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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File 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 of (IRS Employer
incorporation or organization) Identification No.)
2411 W. La Palma Avenue, Anaheim, California 92801
(Address of principal executive offices)
(714) 821-2000
Registrant's telephone number, including area code:
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
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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 31, 1999, of Common Stock held by
non-affiliates of the Registrant: $186,639 based on the last reported sale
price on the over the counter bulletin board market maintained by NASDAQ, Inc.
The number of shares of Common Stock outstanding as of March 31, 1999:
47,120,650
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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 92801. The Company's telephone
number is (714) 821-2000. Except where the context indicates otherwise,
references to an entity include its consolidated subsidiaries.
Background and Summary of Significant Developments
The Company has been 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 were 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 maintained service,
product support and technical assistance programs for its customers and sold
software, supplies and after-warranty service.
In recent years, the Company had begun 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 end of 1997, the
Company had substantially completed its strategy to discontinue its non-inkjet
printer and plotter products.
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 was marketed under the
"CrystalJet(TM)" name and targeted at the graphic arts industry. The Company
began shipping the initial market development and demonstration units of these
printers in the first quarter of 1998. Although volume shipments to customers
of CrystalJet products commenced in the second quarter and increased during
the remainder of the fiscal year, the projected profitability of the
CrystalJet products was dependent on achieving greater production volumes and
wider market acceptance than could reasonably be anticipated to occur in the
near term and would have required substantial infusions of new capital which
the Company was unable to obtain. Although the new CrystalJet technology
proved viable, the Company believes that production delays, technical
difficulties in the manufacturing processes and a failure to gain timely
market acceptance resulted in continuing operating losses and negative cash
flow, which materially and adversely affected the Company's business plan for
the CrystalJet technology and, in significant part, resulted in the Company's
liquidity crisis discussed further below.
As part of its piezo inkjet technology development, in March 1998, the
Company entered into a Patent License and Joint Development Agreement (the
"Joint Development Agreement") with Eastman Kodak Company ("Kodak") that
provided an initial payment of $20 million in April 1998 and contemplated 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. As
of March 31, 1999, the Company believes that the first three milestones
totaling $7 million were achieved in 1998; however, only the first $2 million
milestone payment has been received from Kodak because Kodak has disputed the
attainment of the third milestone and withheld the second milestone payment.
See Item 1. "Business--Historic Business--Dispute with Kodak."
In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the formal decision to focus its efforts and
resources on the CrystalJet product line and to divest its input device,
cutter, and non-CrystalJet service and support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
recorded a one-time non-cash impairment charge in the fourth quarter of $72
million to
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write-down the carrying value of the net assets of these businesses to their
estimated fair value. In addition, the Company evaluated the business model
and strategy of its continuing operations. As a result, in the fourth quarter,
the Company recorded non-cash charges of $40.1 million related to the
impairment of certain long-lived assets, including goodwill.
In July 1998, the Company also entered into an Exchange Agreement with
Lockheed Martin Corporation ("Lockheed Martin"), which is the majority
shareholder, principal creditor and source of capital funding of the Company,
pursuant to which, the Company exchanged $60 million of outstanding debt owed
to Lockheed Martin under a Revolving Credit Agreement for 1,000,000 shares of
Series A Preferred Stock (the "Preferred Stock") of the Company (the "Debt
Exchange"). In connection with the Debt Exchange, the Revolving Credit
Agreement was amended to reduce the amount of borrowing available to the
Company under that agreement from $73 million to $13 million. In August,
September, and November 1998, a related Cash Management Agreement was amended
which ultimately increased the amount of borrowing available to the Company
from $2 million to $30 million under the Cash Management Agreement, thereby
providing a maximum borrowing availability of $43 million to the Company under
these agreements (the "Credit Agreements"). At December 27, 1998, the Company
had drawn a total of $38.1 million against the Credit Agreements.
In a letter dated December 23, 1998, Lockheed Martin notified the Company
that it would not increase the Company's credit availability, needed to fund
the Company's current operations, beyond the $43 million then available under
the Credit Agreements. At such date, the Company anticipated that, to fund
operating requirements, it would require the $4.9 million remaining under the
Credit Agreements in January 1999. On December 28, 1998, the Company indicated
its intent to accept Lockheed Martin's proposal to fund a non-bankruptcy
orderly shut-down of the Company's operations in accordance with a plan to be
proposed by the Company. On January 14, 1999, the Company's directors approved
and submitted the Company's Plan ("Plan for Orderly Shutdown") to Lockheed
Martin for their review and approval. As a result of this liquidity crisis and
after considering its lack of strategic alternatives, in particular, given the
Company's inability to obtain funding from sources other than Lockheed Martin,
on January 15, 1999, the Company announced that it would commence an orderly
shutdown of its operations. Under the Plan for Orderly Shutdown approved by
the Company's Board of Directors, the Company completed a Secured Demand Loan
Facility ("Secured Demand Loan") with Lockheed Martin, pursuant to which
Lockheed Martin agreed to provide, subject to the terms and conditions set
forth in such facility, funding to the Company in addition to the $43 million
available under the Credit Agreements. The Secured Demand Loan would provide
funds to assist the Company in the non-bankruptcy shutdown of its operations
pursuant to the Plan for Orderly Shutdown. In addition, Lockheed Martin agreed
to forebear from exercising its rights and remedies to collect amounts
outstanding under the Credit Agreements until the Secured Demand Loan is
terminated. In connection with the Plan for Orderly Shutdown, it is
anticipated that the Company will cause the dissolution, merger or
consolidation of its subsidiaries with the Company and that the Company,
itself, would then proceed with its own formal winding up and dissolution.
Since the announcement of the Plan for Orderly Shutdown, the Company has
ceased all manufacturing, sales and marketing activities and scaled back
operations to a level designed to allow the Company to sell or liquidate its
assets in a manner that takes into account the interests of the Company's
stockholders, creditors, employees, customers and suppliers. As of March 31,
1999, the Company has consummated or entered into letters of intent for sales
of substantially all of its assets, other than those assets related to its
CrystalJet business. However, no assurances can be given that all pending
transactions will be consummated. Additionally, pursuant to the Plan for
Orderly Shutdown, the Company has issued notices to its domestic employees
under the Worker Adjustment and Retraining Notification Act (W.A.R.N.) and, as
of March 31, 1999, has terminated 381 employees, or 74% of the Company's
domestic workforce. Non-U.S. employees have also been terminated or notified
of their scheduled termination under applicable foreign laws. Certain of the
Company's sales and service personnel, pending sales of specified assets, and
an administrative team (including the President, Chief Financial Officer and a
newly appointed Chief Executive Officer) will wind up the operations of the
Company through the shutdown process which is expected to be substantially
completed by July 1999. The Company anticipates that it will be able to
negotiate reasonable settlement amounts with its non-affiliated creditors but
the Company's ability to make payment on the agreed settlement amounts will
depend on receiving sufficient cash from the sale of its assets and securing
additional funding sufficient for the Plan for Orderly Shutdown.
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The Secured Demand Loan provides for Lockheed Martin to make loans to the
Company from time to time up to an aggregate maximum available amount (the
"Maximum Available Amount"), specified by Lockheed Martin. which may be
increased by Lockheed Martin, in its sole and absolute discretion, upon
requests for borrowing that are in conformity with the cash requirements set
forth in the Plan for Orderly Shutdown. The Maximum Available Amount is
subject to a ceiling ("Maximum Available Amount Ceiling") of $51 million, an
amount based on the Company's initial estimate of loan proceeds needed to
fully fund the Plan for Orderly Shutdown. The Maximum Available Amount,
initially, was set at $11 million. At March 31, 1999, the Maximum Available
Amount had been increased to $15.7 million. Lockheed Martin has the right to
accept or reject, in whole or in part, any request for borrowing based on its
determination, in its sole discretion, as to whether the Company is complying
with, or making reasonable progress with respect to, the Plan for Orderly
Shutdown. Loans under the Secured Demand Loan are to be repaid at the earlier
to occur of (i) the business day following written demand by Lockheed Martin
or (ii) the Termination Date. The "Termination Date" is defined as the earlier
of July 15, 1999 or the date on which Lockheed Martin notifies the Company of
termination based on (x) Lockheed Martin's determination that the Company is
not reasonably complying with, and making reasonable progress with respect to,
the Plan for Orderly Shutdown, which determination may be made in the sole and
absolute discretion of Lockheed Martin, (y) the occurrence of a bankruptcy
event (as defined in the Secured Demand Loan), or (z) the breach by the
Company of the Secured Demand Loan or the accompanying Security Agreement.
Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company to secure the
obligations of the Company to Lockheed Martin under the Secured Demand Loan.
The Secured Demand Loan also provides for certain other obligations of the
Company, including covenants of the Company with respect to periodic notices,
reports and forecasts relating to the Plan for Orderly Shutdown.
The Secured Demand Loan also required the Company to retain an independent
third-party liquidation specialist acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, and revised its estimate of funding needed
under the Secured Demand Loan to approximately $65 million.
As noted above, the Company's latest estimate of funding needed to complete
the Plan for Orderly Shutdown indicates estimated liabilities to be $14
million in excess of amounts expected from asset sales proceeds and the
maximum available under the Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for Orderly Shutdown, Lockheed
Martin has agreed to consider increasing the Maximum Available Amount Ceiling,
but there can be no assurance that such increase will be granted or that
Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Additionally, there can be no
assurance that the Company will be able to settle with its creditors at
amounts estimated in the Plan for Orderly Shutdown, that estimated cash
inflows from asset sales will occur, or that actual net cash funding
requirements will not exceed current estimates for any other reason.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown as originally envisioned. If
the Company is unable to obtain sufficient funds to complete the Plan for
Orderly Shutdown from asset sales proceeds and the Secured Demand Loan or it
is unable to reach reasonable settlements with all of its creditors, the
Company may be forced to seek protection from creditors under Federal
Bankruptcy law or may become subject to an involuntary bankruptcy proceeding.
In the event of an insolvency proceeding, claims of secured creditors, such as
Lockheed Martin, may not be able to be repaid in full and unsecured creditors
may receive little, if anything, for their claims. In any circumstance,
holders of the Company's common stock are not expected to receive any
distributions of funds or assets and the Plan for Orderly Shutdown does not
contemplate any such distributions.
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System due to the Company's failure to maintain certain
listing requirements. At the present time, the Company's
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Common Stock continues to trade on the over-the-counter bulletin board market
maintained by Nasdaq. It is expected that the Company's Common Stock will be
deregistered under Rule 12g-4 of the Securities Exchange Act of 1934 in
connection with the Company's anticipated formal winding up and dissolution.
Historic Business
CalComp Inc. The principal business of the Company derived 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 that 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 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.
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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 offerings 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 was a
developer and manufacturer of the proprietary piezo inkjet printing technology
which the Company marketed under the CrystalJet name. Pursuant to the Plan for
Orderly Shutdown, Topaz ceased operations effective January 29, 1999.
Kodak Joint Development Agreement. On March 29, 1998, the Company and
Eastman Kodak Co. ("Kodak") entered into a Patent License and Joint
Development Agreement (the "Joint Development Agreement") covering the joint
development of the Company's CrystalJet technology into a range of products,
printers and consumables for commercial applications. The Joint Development
Agreement has a term of five years and provides for the contribution by Kodak
of up to $36 million, with $20 million having been advanced upon the signing
of the Joint Development Agreement and up to an additional $16 million to be
funded incrementally over the term upon the achievement of certain milestones
and the occurrence of certain events. As of December 1998, the initial $2
million milestone under the Joint Development Agreement had been achieved and
paid by Kodak. A second $2 million milestone had been achieved and was
recorded as revenue but remains unpaid by Kodak who is withholding payment
pending resolution of its dispute with the Company relating to the Joint
Development Agreement. See "Dispute with Kodak." The Company and Kodak are
also in dispute concerning the appropriate criteria applicable to an
additional $3 million payment concerning a third milestone, notice of
achievement of which the Company has also delivered to Kodak. See "Dispute
with Kodak." The Joint Development Agreement also provides for royalties to be
paid by Kodak to the Company in respect of licenses granted thereunder which
allow Kodak, under certain circumstances, to exploit the inkjet technology
developed under the terms of the agreement.
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 at an exercise price of $3.88 per share. The
Warrant has a term of seven years and became exercisable as to 4,000,000 of
the Warrant Shares on March 29, 1999, and the remaining 4,000,000 Warrant
Shares will become exercisable 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.
Dispute with Kodak. Subsequent to the Company's announcement of the Plan for
Orderly Shutdown, Kodak notified the Company that it considered the Company to
be in breach of various obligations relating to the Joint Development
Agreement. The Company, in turn, notified Kodak that it rejected Kodak's
claims and
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also asserted various claims against Kodak. Although the Company and Kodak
have discussed a settlement of the dispute which would have involved, among
other things, Kodak's purchase of certain CrystalJet related assets, no
agreement has been concluded. In the absence of a satisfactory settlement or
termination of the Joint Development Agreement with Kodak, the Company intends
to defend itself and/or pursue any claims it may have under the Joint
Development Agreement.
Products
Through 1998, the Company continued to distribute graphics peripheral
products targeted at CAD/CAM printing and publishing and graphic arts markets.
The Company's products fell 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. In
connection with the Plan for Orderly Shutdown, all manufacturing and marketing
of the Company's products have been discontinued.
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 were 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. CrystalJet printers represented 2% of the total revenue of the
Company for fiscal year 1998. The CrystalJet 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
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. Although the CrystalJet products were
brought to market in 1998, the substantial operating losses and negative cash
flow resulting from unexpected delays and technical difficulties related to
the CrystalJet manufacturing process as well as the unanticipated costs and
difficulties in gaining wide market acceptance, would have required a
significant infusion of capital to allow the Company to achieve profitable
large scale production of these products. Failure to obtain sufficient funding
led to the adoption of the Plan for Orderly Shutdown. In connection with the
Plan for Orderly Shutdown, operations relating to the CrystalJet products were
terminated. Currently, the Company is considering various alternatives
concerning the CrystalJet assets, including sale of such assets, in whole or
in part, to third party purchasers (including Kodak and the former Topaz
owners) or a transfer or other conveyance of such assets in satisfaction of
creditor claims.
Historical Output Products. Printers and plotters represented 14% of the
total revenue of the Company for fiscal year 1998. In connection with the
Company's plan to transition substantially all of its output products to its
new CrystalJet technology, the Company liquidated substantially all of its
non-CrystalJet based thermal inkjet output products at significantly less than
their historical values in 1998.
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Cutters
The Company's cutter business represented 7% of the total revenue in 1998.
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.
On February 19, 1999, the Company sold its cutter business to WestComp
Incorporated ("WestComp") for $600,000 in cash and the assumption by WestComp
of certain liabilities relating to the business. The asset sale to WestComp
principally included the shares of CalComp Display Products N.V., a Belgian
company and an indirect subsidiary of the Company, and the cutter related
products held as inventory by the other subsidiaries of the Company. In
connection with the sale, CalComp Technology Europe N.V. sold the principal
facility of the cutter business, located in Gistel, Belgium, to an affiliate
of WestComp at a purchase price of $924,000 on March 31, 1999.
Input Devices
Input devices accounted for 22% of the total revenue of the Company for
fiscal year 1998. The input device products offered by the Company were
digitizers and scanners.
Digitizers
Uses for digitizers include desktop publishing, image processing, simple
mouse replacement and pen-based computing. The Company's primary markets for
digitizers were 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.
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. The
Company believes that this trend and the failure of the Company to
successfully replace or renew demand for CAD digitizer products had a material
and adverse impact on the Company's input device business.
Scanners
Scanners are input devices which detect images on input media and translate
the images into raster data for a computer. The Company marketed a family of
large format scanners, the ScanPlus(TM) III large format scanners that are
capable of fast, high volume scanning. These units, which can scan documents
up to 36" wide, come in
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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.
Sale of the Input Device Business
Although the Company, as part of its strategy to divest itself of its non-
CrystalJet business and to generate cash to be used to fund continuing
operations, attempted to sell its input device business during fiscal 1998,
such efforts proved unsuccessful. On February 1, 1999, in connection with the
Plan for Orderly Shutdown, the Company, through certain domestic and foreign
subsidiaries, sold substantially all of the assets relating to its input
device business to GTCO Corporation ("GTCO"), one of the Company's competitors
who had previously negotiated for the purchase of the business, for an
aggregate of $6,500,000 in cash and the assumption by GTCO of certain
liabilities relating to the input device business.
