREAS, to induce Kodak to enter into the business transactions with
Calcomp, Lockheed Martin and Kodak wish to provide for representation by Kodak
on Calcomp's Board of Directors;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereby agree as follows;
1. The Lockheed Martin hereby agrees that it will vote all of its shares
of capital stock in Calcomp in favor of a senior executive of Kodak to be named
from time to time by Kodak for a seat on the board of directors of Calcomp for
the period that Kodak has a contractual right under the Kodak Agreements. At the
sole election of Kodak each year, Kodak shall have the right, exercisable by
providing written notice to Lockheed Martin and Calcomp on or before the record
date for the shareholders meeting to elect Calcomp directors, to waive its right
to have a seat on the board of directors of Calcomp for such year and, in lieu
thereof, to appoint a senor executive of Kodak to serve as an observer to all
Calcomp board of director meetings for such year.
2. All notices and other communications hereunder shall be in writing and
shall be deemed given to the person upon receipt if delivered personally or sent
by registered, certified, or express mail, postage prepaid, or reputable courier
services, changes prepaid to such party's address:
If to Kodak to:
343 State Street
Rochester, New York 14650
Attention: President, Kodak Professional
<PAGE>
-2-
With a copy to:
343 State Street
Rochester, New York 14650
Attention: General Counsel
If to Lockheed Martin to:
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President and General Counsel
If to Calcomp to:
2411 West LaPalma Avenue
Anaheim, California 92803-3250
Attention: Corporate Secretary
or to such other address as either of them may have designated for that purpose
by such notice to the other.
3. This Agreement shall not be assigned by any party without the prior
written consent of the other parties, and any attempted assignment without such
consent shall be void. This Agreement shall be binding on and inure to the
benefit of the parties hereto, their successors and any permitted assigns.
4. This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but such counterparts shall together constitute one
and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
EASTMAN KODAK COMPANY
/s/ Patrick T. Siewert
----------------------------
Patrick T. Siewert
Vice President
LOCKHEED MARTIN CORPORATION
/s/ John E. Montague
----------------------------
Name: John E. Montague
Title: Corporate Vice President
Financial Strategies
<PAGE>
EXHIBIT 10.37
AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AND
TERMINATION OF SECURITY AGREEMENT
Amendment No. 1, dated March 20, 1998 (the "Amendment"), to the Amended and
Restated Revolving Credit Agreement, dated as of December 20, 1996 (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").
WHEREAS, in order to facilitate anticipated discussions regarding future
financing arrangements, Borrowers and Lender have agreed to make certain changes
to the Credit Agreement, to extend the Termination Date of the Credit Agreement,
and to terminate the December 20, 1998 Security Agreement ("Security
Agreement") made by Borrowers in favor of Lender;
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, Borrowers and the Lender agree as
follows:
1. Termination Date. The definition of "Termination Date" in Section 1.1 of
----------------
the Credit Agreement is hereby amended by substituting the phrase "January
31, 1999" for the phrase "July 22, 1998".
2. Security. Section 1.1 of the Credit Agreement is amended by deleting
--------
therefrom the definitions of "Security Agreement" and "Collateral" and
Section 2.12 of the Credit Agreement is deleted in its entirety. Lender
hereby releases all right and interest in the Collateral (as defined in the
Security Agreement) and the Security Agreement is hereby terminated.
3. Financial Covenants. Lender hereby waives compliance by Borrowers with the
-------------------
provisions of Section 6.1 (Maximum Leverage Ratio), Section 6.2 (Minimum
Fixed Charge Coverage Ratio) and Section 6.3 (Minimum Quick Ratio) of the
Credit Agreement for all measurement periods through and including the
Termination Date.
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: /s/ Walter E. Skowronski By: /s/ John J. Millerick
-------------------------- ------------------------
Walter E. Skowronski John J. Millerick
Vice President and Treasurer Sr. Vice President and Chief
Financial Officer
CALCOMP INC.
By: /s/ John J. Millerick
----------------------------
John J. Millerick
Sr. Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT 10.38
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/ 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 10.39
CalComp Technology, Inc.
------------------------
1998 MANAGEMENT INCENTIVE COMPENSATION PLAN
-------------------------------------------
Approved January 27, 1998
ARTICLE I
---------
PURPOSE OF THE PLAN
-------------------
This plan is established to provide a further incentive to selected employees to
promote the success of CalComp Technology, Inc. by providing an opportunity to
receive additional compensation for above average performance measured against
individual and business unit goals. The Plan is intended to achieve the
following:
1. Improved cost effectiveness.
2. Stimulate employees to work individually, as teams, and as individual
business units to meet objectives and goals consistent with enhancing
shareholder values.
3. Facilitate the Company's ability to retain qualified employees and to
attract top executive talent.
ARTICLE II
----------
STANDARD OF CONDUCT AND PERFORMANCE EXPECTATION
-----------------------------------------------
1. It is expected that the Company, business unit and individual goals
and objectives established for this Plan will be accomplished in
accordance with the Company's policy on ethical conduct in business
with the Government and all other customers. It is a prerequisite
before any award can be considered that a participant will have acted
in accordance with the CalComp Technology, Inc. Code of Ethics and
Business Conduct and fostered an atmosphere to encourage all employees
acting under the participants' supervision to perform their duties in
accordance with the highest ethical standards. Ethical behavior is
imperative. Thus, in achieving one's goals, their individual
commitment and adherence to the Company's ethical standards will be
considered paramount in determining awards under this Plan.
2. Plan participants whose individual performance is determined to be
less than acceptable are not eligible to receive incentive awards.
