-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QnNsOFJjDxAH4rj4KKB18aQimniuFb/Ealquw5iVYyK8pZy24Nqd1noPUFDC4SWw mUrmS8vFi3sTMCOzNBcWig== 0001017062-98-001686.txt : 19980810 0001017062-98-001686.hdr.sgml : 19980810 ACCESSION NUMBER: 0001017062-98-001686 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALCOMP TECHNOLOGY INC CENTRAL INDEX KEY: 0000818470 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 060888312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16071 FILM NUMBER: 98678874 BUSINESS ADDRESS: STREET 1: 2411 W LA PALMA AVE CITY: ANAHEIM STATE: CA ZIP: 92803 BUSINESS PHONE: 5128731540 MAIL ADDRESS: STREET 1: 60 SILVERMINE ROAD CITY: SEYMOUR STATE: CT ZIP: 06483 FORMER COMPANY: FORMER CONFORMED NAME: SUMMAGRAPHICS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q RE PERIOD ENDING JUNE 28, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-16071 ---------------- CALCOMP TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-0888312 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2411 W. LA PALMA AVENUE, 92801 ANAHEIM, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (714) 821-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT JULY 24, 1998 --------------------- ---------------------------- $.01 par value 47,120,650
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CALCOMP TECHNOLOGY, INC. TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 28, 1998 (Unaudited) and December 28, 1997.......................... 3 Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 28, 1998 and June 29, 1997................................................... 4 Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 1998 and June 29, 1997... 5 Notes to Unaudited Condensed Consolidated Financial Statements................................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 17 Item 2. Changes in Securities and Use of Proceeds................... 17 Item 4. Submission of Matters to a Vote of Security Holders......... 17 Item 6. Exhibits and Reports on Form 8-K............................ 18 Signatures.......................................................... 19
2 CALCOMP TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 28, DECEMBER 28, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS: Current assets: Cash................................................ $ 4,913 $ 6,494 Accounts receivable, net............................ 18,711 26,208 Accounts receivable from affiliates................. 2,117 4,428 Inventories (Note 4)................................ 36,087 43,069 Prepaids and other current assets................... 4,854 4,783 --------- --------- Total current assets.............................. 66,682 84,982 Property, plant and equipment, net.................... 30,404 29,048 Goodwill, net......................................... 76,977 79,994 Other assets.......................................... 15,647 15,433 --------- --------- Total assets.......................................... $ 189,710 $ 209,457 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable.................................... $ 15,680 $ 14,395 Accounts payable to affiliates...................... 2,810 5,591 Deferred revenue (Note 7)........................... 15,349 6,828 Accrued restructuring costs (Note 3)................ 3,418 5,049 Accrued reorganization costs........................ 6,262 6,878 Accrued salaries and related expenditures........... 5,645 4,487 Line of credit with Majority Shareholder (Note 5)... 2,430 -- Other current liabilities........................... 21,574 22,600 --------- --------- Total current liabilities......................... 73,168 65,828 Other long-term liabilities........................... 7,876 8,371 Line of credit with Majority Shareholder (Note 5)..... 60,000 59,525 Contingencies (Notes 2 and 8)......................... -- -- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued............................ -- -- Common stock, $.01 par value, 60,000,000 shares authorized, 47,120,650 and 47,070,950 shares issued and outstanding on June 28, 1998 and December 28, 1997, respectively.................... 471 471 Additional paid-in capital.......................... 292,805 287,322 Accumulated deficit................................. (249,497) (217,145) Accumulated other comprehensive income (loss): Cumulative translation adjustment.................. 5,352 5,550 Less: Treasury stock, at cost, 49,000 shares........ (465) (465) --------- --------- Total stockholders' equity.......................... 48,666 75,733 --------- --------- Total liabilities and stockholders' equity........ $ 189,710 $ 209,457 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 3 CALCOMP TECHNOLOGY, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------- ---------------------- JUNE 28, JUNE 29, JUNE 28, JUNE 29, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenue........................ $ 41,532 $ 52,060 $ 79,366 $ 112,583 Cost of revenue................ 33,669 41,824 69,806 90,420 ---------- ---------- ---------- ---------- Gross profit................. 7,863 10,236 9,560 22,163 Operating expenses: Research and development..... 3,482 5,628 6,205 9,266 Selling, general and administrative.............. 16,438 15,853 31,133 31,448 Corporate expenses from Majority Shareholder........ 1,000 725 2,000 1,450 Gain on disposal of facilities (Note 6)......... -- (5,873) -- (5,873) ---------- ---------- ---------- ---------- Loss from operations........... (13,057) (6,097) (29,778) (14,128) Interest expense............... (1,180) (1,130) (2,437) (2,011) Other income (expense), net.... 401 136 (72) (148) ---------- ---------- ---------- ---------- Loss before income taxes....... (13,836) (7,091) (32,287) (16,287) Provision for income taxes..... 