Supplies
The Company also marketed an extensive line of consumable inks and media for
its printers and plotters. Supplies represented 23% of the revenues of the
Company for fiscal year 1998.
The Company's strategy for its new line of CrystalJet products was to
establish a CrystalJet based-consumables business. In connection with the
release and establishment of an installed base of the new CrystalJet products,
the Company intended to introduce a full line of related ink and media
supplies. The Company planned to market inks, under the name "CrystalInk",
which was to contain a complete set of both indoor dye-based ink and outdoor
pigment-based ink. In addition, the Company intended to offer a full line of
media products including opaque matte bond, premium bond, graphics
presentation, glossy, adhesive-backed vinyl, canvas, and overlaminate
material. This matched ink and media system was anticipated to provide
customers with one source for their printing needs.
The Company believed that the CrystalJet consumables business would replace
and, as the installed base grew, exceed the Company's existing non-CrystalJet
consumables business. However, the difficulties associated with the
introduction of the CrystalJet product line and the liquidity crisis leading
to the Plan for Orderly Shutdown did not allow for the successful development
of the CrystalJet consumables business.
In connection with the Plan for Orderly Shutdown, on March 24, 1999, the
Company sold its non-CrystalJet consumables business (excluding the
territories of Europe and Africa) to Budde International, Inc ("BII"). The
purchase price for the non-CrystalJet supplies inventory and related sales
information was $833,000. The Company has also signed a non-binding letter of
intent to sell the European and African non-CrystalJet supplies business (the
"European Supplies Business"). The purchase price of the European Supplies
Business is expected to be determined based on existing inventory levels as of
the closing of the transaction. The proposed purchaser has provided the
Company with a non-refundable deposit of $225,000. The parties are working
diligently towards a definitive purchase and sale agreement with the expected
closing of the transaction on or about April 14, 1999.
Service and Support
The Company, through its North American Channels group, its international
subsidiaries and selected third- party providers, provided an extensive range
of customer service and technical support for the Company's products. Service
revenues accounted for 20% of the Company's total revenue in 1998. Technical
support and customer service were provided through a twelve hour, five day
telephone response network that provided customers with continuous access to
trained technical support personnel. In addition, the Company provided product
support and service through repair, exchange or replacement of products. The
Company also maintained
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a staff of service technicians that were available for on-site service calls.
During the past three years, the Company entered into 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 moved away from using third parties in favor of its in-
house service staff where feasible.
As part of the Plan for Orderly Shutdown, the Company is maintaining scaled
back service and support programs for historical product groups pending the
sale of assets and assumption of obligations (including warranty obligations)
relating to the various products or other out-sourcing of related support and
service obligations. On April 1, 1999, the Company sold its assets and
liabilities relating to its worldwide parts distribution business and its
North American service business to Tekgraf, Inc. ("Tekgraf") for $400,000.
Research and Development
During fiscal year 1998, the Company expended $14.5 million for research and
development activities. The Company's research and development efforts were
primarily focused on the output device market and inkjet technology and
related platforms. Royalty revenue, primarily $18.6 million from the Company's
Joint Development Agreement with Kodak, contributed 12% of the Company's total
revenue in 1998. The Company will not engage in further research and
development efforts.
Patents and Proprietary Information
The Company owns numerous patents and patent applications, including
domestic and foreign applications covering the CrystalJet technology, which
were used in the operation of the Company's business and has developed a
variety of proprietary information that was necessary for its business. While
such patents, patent applications and other proprietary information were, in
the aggregate, important to the operation of the Company's business,
management of the Company does not believe that loss or termination of any
patent, patent application or other intellectual property right would have
materially affected the business of the Company. In conjunction with the Plan
for Orderly Shutdown, certain of the Company's patents and patent applications
are being transferred to third parties as the related businesses are sold.
Sales and Distribution
In 1998, the Company modified its distribution strategy for output products
to sell its branded products through value-added resellers in an effort to
achieve an overall higher level of customer satisfaction and to penetrate new
markets and better service customer needs. Delays and technical difficulties
in bringing the CrystalJet products to market and the Company's liquidity
crisis leading to the Plan for Orderly Shutdown did not allow these sales and
distribution goals to be realized.
Competition
The Company encountered extensive competition in all of its lines of
business with numerous other parties, depending on the particular product or
market environment. The parties with whom the Company competed differed
depending on whether the product at issue was in the hard-copy plotter,
printer and cutter market, or the digital input device market. Many of the
Company's competitors had larger technical staffs, larger marketing and sales
organizations and significantly greater financial resources than the Company.
The Company also faced additional competition from many smaller competitors.
Organization
Prior to the Plan for Orderly Shutdown, the Company's business, although
conducted through numerous domestic and foreign subsidiaries, consisted of two
organizational units, the Input Technologies Division located in Scottsdale,
Arizona which manufactured and/or distributed digitizers and scanners and the
Digital Printing
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Systems Division located in Anaheim and Sunnyvale, California and Gistel,
Belgium which manufactured and sold output products consisting of printers and
cutters. Sales and service were organized geographically for both divisions,
while the following functions were included within each division:
Product Management was responsible for defining product requirements and for
the product through development, manufacturing and sales, to provide
continuity to the Company's market commitment.
Product Development was charged with the design of an economically
manufacturable product which met the specifications originated by Product
Management.
Manufacturing performed all of the manufacturing operations, including the
purchasing of materials, manufacturing, testing, packaging and shipping of
products. Manufacturing consisted of a blend of internal and outsourced
capabilities.
Marketing and Sales were responsible for the selection, management and
support of distribution channels. Additionally, the North American Sales
organization managed sales in territories where the Company had no operating
subsidiaries or distributors through Budde International, Inc., a Master
Distributor located in Anaheim, California.
The Company's European operations were headquartered in Brugge, Belgium. The
Company's activities in the Asia/Pacific region were 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., was the exclusive distributor for nearly all of the Company's
products in Japan. In connection with the Plan for Orderly Shutdown, all
foreign operations are being wound up and terminated. The Company is currently
negotiating a sale of its interest in the Japanese joint venture.
Employees
As of December 27, 1998, the Company employed approximately 888 people
worldwide, of which 130 employees were involved in product development,
manufacturing, marketing and headquarters operations in Anaheim, California.
Approximately 133 employees were employed in the sales and service of the
Company's products and were located at various strategic sites throughout
North America, with many located in Anaheim, California. The Company employed
approximately 126 people in support of its input device operations in
Scottsdale, Arizona, and 270 people in support of inkjet products in
Sunnyvale, California. In addition, there were approximately 206 employees in
Europe and 23 employees in Asian operations, primarily involved with the
importation, sales and service of the Company's products into their local
geographic regions. Under the Plan for Orderly Shutdown, the Company had
reduced its work force to approximately 259 employees at March 31, 1999.
Certain Company employees have been designated as members of the Company's
shutdown team. The Plan for Orderly Shutdown contemplates a shutdown team
consisting of approximately 100 employees working through April 1999 and
approximately 55 of those 100 employees continuing to work through July 1999.
Each team member will receive a retention benefit related to his or her
efforts in facilitating the Plan for Orderly Shutdown. Severance amounts paid
to the Company employees have been based on existing contracts, statutory
requirements and Company policy. Severance payments in certain foreign
jurisdictions, particularly Europe, tend to be significantly higher than in
the United States due to local statutory requirements.
ITEM 2. PROPERTIES
The Company's Input Technologies Division facility in Scottsdale, Arizona
which is comprised of a 68,000 square foot building on seven acres of land,
was sold to GTCO on February 1, 1999 in connection with the sale of the input
device business. The cutter facility in Gistel, Belgium which is comprised of
a 43,180 square foot building, was sold to WestComp on March 31, 1999 in
connection with the sale of the cutter business.
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As part of the Plan for Orderly Shutdown, the Company will seek to cancel or
sublease all Company facilities under operating leases not assumed by buyers
of the related assets. The contingent settlements of lease obligations are
estimated to be for amounts that are substantially less than the minimum lease
payments set forth in the lease agreements.
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 landlord of the property recently brought an action against
the Company for breach of the lease. See Item 3. "Legal Proceedings."
ITEM 3. LEGAL PROCEEDINGS
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. ("Wacom"), against CalComp Inc., a wholly-owned subsidiary of
the Company, in the U.S. District Court for the Central District of
California. The complaint alleged, among other things, that CalComp Inc.'s
sale of ULTRASLATE digitizer tablets infringes three patents and infringes
Wacom's common law trademark, ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of two of the three patents was denied by
the Court on February 12, 1998. Wacom is also seeking damages and permanent
injunctive relief with respect to alleged infringement of the three patents,
pre-judgment interest and, among other things, has requested an award of its
attorneys' fees and costs. The Company does not believe that any of the
allegations made by Wacom in this suit have merit and intends to defend itself
against all the claims.
In March 1999, Wacom unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit, in the U.S.
District Court for the Northern District of California, against the Company,
CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat.
Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus. The complaint also alleges that the Defendants have induced others
to infringe these patents. The complaint seeks preliminary and permanent
injunctive relief against infringement of the Xaar patents, increased damages
for willful infringement of those patents, interest and award of its
attorneys' fees and costs. The Company has reviewed these patents and believes
that the Company will prevail over Xaar's claims, that the Company's
piezoelectric technology is proprietary to the Company and that the Company's
manufacture and sale of CrystalJet piezoelectric printheads does not infringe
any valid claims of either of these patents. Further, the Company intends to
defend itself against all claims in this lawsuit.
In March 1999, Xaar unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
In a separate action, on July 6, 1998, Xaar filed suit in the English High
Court of Justice ("High Court") in London alleging that the Defendants and
CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused,
enabled, or assisted others to infringe, European patent (UK) number EP 0 277
703 ("'703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and damages or profits resulting from the
alleged infringement and, among other things, interest on any sums due Xaar
and an award of its costs. The Company has reviewed the patent in suit,
believes that the Company will prevail over Xaar's claims in this suit and
that the Company's sale of CrystalJet printers in the U.K. does not infringe
any valid claims of this patent. The Company has also counterclaimed for an
order revoking the '703 Patent. The Company intends to defend itself against
all claims made and to pursue its counterclaim for the revocation of the '703
Patent.
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On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "'590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the '703 Patent.
In March 1999, QRS 10-12 (TX), Inc., and QRS 11-5 (TX), Inc., the landlords
under the lease for the Company's former Austin, Texas headquarters
(collectively, "Landlord"), filed suit against the Company in the U.S.
District Court for the Southern District Court of New York claiming damages
equal to the rent due for the remaining term of the lease. The Company had
ceased paying rent in January 1999. The Company has moved to change the
jurisdiction and venue of the case to Texas where it intends to defend itself
against the Landlord's claims. If the Company were to determine that the
Landlord's lawsuit was reasonably likely to result in a judgement that would
compromise the Company's ability to successfully complete the Plan for Orderly
Shutdown, the Company might be forced to seek protection from the Landlord
under Federal Bankruptcy law in order to statutorily limit the Landlord's
claims, so that all then remaining creditors could share more fairly in the
Company's then remaining assets, if any. In any event, the Company believes
that any payments to the Landlord by way of judgement or settlement will be
for substantially less than the amount of lease payments that might otherwise
be owing through the term of the lease.
The Company is also party to other legal actions arising from its Plan for
Orderly Shutdown. The Company believes that any such claims in material
amounts are without merit.
Because of their contingent nature, the Company does not believe that the
disposition of any of these matters will have a material adverse effect on its
net liabilities in liquidation, nor will the results of any lawsuits affect
the Company's determination to proceed with the Plan for Orderly Shutdown.
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 STOCKHOLDER MATTERS
Until January 27, 1999, the Company's Common Stock was listed and 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 27, 1998:
Fourth Quarter................................................ $2.13 $0.88
Third Quarter................................................. 2.94 1.25
Second Quarter................................................ 4.00 2.50
First Quarter................................................. 4.63 2.81
Year Ended December 28, 1997:
Fourth Quarter................................................ 6.06 3.50
Third Quarter................................................. 5.50 1.88
Second Quarter................................................ 2.88 1.38
First Quarter................................................. 2.75 2.19
</TABLE>
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System. Since that time, the Common Stock has been listed on
the over-the-counter bulletin board market maintained by Nasdaq. It is
expected that the Company's Common Stock will be deregistered under Rule 12g-4
of the Securities Exchange Act of 1934 in connection with the Company's
anticipated formal winding up and dissolution.
As of March 31, 1999, there were 294 holders of record of the Company's
Common Stock. The closing bid price of the Company's Common Stock was $0.03 as
of March 31, 1999 on the over-the-counter bulletin board market.
The Company has never paid any dividends with respect to its Common Stock
and does not anticipate ever paying any dividends.
ITEM 6. SELECTED FINANCIAL DATA
The selected net liabilities in liquidation and statement of operations data
as of and for the fiscal year ended December 27, 1998 set forth below is
derived from CalComp Technology, Inc.'s audited consolidated financial
statements. As discussed in Item 1. "Business--Background and Summary of
Significant Developments," the Company has implemented a Plan for Orderly
Shutdown; therefore, prior year financial data is not comparable or
meaningful. This selected financial data should be read in conjunction with
Item 7. "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 share and per share data:
<TABLE>
<S> <C>
Net Liabilities in Liquidation Data:
Total assets................................................. $ 21,939
Total liabilities............................................ 86,939
Net liabilities in liquidation............................... (65,000)
Statement of Operations Data:
Revenue...................................................... 153,858
Loss from operations......................................... (166,201)
Net loss..................................................... (168,801)
Weighted average shares used in computing per share amount... 47,105,617
Basic and diluted net loss per share......................... (3.58)
</TABLE>
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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.
Liquidity and Capital Resources
On January 14, 1999, the Board of Directors' approved a Plan for Orderly
Shutdown which is expected to be substantially completed in July 1999. For
further information See Item 1. "Business--Background and Summary of
Significant Developments."
Pursuant to the Plan for Orderly Shutdown, the Company has to date
consummated or entered into letters of intent for the sales of substantially
all of its non-CrystalJet assets. The status of the primary sales transactions
to date is as follows: On February 1, 1999, the Company, through certain
domestic and foreign subsidiaries, sold substantially all of the assets
relating to its input device business to GTCO for an aggregate of $6,500,000
in cash and the assumption by GTCO of certain liabilities relating to the
input device business; On February 19, 1999, the Company sold its cutter
business to WestComp for $600,000 in cash and the assumption by WestComp of
certain liabilities relating to the cutter business. The asset sale to
WestComp principally included the shares of CalComp Display Products N.V., a
Belgian company and an indirect subsidiary of the Company, and the cutter
related products held as inventory by the other subsidiaries of the Company.
In connection with the sale, CalComp Technology Europe N.V. sold the principal
facility of the cutter business, located in Gistel, Belgium, to an affiliate
of WestComp at a purchase price of $924,000 on March 31, 1999. On March 24,
1999, the Company sold its non-CrystalJet consumables business (excluding the
territories of Europe and Africa) to BII. The purchase price for the non-
CrystalJet supplies inventory and related sales information was $833,000. The
Company has also signed a non-binding letter of intent to sell the European
Supplies Business. The purchase price of the European Supplies Business is
expected to be determined based on existing inventory levels as of the closing
of the transaction. The proposed purchaser has provided the Company with a
non-refundable deposit of $225,000. The parties are working diligently towards
a definitive purchase and sale agreement with the expected closing of the
transaction to occur on or about April 14, 1999. On April 1, 1999, the Company
sold its assets and liabilities relating to its worldwide parts distribution
business and its North American service business to Tekgraf for $400,000.
However, no assurances can be given that pending sales will be consummated or
that the proceeds from such sales, together with any proceeds from the sale of
assets relating to the Company's CrystalJet business and with the funding from
Lockheed Martin under the Secured Demand Loan, will allow the Company to
successfully complete the Plan for Orderly Shutdown, in which case the Company
may be forced to seek protection from its creditors under Federal Bankruptcy
law or may become the subject of an involuntary bankruptcy proceeding. See
Item 1. "Business--Background and Summary of Significant Developments."