1
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ARTICLE III
-----------
DEFINITIONS
-----------
1. ANNUAL SALARY -- The regular base salary of a Participant during a
fiscal year of the Company, determined by multiplying by 52 the
Participant's weekly base salary rate effective during the first full
pay period in December preceding the year of payment, but excluding
any incentive compensation, commissions, over-time payments, payments
under work-week plan, indirect payments, retroactive payments not
affecting the base salary or applicable to the current year, and any
other payments of compensation of any kind.
2. BOARD OF DIRECTORS -- The Board of Directors of the Company.
3. COMMITTEE -- The Compensation Committee of the Board of Directors as
from time to time appointed or constituted by the Board of Directors.
4. COMPANY -- CalComp Technology, Inc. and its Subsidiaries.
5. EMPLOYEE -- Any person who is employed by the Company and who is paid
a salary as distinguished from an hourly wage. The term shall be
deemed to include any person who was employed by the Company during
all or any part of the year with respect to which an appropriation is
made to the Plan by the Board of Directors but shall not include any
employee who, during any part of such year, was represented by a
collective bargaining agent.
6. PARTICIPANT -- Any Employee selected to participate in the Plan in
accordance with its terms.
7. PLAN -- This CalComp Technology, Inc. Management Incentive
Compensation Plan (MICP).
ARTICLE IV
----------
ELIGIBILITY FOR PARTICIPATION
-----------------------------
Those Employees who through their efforts are able to contribute significantly
to the success of the Company in any given calendar year will be considered
eligible for selection for participation in the Plan with respect to that year.
Participants are selected each plan year based on recommendations by the Company
President or Company function head. Those eligible shall include all Employees
considered by the Committee to be key Employees of the Company. No member of
the Committee shall be eligible for participation in the plan.
2
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ARTICLE V
---------
INCENTIVE COMPENSATION PAYMENTS
-------------------------------
1. CALCULATION OF PAYMENTS -- Incentive compensation payments to
Participants shall be calculated in accordance with the formula and
procedures set forth in Exhibit A hereto. All such payments shall be
in cash.
2. INDIVIDUAL PERFORMANCE FACTORS - The Individual Performance Factors of
Participants, as provided in Exhibit A shall be determined by the
Company President and/or Company function head. The performance
factors of the President of CalComp Technology, Inc. shall be
determined by the Committee and the Committee shall review the
Individual Performance Ratings of other Participants who are elected
officers of the Company. The Committee may at the request of any
member of the Committee review the performance ratings of any other
Participant or groups of Participants. The Committee may make
adjustments in any such performance factors as it considers
appropriate.
3. BUSINESS UNIT FACTORS - The business unit factors as provided for in
Exhibit A, shall be determined by the President and the Board of
Directors and shall thereafter be reviewed with and be subject to the
approval of the Committee. The Committee may make adjustments in any
such factor as it considers appropriate. The Board of Directors
shall, as soon as feasible in each year, review with the Committee the
business unit objectives which may relate to the determination of such
business unit factors. Business unit performance may contain specific
individual performance factors.
4. COMPANY FACTORS - The company factors as provided for in Exhibit A,
shall be determined by the Board of Directors and shall thereafter be
reviewed with and be subject to the approval of the Committee. The
Committee may make adjustments in any such factor as it considers
appropriate. The Board of Directors shall, as soon as feasible in each
year, review with the Committee the company objectives which may
relate to the determination of such company factors.
5. RECOMMENDATION BY THE COMMITTEE.
A. As early as feasible after the end of each year in respect of
which incentive compensation payments are to be made, the
Committee shall establish an incentive fund which shall be equal
to a percentage, to be determined by the Committee at that time,
to the Company's pretax earnings for the year in which incentive
compensation payments are to be made. For purposes of the Plan,
pretax earnings shall (i) consist of pretax earnings from
operations; (ii) shall not include any earnings attributable to
extraordinary items as determined by generally accepted
accounting principles; and (iii) shall be computed prior to the
deduction of incentive compensation payments to be
3
<PAGE>
paid under the Plan.
B. To the extent that the aggregate of all proposed payments of
incentive compensation to all Participants as determined by the
application of the formula set forth in Exhibit A (subject to any
adjustments made by the Committee under Paragraph 2 or 3 above)
exceeds the amount of the incentive fund as determined under
Paragraph 4.A. above, all proposed payments of incentive
compensation to Participants shall be reduced on a prorata basis.
C. If the Company's pretax earnings, as defined in Paragraph 4A, are
less than the aggregate of all proposed payments of incentive
compensation (as determined by the application of the formula set
forth in Exhibit A subject to 2 or 3 above), the Committee may,
in its discretion, establish an incentive fund without regard to
the pretax earnings guideline of Paragraph 4A. If the Committee
does so, Paragraph 4B shall not apply and the Committee's
recommendation to the Board of Directors shall both state that
the pretax earnings guideline would be exceeded and set forth the
reasons the Committee believes that the proposed incentive
compensation payments should nevertheless be made.
D. The Committee will recommend to the Board of Directors the
authorization of an appropriation to the Plan by the Company for
distribution to Participants in an amount equal to the incentive
fund as computed pursuant to the provisions of this Paragraph 4.
6. APPROPRIATIONS TO THE PLAN - The Board of Directors may,
notwithstanding any provision of the Plan, make adjustments in any
proposed incentive compensation payment under the Plan, and subject to
any such adjustments, the Board of Directors will appropriate to the
Plan the amount as recommended by the Committee for distribution to
the Participants; provided that, the Board of Directors may
appropriate an amount which is less than the amount recommended by the
Committee in which event all proposed payments of incentive
compensation to Participants shall be reduced on a prorata basis.