237 234 65 527 ---------- ---------- ---------- ---------- Net loss....................... $ (14,073) $ (7,325) $ (32,352) $ (16,814) ========== ========== ========== ========== Basic and diluted loss per share (Note 1)................ $ (0.30) $ (0.16) $ (0.69) $ (0.36) ========== ========== ========== ========== Weighted-average shares outstanding................... 47,105,080 46,898,650 47,090,584 46,898,650 ========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements. 4 CALCOMP TECHNOLOGY, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED ------------------ JUNE 28, JUNE 29, 1998 1997 -------- -------- Operating activities: Net loss.................................................. $(32,352) $(16,814) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 7,643 5,939 Restructuring payments.................................. (1,631) (5,355) Gain on disposal of facilities.......................... -- (5,873) Investee income......................................... (361) (523) Net changes in operating assets and liabilities......... 22,212 (5,529) -------- -------- Net cash used in operating activities................. (4,489) (28,155) Investing activities: Purchase of property, plant and equipment................. (5,690) (4,678) Proceeds from disposition of property, plant and equipment................................................ -- 635 Dividends received........................................ 121 168 Proceeds from disposal of facilities...................... -- 21,121 -------- -------- Net cash (used in) provided by investing activities... (5,569) 17,246 Financing activities: Net proceeds from line of credit with Majority Shareholder.............................................. 2,905 7,731 Reduction in revolving line of credit..................... -- (2,948) Exercise of stock options................................. 123 -- Issuance of warrant to purchase common stock.............. 5,360 -- -------- -------- Net cash provided by financing activities............. 8,388 4,783 Effect of exchange rate changes on cash................... 89 (596) -------- -------- Change in cash............................................ (1,581) (6,722) Cash at beginning of period............................... 6,494 15,290 -------- -------- Cash at end of period..................................... $ 4,913 $ 8,568 ======== ======== Supplementary disclosures of cash flow information: Net income taxes received............................... $ 2 $ 361 Interest paid........................................... $ 2,381 $ 2,116
See accompanying notes to unaudited condensed consolidated financial statements. 5 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 28, 1998, are not necessarily indicative of the results that may be expected for the Company's fiscal year or any other interim period. Certain reclassifications of prior year amounts have been made to conform to the current period presentation. It is suggested that the financial statements be read in conjunction with the information contained in the Company's Annual Report for the year ended December 28, 1997, on Form 10-K/A, filed with the Securities and Exchange Commission. The Company has adopted SFAS 128, "Earnings Per Share," and applied this pronouncement to all periods presented. This statement requires the presentation of both basic and diluted net income (loss) per share for financial statement purposes. Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share includes the effect of the potential shares outstanding, including dilutive stock options and warrants, using the treasury stock method. Because the impact of options and warrants are antidilutive, there is no difference between the loss per share amounts computed for basic and diluted purposes. As of December 29, 1997, the Company adopted SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net loss or stockholders' equity. SFAS 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in stockholder's equity, to be included in other comprehensive income. The components of comprehensive loss for the six months ended June 28, 1998, and June 29, 1997, are as follows:
1998 1997 -------- -------- Net loss.............................................. $(32,352) $(16,814) Foreign currency translation adjustment............... (198) (1,924) -------- -------- Comprehensive loss.................................... $(32,550) $(18,738) ======== ========
2. OPERATIONS AND FINANCING The Company's recent operations have resulted in net losses of $32.4 million, $75.2 million and $56.6 million for the six months ended June 28, 1998 and the years ended December 28, 1997 and December 29, 1996, respectively. The Company's main sources of financing have been a $75 million line of credit with Lockheed Martin Corporation (the "Majority Shareholder") which is made up of the Revolving Credit Agreement of $73 million and the Cash Management Agreement of $2 million, collectively referred to as the "Credit Agreements", and the proceeds from the sale of the Company's headquarters facility. In March 1998, the Credit Agreements were amended to extend the maturity dates to January 31, 1999. Additionally, the Revolving Credit Agreement was amended to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Credit Agreements upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. At June 28, 1998, the Company had drawn $62.4 million against that line. 6 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In March 1998, the Company entered into the Joint Development Agreement with Eastman Kodak Company ("Kodak") that provided $20 million which was due on signing and was paid to the Company in April 1998 and an additional $16 million in cash over the term to be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. For