The Company believes that even if the Plan for Orderly Shutdown is
successfully completed, it is highly unlikely that there will be any funds or
assets available for distribution to its preferred or common stockholders and
the Plan for Orderly Shutdown does not contemplate any such distributions.
Assets and Liabilities following the Adoption of the Plan for Orderly Shutdown
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the Company adopted the liquidation basis of accounting which
requires assets and liabilities to be stated at estimated fair value.
Accordingly, the statement of net liabilities in liquidation at December 27,
1998 reflects assets and liabilities based on their estimated fair values and
estimated settlement amounts. Changes in the estimated liquidation value of
assets and liabilities subsequent to December 27, 1998 will be recognized in
the period in which such refinements are known. The consolidated statement of
net liabilities in liquidation has been presented on such
15
<PAGE>
basis to provide more relevant information. The consolidated statements of
operations, and cash flows are presented on the going concern basis of
accounting. However, as result of the Plan for Orderly Shutdown, comparative
information is not meaningful and has not been presented.
Results of Operations for 1998
Revenues. Revenues for the year ended December 27, 1998 were $153.9 million.
Hardware and supplies revenue represented 61% of the total revenue of the
Company for fiscal year 1998. Plotters and printers made up 23% of the
hardware and supplies revenue. This was primarily made up of sales of its
historical output products. In connection with the Company's plan to
transition substantially all of its output products to its new CrystalJet
technology in 1998, the Company liquidated substantially all of its non-
CrystalJet based thermal inkjet output products at significantly less than
their historical values. While the Company brought its new CrystalJet
technology to market in 1998, CrystalJet revenue made up only 3% of the
hardware and supplies revenue as the technology suffered from unexpected
delays and technical difficulties related to the CrystalJet manufacturing
process. In connection with the Plan for Orderly Shutdown, operations relating
to the CrystalJet products were terminated. Input devices made up 32% of the
hardware and supplies revenue. Throughout 1998, the Company's digitizer
product revenue declined primarily as a result of the impact of increasing
interchangeability of mouse input devices as an alternative to digitizer
tablet input devices made possible by recent releases of CAD application
software. Cutter products made up 10% of the hardware and supplies revenue.
Supplies revenue made up 35% of the hardware and supplies revenue. The
Company's service business made up 20% of the Company's total revenue in 1998.
In 1998, the Company's service business deteriorated as a result of fewer
service contracts being generated due to the lower product revenue and a lower
rate of service contract renewals as older generation products were retired
from service. Royalty revenue made up 12% of the Company's total revenue in
1998. This revenue was primarily the result of the Company's Joint Development
Agreement with Kodak which consists of $14.6 million of royalty revenue and
$4.0 million from milestone achievements. The initial $2 million milestone
under the Joint Development Agreement was achieved and paid by Kodak in 1998.
A second $2 million milestone was achieved and was recorded as revenue but
remains unpaid by Kodak which is withholding payment pending resolution of its
dispute with the Company relating to the Joint Development Agreement. See Item
1. "Business--Historic Business--Dispute with Kodak."
Gross Profit. In 1998, amounts recognized from the Joint Development
Agreement made up $18.6 million of the Company's total gross profit of $21.0
million. Excluding the profit from the Joint Development Agreement, gross
profit as a percentage of revenue was 2% for 1998. The low gross profit as a
percentage of revenue was a result of selling price reductions required to
transition out of mature and end-of-life products, the manufacturing
inefficiencies resulting from decreased production volumes on the Company's
mature output products, start up cost inefficiencies on new products, and
delays in volume shipments of the CrystalJet wide format inkjet printers.
Operating Expenses. Operating expenses for 1998 were $187.2 million which
were made up of research and development expenses of $14.5 million, selling,
general and administrative expenses of $56.1 million, corporate expenses from
Lockheed Martin of $3.2 million, impairment charges of $112.1 million and
restructuring charges of $1.3 million.
Research and development expenses of $14.5 million in 1998 were primarily
focused on development efforts to further the output device market and
expanding the inkjet technology and related platforms. In conjunction with the
Plan for Orderly Shutdown, the Company will not engage in any further research
and development efforts.
Selling, general and administrative expenses were $56.1 million and were
focused primarily on furthering the output device market and bringing
CrystalJet and related products to market, liquidating substantially all of
its non-CrystalJet based thermal inkjet output products and streamlining the
European business.
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<PAGE>
Corporate expenses from Lockheed Martin were $3.2 million in 1998 and were a
result of charges for services received under the intercompany services
agreement ("Services Agreement") with Lockheed Martin.
Impairment charges of $112.1 million were taken in the fourth quarter of
1998. These impairment charges relate to the Company's decision to focus its
efforts and resources on the CrystalJet product line and to divest its input
device, cutter, and non-CrystalJet service and support businesses as these
businesses were considered non-strategic. In connection with this decision,
the Company recorded a one-time non-cash impairment charge in the fourth
quarter of $72 million to write-down the carrying value of the net assets of
these businesses to their estimated fair value. In addition, the Company
evaluated the business model and strategy of its continuing operations. As a
result, in the fourth quarter, the Company recorded non-cash charges of $40.1
million related to the impairment of certain long-lived assets, including
goodwill. See Item 1. "Business--Background and Summary of Significant
Developments."
Restructuring charges of $1.3 million were taken in the fourth quarter of
1998 after a Company decision to streamline the Company's North American
operations and move CrystalJet manufacturing to Sunnyvale.
Interest Expense. Interest expense was $3.3 million for 1998 and was
primarily related to interest incurred on the Company's outstanding balances
under the Credit Agreements.
Income Tax Provision. Income tax benefit of $0.6 million in 1998 was
primarily related to foreign and state tax refunds recorded in 1998.
Year 2000 Compliance
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. Others do not correctly
process "leap year" dates. As a result, such systems and applications could
fail or create erroneous results unless corrected to process data related to
the year 2000 and beyond. The problems are expected to increase in frequency
and severity as the year 2000 approaches, and are commonly referred to as the
"Year 2000 Problem." The Company intends to complete an orderly shutdown of
its operations before the end of calendar year 1999; therefore, no additional
funding will be expended on the assessment process. Year 2000 issues are not
expected to impact the shutdown of Company operations.
Products previously tested for the Year 2000 problem and presently supported
by the Company are listed, along with test data, on the Company's Internet
Site.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................... 19
Consolidated Statement of Net Liabilities in Liquidation at December 27,
1998.................................................................... 20
Consolidated Statement of Operations for the Year Ended December 27,
1998.................................................................... 21
Consolidated Statement of Stockholders' Equity for the Year Ended
December 27, 1998....................................................... 22
Consolidated Statement of Cash Flows for the Year Ended December 27,
1998.................................................................... 23
Notes to Consolidated Financial Statements............................... 24
</TABLE>
18
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated statement of net liabilities
in liquidation of CalComp Technology, Inc. as of December 27, 1998 and the
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 1 to the consolidated financial statements, on January
14, 1999, the Board of Directors approved a plan of orderly shutdown and
liquidation and, accordingly, the Company adopted the liquidation basis of
accounting effective December 27, 1998. The Company's consolidated statements
of operations and cash flows for the year ended December 27, 1998 have been
presented using accounting principles applicable to a going concern.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the net liabilities in liquidation
of CalComp Technology, Inc. as of December 27, 1998 and the consolidated
results of operations and cash flows of CalComp Technology, Inc. for the year
ended December 27, 1998, in conformity with generally accepted accounting
principles applied on the basis described in the preceding paragraph.
/s/ Ernst & Young LLP
Orange County, California
April 8, 1999
19
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
December 27, 1998
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash.............................................................. $ 3,280
Accounts receivable............................................... 7,775
Inventories....................................................... 5,966
Prepaid expenses and other assets................................. 1,033
Net assets held for sale.......................................... 1,430
Property, plant and equipment..................................... 2,455
-----------
Total assets.................................................... 21,939
-----------
<CAPTION>
LIABILITIES
-----------
<S> <C>
Accounts payable.................................................. 12,308
Accrued salaries and related expenditures......................... 20,697
Operating expenses during liquidation period...................... 21,647
Commitment cancellation costs..................................... 15,433
Other liabilities................................................. 16,854
-----------
Total liabilities............................................... 86,939
-----------
Net liabilities in liquidation.................................... $ (65,000)
===========
Commitments and contingencies (Note 3)
Number of common shares outstanding............................... 47,120,650
===========
Net liabilities in liquidation per share.......................... $ (1.38)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 27, 1998
(In thousands, except share and per share data)
<TABLE>
<S> <C>
Revenue:
Hardware and supplies............................................ $ 94,503
Service.......................................................... 30,577
Royalty.......................................................... 19,245
Sales to affiliates.............................................. 9,533
----------
Total revenue.................................................. 153,858
Cost of revenue:
Hardware and supplies............................................ 101,084
Service.......................................................... 24,400
Royalty.......................................................... 300
Sales to affiliates.............................................. 7,084
----------
Total cost of revenue.......................................... 132,868
----------
Gross profit................................................... 20,990
Operating Expenses:
Research and development......................................... 14,475
Selling, general and administrative.............................. 56,115
Corporate expenses from Lockheed Martin (Note 2)................. 3,172
Impairment charge (Note 1)....................................... 112,098
Restructuring charge............................................. 1,331
----------
Loss from operations............................................... (166,201)
Interest expense................................................... 3,289
Other income, net (Note 4)......................................... (111)
----------
Loss before income taxes........................................... (169,379)
Income tax benefit (Note 5)........................................ (578)
----------
Net loss....................................................... $ (168,801)
==========
Basic and diluted net loss per share of common stock........... $ (3.58)
==========
Weighted average number of common shares outstanding........... 47,105,617
==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Cumulative Net
--------------- ------------- Paid-in Accumulated Translation Treasury Liabilities in
Shares Amount Shares Amount Capital Deficit Adjustment Stock Liquidation
------ -------- ------ ------ ---------- ----------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28,
1997................... -- $ -- 47,071 $ 471 $ 287,322 $(217,145) $ 5,550 $(465) $ --
Issuance of preferred
stock................. 1,000 60,000 -- -- -- -- -- -- --
Exercise of stock
options............... -- -- 50 -- 105 -- -- -- --
Issuance of warrant.... -- -- -- -- 5,360 -- -- -- --
Translation
adjustment............ -- -- -- -- -- -- 26 -- --
Net loss............... -- -- -- -- -- (168,801) -- -- --
----- -------- ------ ----- --------- --------- ------- ----- -------
Balance at December 27,
1998 prior to adoption
of liquidation basis of
accounting............. 1,000 60,000 47,121 471 292,787 (385,946) 5,576 (465) --
Adoption of liquidation
basis of accounting:
Close capital
accounts.............. -- (60,000) -- (471) (292,787) 385,946 (5,576) 465 27,577
Adjust net liabilities
in liquidation to fair
value................. -- -- -- -- -- -- -- -- 37,423
----- -------- ------ ----- --------- --------- ------- ----- -------
Net liabilities in
liquidation at December
27, 1998............... 1,000 $ -- 47,121 $ -- $ -- $ -- $ -- $ -- $65,000
===== ======== ====== ===== ========= ========= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 27, 1998
(In thousands)
<TABLE>
<S> <C>
Operating activities:
Net loss.......................................................... $(168,801)
Adjustments to reconcile net loss to net cash used in operating
activities:
Impairment charge............................................... 112,098
Depreciation and amortization................................... 17,088
Restructuring payments.......................................... (2,805)
Restructuring charge............................................ 1,331
Investee income................................................. (318)
Net changes in operating assets and liabilities................. 3,418
---------
Net cash used in operating activities......................... (37,989)
Investing activities:
Purchase of property, plant and equipment......................... (9,512)
Dividends received................................................ 121
---------
Net cash used in investing activities......................... (9,391)
Financing activities:
Net proceeds from line of credit with Lockheed Martin............. 38,608
Issuance of warrant............................................... 5,360
Exercise of stock options......................................... 105
---------
Net cash provided by financing activities..................... 44,073
Effect of exchange rate changes on cash............................. 93
---------
Change in cash...................................................... (3,214)
Cash at beginning of year........................................... 6,494
---------
Cash at end of year................................................. $ 3,280
=========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Background and Summary of Significant Developments
The Company has been 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 were designed for use in computer aided design and
manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets,
both domestically and internationally. The Company also maintained service,
product support and technical assistance programs for its customers and sold
software, supplies and after-warranty service.
In recent years, the Company had begun 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 end of 1997, the
Company had substantially completed its strategy to discontinue its non-inkjet
printer and plotter products.
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 was marketed under the
"CrystalJet(TM)" name and targeted at the graphic arts industry. The Company
began shipping the initial market development and demonstration units of these
printers in the first quarter of 1998. Although volume shipments to customers
of CrystalJet products commenced in the second quarter and increased during
the remainder of the fiscal year, the projected profitability of the
CrystalJet products was dependent on achieving greater production volumes and
wider market acceptance than could reasonably be anticipated to occur in the
near term and would have required substantial infusions of new capital which
the Company was unable to obtain. Although the new CrystalJet technology
proved viable, the Company believes that production delays, technical
difficulties in the manufacturing processes and a failure to gain timely
market acceptance resulted in continuing operating losses and negative cash
flow, which materially and adversely affected the Company's business plan for
the CrystalJet technology and in significant part, resulted in the Company's
liquidity crisis discussed further below.
As part of its piezo inkjet technology development, in March 1998, the
Company entered into a Patent License and Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided an initial payment of $20
million in April 1998 and contemplated 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. As of March 31, 1999, the Company
believes that the first three milestones totaling $7 million were achieved in
1998; however, only the first $2 million milestone payment has been received
from Kodak because Kodak has disputed the attainment of the third milestone
and withheld the second milestone payment.
In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the formal decision to focus its efforts and
resources on the CrystalJet product line and to divest its input device,
cutter, and non-CrystalJet service and support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
recorded a one-time non-cash impairment charge in the fourth quarter of $72
million to write-down the carrying value of the net assets of these businesses
to their estimated fair value. In addition, the Company evaluated the business
model and strategy of its continuing operations. As a result, in the fourth
quarter, the Company recorded non-cash charges of $40.1 million related to the
impairment of certain long-lived assets, including goodwill.
24
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1998, the Company also entered into an Exchange Agreement with
Lockheed Martin Corporation ("Lockheed Martin"), which is the majority
shareholder, principal creditor and source of capital funding of the Company,
pursuant to which, the Company exchanged $60 million of outstanding debt owed
to Lockheed Martin under a Revolving Credit Agreement for 1,000,000 shares of
Series A Preferred Stock (the "Preferred Stock") of the Company (the "Debt
Exchange"). In connection with the Debt Exchange, the Revolving Credit
Agreement was amended to reduce the amount of borrowing available to the
Company under that agreement from $73 million to $13 million. In August,
September, and November 1998, a related Cash Management Agreement was amended
which ultimately increased the amount of borrowing available to the Company
from $2 million to $30 million under the Cash Management Agreement, thereby
providing a maximum borrowing availability of $43 million to the Company under
these agreements (the "Credit Agreements"). At December 27, 1998, the Company
had drawn a total of $38.1 million against the Credit Agreements.