7. METHOD OF PAYMENT - The amount so determined for each Participant
with respect to each calendar year shall be paid to such Participant
in full or on a deferred basis as determined by the Committee. Such
determination as to deferred payments shall be governed by the
Committee's judgement as to the time of payment best serving the
interests of the Company. Deferred payments shall be made pursuant to
such terms and conditions, as may be determined or provided for by the
Committee, only to Participants who continue in the employ of the
Company or are retired under a retirement plan approved by the Board
of Directors, or to the estates of, or beneficiaries designated by,
Participants who shall have died while in such employ or after such
retirement. In the event of termination of employment by a
Participant for any reason other than such retirement or death, then
such participant
4
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or his estate or his beneficiary or beneficiaries, shall after such
termination receive a distribution or distributions of any amounts
deferred by the Committee, if any, the amount (not in excess of the
unpaid deferred payments) and time of which shall be determined or
provided for by the Committee. Participants may also elect to defer
payments to the extent provided in the CalComp Technology, Inc.
Deferred Management Incentive Plan.
8. RIGHTS OF PARTICIPANTS - All payments are subject to the discretion of
the Board of Directors. No Participant shall have any right to require
the Board of Directors to make any appropriation to the Plan for any
calendar year, nor shall any Participant have any vested interest or
property right in any share in any amounts which may be appropriated
to the Plan. Payments made under the Plan and distributed to
Participants shall not be recoverable from the Participant by the
Company.
ARTICLE VI
----------
ADMINISTRATION
--------------
The Plan shall be administered under the direction of the Committee. The
Committee shall have the right to construe the Plan, to interpret any provision
thereof, to make rules and regulations relating to the Plan, and to determine
any factual question arising in connection with the Plan's operation after such
investigation or hearing as the Committee may deem appropriate. Any decision
made by the Committee under the provisions of this Article shall be conclusive
and binding on all parties concerned. The Committee may delegate to the officers
or employees of the Company the authority to execute and deliver those
instruments and documents, to do all acts and things, and to take all other
steps deemed necessary, advisable or convenient for the effective administration
of this MICP Plan in accordance with its terms and purpose.
ARTICLE VII
-----------
AMENDMENT OR TERMINATION OF PLAN
--------------------------------
The Board of Directors shall have the right to terminate or amend this Plan at
any time and to discontinue further appropriations thereto.
5
<PAGE>
ARTICLE VIII
------------
EFFECTIVE DATE
--------------
The Plan shall be effective with respect to the operations of the Company for
the year 1998 and the years subsequent thereto. A participant who receives an
award from this Plan is no longer eligible for any incentive compensation
payment from any similar plan which may have been administered by the Lockheed
Corporation, Martin Marietta Corporation, or the Lockheed Martin Corporation.
6
<PAGE>
EXHIBIT A
CALCULATION OF MANAGEMENT INCENTIVE COMPENSATION PAYMENTS
A. AWARD FORMULA
-------------
1. Incentive compensation payments will be calculated by multiplying the
Participant's Annual Salary by the applicable "target" of the
Participant's position (as defined in B), and that result will then be
multiplied by the Management Performance Commitment Matrix(MPCM)
Rating for the participant. The MPCM Rating measures performance in
three key result areas: Shareholder Satisfaction, Customer
Satisfaction and Employee Satisfaction. The Board of Directors
determines the overall weighting of each area on an annual basis with
no area receiving less than ten percent weight. The established
weighting will apply to all managers in the Plan. Within each area
specific performance metrics will be established with measures for
threshold, target, and maximum performance for each MPCM line item.
The Board determines the MPCM for the company on an annual basis, with
target performance corresponding to the operating plan. All individual
MPCM scores will be calculated on Company/Business Unit/Individual
needs and measures performance against objectives.
2. Partial awards for Participants who terminate employment during a Plan
Year may be recommended for consideration based on the following at
the discretion of the Company President and subsequent approval of the
Board of Directors:
Termination Method MICP Award
Voluntary May be considered for an award if on active
status January 2 of the following Plan Year
with a minimum of six (6) full months as an
active Plan Participant during the Plan
Year.
Lay Off May be pro-rated based on the conditions of
the case with a minimum of six (6) full
months as an active Plan Participant during
the Plan Year.
Retirement May be considered for a pro-rated award with
a minimum of six (6) full months as an
active Participant during the Plan Year and
the Participant goes directly into
retirement status upon termination.
3. The aggregate of all Participant's Incentive Awards determined under
item C below will be recommended to the Committee for its
consideration.
7
<PAGE>
4. Any calculation of incentive awards under this exhibit shall be
subject to the provisions of the Plan and in the event of any conflict
between the terms or application of this Exhibit A and the Plan, the
Plan shall prevail.
B. TARGET LEVELS
-------------
Target levels are based on the level of importance and responsibility of
the position in the organization as determined by the Company President
or the Board of Directors, as appropriate.
Position Target
-------- ------
President 45%*
Designated Officers 40%*
Other Eligible Positions 30%
20%
*Requires Board of Directors' approval
C. COMPANY/INDIVIDUAL BUSINESS UNIT PERFORMANCE WEIGHTING FACTORS
--------------------------------------------------------------
1. The following corresponds to each MICP level within both the
Headquarters and the Business Units staffs:
<TABLE>
<CAPTION>
Level % COMPANY WEIGHT % INDIVIDUAL WEIGHT
----- ----------------- -------------------
Headquarters
------------
<S> <C> <C>
CEO/CFO 100% 0%
Sr. Vice President 85% 15%
Vice President 80% 20%
Director 75% 25%
<CAPTION>
Business Unit % COMPANY WEIGHT % BUSINESS UNIT WEIGHT
------------- ----------------- ----------------------
<S> <C> <C>
Sr. Vice President 25% 75%
Vice President 20% 80%
Director 15% 85%
</TABLE>
For purposes of measuring the business units, presently these groups consist of
Input Technologies Division, Digital Printing Systems Division, Topaz
Technologies, Inc. and Headquarters.