further discussion of the Joint Development Agreement, see Note 7. In July 1998, the Company entered into an Exchange Agreement with the Majority Shareholder, pursuant to which, the Company exchanged $60 million of outstanding debt owed to the Majority Shareholder under the Revolving Credit Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred Stock") of the Company (the "Exchange"). In connection with the Exchange Agreement, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company under the Revolving Credit Agreement from $73 million to $13 million. The Company and the Majority Shareholder effected the Exchange for the purpose of strengthening the Company's balance sheet and ensuring that the Company continues to meet the requirements for its common shares to trade on NASDAQ's National Market System. The Company received a fairness opinion from an outside financial advisor that the Exchange was fair and reasonable to all of the Company's common stockholders. For further discussion of the Exchange, see Note 5. The Company had previously entered into a letter of intent with a bank which contemplated an additional $25 million senior line of credit; however, the Company was not able to reach an agreement with the bank and negotiations were recently terminated. The Company anticipates that it will fully draw down the full $13 million of credit line available under the Revolving Credit Agreement to meet operating requirements during the fiscal quarter ending September 27, 1998. In an effort to address this issue, the Company has approached the Majority Shareholder, which has stated that it will loan additional funds to the Company in an amount sufficient to fund the day-to-day operations of the Company pending a review of the Company's business strategy. In addition, the Majority Shareholder has agreed to consider loaning the Company additional funds thereafter depending upon the results of this review. The Company conducted a review with its Board of Directors on July 28, 1998, but to-date, has not concluded discussions with the Majority Shareholder regarding additional funding. The Company anticipates that these discussions will be concluded in September 1998. The Company has engaged Solomon Smith Barney as an investment advisor to assist it in the consideration of strategic alternatives. Management notes that, even if the Majority Shareholder does agree to extend funds, the terms under which it would do so and the period of operations that such funds would permit are not now determined. Failure to obtain additional funding will result in material liquidity problems for the Company. The Company has implemented plans to improve the Company's competitive position by introducing a new line of CrystalJet(TM) piezo inkjet printers and improving operating efficiencies through the restructuring of its worldwide operations. The Company is currently in the process of making enhancements to the CrystalJet manufacturing process to allow for increased production of the CrystalJet product. The Company anticipates that these efforts will result in improved gross margins and operating results during the second half of fiscal 1998. However, no assurances can be given that the Company will be successful in realizing these goals. Failure to achieve market acceptance of these products or the inability to timely achieve required production volumes at acceptable costs could have a further material adverse impact on the Company's consolidated financial position, results of operations and cash flows. 3. RESTRUCTURING During the fourth quarter of 1997, the Company expanded its plan to restructure its operations worldwide and provided a charge of approximately $4,788,000 consisting primarily of $2,900,000 for the elimination of 7 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 91 positions, relating to further realignment of the Company's international operations, and $1,888,000 for lease termination and fixed asset disposition costs for certain international facilities. During the first six months of 1998, the Company incurred cash expenditures aggregating $1,388,000 and non- cash charges aggregating $243,000 that were applied against the reserve. At June 28, 1998, the restructuring accrual approximates $3,418,000, consisting of $2,620,000 from the 1997 restructuring plan and $798,000 remaining from the 1996 restructuring plan. The remaining amount of the 1996 plan principally relates to lease termination obligations. Although subject to future adjustment, the Company believes that the amounts accrued at June 28, 1998 are adequate to complete the various restructuring plans. 4. INVENTORIES Inventories consist of the following:
JUNE 28, DECEMBER 28, 1998 1997 ------- ------------ (IN THOUSANDS) Raw materials and purchased components............... $10,738 $11,042 Work in process...................................... 460 434 Finished goods....................................... 24,889 31,593 ------- ------- $36,087 $43,069 ======= =======