In a letter dated December 23, 1998, Lockheed Martin notified the Company
that it would not increase the Company's credit availability, needed to fund
the Company's current operations, beyond the $43 million then available under
the Credit Agreements. At such date, the Company anticipated that, to fund
operating requirements, it would require the $4.9 million remaining under the
Credit Agreements in January 1999. On December 28, 1998, the Company indicated
its intent to accept Lockheed Martin's proposal to fund a non-bankruptcy
orderly shut-down of the Company's operations in accordance with a plan to be
proposed by the Company. On January 14, 1999 the Company's directors approved
and submitted the Company's Plan ("Plan for Orderly Shutdown") to Lockheed
Martin for their review and approval. As a result of this liquidity crisis and
after considering its lack of strategic alternatives, in particular, given the
Company's inability to obtain funding from sources other than Lockheed Martin,
on January 15, 1999, the Company announced that it would commence an orderly
shutdown of its operations. Under the Plan for Orderly Shutdown approved by
the Company's Board of Directors, the Company completed a Secured Demand Loan
Facility ("Secured Demand Loan") with Lockheed Martin, pursuant to which
Lockheed Martin agreed to provide, subject to the terms and conditions set
forth in such facility, funding to the Company in addition to the $43 million
available under the Credit Agreements. The Secured Demand Loan would provide
funds to assist the Company in the non-bankruptcy shutdown of its operations
pursuant to the Plan for Orderly Shutdown. In addition, Lockheed Martin agreed
to forebear from exercising its rights and remedies to collect amounts
outstanding under the Credit Agreements until the Secured Demand Loan is
terminated. In connection with the Plan for Orderly Shutdown, it is
anticipated that the Company will cause the dissolution, merger or
consolidation of its subsidiaries with the Company and that the Company,
itself, would then proceed with its own formal winding up and dissolution.
Since the announcement of the Plan for Orderly Shutdown, the Company has
ceased all manufacturing, sales and marketing activities and scaled back
operations to a level designed to allow the Company to sell or liquidate its
assets in a manner that takes into account the interests of the Company's
stockholders, creditors, employees, customers and suppliers. As of March 31,
1999 the Company has consummated or entered into letters of intent for sales
of substantially all of its assets, other than those relating to its
CrystalJet business. However, no assurances can be given that all pending
transactions will be consummated. Additionally, pursuant to the Plan for
Orderly Shutdown, the Company has issued notices to its domestic employees
under the Worker Adjustment and Retraining Notification Act (W.A.R.N.) and, as
of March 31, 1999, has terminated 381 employees, or 74% of the Company's
domestic workforce. Non-U.S. employees have also been terminated or notified
of their scheduled termination under applicable foreign laws. Certain of the
Company's sales and service personnel, pending sales of specified assets, and
an administrative team (including the President, Chief Financial Officer and a
newly appointed Chief Executive Officer) will wind up the operations of the
Company through the shutdown process which is expected to be substantially
completed by July 1999. The Company anticipates that it will be able to
negotiate reasonable settlement amounts with its non-affiliated creditors but
the Company's ability to make payments on the agreed settlement amounts will
depend on receiving sufficient cash from the sale of its assets and securing
additional funding sufficient for the Plan for Orderly Shutdown.
25
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Secured Demand Loan provides for Lockheed Martin to make loans to the
Company from time to time up to an aggregate maximum available amount (the
"Maximum Available Amount"), specified by Lockheed Martin, which may be
increased by Lockheed Martin, in its sole and absolute discretion, upon
requests for borrowing that are in conformity with the cash requirements set
forth in the Plan for Orderly Shutdown. The Maximum Available Amount is
subject to a ceiling ("Maximum Available Amount Ceiling") of $51 million, an
amount based on the Company's initial estimate of loan proceeds needed to
fully fund the Plan for Orderly Shutdown. The Maximum Available Amount,
initially, was set at $11 million. At March 31, 1999, the Maximum Available
Amount had been increased to $15.7 million. Lockheed Martin has the right to
accept or reject, in whole or in part, any request for borrowing based on its
determination, in its sole discretion, as to whether the Company is complying
with, or making reasonable progress with respect to, the Plan for Orderly
Shutdown. Loans under the Secured Demand Loan are to be repaid at the earlier
to occur of (i) the business day following written demand by Lockheed Martin
or (ii) the Termination Date. The "Termination Date" is defined as the earlier
of July 15, 1999 or the date on which Lockheed Martin notifies the Company of
termination based on (x) Lockheed Martin's determination that the Company is
not reasonably complying with, or making reasonable progress with respect to,
the Plan for Orderly Shutdown, which determination may be made in the sole and
absolute discretion of Lockheed Martin, (y) the occurrence of a bankruptcy
event (as defined in the Secured Demand Loan), or (z) the breach by the
Company of the Secured Demand Loan or the accompanying Security Agreement.
Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company to secure the
obligations of the Company to Lockheed Martin under the Secured Demand Loan.
The Secured Demand Loan also provides for certain other obligations of the
Company, including covenants of the Company with respect to periodic notices,
reports and forecasts relating to the Plan for Orderly Shutdown.
The Secured Demand Loan also required the Company to retain an independent
third-party liquidation specialist acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, and revised its estimate of funding needed
under the Secured Demand Loan to approximately $65 million.
As noted above, the Company's latest estimate of funding needed to complete
the Plan for Orderly Shutdown indicates estimated liabilities to be $14
million in excess of amounts expected from asset sales proceeds and the
maximum available under the Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for Orderly Shutdown, Lockheed
Martin has agreed to consider increasing the Maximum Available Amount Ceiling,
but there can be no assurance that such increase will be granted or that
Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Additionally, there can be no
assurance that the Company will be able to settle with its creditors at
amounts estimated in the Plan for Orderly Shutdown, that estimated cash
inflows from asset sales will occur, or that actual net cash funding
requirements will not exceed current estimates for any other reason.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown as originally envisioned. If
the Company is unable to obtain sufficient funds to complete the Plan for
Orderly Shutdown from asset sales proceeds and the Secured Demand Loan or it
is unable to reach reasonable settlements with all of its creditors, the
Company may be forced to seek protection from creditors under Federal
Bankruptcy law or may become subject to an involuntary bankruptcy proceeding.
In the event of an insolvency proceeding, claims of secured creditors, such as
Lockheed Martin, may not be able to be repaid in full and unsecured creditors
may receive little, if anything, for their claims. In any circumstance,
holders of the
26
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's common stock are not expected to receive any distributions of funds
or assets and the Plan for Orderly Shutdown does not contemplate any such
distributions.
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System due to the Company's failure to maintain certain
listing requirements. At the present time, the Company's Common Stock
continues to trade on the over-the-counter bulletin board market maintained by
Nasdaq. It is expected that the Company's Common Stock will be deregistered
under Rule 12g-4 of the Securities Exchange Act of 1934 in connection with the
Company's anticipated formal winding up and dissolution.
Liquidation Basis of Accounting
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the accompanying consolidated statement of net liabilities in
liquidation has been presented based on the liquidation basis of accounting to
provide more relevant information. The consolidated statements of operations
and cash flows for the year ended December 27, 1998 are presented on the going
concern basis of accounting. However, as a result of the Plan for Orderly
Shutdown, comparative information and certain other disclosures are not
meaningful and have not been presented.
The liquidation basis of accounting requires that assets and liabilities be
stated at estimated fair value. Accordingly, the statement of net liabilities
in liquidation at December 27, 1998 reflects assets and liabilities based on
their estimated fair values and estimated settlement amounts. Changes in the
estimated liquidation value of assets and liabilities subsequent to December
27, 1998 will be recognized in the period in which such refinements are known.
Organization and Basis of Presentation
The Company is an 86.7% owned subsidiary of Lockheed Martin. 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 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.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles under the liquidation basis of accounting
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Significant
estimates have been made relative to the valuation of all assets and
liabilities of the Company, including, among others, estimates for warranties
and settlement of litigation and long-term lease commitments. Such estimates
have been developed pursuant to the provisions of the Plan for Orderly
Shutdown. 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 had provided 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 lowered the price of selected products within certain time
periods.
27
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1998 contained fifty-two weeks.
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 6, 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 prices 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.
Exchange gains and losses resulting from foreign currency transactions which
occurred through December 27, 1998 (transactions denominated in a currency
other than that of the entity's primary cash flow) have been included in
operations.
Income Taxes
The Company's operations are included in consolidated federal and combined
state income tax returns of Lockheed Martin. 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.
Per Share Data
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.
Advertising Costs
The Company expensed advertising costs as incurred. Advertising expenditures
for 1998 were $5,416,000.
Rent Expense
Rent expense was $3,142,000 in 1998.
28
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplementary Cash Flow Information
Changes in operating assets and liabilities are as follows for the year
ended December 27, 1998 (in thousands):
<TABLE>
<S> <C>
Changes in operating assets and liabilities:
Accounts receivable............................................ $ 6,444
Accounts receivable from affiliates............................ 2,578
Inventories.................................................... 5,976
Prepaid expenses and other current assets...................... 980
Other assets................................................... (473)
Accounts payable............................................... 2,716
Accounts payable to affiliates................................. (3,089)
Accrued salaries and related expenditures...................... (293)
Deferred revenue............................................... (2,307)
Accrued reorganization costs................................... (1,165)
Income taxes payable........................................... 190
Other liabilities.............................................. (9,081)
Other long-term liabilities.................................... 942
-------
Net changes in operating assets and liabilities.................. $ 3,418
=======
</TABLE>
Net income taxes received from Lockheed Martin and foreign governments were
$591,000 for 1998.
Interest paid was $3,343,000 for 1998.
2. Transactions with Lockheed Martin and Affiliates
Pursuant to a services agreement, Lockheed Martin has billed the Company for
certain corporate general and administrative costs under a formula acceptable
for the United States Department of Defense contracting purposes. Amounts
charged to the Company and included in corporate expenses from Lockheed Martin
were $3.2 million for 1998.
Additionally, the Company has entered into support agreements with Lockheed
Martin. The agreements provide, among other things, that Lockheed Martin
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 $4.3
million for 1998. This amount is allocated to various cost elements in the
consolidated statement of operations based on relevant factors which include
headcount and square footage.
Accounts payable to other affiliated companies aggregated $2.5 million as of
December 1998.
During 1998, the Company requested cash as needed to fund operations based
on the Credit Agreements with Lockheed Martin. These requests were processed
as borrowings against the Credit Agreements with Lockheed Martin. Excess funds
were transferred to the Lockheed Martin as payments toward previous
borrowings.
29
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
End user sales to other affiliated companies, including sales to NS CalComp
KK, were $9.5 million during 1998. Sales to related parties have been
consummated at prices and terms consistent with similar transactions with
unrelated third parties.
Accounts receivable from these affiliates related to such sales aggregated
$1.9 million as of December 1998.
Also see Note 1. Background and Summary of Significant Developments.
3. Commitments and Contingencies
Legal
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. ("Wacom"), against CalComp Inc., a wholly-owned subsidiary of
the Company, in the U.S. District Court for the Central District of
California. The complaint alleged, among other things, that CalComp Inc.'s
sale of ULTRASLATE digitizer tablets infringes three patents and infringes
Wacom's common law trademark, ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of two of the three patents was denied by
the Court on February 12, 1998. Wacom is also seeking damages and permanent
injunctive relief with respect to alleged infringement of the three patents,
pre-judgment interest and, among other things, has requested an award of its
attorneys' fees and costs. The Company does not believe that any of the
allegations made by Wacom in this suit have merit and intends to defend itself
against all the claims.
In March 1999, Wacom unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit in the U.S.
District Court for the Northern District of California, against the Company,
CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat.
Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus. The complaint also alleges that the Defendants have induced others
to infringe these patents. The complaint seeks preliminary and permanent
injunctive relief against infringement of the Xaar patents, increased damages
for willful infringement of those patents, interest and award of its
attorneys' fees and costs. The Company has reviewed these patents and believes
that the Company will prevail over Xaar's claims, that the Company's
piezoelectric technology is proprietary to the Company and that the Company's
manufacture and sale of CrystalJet piezoelectric printheads does not infringe
any valid claims of either of these patents. Further, the Company intends to
defend itself against all claims in this lawsuit.
In March 1999, Xaar unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
In a separate action, on July 6, 1998, Xaar filed suit in the English High
Court of Justice ("High Court") in London alleging that the Defendants and
CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused,
enabled, or assisted others to infringe, European patent (UK) number EP 0 277
703 ("'703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and damages or profits resulting from the
alleged infringement and, among other things, interest on any sums due Xaar
and an award of its costs. The Company has reviewed the patent in suit,
believes that the Company will prevail over Xaar's claims in this suit and
that the Company's sale of CrystalJet printers in the
30
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
U.K. does not infringe any valid claims of this patent. The Company has also
counterclaimed for an order revoking the '703 Patent. The Company intends to
defend itself against all claims made and to pursue its counterclaim for the
revocation of the '703 Patent.
On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "'590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the '703 Patent.
In March 1999, QRS 10-12 (TX), Inc. and QRS 11-5 (TX), Inc. the landlord
under the lease for the Company's former Austin, Texas headquarters
(collectively, "Landlord"), filed suit against the Company in the U.S.
District Court for the Southern District Court of New York claiming damages
equal to the rent due for the remaining term of the lease. The Company had
ceased paying rent in January 1999. The Company has moved to change the
jurisdiction and venue of the case to Texas where it intends to defend itself
against the Landlord's claims. If the Company were to determine that the
Landlord's lawsuit was reasonably likely to result in a judgement that would
compromise the Company's ability to successfully complete the Plan for Orderly
Shutdown, the Company might be forced to seek protection from the Landlord
under Federal Bankruptcy law in order to statutorily limit the Landlord's
claims so that all then remaining creditors could share more fairly in the
Company's then remaining assets, if any. In any event, the Company believes
that any payments to the Landlord by way of judgement or settlement will be
for substantially less than the amount of lease payments that might otherwise
be owing through the term of the lease.
The Company is also party to other legal actions arising from its Plan for
Orderly Shutdown. The Company believes that any such claims in material
amounts are without merit.
Because of their contingent nature, the Company does not believe that the
disposition of any of these matters will have a material adverse effect on its
net liabilities in liquidation, nor will the results of any lawsuits affect
the Company's determination to proceed with the Plan for Orderly Shutdown.
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 has guaranteed the
performance of the Company under this environmental agreement.
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board ("the Water Board") relating to its facility in Anaheim,
California. This plan contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct off-site water investigations and on-
site soil remediation. In 1998, CalComp conducted an extensive aquifer
characterization and off-site plume delineation investigation. Afterwards, the
Board approved CalComp's work plans for Off-Site Plume Delineation and Source
Area Remediation. 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 projected any future
expenditures in connection with environmental matters and does not believe
that the disposition of any of these matters will have a material adverse
effect on its net liabilities in liquidation, nor will any such expenditures
affect the Company's determination to proceed with the Plan for Orderly
Shutdown.
31
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Other Income, net
Other expense (income) consists of the following components for the year
ended December 27, 1998 (in thousands):
<TABLE>
<S> <C>
The Company's share of equity investee earnings..................... $(318)
Foreign exchange transaction gain................................... (170)
Interest income..................................................... (334)
Other expense, net.................................................. 711
-----
Total............................................................. $(111)
=====
</TABLE>
5. Taxes Based on Income
The income tax benefit consists of the following for the year ended December
27, 1998 (in thousands):
<TABLE>
<S> <C>
Current:
State............................................................... $ (42)
Foreign............................................................. (536)
-----
$(578)
=====
</TABLE>
The following is a reconciliation of the difference between the actual
benefit for income taxes and the benefit computed by applying the federal
statutory tax rate on loss before income taxes for the year ended December 27,
1998 (in thousands):
<TABLE>
<S> <C>
Computed tax benefit using statutory tax rate..................... $(59,268)
Increases (reduction) from:
Non deductible goodwill amortization/write-off.................. 41,546
Operating losses without current tax benefit.................... 13,492
Foreign taxes at rates other than statutory rate................ 3,557
Other........................................................... 95
--------
$ (578)
========
</TABLE>
32
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's deferred tax assets and liabilities at December 27, 1998 are
as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities related to:
Depreciation methods.......................................... $ 4,284
Prepaid pension costs......................................... 1,017
Excess of purchase book value over tax basis of property,
plant and equipment.......................................... 659
---------
5,960
Deferred tax assets related to:
Net operating loss carryover.................................. 76,894
Foreign net operating loss carryover.......................... 16,046
Inventories................................................... 9,673
Foreign tax credit carryover.................................. 7,255
Accrued liabilities........................................... 3,713
Accumulated postretiree medical benefit obligation............ 2,091
Accounts receivable........................................... 1,445
Accrued compensation and benefits............................. 587
Other, net.................................................... 46
---------
117,750
Valuation allowance for deferred tax assets................... (111,790)
---------
$ --
=========
</TABLE>
The Company has provided a valuation allowance for its net deferred tax
assets, including $18.7 million provided in 1998, because of the likelihood
that it will not be able to realize those assets during their carry forward or
turnaround periods.