2. Intermediate company factors as deemed appropriate by the Board of
Directors for results achieved, may be assigned in increments of 0.05.
8
<PAGE>
EXHIBIT 10.40
CalComp Technology, Inc.
------------------------
1998 DEFERRED MANAGEMENT INCENTIVE
----------------------------------
COMPENSATION PLAN
-----------------
Approved January 27, 1998
ARTICLE I
---------
PURPOSES OF THE PLAN
--------------------
The purposes of the CalComp Technology, Inc. Deferred Management
Incentive Compensation Plan (the "Deferral Plan") are to provide certain key
management employees of CalComp Technology, Inc. and its subsidiaries (the
"Company") the opportunity to defer receipt of Incentive Compensation awards
under the CalComp Technology, Inc. Management Incentive Compensation Plan (the
"MICP"). Except as expressly provided hereinafter, the provisions of this
Deferral Plan and the MICP shall be construed and applied independently of each
other.
The Deferral Plan applies solely to MICP awards and expressly does not
apply to any special awards which may be made under any of the Company's other
incentive plans, except and to the extent specifically provided under the terms
of such other incentive plans and the relevant awards.
ARTICLE II
----------
DEFINITIONS
-----------
Unless the context indicates otherwise, the following words and
phrases shall have the meanings hereinafter indicated:
1. ACCOUNT -- The bookkeeping account maintained by the Company for
each Participant which is credited with the Participant's Deferred Compensation
and earnings (or losses), and which is debited to reflect distributions and
forfeitures.
2. ACCOUNT BALANCE -- The total amount credited to a Participant's
Account at any point in time.
3. AWARD YEAR -- The calendar year with respect to which an Eligible
Employee is awarded Incentive Compensation.
4. BENEFICIARY -- The person or persons (including a trust or
trusts) validly designated by a Participant, on the form
-1-
<PAGE>
provided by the Company, to receive distributions of the Participant's Account
Balance, if any, upon the Participant's death. In the absence of a valid
designation, or if the designated Beneficiary has predeceased the Participant,
the Beneficiary shall be the person or persons entitled by will or the laws of
descent and distribution to receive the amounts otherwise payable to the
Participant under this Deferral Plan; a Participant may amend his or her
Beneficiary designation at any time before the Participant's death.
5. BOARD -- The Board of Directors of CalComp Technology, Inc.
6. COMMITTEE -- The committee described in Section 1 of Article
VIII.
7. COMPANY -- CalComp Technology, Inc. and its subsidiaries.
8. DEFERRAL AGREEMENT -- The written agreement executed by an
Eligible Employee on the form provided by the Company under which the Eligible
Employee elects to defer Incentive Compensation for an Award Year.
9. DEFERRED COMPENSATION -- The amount of Incentive Compensation
credited to a Participant's Account under the Deferral Plan for an Award Year.
10. DEFERRAL PLAN -- The CalComp Technology, Inc. Deferred Management
Incentive Compensation Plan, adopted by the Board on August 7, 1996.
11. ELIGIBLE EMPLOYEE -- An employee of the Company who is a
participant in the MICP and who has satisfied such additional requirements for
participation in this Deferral Plan as the Committee may from time to time
establish. In the exercise of its authority under this provision, the Committee
shall limit participation in the Plan to employees whom the Committee believes
to be a select group of management or highly compensated employees within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended.
-2-
<PAGE>
12. INCENTIVE COMPENSATION -- The MICP amount granted to an employee
for an Award Year.
13. INTEREST -- The rate of return under which earnings will be
credited to a Participant's Account based on the interest rate applicable under
Cost Accounting Standard 415, Deferred Compensation.
14. MICP -- The CalComp Technology, Inc. Management Incentive
Compensation Plan.
15. PARTICIPANT -- An Eligible Employee for whom Incentive
Compensation has been deferred for one or more years under this Deferral Plan;
the term shall include a former employee whose Deferred Compensation has not
been fully distributed.
ARTICLE III
-----------
ELECTION OF DEFERRED AMOUNT
---------------------------
1. Timing of Deferral Elections. An Eligible Employee may elect to
----------------------------
defer Incentive Compensation for an Award Year by executing and delivering to
the Company a Deferral Agreement no later than September 15 of the Award Year or
such other date established by the Committee for an Award Year that is not later
than September 30 of that Award Year. An employee who first qualifies as an
Eligible Employee after September 15 of an Award Year may elect to defer
Incentive Compensation for that Award Year by entering into a Deferral Agreement
up to thirty (30) days after the date on which such employee first becomes a
participant in the MICP. An Eligible Employee's Deferral Agreement shall be
irrevocable when delivered to the Company. Each Deferral Agreement shall apply
only to amounts deferred in that Award Year and a separate Deferral Agreement
must be completed for each Award Year for which an Eligible Employee defers
Incentive Compensation.
-3-
<PAGE>
2. Amount of Deferral Elections. An Eligible Employee's deferral
----------------------------
election may be stated as:
(A) a dollar amount which is at least $5,000 and is an even
multiple of $1,000,
(B) the greater of $5,000 or a designated percentage of the
Eligible Employee's Incentive Compensation (adjusted to the next
highest multiple of $1,000),
(C) the excess of the Eligible Employee's Incentive
Compensation over a dollar amount specified by the Eligible Employee
(which must be an even multiple of $1,000), or
(D) all of the Eligible Employee's Incentive
Compensation.
An Eligible Employee's deferral election shall be effective only if the
Participant is awarded at least $10,000 of Incentive Compensation for that Award
Year, and, in the case of a deferral election under paragraph (c) of this
Section 2, only if the resulting excess amount is at least $5,000.