5. INDEBTEDNESS Credit Agreements with Majority Shareholder In July 1996, the Company and the Majority Shareholder entered into two separate agreements, the Revolving Credit Agreement and the Cash Management Agreement. The Revolving Credit Agreement was subsequently amended and restated, pursuant to which the Majority Shareholder was to provide, from time to time, financing of up to $73 million for repayment of specified indebtedness and general corporate purposes, including financing the working capital needs of the Company and its subsidiaries. The Revolving Credit Agreement contained negative and affirmative covenants. As of December 28, 1997, the Company was in breach of certain of these financial covenants. On January 22, 1998, the Majority Shareholder waived compliance with these covenants. In March 1998, the Revolving Credit Agreement was further amended to extend the maturity date from July 22, 1998, to January 31, 1999, to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Revolving Credit Agreement upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. The Revolving Credit Agreement bears interest, at the Company's option, at either (1) a rate per annum equal to the higher of the federal funds rate as published in the Federal Reserve System plus 0.5% or the rate publicly announced from time to time by Morgan Guaranty Trust Company of New York as its "prime" rate or (2) LIBOR plus 2.0%. There is no required prepayment or scheduled reduction of availability of loans under the Agreement. The Cash Management Agreement provides cash advances of up to $2 million to the Company by the Majority Shareholder for cash shortfalls. In March 1998, the Cash Management Agreement was amended to extend the maturity date from June 1, 1998, to January 31, 1999. The agreement bears interest equal to the Federal Funds Rate. As of June 28, 1998, the Company had an aggregate outstanding balance of $62,430,000 on the Revolving Credit Agreement, with interest rates ranging from 5.0% to 7.7%. 8 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Conversion of Debt to Preferred Stock On July 15, 1998, at the request of the Company, the Company and the Majority Shareholder effected an exchange of debt for equity whereby $60 million of outstanding indebtedness owing by the Company to the Majority Shareholder under the Revolving Credit Agreement was exchanged for 1,000,000 shares of Preferred Stock. As a result, this amount is classified as a long-term item as of June 28, 1998 because it will not require the use of working capital to satisfy the indebtedness. In connection with the Exchange, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company from $73 million to $13 million. The Majority Shareholder, as holder of the Preferred Stock, is entitled to receive, when and if declared by the Board of Directors, and in preference to the holders of Common Stock, a cumulative annual dividend of $4.80 per share. The Preferred Stock has no conversion rights and is non-voting with certain exceptions. The Preferred Stock may be redeemed at the Company's option at $60 per share plus any accumulated, but unpaid dividends. Upon liquidation, the holders of the Preferred Stock are entitled to receive $60 per share plus any accumulated but unpaid dividends, prior to any distribution being made to the holders of Common Stock. After the occurrence of a change of control, as defined, the dividend rate on the Preferred Stock would be increased to $9.00 per share per annum plus 15% per annum on any accumulated but unpaid dividends (the "Adjusted Dividend Rate"). The Adjusted Dividend Rate would apply until the earlier of (1) the redemption by the Company of the Preferred Stock or (2) the acquisition of the combined voting power of the then outstanding voting stock of the Company. 6. DISPOSAL OF HEADQUARTERS FACILITY During the fourth quarter of 1996, the Company decided to sell its 27.9 acre headquarters facility in Anaheim, California and wrote the facility down to its then appraised value, less costs to sell, of $15.1 million. On June 24, 1997, the Company completed the sale of the facility to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for $21.5 million, less associated costs to sell. The headquarters facility sale resulted in a gain on disposal of $5.9 million. Proceeds from the sale of the property were used to reduce outstanding borrowings under the Revolving Credit Agreement. The Company has leased back approximately 138,500 square feet of space, or two of the ten buildings located on the property, under a one year lease with an option to continue the lease for an additional year. In accordance with the lease agreement, the Company has exercised this option to extend the lease through June 23, 1999. 7. PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT On March 29, 1998, the Company entered into a five-year Patent License and Joint Development Agreement with Kodak covering the joint development of the Company's CrystalJet technology into a range of products, printers and consumables for commercial applications. Under the terms of the agreement, Kodak will contribute up to $36 million, $20 million of which was due at signing and was paid to the Company in April 1998. The additional $16 million in contributions will be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. The agreement also calls for Kodak to pay royalties in respect of licenses granted thereunder which allow Kodak under certain circumstances to exploit the inkjet technology developed under the terms of the agreement. In addition to the license, the Company granted to Kodak a warrant for 8 million shares of its Common Stock with an exercise price of $3.88, vesting 50 percent on the first anniversary of the agreement and 50 percent on the second anniversary of the agreement. The warrant expires on the seventh anniversary of the agreement. At the date of grant, the fair market value of the stock warrant was $5.4 million, based on an independent 9 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) appraisal, and has been reflected as an increase to additional paid-in capital in the accompanying condensed consolidated balance sheet. The remaining $14.6 million was recorded as deferred revenue and will be amortized into income as certain expenditures related to the Joint Development Agreement are incurred. As of June 28, 1998, the amount of deferred revenue amortized to income was $6.0 million. 