The Company has a net operating loss for federal income tax purposes of $186
million expiring in years through 2013. The federal net operating loss also
includes $34 million of expired tax credit carryover that was converted into
net operating loss carry forward in 1998. Also, the Company has foreign net
operating loss carry forwards in various European countries aggregating $41
million. Additionally, the Company has foreign tax credits of $7.3 million
expiring in years 1999 to 2002.
For financial reporting purposes, loss before income included the following
components for the year ended December 27, 1998 (in thousands):
<TABLE>
<S> <C>
Pretax loss:
United States.................................................. $ (157,830)
Foreign........................................................ (11,549)
----------
$ (169,379)
==========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $16 million at December 27, 1998. Approximately $10 million 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
$358,000 would be payable upon the remittance of the portion of the foreign
earnings which is considered permanently reinvested.
33
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stock Plans
A. Common Stock Reserved
The following shares of common stock are reserved for issuance at December
27, 1998:
<TABLE>
<S> <C>
1996 stock option plan.............................................. 1,964,400
1988 stock option plan.............................................. 75,000
1987 stock option plan.............................................. 52,050
Warrants............................................................ 8,052,500
----------
10,143,950
==========
</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.
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 28, 1997................... 1,536,450 $2.99
Granted.......................................... 616,300 $3.47
Exercised........................................ (49,700) $2.49
Canceled......................................... (398,400) $4.44
--------- -----
Outstanding at December 27, 1998................... 1,704,650 $2.84
========= =====
</TABLE>
As of December 27, 1998, there were 386,800 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 27, 1998, were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------- --------------------
Weighted Weighted Weighted
Number of Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.56 to $2.31...... 645,300 7.90 $1.94 380,900 $1.96
$2.38 to $3.13...... 519,150 8.43 $2.88 174,150 $2.85
$3.31 to $9.00...... 540,200 9.00 $3.87 27,400 $6.28
</TABLE>
34
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
Pro forma information regarding net loss and loss 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 1.2; 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.
The weighted-average fair values of options granted to employees during 1998
were $3.18. 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 for the year
ended December 27, 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Historical Pro Forma
---------- ---------
<S> <C> <C>
Net loss............................................. $(168,801) $(170,491)
Basic and diluted loss per common share.............. $ (3.58) $ (3.62)
</TABLE>
C. Warrants
The terms of warrants to acquire shares of common stock are as follows at
December 27, 1998:
<TABLE>
<CAPTION>
Warrants Price Expiration Date
-------- ----- ---------------
<S> <C> <C>
8,000,000 $3.88 March 29, 2005
37,500 $1.75 December 6, 2000
15,000 $2.00 March 7, 2006
---------
8,052,500
=========
</TABLE>
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has no disagreements on accounting or financial disclosure
matters with its independent auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors
The Company's Bylaws authorize a Board consisting of such number of
Directors as shall be determined by the Board or stockholders, with the number
of Directors currently fixed at eight. In connection with the Exchange, the
Company and Lockheed Martin entered into an agreement pursuant to which
Lockheed Martin and the Company agreed, among other things, that for so long
as Lockheed Martin owns at least 50% of the Common Stock of the Company, at
least two-thirds of the members of the Board of Directors will consist of
Lockheed Martin designees and at least two directors will be "independent" of
both Lockheed Martin and the Company. Mr. Neil A. Knox, one of the two
"independent" directors, resigned from the Board effective as of March 30,
1998, and was replaced by Mr. Renn Zaphiropoulos in October of 1998. Mr. Walt
Skowronski, a Lockheed Martin designated director, resigned from the Board
effective as of January 7, 1999. In addition, in connection with the Company's
Joint Development Agreement ("JDA") with Kodak, Lockheed Martin agreed with
Kodak to vote its shares for the election of a Kodak-designated director. Mr.
Jeb S. Hurley, Kodak's designee, resigned from the Board effective March 18,
1999, and Kodak has since indicated to Lockheed Martin that it will not
replace Mr. Hurley, but will name an observer to attend the Board of Directors
meetings.
The current Directors of the Company are as follows:
<TABLE>
<CAPTION>
Director
Name Age Position Since
---- --- -------- --------
<S> <C> <C> <C>
Arthur E. Johnson........... 52 Chairman of the Board of Directors 1997
John C. Batterton........... 51 Director and President 1997
Gary P. Mann................ 53 Director 1996
Terry F. Powell............. 53 Director 1996
Jeffrey D. MacLauchlan...... 40 Director 1998
Renn Zaphiropoulos.......... 72 Director 1998
Kenneth R. Ratcliffe........ 52 Director 1996
</TABLE>
Arthur E. Johnson has been Chairman of the Board of Directors of the Company
since August 1997. He is President and Chief Operating Officer of the
Information and Services Sector of Lockheed Martin Corporation. He also served
as President of Lockheed Martin's Systems Integration Group from January 1997
to August 1997, and President, Lockheed Martin's Federal Systems from January
1996 to January 1997. He previously served as Vice President, Federal Systems
Group of Loral Corporation from 1994 to 1996 and as President and Chief
Operating Officer of IBM Federal Systems Division from 1992 to 1994.
John C. Batterton has been a Director, and President, of the Company since
April 1, 1997. He also served as Chief Executive Officer of the Company from
April 1, 1997 until March 24, 1999. Mr. Batterton previously served as General
Manager and Vice President, Operations--Business Imaging Systems Division of
Kodak from September 1994 until March 1997. From 1992 to September 1994, he
served as Product Line General Manager, Imaging and Data Processing Products,
Office Imaging--Business Imaging Systems Division of Kodak. Prior to 1992, Mr.
Batterton held various other management positions with Kodak.
Gary P. Mann has served as President, Integrated Business Solutions,
Lockheed Martin Corporation since January 1998. From February 1996 to January
1998, he served as President, Commercial Systems Group,
36
<PAGE>
Information & Services Sector, Lockheed Martin Corporation. From March 1995 to
January 1996, Mr. Mann served as Vice President, Business Development,
Information & Technology Services Sector, Lockheed Martin Corporation. Mr.
Mann has also served as Vice President and General Manager, Martin Marietta
Information Systems Company, from 1993 to March 1995. From 1991 to 1993, Mr.
Mann served as President, Martin Marietta Technical Services.
Terry F. Powell has served as Vice President, Human Resources, Lockheed
Martin Corporation, since March 1998. Mr. Powell previously served as Vice
President, Human Resources, Information & Services Sector, Lockheed Martin
Corporation, since March 1995. Mr. Powell has also served as Vice President,
Human Resources, Lockheed Aeronautical Systems Company, from 1987 to 1995.
Jeffrey D. MacLauchlan has served as Vice President, Finance, Information &
Services Sector, Lockheed Martin Corporation, since June 1998. Mr. MacLauchlan
also served as Vice President, Business Management, Lockheed Martin
Astronautics from 1996 to 1998. From 1995 to 1996, Mr. MacLauchlan served as
Controller, Lockheed Martin Astronautics. Mr. MacLauchlan also served as
Director of Finance, Martin Marietta Information Systems from 1993 to 1995.
From 1991 to 1993, Mr. MacLauchlan served as Controller, Martin Marietta
Information Systems.
Renn Zaphiropoulos served as President and Chief Executive Officer of
Versatec, Inc., a company which he co-founded in 1969 and which is now a
subsidiary of Xerox Corporation, from 1969 to 1988. Prior to that, he held
several positions at Varian Associates from 1956 to 1969. Mr. Zaphiropoulos
also serves as a director for Optical Coating Laboratory, Inc. and Osicom
Technologies, Inc., as well as for private companies Enfish Technology, Visual
Edge, IES, NETsilicon, Inc. and Pacific Access Computer.
Kenneth R. Ratcliffe has served as a Principal of Ratcliffe Group, a
management consulting firm, since March 1998. Prior to that, he was a
Principal of Rohner Associates, a management consulting firm, from July 1996
until March 1998. Mr. Ratcliffe has also served as President and Chief
Operating Officer of PC Connection, Inc. from 1994 to 1995. From 1987 to 1993,
Mr. Ratcliffe served as Vice President, Finance and Operations, Apple
Computer. Mr. Ratcliffe also serves as a director of the private companies The
Charles Stark Draper Laboratory, Inc. and Mediaflex, Inc..
Executive Officers
The current Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John P. Brincko....... 56 Chief Executive Officer
John C. Batterton..... 51 President
John J. Millerick..... 50 Senior Vice President and Chief Financial Officer
</TABLE>
John P. Brincko was appointed Chief Executive Officer of the Company in
March 1999 pursuant to the Company's agreement with Brincko Associates, Inc.
Mr. Brincko has served as President and Chief Executive Officer of Brincko
Associates, Inc. since 1979. During this time, Mr. Brincko has also served as
President and Chief Executive Officer of Mossimo, Inc., and Sun World
International, Inc., President and Chief Operating Officer of Barneys New
York, and Chief Executive Officer of Knudsen Foods, Inc., Foremost Dairies,
Inc., among other senior management positions.
For additional information with respect to Mr. Batterton, see "Directors."
John J. Millerick has been Senior Vice President and Chief Financial Officer
of the Company since August 1996. He also served as Treasurer of the Company
from August 1996 until January 1997 and as interim President and Chief
Executive Officer of the Company from March 1, 1997 to April 1, 1997. Mr.
Millerick previously served as Vice President-Finance for Digital Equipment
Corporation's Personal Computer Business Unit from
37
<PAGE>
December 1994 until August 1995. Before joining Digital, Mr. Millerick served
12 years at Wang Laboratories in several management positions, leaving as Vice
President-Corporate Controller and Acting Chief Financial Officer.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Directors, Executive Officers and greater-than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 27, 1998, all
Section 16(a) filing requirements applicable to its Directors, Executive
Officers and greater-than ten percent beneficial owners were satisfied.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following sets forth certain summary compensation information concerning
the named Executive Officers for each of the Company's last three fiscal
years:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------- ---------------------
Number of Number of
Other Securities Securities
Annual Underlying Underlying All
Name and Principal Fiscal Compensation Company Lockheed Other
Position(1) Year Salary Bonus (2)(3)(4) Options(5) Options(6) Compensation(7)
------------------ ------ -------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John C. Batterton(1).... 1998 $250,016 $112,500 $ 44,715 70,000 -- $13,838
President and Chief 1997 186,550 -- 743,361 150,000 -- 5,477
Executive Officer 1996 -- -- -- -- -- --
James R. Bell(1)........ 1998 186,081 -- 72,190 -- -- 8,218
Senior Vice President, 1997 173,381 -- 96,227 20,000 -- 7,265
Input Technologies 1996 160,061 -- 59,867 50,000 3,000 5,792
Division
Andreas Bibl(1)......... 1998 210,000 -- -- 25,000 -- 808
Senior Vice President, 1997 213,462 -- -- -- -- 3,254
Development, President 1996 -- -- -- -- -- --
Topaz Technologies, Inc
John J. Millerick(1).... 1998 230,100 -- 147,386 25,000 -- 6,726
Senior Vice President 1997 231,990 -- 149,460 25,000 -- 7,187
and Chief Financial 1996 69,246 25,000 75,449 50,000 -- --
Officer
</TABLE>
- --------
(1) Mr. Batterton became an Executive Officer effective April 1, 1997, when he
was appointed President and Chief Executive Officer of the Company. Mr.
Batterton relinquished the position of Chief Executive Officer as of March
24, 1999, but remains as the Company's President. Mr. Bibl became an
Executive Officer effective July 22, 1997. His employment was terminated
by the Company effective January 29, 1999. Mr. Bell's employment was
terminated effective February 1, 1999. Mr. Millerick became an Executive
Officer effective August 12, 1996.
38
<PAGE>
(2) During 1998, certain Executive Officers of the Company received personal
benefits from the Company. The cost of the personal benefits provided to
Mr. Bibl did not exceed the lesser of $50,000 or 10% of his total annual
salary and bonus. The amount reported for Mr. Batterton for 1998 includes
$20,382 for tax reimbursement, $23,808 for relocation expenses, and $525
for airline club memberships. The amount reported for Mr. Bell for 1998
includes $70,200 for Lockheed Martin stock option excercises and $1,990
for financial services. The amount reported for Mr. Millerick for 1998
includes $67,089 for tax reimbursement, $78,368 for relocation expenses
and $1,929 for financial services and airline club memberships. All
payments of perquisites and other personal benefits to the named Executive
Officers, including relocation expenses, were made in accordance with the
Company's policies and procedures.
(3) During 1997, certain Executive Officers of the Company received personal
benefits from the Company. The cost of the personal benefits furnished to
Mr. Bibl did not exceed the lesser of $50,000 or 10% of his total annual
salary and bonus. The amount reported for Mr. Batterton for 1997 includes
$334,947 for tax reimbursement and $394,604 for relocation expenses. The
amount reported for Mr. Bell for 1997 includes $95,782 for Lockheed Martin
stock option exercises. The amount reported for Mr. Millerick for 1997
includes $66,773 for tax reimbursement and $79,762 for relocation
expenses. All payments of perquisites and other personal benefits to the
named Executive Officers, including relocation expenses, were made in
accordance with the Company's policies and procedures.
(4) During 1996, certain Executive Officers of the Company received personal
benefits from the Company. The amount reported for Mr. Bell for 1996
includes $38,820 for a car lease buyout payment and $21,047 for tax
reimbursements, financial services, airline club memberships, and health
club dues. The amount reported for Mr. Millerick for 1996 includes $30,922
for tax reimbursement and $44,527 for relocation expenses. All payments of
perquisites and other personal benefits to the named Executive Officers,
including relocation expenses, were made in accordance with the Company's
policies and procedures.
(5) The referenced options were granted under the Company's 1996 Stock Option
Plan for Key Employees and relate to Common Stock of the Company.
(6) The referenced options for 1996 were granted under the Lockheed Martin
Corporation Amended Omnibus Securities Award Plan and relate to shares of
common stock of Lockheed Martin.
(7) Amounts for Mr. Bell include the Company's (for 1996, 1997 and 1998)
matching contributions under the Lockheed Martin Corporation Salaried
Savings Plan (401K Plan) of $5,792, $5,875, and $5,795 and the Company's
(for 1997 and 1998) matching contributions under the Lockheed Martin
Corporation Salaried Savings Plan Plus (Supplemental 401K Plan) of $1,390
and $2,423. Amounts for Mr. Batterton represent the Company's (for 1997
and 1998) matching contributions under the Lockheed Martin 401K Plan of
$5,477 and $8,592 and the Company's (for 1998) matching contribution under
the Lockheed Martin Supplemental 401K Plan of $5,246. Amounts reported for
Mr. Bibl include the Company's (for 1997 and 1998) matching contributions
under the Lockheed Martin (401K) Plan of $7,187, and $6,726. Amounts for
John Millerick represent the Company's (for 1997 and 1998) matching
contribution under the Lockheed Martin 401K Plan of $7,187 and $6,726.
Option Grants in Last Fiscal Year
The following sets forth certain information concerning individual grants of
stock options during the fiscal year ended December 27, 1998 to each of the
Executive Officers, named in the Summary Compensation Table set forth above,
by the Company:
<TABLE>
<CAPTION>
Individual Grants By The Company
--------------------------------------------------------------------------
Potential Realizable Value
Number of % of Total Exercise at Assumed Annual Rates
Securities Options or Base of Stock Price Appreciation
Underlying Granted to Price for Option Term(3)
Options Employees in ($/Share) Expiration ----------------------------
Name Granted (1) Fiscal Year (2) Date 5% 10%
- ---- ----------- ------------ --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John C. Batterton....... 70,000 11% $3.7188 3/1/08 $ 163,711 $ 414,817
James R. Bell........... -- -- -- -- -- --
Andreas Bibl............ 25,000 4% $3.7188 3/1/08 58,468 241,140
John J. Millerick....... 25,000 4% $3.7188 3/1/08 58,468 241,140
</TABLE>
- --------
(1) The options were granted under the CalComp Technology, Inc. 1996 Stock
Option Plan for Key Employees for a term of 10 years, subject to earlier
termination in certain events related to termination of employment,
39
<PAGE>
and become exercisable 33% per year beginning one year from the date of
grant. Options awarded in 1998 expire six months following termination of
employment except in instances of death, disability, layoff or retirement.