3. Effect of Taxes on Deferred Compensation. The amount that would
----------------------------------------
otherwise be deferred and credited to an Eligible Employee's Account will be
reduced by the amount of any tax that the Company is required to withhold with
respect to the Deferred Compensation.
ARTICLE IV
----------
CREDITING OF ACCOUNTS
---------------------
1. Crediting of Deferred Compensation. Incentive Compensation that
----------------------------------
has been deferred hereunder shall be credited to a Participant's Account as of
the day on which the Incentive Compensation would have been paid to the
Participant if no Deferral Agreement had been made.
2. Crediting of Earnings. Earnings shall be credited to a
---------------------
Participant's Account beginning with the day as of which Deferred Compensation
is credited to the Participant's Account. Any amount distributed from a
Participant's Account shall be
-4-
<PAGE>
credited with earnings through the last day of the month preceding the month in
which a distribution is made. The earnings credited shall be determined as
follows: The Participant's Account shall be credited with interest, compounded
monthly, at a rate equivalent to the then published rate for computing the
present value of future benefits at the time cost is assignable under Cost
Accounting Standard 415, Deferred Compensation, as determined by the Secretary
of the Treasury on a semi-annual basis pursuant to Pub. L. 92-41, 85 Stat. 97.
ARTICLE V
---------
PAYMENT OF BENEFITS
-------------------
1. General. The Company's liability to pay benefits to a
-------
Participant or Beneficiary under this Deferral Plan shall be measured by and
shall in no event exceed the Participant's Account Balance. Except as otherwise
provided in this Deferral Plan, a Participant's Account Balance shall be paid to
him in accordance with the Participant's elections under Sections 2 and 3 of
this Article, and such elections shall be continuing and irrevocable. All
benefit payments shall be made in cash and, except as otherwise provided, shall
be debited against the Participant's Account Balance at the end of the month
preceding the date of distribution.
2. Election for Commencement of Payment. At the time a Participant
------------------------------------
first completes a Deferral Agreement, he or she shall elect from among the
following options governing the date on which the payment of benefits shall
commence:
(A) Payment to begin on or about the January 15th or July
15th next following the date of the Participant's
termination of employment with the Company for any reason.
(B) Payment to begin on or about January 15th of the year
next following the year in which the Participant terminates
employment with the Company for any reason.
-5-
<PAGE>
(C) Payment to begin on or about the January 15th or July
15th next following the date on which the Participant has
both terminated employment with the Company for any reason
and attained the age designated by the Participant in the
Deferral Agreement.
3. Election for Form of Payment. At the time a Participant first
----------------------------
completes a Deferral Agreement, he or she shall elect the form of payment of his
or her Account Balance from among the following options:
(A) A lump sum.
(B) Annual payments for a period of years designated by the
Participant which shall not exceed fifteen (15). The amount
of each annual payment shall be determined by dividing the
Participant's Account Balance at the end of the month prior
to such payment by the number of years remaining in the
designated installment period. The installment period may be
shortened, in the sole discretion of the Committee, if the
Committee at any time determines that the amount of the
annual payments that would be made to the Participant during
the designated installment period would be too small to
justify the maintenance of the Participant's Account and the
processing of payments.
4. Prospective Change of Payment Elections. At the time of entering
---------------------------------------
into a Deferral Agreement for an Award Year, a Participant may modify his
payment elections under Sections 2 and 3 with respect to the portion of his or
her Account allocable to the amounts to be deferred for that Award Year and
subsequent Award Years. If a Participant has different payment elections in
effect, the Company shall maintain sub-accounts for the Participant to determine
the amounts subject to each payment election; no modification of payment
elections will be accepted if it would require the Company to maintain more than
three (3) sub-accounts within the Participant's Account in order to make
payments in accordance with the Participant's elections.
5. Acceleration upon Early Termination. Notwithstanding a
-----------------------------------
Participant's payment elections under Sections
-6-
<PAGE>
2 and 3, if the Participant terminates employment with the Company other than by
reason of layoff, death or disability and before the Participant is eligible to
commence receiving retirement benefits under a pension plan maintained by the
Company (or before the Participant has attained age 55 if the Participant does
not participate in such a pension plan), the Participant's Account Balance shall
be distributed to him or her in a lump sum on or about the January 15th or July
15th next following the date of the Participant's termination of employment with
the Company.
6. Death Benefits. Upon the death of a Participant before a
--------------
complete distribution of his or her Account Balance, the Account Balance will be
paid to the Participant's Beneficiary in accordance with the payment elections
applicable to the Participant. If a Participant dies while actively employed or
otherwise before the payment of benefits has commenced, payments to the
Beneficiary shall commence on the date payments to the Participant would have
commenced, taking account of the Participant's termination of employment (by
death or before) and, if applicable, by postponing commencement until after the
date the Participant would have attained the commencement age specified by the
Participant. Whether the Participant dies before or after the commencement of
distributions, payments to the Beneficiary shall be made for the period or
remaining period elected by the Participant.
7. Early Distributions in Special Circumstances. Notwithstanding a
--------------------------------------------
Participant's payment elections under Sections 2 and 3 of this Article V, a
Participant or Beneficiary may request an earlier distribution in the following
limited circumstances:
(a) Hardship Distributions. The Committee shall have the
----------------------
power and discretion at any time to approve a payment to a Participant
if the Committee determines that the Participant is suffering from a
serious financial emergency caused by circumstances beyond the
Participant's control which would cause a hardship to the Participant
unless such payment were made. Any such hardship payment will be in a
lump sum and will not exceed the lesser of (i) the amount necessary to
satisfy the financial emergency (taking account of the income tax
liability associated with the distribution), or (ii) the Participant's
Account Balance.