8. CONTINGENCIES Legal A complaint was filed on January 25, 1997, in California Superior Court in Santa Clara County by Raster Graphics, Inc. ("Raster Graphics"), against Topaz Technologies, Inc., the Company's wholly-owned subsidiary ("Topaz"), the former shareholders of Topaz, and the Company. The complaint alleged, among other things, misappropriation of trade secrets, breach of fiduciary duty, unfair competition, breach of contract and conversion arising from the employment by Raster Graphics of the former Topaz shareholders who founded Raster Graphics in 1987 while they participated in the development of certain inkjet technology. On June 17, 1998, the Court entered an order dismissing all claims in this suit following a settlement agreement which was entered into by all parties to the suit. A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom Technology Corp., against CalComp Inc., a wholly-owned subsidiary of the Company, in the U.S. District Court for the Central District of California. The complaint alleged, among other things, that CalComp Inc.'s sale of ULTRASLATE digitizer tablets infringes three patents and infringes Wacom's common law trademark, ULTRAPEN. Wacom's request for a preliminary injunction concerning infringement of two of the three patents was denied by the Court on February 12, 1998. Wacom is also seeking damages and permanent injunctive relief with respect to alleged infringement of the three patents, pre-judgment interest and, among other things, has requested an award of its attorneys' fees and costs. The Company does not believe that any of the allegations made by Wacom in this suit have merit and intends to defend itself against all the claims. On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit against the Company, CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz, (collectively the "Defendants") alleging that the Defendants' manufacture and sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat. Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition apparatus and certain processes for manufacturing pulsed droplet deposition apparatus. The complaint also alleges that the Defendants have induced others to infringe these patents. The complaint seeks preliminary and permanent injunctive relief against infringement of the Xaar patents, increased damages for willful infringement of those patents, interest and award of its attorneys' fees and costs. The Company has reviewed these patents and believes that the Company will prevail over Xaar's claims, that the Company's piezoelectric technology is proprietary to the Company and that the Company's manufacture and sale of CrystalJet piezoelectric printheads does not infringe any valid claims of either of these patents. Further, the Company intends to defend itself against all claims in this lawsuit. In a separate action, on July 6, 1998, Xaar filed suit in the London High Court of Justice alleging that the Defendants and CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused, enabled, or assisted others to infringe, European patent (UK) number EP 0 277 703, which covers certain pulsed droplet deposition apparatus and certain processes for manufacturing pulsed droplet deposition apparatus in connection with the manufacture and sale of the Company's CrystalJet printers. The complaint seeks damages or profits resulting from the alleged infringement and, among other things, interest on any sums due Xaar and an award of its costs. The Company has reviewed the patent in suit, believes that the Company will prevail over Xaar's claims in this suit and that the Company's manufacture and sale of CrystalJet printheads does not infringe any valid claims of this patent. The Company intends to defend itself against all claims made. 10 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is also party to other legal actions in the normal course of its business. The Company does not believe that the disposition of any of these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. Environmental Matters In connection with the June 1997 sale of the Company's headquarters facility in Anaheim, California, the Company agreed to remain obligated to address certain environmental conditions which existed at the site prior to the closing of the sale. In addition, the Majority Shareholder has guaranteed the performance of the Company under this environmental agreement. In 1988, the Company submitted a plan to the California Regional Water Quality Control Board ("the Water Board") relating to its facility in Anaheim, California. This plan contemplated site assessment and monitoring of soil and ground water contamination. In 1997, the Company, at the request of the Water Board, submitted work plans to conduct off-site water investigations and on- site soil remediation. The initial phase of work commenced in January 1998. As of June 28, 1998, the Company has established reserves which it considers to be adequate to cover the cost of investigations and tests required by the Water Board, any additional remediation that may be requested and potential costs of continued monitoring of soil and groundwater contamination, if required. The Company believes that it has adequately accrued for any future expenditures in connection with environmental matters and that such expenditures will not have a materially adverse effect on its consolidated financial condition, results of operation or cash flows. 