In the event of death, all outstanding options vest immediately and will
expire at the end of their remaining term or three years following death,
whichever is earlier. In instances of disability, all outstanding options
vest immediately and expire on the normal expiration date, ten years
following the date of grant. In instances of layoff or early or normal
retirement, the terms of all outstanding options that have been outstanding
for 18 months or more, or which have already vested, will be unaffected by
such layoff or retirement. Options outstanding less than 18 months which
have not vested will be forfeited. In the event of a change in control of
the Company, the options would vest to the extent not already vested.
(2) All options were granted at fair market value (the last sales price for the
Company's Common Stock on the trading day previous to the date of grant as
reported by NASDAQ).
(3) The dollar amounts set forth in these columns are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission, and, therefore, are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following sets forth certain information concerning each exercise of
stock options during the fiscal year ended December 27, 1998 by each of the
Executive Officers, named in the Summary Compensation Table set forth above,
and the aggregated fiscal year-end value of the unexercised options of each
such Executive Officer:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options At Fiscal Year- In-the-Money Options at
Acquired Value End Fiscal Year-End($)(2)
On Realized ------------------------- -------------------------
Name(1) Exercise ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Batterton....... 0 0 49,900 170,100 0 0
James R. Bell--Company.. 0 0 39,900 30,100 0 0
--Lockheed
Martin.......... 2,700 $70,200 8,222 0 $135,582 0
Andreas Bibl............ 0 0 0 25,000 0 0
John J. Millerick....... 0 0 41,600 58,400 0 0
</TABLE>
- --------
(1) The first line next to each Executive Officer's name indicates options to
acquire shares of the Company's Common Stock. The second line, where
applicable, indicates options to acquire shares of Common Stock of Lockheed
Martin.
(2) Market value of underlying securities at exercise date or year-end, as the
case may be, minus the exercise or base price of "in-the-money" options.
Pension Plan
The Executive Officers of the Company named in the Summary Compensation Table
set forth above, participate in the Lockheed Martin Pension Plan (the "Lockheed
Martin Plan") sponsored by Lockheed Martin, which plan covers all of the
Company's Executive Officers and substantially all of the salaried employees of
the Company on a contributory basis. Set forth below is a pension table, which
shows the estimated annual benefits payable upon retirement for specified
earnings and years of service under the Lockheed Martin Plan.
<TABLE>
<CAPTION>
Five Year Average 15 Years 20 Years 25 Years 30 Years 40 Years
Compensation(1)(2) of Service of Service of Service of Service of Service
------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$100,000............ 21,915 29,220 36,525 43,830 58,440
150,000............ 33,165 44,220 55,275 66,330 88,440
200,000............ 44,415 59,220 74,025 88,830 118,440
300,000............ 66,915 89,220 111,525 133,830 178,440
400,000............ 89,415 119,220 149,025 178,830 238,440
500,000............ 111,915 149,220 186,525 223,830 298,440
</TABLE>
- --------
40
<PAGE>
(1) Benefits payable under the Lockheed Martin Program may be limited by
Section 401(a)(17) and 415 of the Internal Revenue Code. The maximum
earnings which may be considered to compute a benefit in accordance with
Section 401(a)(17) of the Code is $160,000. The maximum annual amount
payable under the Lockheed Martin Program as of December 31, 1998 in
accordance with Section 415(b) was $130,000 at age 65 for someone born
before January 1, 1939.
(2) Amounts listed in the foregoing table are not subject to any deduction for
Social Security benefits or other offsets and are computed as single life
annuities.
Mr. Bell participated in the Sanders Plan, which covered him on a
contributory basis, during the first six months of 1997. Effective July 1,
1997, the Sanders Plan was amended to become a component plan of the Lockheed
Martin Program. Employees retiring prior to June 30, 2002, receive a pension
calculated in accordance with the formula used in the Lockheed Martin Program,
or if the pension benefit would be greater, in accordance with the formula
under the Sanders Plan, whichever is applicable. The pension benefits to be
received under the Sanders Plan do not in any situation materially exceed the
benefits to be received under the Lockheed Martin Program as provided in the
table above.
As of December 27, 1998, the estimated annual benefits, payable upon
retirement at age 65 for the individuals named in the compensation table,
based on the continued employment at current compensation, are as follows: Mr.
Batterton $54,530; Mr. Bell $48,759; Mr. Bibl $50,168 and Mr. Millerick
$53,266. These amounts (as do the amounts shown in the table) include benefits
payable under the supplemental plans discussed below. The years of credited
service as of December 27, 1998, for Messrs. Batterton, Bell, Bibl and
Millerick were 15.02 years, 19.52 years, 16.62 years and 16.02 years,
respectively. The calculation of retirement benefits under the Lockheed Martin
Program is determined by a formula which takes into account the participant's
years of credited service and average compensation for the highest three
consecutive years of the last ten years of employment with the Company
preceding retirement. (The formula for calculating pension benefits under the
Sanders Plan is similar except that average compensation is based on the
highest five consecutive years of the last ten years of employment.)
Average compensation under the Lockheed Martin Program includes the
employee's normal rate of pay (without overtime) and bonuses earned under the
Company's Management Incentive Compensation Plan and lump sum payments in lieu
of salary increase. Normal retirement age is 65, however, benefits are payable
as early as age 55 at a reduced amount or without reduction at age 60. Certain
employees who retire between age 60 and 62 are eligible for supplemental
payments ending at age 62.
Certain salaried employees of the Company also participate in non-qualified
supplemental retirement plans. These supplemental plans pay benefits in excess
of Internal Revenue Code limits on qualified plan benefits or in some
instances in accordance with a grand-fathered or special pension formula. The
supplemental plans generally pay benefits at the same time and in the same
form as benefits are paid under the Lockheed Martin Retirement Program,
although lump sum payments are available under some supplemental plans. The
plans providing supplemental benefits to the Lockheed Martin Plan provide that
any participant receiving annuity benefits under such plans at the time of a
change in control of Lockheed Martin, as defined, will receive, in lieu of the
continuation of such annuity payments, the actuarial equivalent of such
benefits in a lump sum payable within thirty calendar days following the
change in control.
Defined Contribution Plans
Lockheed Martin also sponsors a number of different defined contribution
plans which cover virtually all employees of the Company. During 1998, the
Lockheed Martin Salaried Savings Plan ("Salaried Savings Plan") covered the
named executive officers.
41
<PAGE>
The Salaried Savings Plan permits eligible employees to make regular savings
contributions on a pre-tax or after-tax basis. For the fiscal year ending
December 31, 1998, participants could contribute up to 17 percent of their
current base salary (maximum of 16 percent on a pre-tax basis) subject to the
limitations imposed by the Internal Revenue Code. Participants in the Salaried
Savings Plan may direct the investment of employee contributions among eleven
different investment options, including unitized funds invested in Lockheed
Martin's common stock. All contributions to the Salaried Savings Plan are 100
percent vested.
In addition, Lockheed Martin made a matching contribution to the
participant's account equal to 50 percent of up to the first 8 percent of
compensation contributed by the participant. Lockheed Martin matching
contributions are invested in the ESOP Stock Fund, which is in part funded by
an employee stock ownership feature of the plan. Matching contributions are
100 percent vested.
Because of the limitations on annual contributions to the Salaried Savings
Plan contained in the Internal Revenue Code, certain employees are not allowed
to elect to contribute the maximum 17 percent of compensation otherwise
permitted by the Salaried Savings Plan. A supplemental savings plan
("Supplemental Plan") has been established for certain Salaried Savings Plan
participants affected by these limits. Additional matching contributions that
become payable under a Termination Benefits Agreement are also payable through
this plan. Earnings credited to a Supplemental Plan account mirror the
participant's investment elections under the Salaried Savings Plan, including
investments in Lockheed Martin's common stock, except that investments in the
Supplemental Plan reflect only bookkeeping entries rather than actual
purchases of the underlying instruments. The Supplemental Plan provides for
payment following termination of employment in a lump sum or up to twenty
annual installments. All amounts accumulated and unpaid under the Supplemental
Plan must be paid in a lump sum within fifteen calendar days following a
change in control, as defined in the plan document.
Full distribution under the Salaried Savings Plan is generally made upon the
termination, layoff, retirement, disability or death of the participant.
Employment Arrangements
The Company has entered into employment agreements with each of Messrs.
Batterton and Millerick. Pursuant to these agreements, Mr. Batterton receives
a base salary of $250,000, and Mr. Millerick a base salary of $230,000. Each
is also eligible thereunder for performance bonuses and other standard
employee benefits. The employment agreements of Messrs. Batterton and
Millerick also provide for relocation payments for temporary lodging, meal
allowance, travel, sale of home and associated income taxes, where applicable.
Mr. Batterton's agreement covers such expenses incurred during the first 18
months following employment up to a maximum of $100,000, while Mr. Millerick's
agreement covers such expenses incurred during the first 42 months following
employment up to a maximum of $450,000. Mr. Batterton has also entered into a
separate relocation agreement with the Company under which he was paid
$540,443, which is to be repaid if he voluntarily leaves the employment of the
Company within two years of the payment of the benefit, other than in the
event of a "Change of Control" of the Company (as defined below).
The Company has entered into Change of Control Agreements with Messrs.
Batterton, and Millerick. Benefits under these agreements are payable if,
within 18 months of a "Change of Control," (1) the officer is
42
<PAGE>
involuntarily terminated by the Company or any successor owner (except for
terminations for cause), (2) the officer is removed from the position held
immediately prior to the change and the effect is a material reduction of
status, responsibilities or duties or (3) the officer's base salary at the
time of change of control is reduced and the officer terminates his employment
within sixty (60) days after his status or pay is reduced.
These agreements provide for a lump sum payment to each officer of one and
one-half years' annual salary for the period immediately prior to the Change
of Control, plus an amount equal to one year's bonus award at the officer's
target level, less all statutory deductions. In addition, the agreements
provide for lump sum payment for any vacation earned but not taken prior to
termination of employment, outplacement assistance at a cost to the Company
not to exceed $20,000 and up to 18 months' COBRA continuation of the officer's
then current medical/dental coverage. In addition, the Company will pay for
medical/dental coverage for the officer and his dependents for the first 12
months following the employment termination date or, if earlier, until the
officer is eligible for coverage under a health plan of another employer.
"Change of Control" of the Company is defined as the occurrence of any
event, as a result of which, 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 the Company.
On April 1, 1998, the Company and Mr. Bell entered in a Change of Control
Agreement. This Agreement is substantially similar to the Change of Control
Agreements discussed above with respect to Messrs. Batterton and Millerick,
except that (i) Mr. Bell would also receive an additional payment of $52,600
to compensate him for a resulting anticipated loss of pension earnings, and
(ii) the term "Change in Control" of the Company also included the sale of the
input device business. The Company sold the input device business on February
1, 1999. As a result of such sale and pursuant to Mr. Bell's Change of Control
Agreement, the Company paid Mr. Bell $421,774 in February 1999.
The Company has also entered into Termination Agreements with Messrs.
Batterton and Millerick. Mr. Batterton's Termination Agreement provides that
if he is involuntarily terminated (other than for cause) by the Company prior
to April 1, 2000, he will receive a lump sum severance payment equal to 145%
of his annualized base salary, a continuation of benefits for one year and
payment of out-placement services of up to 10% of his annual base salary. Mr.
Millerick's Termination Agreement (which is included in his employment
agreement) provides that if he is involuntarily terminated (other than for
cause) by the Company prior to August 12, 1999, he will receive a lump sum
severance payment equal to 140% of his annualized base salary, a continuation
of benefits for one year and payment of out-placement services of up to 10% of
his annual base salary.
On October 26, 1998, Messrs. Batterton and Millerick entered into Retention
Agreements with the Company under which they would receive a retention bonus
if they remained employed by the Company through the full execution of the
Board's approved strategic alternatives for the Company and would also receive
incentive payments upon successfully closing acceptable sales of certain of
the Company's business units within certain time periods. The retention
bonuses for Mr. Batterton and Mr. Millerick are $84,000 and $69,000,
respectively. Each received an incentive payment of $25,000 for the sale of
the Company's input device business.
On March 22, 1999, the Company engaged Mr. Brincko as the Chief Executive
Officer of the Company pursuant to an agreement between the Company and
Brincko Associates, Inc.
Mr. Bibl's employment was terminated effective January 29, 1999. See "Item
13. Certain Relationships and Related Transactions-Settlement Agreement."
Directors Compensation
Directors, other than employees or officers of the Company or Lockheed
Martin, receive $10,000 annually for service on the Board of Directors, $1,000
per Board meeting attended and $500 per committee meeting
43
<PAGE>
attended. Directors are reimbursed for expenses incurred in connection with
attendance at Board and committee meetings. Directors who are officers or
employees of the Company or Lockheed Martin are not compensated separately for
service on the Board of Directors.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors of the Company during
the last fiscal year consisted of Messrs. Powell, Knox, Mann and Ratcliffe,
each of whom was a non-employee Director of the Company. Mr. Knox resigned as
a member of the Compensation Committee effective March 30, 1998.
44
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information with respect to (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the current Directors, (iii) each of the Executive
Officers listed in the compensation tables herein, and all current Directors
and Executive Officers as a group, including the number of shares of the
Company's Common Stock beneficially owned by each of them as of March 31,
1999, is set forth below:
<TABLE>
<CAPTION>
Percent of
Shares of Outstanding
Common Stock Common Stock
Beneficially Beneficially
Name of Individual or Identity of Group(1) Owned Owned
------------------------------------------ ------------ ------------
<S> <C> <C>
Lockheed Martin Corporation ................... 40,742,957 86.7%
6801 Rockledge Drive
Bethesda, MD 20817
Arthur E. Johnson.............................. -- --
John C. Batterton.............................. 106,500(3) (4)
Gary P. Mann................................... -- --
Terry F. Powell................................ -- --
Kenneth R. Ratcliffe........................... -- --
Jeffrey D. MacLauchlan......................... -- --
James R. Bell(2)............................... 39,900(5) (4)
Andreas Bibl(2)................................ 500,000 1.1
John J. Millerick.............................. 49,900(6) (4)
Renn Zaphiropoulos............................. -- --
All Executive Officers and Directors as a Group
(10 persons).................................. 696,300(7) 1.5
</TABLE>
- --------
(1) The address for each of the named individuals is c/o CalComp Technology,
Inc., 2411 W. La Palma Avenue, Anaheim, California 92801. Unless otherwise
indicated, the named persons possess sole voting and investment power with
respect to the shares listed (except to the extent such authority is
shared with spouses under applicable law).
(2) Mr. Bibl's employment was terminated by the Company effective January 29,
1999. Mr. Bell's employment was terminated by the Company effective
February 1, 1999.
(3) Includes an aggregate of 106,500 shares which Mr. Batterton has, or will
have within 60 days after March 31, 1999, the right to acquire upon
exercise of outstanding options.
(4) Less than 1% of the outstanding shares of Common Stock.
(5) Includes an aggregate of 39,900 shares which Mr. Bell has, or will have
within 60 days after March 31, 1999, the right to acquire upon exercise of
outstanding options.
(6) Includes an aggregate of 49,900 shares which Mr. Millerick has, or will
have within 60 days after March 31, 1999, the right to acquire upon
exercise of outstanding options.
(7) Includes an aggregate of 196,300 shares which the Executive Officers and
Directors as a group have, or will have within 60 days after March 31,
1999, the right to acquire upon exercise of outstanding options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General. Because of Lockheed Martin's beneficial ownership is in excess of
85% of the outstanding shares of the Company's Common Stock, Lockheed Martin
is able to elect all of the members of the Company's Board of Directors and
exercise a controlling influence over the business and affairs of the Company,
including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets
by the Company, the incurrence of indebtedness by the Company, the issuance of
any additional Common Stock or other equity securities, and the payment of any
dividends with respect to the
45
<PAGE>
Common Stock. In addition, Lockheed Martin, by virtue of its controlling
ownership, has the power to approve matters submitted to a vote of the
Company's stockholders (or by written consent in lieu of a meeting) without
the consent of the Company's other stockholders; has the power to prevent a
change in control of the Company; and could seek to cause the Company to pay
dividends, enter into business or financial transactions with Lockheed Martin,
sell assets, or take other actions that might be favorable to Lockheed Martin.