-7-
<PAGE>
(b) Withdrawal with Forfeiture. A Participant may elect at
--------------------------
any time to withdraw ninety percent (90%) of the amount credited to
the Participant's Account. If such a withdrawal is made, the remaining
ten percent (10%) of the Participant's Account shall be permanently
forfeited, and the Participant will be prohibited from deferring any
amount under the Deferral Plan for the Award Year in which the
withdrawal is received (or the first Award Year in which any portion
of the withdrawal is received).
(c) Death or Disability. In the event that a Participant
-------------------
dies or becomes permanently disabled before the Participant's entire
Account Balance has been distributed, the Committee, in its sole
discretion, may modify the timing of distributions from the
Participant's Account, including the commencement date and number of
distributions, if it concludes that such modification is necessary to
relieve the financial burdens of the Participant or Beneficiary.
8. Acceleration upon Change in Control.
-----------------------------------
(a) Notwithstanding any other provision of the Deferral
Plan, the Account Balance of each Participant shall be distributed in
a single lump sum within fifteen (15) calendar days following a
"Change in Control."
(b) For purposes of this Deferral Plan, a Change in Control
shall include and be deemed to occur upon the following events:
(1) A tender offer or exchange offer is
consummated for the ownership of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding voting securities entitled to vote in
the election of directors of the Company.
(2) The Company is merged, combined,
consolidated, recapitalized or otherwise reorganized with one or
more other entities that are not Subsidiaries and, as a result of
the
-8-
<PAGE>
merger, combination, consolidation, recapitalization or other
reorganization, less than 75% of the outstanding voting
securities of the surviving or resulting corporation shall
immediately after the event be owned in the aggregate by the
stockholders of the Company (directly or indirectly), determined
on the basis of record ownership as of the date of determination
of holders entitled to vote on the action (or in the absence of a
vote, the day immediately prior to the event).
(3) At any time within any period of two years
after a tender offer, merger, combination, consolidation,
recapitalization, or other reorganization or a contested
election, or any combination of these events, the "Incumbent
Directors" shall cease to constitute at least a majority of the
authorized number of members of the Board. For purposes hereof,
"Incumbent Directors" shall mean the persons who were members of
the Board immediately before the first of these events and the
persons who were elected or nominated as their successors or
pursuant to increases in the size of the Board by a vote of at
least three-fourths of the Board members who were then Board
members (or successors or additional members so elected or
nominated).
(4) The stockholders of the Company approve a
plan of liquidation and dissolution or the sale or transfer of
substantially all of the Company's business and/or assets as an
entirety to an entity that is not a Subsidiary.
(c) The Committee may cancel or modify this Section 8 at
any time prior to a Change in Control. In the event of a Change in
Control, this Section 8 shall remain in force and effect, and shall
not be subject to cancellation or modification for a period of five
years, and any defined term used in Section 8 shall not, for purposes
of Section 8, be subject to cancellation or modification during the
five year period.
-9-
<PAGE>
9. Deductibility of Payments. In the event that the payment of
-------------------------
benefits in accordance with the Participant's elections under Sections 2 and 3
would prevent the Company from claiming an income tax deduction with respect to
any portion of the benefits paid, the Committee shall have the right to modify
the timing of distributions from the Participant's Account as necessary to
maximize the Company's tax deductions. In the exercise of its discretion to
adopt a modified distribution schedule, the Committee shall undertake to have
distributions made at such times and in such amounts as most closely approximate
the Participant's elections, consistent with the objective of maximum
deductibility for the Company. The Committee shall have no authority to reduce
a Participant's Account Balance or to pay aggregate benefits less than the
Participant's Account Balance in the event that all or a portion thereof would
not be deductible by the Company.
10. Change of Law. Notwithstanding anything to the contrary herein,
-------------
if the Committee determines in good faith, based on consultation with counsel,
that the federal income tax treatment or legal status of the Plan has or may be
adversely affected by a change in the Internal Revenue Code, Title I of the
Employee Retirement Income Security Act of 1974, or other applicable law or by
an administrative or judicial construction thereof, the Committee may direct
that the Accounts of affected Participants or of all Participants be distributed
as soon as practicable after such determination is made, to the extent deemed
necessary or advisable by the Committee to cure or mitigate the consequences, or
possible consequences of, such change in law or interpretation thereof.
11. Tax Withholding. To the extent required by law, the Company
---------------
shall withhold from benefit payments hereunder, or with respect to any Incentive
Compensation deferred hereunder, any Federal, state, or local income or payroll
taxes required to be withheld and shall furnish the recipient and the applicable
government agency or agencies with such reports, statements, or information as
may be legally required.
-10-
<PAGE>
ARTICLE VI
----------
EXTENT OF PARTICIPANTS' RIGHTS
------------------------------
1. Unfunded Status of Plan. This Deferral Plan constitutes a mere
-----------------------
contractual promise by the Company to make payments in the future, and each
Participant's rights shall be those of a general, unsecured creditor of the
Company. No Participant shall have any beneficial interest in any specific
assets that the Company may hold or set aside in connection with this Deferral
Plan. Notwithstanding the foregoing, to assist the Company in meeting its
obligations under this Deferral Plan, the Company may set aside assets in a
trust described in Revenue Procedure 92-64, 1964-2 C.B. 44, and the Company may
direct that its obligations under this Deferral Plan be satisfied by payments
out of such trust. The assets of any such trust will remain subject to the
claims of the general creditors of the Company. It is the Company's intention
that the Plan be unfunded for Federal income tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974.