11 CALCOMP TECHNOLOGY, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report on Form 10-Q contains statements which, to the extent that they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements involve risks and uncertainties. The forward-looking statements in this report on Form 10-Q have been made subject to the safe harbor protections provided by Sections 27A and 21E. GENERAL The Company's products and services compete in several markets including CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing. The Company's ability to successfully market its products requires adapting new technologies, such as its proprietary CrystalJet technology, and leveraging the channels of distribution in order to remain competitive. The Company encounters extensive competition in all of its lines of business, depending on the particular product or market environment. The Company's business involves rapidly changing technologies requiring continued performance improvements at lower customer prices. The companies that participate in the industry are highly competitive and reduced unit selling prices and shortened product life cycles are expected to continue to place pressure on the Company's margins. Many of the Company's competitors have larger technical staffs, larger marketing and sales organizations and significantly greater financial resources than the Company. There can be no assurance that the products of existing or new competitors will not obtain greater market acceptance than the Company's products. In 1997, the Company introduced its new CrystalJet product line and initiated a transition plan to eliminate certain existing output product lines and accelerate the Company's end-of-life process for those products that will be discontinued. As a result, the Company's diversity of inkjet product offerings, by the end of 1998, will be limited to the new CrystalJet line of wide-format digital printers until subsequent CrystalJet product offerings are introduced. Failure to achieve market acceptance for these products or the inability to increase manufacturing volumes to achieve production efficiencies, could have a material adverse impact on the Company's consolidated financial position and results of operations. In addition, the Company's strategy for its new products focuses on capturing consumable sales through establishing a strong installed base of CrystalJet products, both through CalComp branded products and through the various channels provided by the Company's strategic partners. However, there can be no assurance that the Company will be able to achieve this strategic goal. For a further discussion of risk factors related to the Company's operations, see Item 1. "Business--Risk Factors Affecting the Company" contained in the Company's Annual Report for the year ended December 28, 1997, on Form 10-K/A, filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS Revenues. Revenues for the quarter ended June 28, 1998, declined $10.5 million, or 20%, to $41.5 million from the same period in 1997. Product revenues were down 34% and service revenue was down 24% versus the same period in 1997. The decline in product and service revenue was offset by $6.0 million of royalty revenue recognized from the Kodak Joint Development Agreement for which there was no corresponding amount in prior year. The decline in product revenues resulted primarily from decreases in product demand for input and output products. Output product revenues declined primarily due to the maturity of the output products compared to competitors' products and lower customer demand resulting from the Company's discontinuance of certain output products in anticipation and preparation for the new CrystalJet product lines, as well as from delays in volume shipments of the new CrystalJet wide format digital inkjet printers. Digitizer input product revenue also declined primarily as a result of the impact of increasing interchangeability of mouse input devices as an 12 alternative to digitizer tablet input devices made possible by recent releases of CAD application software. This trend is expected to continue but may be somewhat offset by broader use of digitizers in graphic arts applications. The decrease in service revenue compared to the same period in 1997 is primarily a result of fewer service contracts being generated due to the lower product revenue base and a lower rate of service contract renewals as older generation products are retired from service. Revenue for the six months ended June 28, 1998 declined $33.2 million, or 30%, to $79.4 million for the same period in 1997. Product revenues were down 38% and service revenue was down 21%, for the same reasons discussed above. Gross Profit. In 1998, royalty recognized from the Joint Development Agreement made up $6.0 million of the gross profit for which there was no corresponding amount in the prior year. Excluding the royalty, gross profit as a percentage of revenue was 4% for the second quarter and first six months of 1998 compared to 20% for the same periods in 1997. These declines, exclusive of the royalty recognized from the Joint Development Agreement, were primarily due to lower revenues, selling price reductions required to transition out of mature and end-of-life products, the manufacturing inefficiencies resulting from decreased production volumes on the Company's mature output products, start up cost inefficiencies on new products, and delays in volume shipments of the new CrystalJet wide format inkjet printers. Operating Expenses. Operating expenses for the second quarter of 1998 increased 28%, or $4.6 million, to $20.9 million compared to the same period in 1997. The increase was primarily due to the recognition of the one time gain of $5.9 million from the sale of the Company's headquarters facility during the second quarter last year. Excluding the gain, operating expenses decreased $1.3 million, or 6%, and $2.8 million, or 7%, for the quarter and six month period, respectively. These decreases resulted primarily from the benefits of staffing and facility consolidation as a result of restructuring actions taken in 1996 and 1997 to streamline the