The Company currently has a Board of Directors consisting of seven members.
Four members of the Board are officers, directors or employees of Lockheed
Martin. Two members of the Board, Messrs. Ratcliffe and Zaphiropoulos, are
neither directors or officers nor employees of Lockheed Martin, nor officers
or employees of the Company. One member of the Board, Mr. Batterton, is the
President of the Company. Lockheed Martin has agreed with the Company to use
its good faith efforts to continue to cause at least two of the members of
CalComp's Board of Directors to be independent of Lockheed Martin and the
Company. Subject to this agreement, Lockheed Martin has the ability to change
the size and composition of the Company's Board of Directors and committees of
the Board.
Revolving Credit Agreement. The Company and Lockheed Martin entered into a
revolving credit agreement (the "Revolving Credit Agreement") pursuant to
which Lockheed Martin agreed to provide, from time to time, financing for
repayment of specified indebtedness and general corporate purposes, including,
without limitation, financing the working capital needs of the Company and its
subsidiaries. The Revolving Credit Agreement had a term of two years from the
date of its execution, but could be terminated (or could have the maximum
borrowing limit reduced) after the first anniversary of the July 23, 1996
effective date of the Revolving Credit Agreement, at the Company's or Lockheed
Martin's option, upon at least 120 days' prior written notice of termination,
which notice could be given not more than 120 days prior to the first
anniversary. The Company and Lockheed Martin amended the Revolving Credit
Agreement to increase the aggregate amount of borrowings available to the
Company under the existing credit line from $33 million to $73 million, 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
Lockheed Martin to cancel the agreement upon 120 days prior written notice,
and to remove the security interest of Lockheed Martin in the assets of the
Company. In July 1998, in connection with the Debt Exchange, the Revolving
Credit Agreement was further amended to reduce the amount of borrowing
available to the Company under that agreement from $73 million to $13 million.
There was no required prepayment or scheduled reduction of availability of
loans under the Revolving Credit Agreement, as amended (the "Amended Revolving
Credit Agreement").
Loans outstanding under the Amended Revolving Credit Agreement, as amended,
bear interest, at the Company's option, either at (i) a rate per annum equal
to the higher of the Federal Funds rate plus 0.5% or the rate publicly
announced from time to time by Morgan Guaranty Trust Company of New York in
New York as its "prime" rate or (ii) LIBOR plus 2.0%. In addition, the Company
is required to pay Lockheed Martin a commitment fee equal to 0.45% per annum
on the amount of the available but unused commitment under the Revolving
Credit Agreement. During 1998, the Company paid Lockheed Martin an aggregate
of $3.3 million in interest and loan fees to Lockheed Martin.
The Amended Revolving Credit Agreement imposed certain negative and
affirmative covenants on the Company which limited the Company's ability to
incur indebtedness, to pay dividends, or to undertake certain corporate
actions (mergers, consolidations, etc.) without the prior approval of Lockheed
Martin. The Amended Revolving Credit Agreement also set forth certain events
of default. The events of default included, without limitation: (i) failure to
pay interest or principal when due, (ii) material breach of any representation
or warranty, (iii) failure to perform certain covenants, (iv) failure to pay
other indebtedness when due or breach of any other term contained in other
agreements or instruments relating to other indebtedness, (v) commencement of
bankruptcy or reorganization proceedings, (vi) an event of default under the
Cash Management Facility (described below) or (vii) the occurrence of certain
events the result of which could reasonably be expected to have a Material
Adverse Effect. In the case of an Event of Default, Lockheed Martin could, by
notice in writing to the Company, terminate the Amended Revolving Credit
Agreement and demand payment of amounts owing thereunder.
46
<PAGE>
Pursuant to the Amended Revolving Credit Agreement, Lockheed Martin has the
right to set off, appropriate and apply against any and all cash transferred
from the Company to Lockheed Martin in accordance with the Cash Management
Agreement (as defined below) and any and all credits, indebtedness or claims
at any time held or owing by Lockheed Martin to or for the credit or account
of the Company.
Cash Management Agreement. The Company and Lockheed Martin entered into a
cash management agreement (the "Cash Management Agreement") pursuant to which
Lockheed Martin provides cash advances to the Company. The term of the Cash
Management Agreement, as amended, extends from the date of its execution
through January 31, 1999. In accordance with the terms of the Cash Management
Agreement, excess cash balances of the Company will first be deemed to be a
repayment of outstanding principal indebtedness under the Amended Revolving
Credit Agreement, with any excess being applied against advances or held as an
investment by Lockheed Martin on an overnight basis. The aggregate principal
amounts of cash invested with Lockheed Martin will bear interest at a rate per
annum equal to the Federal Funds Rate as in effect from time to time. Cash
shortfalls, up to $2 million, will be funded by Lockheed Martin on an
overnight basis, and will bear interest at a rate per annum equal to the
Federal Funds Rate as in effect from time to time. In August, September, and
November 1998, the Cash Management Agreement was amended ultimately increasing
the amount of borrowing available to the Company from $2 million to $30
million under the Cash Management Agreement. Pursuant to the terms of the Cash
Management Agreement, Lockheed Martin will have the right to set off,
appropriate and apply against any and all cash transferred from the Company to
Lockheed Martin under the Cash Management Agreement and any and all credits,
indebtedness or claims at any time held or owing by Lockheed Martin to or for
the credit or account of the Company.
Secured Demand Loan. The Secured Demand Loan provides for Lockheed Martin to
make loans to the Company from time to time in an aggregate Maximum Available
Amount, specified by Lockheed Martin, which may be increased by Lockheed
Martin, in its sole and absolute discretion, upon requests for borrowing which
are in conformity with the cash requirements set forth in the Plan for Orderly
Shutdown. The Maximum Available Amount is subject to a Maximum Available
Amount Ceiling of $51 million, an amount based on the Company's initial
estimate of loan proceeds needed to fully fund the Plan for Orderly Shutdown.
The Maximum Available Amount, initially was set at $11 million. At March 31,
1999, the Maximum Available Amount had been increased to $15.7 million.
Lockheed Martin has the right to accept or reject, in whole or in part, any
request for borrowing based on its determination, in its sole discretion, as
to whether the Company is complying with, or making reasonable progress with
respect to, the Plan for Orderly Shutdown. Loans under the Secured Demand Loan
are to be repaid at the earlier to occur of (i) the business day following
written demand by Lockheed Martin or (ii) the Termination Date. "Termination
Date" is defined as the earlier of July 15, 1999 and the date on which
Lockheed Martin notifies the Company of termination based on (x) Lockheed
Martin's determination that the Company is not reasonably complying with, or
making reasonable progress with respect to, the Plan for Orderly Shutdown,
which determination may be made in the sole and absolute discretion of
Lockheed Martin, (y) the occurrence of a bankruptcy event (as defined in the
Secured Demand Loan), or (z) the breach by the Company of the Secured Demand
Loan or the accompanying Security Agreement. Under the Security Agreement, the
Company granted to Lockheed Martin a security interest in all of the assets of
the Company securing the obligations of the Company to Lockheed Martin under
the Secured Demand Loan. The Secured Demand Loan also provides for certain
other obligations of the Company, including covenants of the Company with
respect to periodic notices, reports and forecasts relating to the Plan for
Orderly Shutdown.
The Secured Demand Loan also requires the Company to retain an independent
third-party liquidation specialist, acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, the Company revised its estimated funding
needs under the plan to an amount approximating $65 million.
47
<PAGE>
As noted above, the Company's latest estimate of funding needed to complete
the Plan for Orderly Shutdown indicates estimated liabilities to be $14
million in excess of amounts expected from asset sales proceeds and the
maximum available under the Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for Orderly Shutdown, Lockheed
Martin has agreed to consider increasing the Maximum Available Amount Ceiling,
but there can be no assurance that such increase will be granted or that
Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Additionally, there can be no
assurance that the Company will be able to settle with its creditors at
amounts estimated in the Plan for Orderly Shutdown, that estimated cash
inflows from asset sales will occur, or that actual net cash funding
requirements will not exceed current estimates for any other reason.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown as originally envisioned. If
the Company is unable to obtain sufficient funds to complete the Plan for
Orderly Shutdown from asset sales proceeds and the Secured Demand Loan or it
is unable to reach reasonable settlements with all of its creditors, the
Company may be forced to seek protection from creditors under Federal
Bankruptcy law or may become subject to an involuntary bankruptcy proceeding.
In the event of an insolvency proceeding, claims of secured creditors, such as
Lockheed Martin, may not be able to be repaid in full and unsecured creditors
may receive little, if anything, for their claims. In any circumstance,
holders of the Company's common stock are not expected to receive any
distributions of funds or assets and the Plan for Orderly Shutdown does not
contemplate any such distributions.
BAI Agreement. Pursuant to the Secured Demand Loan, the Company retained
Brincko Associates Inc. ("BAI") to serve as liquidation specialist and
formally entered into an agreement with BAI effective March 22, 1999. The BAI
agreement provides for the appointment of John P. Brincko, a principal of BAI,
as the Company's Chief Executive Officer.
Services Agreement. In connection with the Exchange, the Company and
Lockheed Martin also entered into a services agreement ("Services Agreement")
with respect to the services to be provided by Lockheed Martin. The Services
Agreement provides that Lockheed Martin will furnish to the Company a package
of services in exchange for a services fee, which will be determined by
Lockheed Martin recognizing to the extent practicable, (i) Lockheed Martin's
percentage ownership of the Company, (ii) the Company's requirements for
certain services for which CalComp Inc. or the Company was previously charged
by Lockheed Martin or other third parties and (iii) costs of obtaining
services from third parties that previously were provided to CalComp Inc. by
Lockheed Martin. The Services Agreement will expire two years after the date
of its execution, but may be terminated by Lockheed Martin, at its option,
upon not less than 90 days' prior written notice to the Company, provided that
Lockheed Martin no longer owns Common Stock representing more than 50% of all
of the issued and outstanding Common Stock of the Company. The Company may
terminate the Services Agreement by providing not less than 90 days prior
written notice to Lockheed Martin at any time that Lockheed Martin owns less
than 25% of all of the issued and outstanding Common Stock of the Company.
Consistent with past practices, the method used to determine amounts to be
charged the Company will be in accordance with the requirements of Cost
Accounting Standard 9904.403 ("CAS 403") "Allocation of Home Office Expenses
to Segments." CAS 403 establishes the formulas and criteria for the allocation
of home office expenses to organizational segments and is promulgated by the
Cost Accounting Standards Board and used by contractors to the United States
Government. Lockheed Martin's allocations are reviewed for compliance with the
promulgated standards by the Department of Defense. In fiscal 1998, Lockheed
Martin billed the Company approximately $3.2 million under the Services
Agreement.
The services provided by Lockheed Martin under the Services Agreement
include certain tax services; corporate control and audit services; insurance
planning and advice; health, safety and environmental management services;
human resources and employee relations services; legal services; employee
benefit plans administration and services; and treasury services.
The Company has agreed to indemnify Lockheed Martin, except in certain
limited circumstances, against liabilities that Lockheed Martin may incur that
are caused by or arise in connection with the Company's failure to fulfill its
obligations under the Services Agreement.
48
<PAGE>
In addition to the service agreement fees, the Company has entered into
various support agreements with Lockheed Martin to provide, among other
things, that Lockheed Martin 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 $4.3 million in 1998. Such amounts are allocated to various cost
elements in the financial statements based on relevant factors which include
headcount and square footage.
Corporate Agreement. The Company and Lockheed Martin also entered into a
corporate agreement (the "Corporate Agreement") in connection with the
Exchange. Under the terms of the Corporate Agreement, the Company has agreed
that, for so long as Lockheed Martin continues to own 50 percent or more of
the Common Stock of the Company, the Company will propose, at each election of
directors (including elections to fill vacancies) a slate of directors or
individual directors such that at least 66 percent of the Board of Directors
of the Company is comprised of persons designated by Lockheed Martin. The
Corporate Agreement also obligates Lockheed Martin and the Company to use
their good faith efforts to cause at least two individual directors of the
Company to be independent of both the Company and Lockheed Martin within the
meaning of the rules of the New York Stock Exchange regarding who may serve on
the audit committee of a company listed on such exchange. Subject to these
agreements, Lockheed Martin will be able to elect 100% of the directors for so
long as Lockheed Martin owns more than 50 percent of the combined voting power
of the Company.
In addition, the Corporate Agreement provides that for so long as Lockheed
Martin maintains ownership of 50 percent or more of the Common Stock, the
Company may not take any action or enter into any commitment or agreement
which may reasonably be anticipated to result, with or without notice and with
or without lapse of time, or otherwise, in a contravention or event of default
by Lockheed Martin of (i) any provision of applicable law or regulation,
including, but not limited to, provisions pertaining to ERISA, (ii) any
provision of Lockheed Martin's Charter or Bylaws, (iii) any credit agreement
or other material instrument binding upon any Lockheed Martin entity, or (iv)
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over any Lockheed Martin entity. Additionally, for so long as
Lockheed Martin continues to own 50 percent or more of the Common Stock of the
Company, the Company may not take any action reasonably expected to result in
a material increase in liabilities required to be included in its consolidated
financial statements, nor may it materially increase its obligations under any
employee benefit plan, without the prior written consent of Lockheed Martin.
The Corporate Agreement also provides that nothing contained in the Corporate
Agreement is intended to limit or restrict in any way the ability of Lockheed
Martin to control or limit any action or proposed action of the Company,
including but not limited to, the incurrence by the Company of indebtedness,
based upon Lockheed Martin's internal policies or other factors.
Registration Rights Agreement. In connection with the Exchange, the Company
also entered into a registration rights agreement (the "Registration Rights
Agreement") with Lockheed Martin. Under the Registration Rights Agreement,
until Lockheed Martin or its assignees can sell all of the registrable
securities then owned in a single market transaction pursuant to Rule 144(k)
under the Securities Act of 1933, as amended (the "Securities Act"), in the
case of any proposed registration of shares of capital stock or other
securities of the Company, Lockheed Martin or its assignees shall have the
right, subject to certain limitations contained therein, to elect to include
in such registration statement all or a part of their registrable securities
(a "Piggyback Registration").
Under the Registration Rights Agreement, at any time after the date of the
Registration Rights Agreement and from time to time thereafter, Lockheed
Martin (or an assignee owning in the aggregate at least 25% of the Common
Stock issued to Lockheed Martin as of the date of the execution of the
Registration Rights Agreement) may cause the Company to use its best efforts
to file a registration statement to register under the Securities Act for sale
to the public all or a portion of the registrable securities of Lockheed
Martin or its assignees, and thereafter use its best efforts to file any and
all amendments as may be necessary to cause the registration statement to be
declared effective. The Company will have no obligation, however, to register
any securities under the Registration Rights Agreement unless the reasonably
anticipated aggregate offering price to the public
49
<PAGE>
of such securities, as stated by Lockheed Martin or its assignees in their
written registration request, equals or exceeds $15 million. In addition, the
Company will have no obligation to file more than three registration
statements on a form other than Form S-3 and in no event will it be required
to file more than four registration statements in total. The costs and
expenses (other than underwriting discounts, commissions and similar payments)
of all registrations will be borne by the Company.
The Registration Rights Agreement contains indemnification and contribution
provisions (i) by Lockheed Martin and its assignees for the benefit of the
Company and related persons, (ii) by the Company for the benefit of Lockheed
Martin and the other persons entitled to effect registrations of Common Stock
pursuant to its terms and (iii) related persons.