2. Nonalienability of Benefits. A Participant's rights under this
---------------------------
Deferral Plan shall not be assignable or transferable and any purported
transfer, assignment, pledge or other encumbrance or attachment of any payments
or benefits under this Deferral Plan, or any interest therein shall not be
permitted or recognized, other than the designation of, or passage of payment
rights to, a Beneficiary.
ARTICLE VII
-----------
AMENDMENT OR TERMINATION
------------------------
1. Amendment. The Board may amend, modify, suspend or discontinue
---------
this Deferral Plan at any time subject to any shareholder approval that may be
required under applicable law, provided, however, that no such amendment shall
have the effect of reducing a Participant's Account Balance or postponing the
time when a Participant is entitled to receive a distribution of his Account
Balance. Further, no amendment may alter the formula for crediting interest to
Participants' Accounts with respect to amounts for which deferral elections have
previously been made, unless the amended formula is not less favorable to
Participants than that previously in effect, or unless each affected Participant
consents to such change.
-11-
<PAGE>
2. Termination. The Board reserves the right to terminate this Plan
-----------
at any time and to pay all Participants their Account Balances in a lump sum
immediately following such termination or at such time thereafter as the Board
may determine.
ARTICLE VIII
------------
ADMINISTRATION
--------------
1. The Committee. This Deferral Plan shall be administered by a
-------------
Committee of Board Members who are not eligible to participate in the Plan. The
members of the Committee shall be designated by the Board. A majority of the
members of the Committee (but not fewer than two) shall constitute a quorum. The
vote of a majority of a quorum or the unanimous written consent of the Committee
shall constitute action by the Committee. The Committee shall have full
authority to interpret the Plan, and interpretations of the Plan by the
Committee shall be final and binding on all parties.
2. Delegation and Reliance. The Committee may delegate to the
-----------------------
officers or employees of the Company the authority to execute and deliver those
instruments and documents, to do all acts and things, and to take all other
steps deemed necessary, advisable or convenient for the effective administration
of this Deferral Plan in accordance with its terms and purpose. In making any
determination or in taking or not taking any action under this Deferral Plan,
the Committee may obtain and rely upon the advice of experts, including
professional advisors to the Company. No member of the Committee or officer of
the Company who is a Participant hereunder may participate in any decision
specifically relating to his or her individual rights or benefits under the
Deferral Plan.
3. Exculpation and Indemnity. Neither the Company nor any member of
-------------------------
the Board or of the Committee, nor any other person participating in any
determination of any question under this Deferral Plan, or in the
interpretation, administration or application thereof, shall have any liability
to any party for any action taken or not taken in good faith under this Deferral
Plan or for the failure of the Deferral Plan or any Participant's rights under
the Deferral Plan to achieve intended tax consequences, or to comply with any
other law, compliance with which is not required on the part of the Company.
-12-
<PAGE>
4. Facility of Payment. If a minor, person declared incompetent, or
-------------------
person incapable of handling the disposition of his or her property is entitled
to receive a benefit, make an application, or make an election hereunder, the
Committee may direct that such benefits be paid to, or such application or
election be made by, the guardian, legal representative, or person having the
care and custody of such minor, incompetent, or incapable person. Any payment
made, application allowed, or election implemented in accordance with this
Section shall completely discharge the Company and the Committee from all
liability with respect thereto.
5. Proof of Claims. The Committee may require proof of the death,
---------------
disability, incompetency, minority, or incapacity of any Participant or
Beneficiary and of the right of a person to receive any benefit or make any
application or election.
6. Claim Procedures. The procedures when a claim under this Plan is
----------------
denied by the Committee are as follows:
(A) The Committee shall:
(i) notify the claimant within a reasonable time of
such denial, setting forth the specific reasons
therefore; and
(ii) afford the claimant a reasonable opportunity for
a review of the decision.
(B) The notice of such denial shall set forth, in addition
to the specific reasons for the denial, the following:
(i) identification of pertinent provisions of this
Plan;
(ii) such additional information as may be relevant
to the denial of the claim; and
(iii) an explanation of the claims review procedure
and advice that the claimant may request an
opportunity to
-13-
<PAGE>
submit a statement of issues and comments.
(C) Within sixty days following advice of denial of a
claim, upon request made by the claimant, the Committee
shall take appropriate steps to review its decision in light
of any further information or comments submitted by the
claimant. The Committee may hold a hearing at which the
claimant may present the basis of any claim for review.
(D) The Committee shall render a decision within a
reasonable time (not to exceed 120 days) after the
claimant's request for review and shall advise the claimant
in writing of its decision, specifying the reasons and
identifying the appropriate provisions of the Plan.
ARTICLE IX
----------
GENERAL AND MISCELLANEOUS PROVISIONS
------------------------------------
1. Neither this Deferral Plan nor a Participant's Deferral
Agreement, either singly or collectively, shall in any way obligate the Company
to continue the employment of a Participant with the Company, nor does either
this Deferral Plan or a Deferral Agreement limit the right of the Company at any
time and for any reason to terminate the Participant's employment. In no event
shall this Plan or a Deferral Agreement, either singly or collectively, by their
terms or implications constitute an employment contract of any nature whatsoever
between the Company and a Participant. In no event shall this Plan or a Plan
Agreement, either singly or collectively, by their terms or implications in any
way obligate the Company to award Incentive Compensation to any Eligible
Employee for any Award Year, whether or not the Eligible Employee is a
Participant in the Deferral Plan for that Award Year, nor in any other way limit
the right of the Company to change an Eligible Employee's compensation or other
benefits.
2. Incentive Compensation deferred under this Deferral Plan shall
not be treated as compensation for purposes of calculating the amount of a
Participant's benefits or
-14-
<PAGE>
contributions under any pension, retirement, or other plan maintained by the
Company, except as provided in such other plan.