Company's infrastructure. Research and development expenses decreased $2.1 million in the second quarter of 1998 compared to the same period in 1997 and decreased $3.1 million in the first six months of 1998 compared to the same period in 1997 reflecting the benefits of cost reductions resulting from the Company's decision to narrow its focus to its new technologies. Research and development expense as a percentage of net revenue remained relatively flat at 8% for the first six months of 1998 and 1997 as the reduced spending is being compared to a smaller revenue base in the first six months of 1998. Selling, general and administrative expenses increased $0.6 million in the second quarter of 1998 compared to the same period in 1997. As a percentage of revenue, these expenses increased to 40% in the second quarter of 1998 compared to 30% for the second quarter of 1997. The slight increase in spending was due to the Company incurring legal costs to defend itself against current lawsuits. In the first half of 1998, selling, general and administrative expenses decreased $0.3 million as compared to the same period in 1997. As a percentage of revenue, these expenses increased to 39% compared to 28% for the same period in the prior year. The decline in spending was due primarily to reduced staffing and facility expenses from the restructuring actions taken in 1996 and 1997 to streamline the Company's infrastructure. The expenses did not commensurately decrease with revenue as legal expenses slightly increased during 1998 resulting from the defense of current lawsuits and marketing and advertising costs slightly increased during 1998 to support the introduction of CrystalJet into the marketplace. Corporate expenses from the Majority Shareholder increased $0.3 million to $1.0 million and $0.6 million to $2.0 million in the second quarter of 1998 and six months of 1998, respectively, compared to the same periods in 1997 as a result of allocations received from the Majority Shareholder. Interest Expense. Interest expense remained flat at $1.2 million and $1.1 million for the second quarter of 1998 and 1997, respectively, as the Company's outstanding balances under the Revolving Credit Agreement 13 were substantially the same during the second quarter of 1998 compared to the second quarter of 1997. Interest expense increased to $2.4 million for the first six months of 1998 from $2.0 million for the same period in 1997 due substantially to increases during the first quarter of 1998 in the Company's outstanding balances under the Revolving Credit Agreement compared to first quarter of 1997. Income Tax Provision. Income tax provision of $0.2 million remained flat for the second quarter of 1998 compared to the same period in 1997. For the six month period of 1998, income tax provision decreased to $0.1 million compared to $0.5 million for the same period in 1997. In 1998, the income tax provision resulted primarily from the provision of foreign taxes on profitable international locations offset by a state tax refund recorded in the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's recent operations have resulted in net losses of $32.4 million, $75.2 million and $56.6 million for the six months ended June 28, 1998 and the years ended December 28, 1997 and December 29, 1996, respectively. The Company's main sources of financing have been a $75 million line of credit with Lockheed Martin Corporation (the "Majority Shareholder") which is made up of the Revolving Credit Agreement of $73 million and the Cash Management Agreement of $2 million, collectively referred to as the "Credit Agreements", and the proceeds from the sale of the Company's headquarters facility. In March 1998, the Credit Agreements were amended to extend the maturity dates to January 31, 1999. Additionally, the Revolving Credit Agreement was amended to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Credit Agreements upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. At June 28, 1998, the Company had drawn $62.4 million against that line. In March 1998, the Company entered into the Joint Development Agreement with Eastman Kodak Company ("Kodak") that provided $20 million which was due on signing and was paid to the Company in April 1998 and an additional $16 million in cash over the term to be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. In July 1998, the Company entered into an Exchange Agreement with the Majority Shareholder, pursuant to which, the Company exchanged $60 million of outstanding debt owed to the Majority Shareholder under the Revolving Credit Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred Stock") of the Company (the "Exchange"). In connection with the Exchange Agreement, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company under the Revolving Credit Agreement from $73 million to $13 million. The Company and the Majority Shareholder effected the Exchange for the purpose of strengthening the Company's balance sheet and ensuring that the Company continues to meet the requirements for its common shares to trade on NASDAQ's National Market System. The Company received a fairness opinion from an outside financial advisor that the Exchange was fair and reasonable to all of the Company's common stockholders. For further discussion of the Exchange, see Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements. The Company had previously entered into a letter of intent with a bank which contemplated an additional $25 million senior line of credit; however, the Company was not able to reach an agreement with the bank and these negotiations were recently terminated. The Company anticipates that it will fully draw down the full $13 million of credit line available under the Revolving Credit