Tax Sharing Agreement. The Company and Lockheed Martin also entered into a
tax sharing agreement (the "Tax Sharing Agreement"), effective the date of the
Exchange. Pursuant to the Tax Sharing Agreement, the Company and Lockheed
Martin will make payments between them such that, with respect to any period,
the amount of taxes to be paid by the Company or any refund payable to the
Company will be determined as though the Company were to file separate
federal, state and local income tax returns (including any amounts determined
to be due as a result of a redetermination of the tax liability of Lockheed
Martin arising from an audit or otherwise) as the common parent of an
affiliated group of corporations filing a consolidated return rather than a
consolidated subsidiary of Lockheed Martin. Under the Tax Sharing Agreement,
for so long as the Company remains part of the Lockheed Martin combined
consolidated group for federal income tax purposes, the Company will be
entitled to the benefit of any tax attribute attributable to the Company that
could be used by the Company if it were not part of the Lockheed Martin
combined consolidated group. At such time as the Company ceases to be included
in the Lockheed Martin combined consolidated group for federal income tax
purposes, the Company shall no longer be entitled to the benefit of any tax
attribute created while part of the Lockheed Martin combined consolidated
group that would otherwise have been attributable to the Company.
In determining the amount of tax sharing payments, Lockheed Martin will
prepare a pro forma consolidated return for the Company that reflects the same
positions and elections used by Lockheed Martin in preparing the returns for
the Lockheed Martin consolidated group. Lockheed Martin will continue to have
all the rights of a common parent of a consolidated group, will be the sole
and exclusive agent for the Company in any and all matters relating to the
income tax liability of the Company, will have sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns (or amended returns), and
will have the power, in its sole discretion, to contest or compromise any
asserted tax adjustment or deficiency and to file, litigate or compromise any
claim or refund on behalf of the Company. Interest required to be paid by or
to the Company with respect to any federal income tax pursuant to the Tax
Sharing Agreement shall be computed at the rate and in the manner provided in
the Internal Revenue Code of 1986 for interest on underpayments and
overpayments, respectively, of federal income tax for the relevant period. Any
interest required to be paid by or to the Company with respect to any state or
local income tax or franchise tax return shall be computed at the rate and in
the manner as provided under the applicable state or local statute for
interest on underpayments and overpayments, respectively, of such tax for the
relevant period.
Under the Tax Sharing Agreement, the Company will reimburse Lockheed Martin
for any outside legal and accounting expenses incurred by Lockheed Martin in
the course of the conduct of any audit or contest regarding the Lockheed
Martin consolidated group, and for any other expenses incurred by Lockheed
Martin in the course of any litigation relating thereto, to the extent such
costs are reasonably attributable to an issue relating to the Company or its
subsidiaries; provided, however, that prior to incurring any such expenses,
Lockheed Martin shall consult with the Company and shall consider the
Company's views with regard to the retention of outside professional
assistance.
The Company believes that the amounts payable by, or charged to, the Company
under the terms of the forgoing agreements with Lockheed Martin, taken
collectively, are reasonable in the circumstances and are substantially at
market rates.
50
<PAGE>
Settlement Agreement. In connection with the cessation of the Topaz
operations, Mr. Bibl's employment with the Company was terminated effective
January 29, 1999. Pursuant to a Settlement Agreement between the Company and
Mr. Bibl dated April 9, 1999 (the "Settlement Agreement") the Company and Mr.
Bibl agreed to a mutual release of claims, and the Company agreed to pay Mr.
Bibl an aggregate of $220,000.
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 19 through 35 hereof:
Report of Independent Auditors
Consolidated Statement of Net Liabilities in Liquidation--
December 27, 1998
Consolidated Statement of Operations--Year ended December 27,
1998
Consolidated Statement of Stockholders' Equity--Year ended
December 27, 1998
Consolidated Statement of Cash Flows--Year ended December 27,
1998
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) List of Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
2 Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among
Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a
California corporation, and Summagraphics Corporation, a Delaware
corporation, as amended (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 reference).
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 incorporated herein by
reference).
3.3 Certificate of Amendment of Fourth Amended and Restated Certificate of
Incorporation of the Company, filed on July 8, 1998 (filed as Exhibit
3.1 to the Company's Form 10-Q for the quarter ended September 27,
1998, and is incorporated herein by reference).
3.4 Certificate of Designation of Series A Cumulative Redeemable Preferred
Stock of the Company, filed on July 15, 1998 (filed as Exhibit 3.2 to
the Company's Form 10-Q for the quarter ended September 27, 1998, and
is incorporated 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 quarter ended September 29, 1996, and
incorporated herein by reference).
10.2 Intercompany Services Agreement dated as of July 23, 1996 between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended September 29, 1996, and
incorporated herein by reference).
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
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 quarter ended September 29, 1996, and
incorporated herein by reference).
10.4 Tax Sharing Agreement dated as of July 23, 1996 between the Company
and Lockheed Martin Corporation (filed as Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 29, 1996, and
incorporated herein by reference).
10.5 Amended and Restated Revolving Credit Agreement dated as of December
20, 1996 between the Company and Lockheed Martin Corporation (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 Company and
Lockheed Martin Corporation (filed as Exhibit 10.6 to the Company's
Form 10-Q for the quarter ended September 29, 1996, and incorporated
herein by reference).
10.7 CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees
(filed as Exhibit 10.7 to the Company's Form 10-Q for the quarter
ended September 29, 1996, and incorporated herein by reference).
10.8 Intentionally Omitted.
10.9 Employment Offer and Agreement between the Company and John J.
Millerick dated July 12, 1996, as amended through July 31, 1998,
(filed as Exhibit 10.12 to the Company's Form 10-Q for the quarter
ended September 27, 1998, and incorporated herein by reference).
10.10 Change of Control Termination Benefit Agreement between the Company
and John J. Millerick dated December 13, 1996 (filed as Exhibit 10.20
to the Company's Form 10-K for the fiscal year ended December 29,
1996 and incorporated herein by reference).
10.11 Intentionally Omitted.
10.12 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).
10.13 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).
10.14 Headquarters Lease Agreement dated as of June 24, 1997, between the
Company and Lincoln--RECP Anaheim, OPCO, LLC (filed as Exhibit 10.25
to the Company's Form 10-Q for the quarter ended June 29, 1997, and
incorporated herein by reference).
10.15 Agreement of Purchase and Sale and Joint Escrow Instructions dated as
of April 4, 1997, between the Company and Lincoln Property 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).
10.16 1997 Second Amendment to 1994 Addendum to Joint Venture Relationships
between CalComp Inc., Nippon Steel Corporation, 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).
10.17 Relocation Agreement for John C. Batterton, dated September 16, 1997
(filed as Exhibit 10.30 to the Company's Form 10-Q for the quarter
ended September 28, 1997, and incorporated herein by reference).
10.18 Change of Control Termination Benefit Agreement between the Company
and James R. Bell dated April 1, 1998 (filed as Exhibit 10.33 to the
Company's Form 10-K for the year ended December 28, 1997, and
incorporated herein by reference).
10.19 Patent License and Joint Development Agreement dated March 29, 1998,
between the Company and Eastman Kodak Co. (filed as Exhibit 10.34 to
the Company's Form 10-K for the year ended December 28, 1997, and
incorporated herein by reference).
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.20 Warrant to Purchase Common Stock of the Company issued to Eastman
Kodak Co., March 29, 1998 (filed as Exhibit 10.35 to the Company's
Form 10-K for the year ended December 28, 1997, and incorporated
herein by reference).
10.21 Agreement Regarding Election of Directors between Lockheed Martin
Corporation and Eastman Kodak Co., dated March 29, 1998 (filed as
Exhibit 10.36 to the Company's Form 10-K for the year ended December
28, 1997, and incorporated herein by reference).
10.22 Amendment No. 1, dated March 20, 1998, to Amended and Restated
Revolving Credit Agreement between the Company and Lockheed Martin
Corporation (filed as Exhibit 10.37 to the Company's Form 10-K for
the year ended December 28, 1997, and incorporated herein by
reference).
10.23 Amendment Nos. 1-3 dated March 20, 1998, August 24, 1998 and September
25, 1998, respectively, to Cash Management Agreement by and between
the Company and Lockheed Martin Corporation dated as of July 23, 1996
(filed as Exhibit 10.43 to the Company's Form 10-Q for the quarter
ended September 27, 1998, and is incorporated herein by reference).
10.24 CalComp Technology, Inc. 1998 Management Incentive Compensation plan,
approved January 27, 1998 (filed as Exhibit 10.39 to the Company's
Form 10-K for the year ended December 28, 1997, and incorporated
herein by reference).
10.25 CalComp Technology, Inc. 1998 Deferred Management Incentive
Compensation Plan, approved January 27, 1998 (filed as Exhibit 10.40
to the Company's Form 10-K for the year ended December 28, 1997, and
incorporated herein by reference).
10.26 Waiver of Rights, dated April 1, 1998, by Lockheed Martin Corporation,
under Amended And Restated Revolving Credit Agreement between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.41 to
the Company's Form 10-K for the year ended December 28, 1997, and
incorporated herein by reference).
10.27 Intentionally Omitted.
10.28 Exchange Agreement entered into as of July 15, 1998, by and between
the Company and Lockheed Martin Corporation (filed as Exhibit 10.44
to the Company's Form 10-Q for the quarter ended September 27, 1998,
and incorporated herein by reference).
10.29 Letter Agreement dated January 14, 1999 by and among the Company,
CalComp, Inc. and Lockheed Martin Corporation (filed as Exhibit 99.1
to the Company's Current Report on Form 8-K dated January 14, 1999
and incorporated herein by reference).
10.30 Secured Demand Loan Facility dated January 14, 1999 by and among the
Company, CalComp, Inc. and Lockheed Martin Corporation (filed as
Exhibit 99.2 to the Company's Current Report on Form 8-K dated
January 14, 1999 and incorporated herein by reference).
10.31 Security Agreement dated January 14, 1999 by and among the Company,
CalComp, Inc. and Lockheed Martin Corporation (filed as Exhibit 99.3
to the Company's Current Report on Form 8-K dated January 14, 1999
and incorporated herein by reference).
10.32 Retention Agreement dated October 26, 1998 between the Company and
John C. Batterton (filed herewith).
10.33 Retention Agreement dated October 26, 1998 between the Company and
John J. Millerick (filed herewith).
21 Subsidiaries (filed as Exhibit 21 to the Company's Form 10-K for the
fiscal year ended December 29, 1996 and incorporated herein by
reference).
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
53
<PAGE>
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 27, 1998 were as follows:
Form 8-K dated September 25, 1998, filed on October 1, 1998, reporting
under Item 5 the Company's Amendment to the Cash Management Agreement with
Lockheed Martin Corporation.
54
<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
April 12, 1999
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. Batteron President and a Director April 12, 1999
____________________________________
John C. Batterton
/s/ John P. Brincko Chief Executive Officer April 12, 1999
____________________________________ (Principal Executive
John P. Brincko Officer)
/s/ John J. Millerick Senior Vice President and April 12, 1999
____________________________________ Chief Financial Officer
John J. Millerick (Principal Financial and
Accounting Officer)
/s/ Arthur E. Johnson Chairman of the Board of April 12, 1999
____________________________________ Directors
Arthur E. Johnson
/s/ Gary P. Mann Director April 12, 1999
____________________________________
Gary P. Mann
/s/ Terry F. Powell Director April 12, 1999
____________________________________
Terry F. Powell
/s/ Jeffrey D. MacLauchlan Director April 12, 1999
____________________________________
Jeffrey D. MacLauchlan
/s/ Kenneth R. Ratcliffe Director April 12, 1999
____________________________________
Kenneth R. Ratcliffe
/s/ Renn Zaphiropoulos Director April 12, 1999
____________________________________
Renn Zaphiropoulos
</TABLE>
55
<PAGE>
EXHIBIT 10.32
CalComp ________________________________________________________________________
October 26, 1998
Mr. John C. Batterton
3 Andiamo
Newport Beach, CA 92657
Dear John:
At a recent meeting of the CalComp Technology, Inc. (CalComp) Compensation
Committee of the Board of Directors (Committee), the Committee recognized the
importance of maintaining continuity of CalComp's senior management while
certain strategic alternatives are pursued. In addition, it was recognized that
because time is of the essence an incentive would be made available to certain
executives to expedite the execution of those strategic alternatives.
Therefore, this letter will serve to confirm the retention and incentive package
recently approved for you by the Committee. Specific details of the package are
as follows:
RETENTION
Should you remain employed by CalComp through the full execution of the
Board's approved strategic alternative for CalComp and all related
activities, you will be paid a lump sum equal to $84,000.
INCENTIVE FOR STRATEGIC ALTERNATIVES
Should CalComp management present to the Board an acceptable
transaction(s) to sell any or all of the CalComp units noted below, you
will receive a lump sum equal to the amount shown for each successful
closing within the time period indicated:
<TABLE>
<CAPTION>
Sale Closes By:
--------------
Unit 12/31/98 3/31/99
---- -------- -------
<S> <C> <C>
Input Technologies $ 50,000 $25,000
Services $ 50,000 $25,000
Remainder of Company $100,000 $50,000
(excluding ITD and Services)
</TABLE>
Please acknowledge your acceptance and understanding of this arrangement by
signing one copy of this letter and returning it to me. Please feel free to
contact me should you have any questions.
Sincerely,
/s/ Arthur E. Johnson
Arthur E. Johnson
Chairman of the Board
Accepted and agreed by:
/s/ John C. Batterton October 27, 1998
- ------------------------ --------------------
John Batterton Date
<PAGE>
EXHIBIT 10.33
CalComp ________________________________________________________________________
October 26, 1998
Mr. John J. Millerick
64 Park Crest
Newport Coast, CA 92657
Dear John:
At a recent meeting of the CalComp Technology, Inc. (CalComp) Compensation
Committee of the Board of Directors (Committee), the Committee recognized the
importance of maintaining continuity of CalComp's senior management while
certain strategic alternatives are pursued. In addition, it was recognized that
because time is of the essence an incentive would be made available to certain
executives to expedite the execution of those strategic alternatives.
Therefore, this letter will serve to confirm the retention and incentive package
recently approved for you by the Committee. Specific details of the package are
as follows:
RETENTION
Should you remain employed by CalComp through the full execution of the
Board's approved strategic alternative for CalComp and all related
activities, you will be paid a lump sum of $69,000.
INCENTIVE FOR STRATEGIC ALTERNATIVES
Should CalComp management present to the Board an acceptable
transaction(s) to sell any or all of the CalComp units noted below, you
will receive a lump sum equal to the amount shown for each successful
closing within the time period indicated:
<TABLE>
<CAPTION>
Sale Closes By:
--------------
Unit 12/31/98 3/31/99
---- -------- -------
<S> <C> <C>
Input Technologies $ 50,000 $25,000
Services $ 50,000 $25,000
Remainder of Company $100,000 $50,000
(excluding ITD and Services)
</TABLE>
Please acknowledge your acceptance and understanding of this arrangement by
signing one copy of this letter and returning it to me. Please feel free to
contact me should you have any questions.
Sincerely,
/s/ Arthur E. Johnson
Arthur E. Johnson
Chairman of the Board
Accepted and agreed by:
/s/ John J. Millerick October 27, 1998
- ------------------------ --------------------
John J. Millerick Date
<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), 1998 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 April 8, 1999, with respect to the
consolidated financial statements of CalComp Technology, Inc. included in the
Annual Report (Form 10-K) for the year ended December 27, 1998.
Orange County, California
April 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-27-1998 DEC-28-1997
<PERIOD-START> DEC-29-1997 DEC-30-1996
<PERIOD-END> DEC-27-1998 DEC-28-1997
<CASH> 3,280 6,494
<SECURITIES> 0 0
<RECEIVABLES> 7,775 34,003
<ALLOWANCES> 0 3,367
<INVENTORY> 5,966 43,069
<CURRENT-ASSETS> 2,463 84,982
<PP&E> 2,455 50,495
<DEPRECIATION> 0 21,447
<TOTAL-ASSETS> 21,939 209,457
<CURRENT-LIABILITIES> 86,939 125,353
<BONDS> 0 0
0 0
0 0
<COMMON> 0 471
<OTHER-SE> 0 75,262
<TOTAL-LIABILITY-AND-EQUITY> 86,939 209,457
<SALES> 153,858 200,158
<TOTAL-REVENUES> 153,858 200,158
<CGS> 132,868 182,591
<TOTAL-COSTS> 320,059 269,849
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,289 4,037
<INCOME-PRETAX> (169,379) (75,150)
<INCOME-TAX> (578) 38
<INCOME-CONTINUING> (168,801) (75,188)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (168,801) (75,188)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (3.58) (1.60)
</TABLE>