3. Any written notice to the Company referred to herein shall be
made by mailing or delivering such notice to the Company at 2411 West LaPalma
Avenue, P.O. Box 3250, Anaheim, CA 92803 to the attention of the Director, Human
Resources. Any written notice to a Participant shall be made by delivery to the
Participant in person, through electronic transmission, or by mailing such
notice to the Participant at his or her place of residence or business address.
4. In the event it should become impossible for the Company or the
Committee to perform any act required by this Plan, the Company or the Committee
may perform such other act as it in good faith determines will most nearly carry
out the intent and the purpose of this Deferral Plan.
5. By electing to become a Participant hereunder, each Eligible
Employee shall be deemed conclusively to have accepted and consented to all of
the terms of this Deferral Plan and all actions or decisions made by the
Company, the Board, or Committee with regard to the Deferral Plan.
6. The provisions of this Deferral Plan and the Deferral Agreements
hereunder shall be binding upon and inure to the benefit of the Company, its
successors, and its assigns, and to the Participants and their heirs, executors,
administrators, and legal representatives.
7. A copy of this Deferral Plan shall be available for inspection by
Participants or other persons entitled to benefits under the Plan at reasonable
times at the offices of the Company.
8. The validity of this Deferral Plan or any of its provisions shall
be construed, administered, and governed in all respects under and by the laws
of the State of Delaware, except as to matters of Federal law. If any
provisions of this instrument shall be held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions hereof shall continue
to be fully effective.
9. This Deferral Plan and its operation, including but not limited
to, the mechanics of deferral elections, the issuance of securities, if any, or
the payment of cash hereunder
-15-
<PAGE>
is subject to compliance with all applicable federal and state laws, rules and
regulations and such other approvals by any regulatory or governmental authority
as may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith.
10. At no time shall the cumulative amount of Incentive Compensation
deferred under this Deferral Plan by all Eligible Employees for all Award Years
exceed $50,000,000.
ARTICLE X
---------
EFFECTIVE DATE
--------------
This Deferral Plan was originally adopted by the Board on August 7,
1996 and became effective upon adoption to awards of Incentive Compensation for
the Company's fiscal year ending December 31, 1996 and subsequent fiscal years.
-16-
<PAGE>
EXHIBIT 10.41
[LETTERHEAD OF LOCKHEED MARTIN]
APRIL 1, 1998
CalComp Technology, Inc.
CalComp, Inc.
c/o CalComp Technology, Inc.
2411 W. LaPalma Avenue
Anaheim, California 92601
Attention: Chief Financial Officer
Re: Amended and Restated Revolving Credit Agreement ("Credit Agreement"), dated
as of December 20, 1996 and amended as of March 20, 1998, among CalComp
Technology, Inc. and CalComp Inc. (collectively, the "Borrowers") and
Lockheed Martin Corporation (the "Lender")
Lender hereby waives its rights under Section 2.1(c) of the Credit Agreement
through January 31, 1999 and agrees not to terminate the Credit Agreement under
the provisions of Section 2.1(c) prior to such date.
This waiver shall be governed by and construed in accordance with the laws of
the State of Maryland, without reference to any conflict of laws provisions of
such laws. In accordance with Section 8.2(a) of the Credit Agreement, this
waiver shall be effective only upon execution by both the Borrowers and the
Lender.
Lockheed Martin Corporation
By /s/ WALTER E. SKOWRONSKI
----------------------------
Walter E. Skowronski
Vice President and Treasurer
Agreed.
CalComp Technology, Inc.
By: /s/ JOHN J. MILLERICK
------------------------------
Name: John J. Millerick
----------------------------
Title: Senior Vice President & CFO
---------------------------
CalComp Inc.
By: /s/ JOHN J. MILLERICK
------------------------------
Name: John J. Millerick
----------------------------
Title: Senior Vice President & CFO
---------------------------
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
pertaining to the Summagraphics Corporation 1987 Stock Plan (Form S-8 No. 33-
19583 and No. 333-34007), 1988 Employee Stock Purchase Plan (Form S-8 No. 33-
25348), 1988 Non-Employee Director Stock Option Plan (Form S-8 No. 33-26415),
and CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees (Form S-8
No. 333-19533) of our report dated January 19, 1998, except for Notes 1, 7, 8
and 13, as to which the date is March 30, 1998, with respect to the consolidated
financial statements of CalComp Technology, Inc. included in the Annual Report
(Form 10-K) for the year ended December 28, 1997.
/s/ Ernst & Young
- -------------------------
Orange County, California
April 6, 1998
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<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-28-1997 DEC-29-1996
<PERIOD-START> DEC-30-1996 JAN-01-1996
<PERIOD-END> DEC-28-1997 DEC-29-1996
<CASH> 6,494 15,290
<SECURITIES> 0 0
<RECEIVABLES> 34,003 61,466
<ALLOWANCES> 3,367 4,603
<INVENTORY> 43,069 57,765
<CURRENT-ASSETS> 84,982 150,903
<PP&E> 50,495 60,843
<DEPRECIATION> 21,447 33,952
<TOTAL-ASSETS> 209,457 276,085
<CURRENT-LIABILITIES> 125,353 89,672
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<OTHER-SE> 75,262 152,035
<TOTAL-LIABILITY-AND-EQUITY> 209,457 276,085
<SALES> 200,158 235,916
<TOTAL-REVENUES> 200,158 235,916
<CGS> 182,591 180,375
<TOTAL-COSTS> 269,849 295,496
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,037 989
<INCOME-PRETAX> (75,150) (59,062)
<INCOME-TAX> 38 (2,458)
<INCOME-CONTINUING> (75,188) (56,604)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (75,188) (56,604)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (1.60) (1.32)
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