Agreement to meet operating requirements during the fiscal quarter ending September 27, 1998. In an effort to address this issue, the Company has approached the Majority Shareholder, which has stated that it will loan additional funds to the Company in an amount sufficient to fund the day-to-day operations of the Company pending a review of the Company's business strategy. In addition, the Majority Shareholder has agreed to consider loaning the Company additional funds thereafter depending upon the results of this review. The Company conducted a review with its Board of Directors on July 28, 1998, but to-date, has not concluded discussions with the Majority Shareholder regarding additional funding. The Company anticipates that these 14 discussions will be concluded in September 1998. The Company has engaged Solomon Smith Barney as an investment advisor to assist it in the consideration of strategic alternatives. Management notes that, even if the Majority Shareholder does agree to extend additional funds, the terms under which it would do so and the period of operations that such funds would permit are not now determined. Failure to obtain additional funding will result in material liquidity problems for the Company. The Company has implemented plans to improve the Company's competitive position by introducing a new line of CrystalJet piezo inkjet printers and improving operating efficiencies through the restructuring of its worldwide operations. The Company is currently in the process of making enhancements to the CrystalJet manufacturing process to allow for increased production of the CrystalJet product. The Company anticipates that these efforts will result in improved gross margins and operating results during the second half of fiscal 1998. However, no assurances can be given that the Company will be successful in realizing these goals. Failure to achieve market acceptance of these products or the inability to timely achieve required production volumes at acceptable costs could have a further material adverse impact on the Company's consolidated financial position, results of operations and cash flows. During the first six months of 1998, the Company used $4.5 million of cash in its operations primarily to fund its continuing net losses of $32.4 million, net of depreciation and amortization of $7.6 million, offset by $20.6 million provided primarily from the receipt of $20 million from the Joint Development Agreement of which $14.6 million was recorded in deferred revenue. As of June 28, 1998, the balance in deferred revenue from the Kodak Joint Development Agreement was $7.7 million. In addition, $5.7 million was expended on plant and equipment, relating primarily to purchases of tooling and equipment for the development and manufacture of the new CrystalJet product line. These uses of cash for operating and investing activities were funded substantially by the issuance of the stock warrant of $5.4 million to Kodak under the Joint Development Agreement and borrowings from the Majority Shareholder of $2.9 million, pursuant to the Credit Agreements. During the fourth quarter of 1997, the Company expanded its plan to restructure its operations worldwide and provided a charge of approximately $4,788,000, consisting primarily of $2,900,000 for the elimination of 91 positions relating to further realignment of the Company's international operations, and $1,888,000 for lease termination and fixed asset disposition costs for certain international facilities. During the first six months of 1998, the Company incurred cash expenditures aggregating $1,388,000 and non- cash charges aggregating $243,000 that were applied against the reserve. At June 28, 1998, the restructuring accrual approximated $3,418,000, consisting of $2,620,000 from the 1997 restructuring plan and $798,000 remaining from the 1996 restructuring plan. The remaining amount of the 1996 plan principally relates to lease termination obligations. Although the Company believes that cost savings from the restructuring of its worldwide operations, which has been substantially completed in the first half of 1998, with the exception of certain severance and operating lease payments, combined with the introduction of its proprietary new CrystalJet product line, will allow the Company to better respond to intense industry competition, no assurance can be given that such goals will be realized. The Company anticipates operating losses to continue through 1998. Year 2000 Compliance. Many existing computer systems, applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. Such systems and applications could fail or create erroneous results unless corrected to process data related to the Year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including systems (such as general ledger, accounts payable, and payroll modules), customer services, infrastructure, embedded computer chips, networks and telecommunications equipment. The Company also relies, directly and indirectly, on external systems of business enterprises such as customers, suppliers, creditors, financial organizations and governmental entities, both domestic and international, for accurate exchange of data. The Company has been investigating and continues to assess the impact, if any, which Year 2000 issues may have on its internal computer systems. Although the assessment process is not complete, based on 15 information and estimates currently available, Year 2000 issues related to these systems will not have a material adverse effect on the operations, financial condition, financial results, or cash flows of the Company. The inability of customers, suppliers, and other external enterprises with which the Company interacts to make timely changes to their own systems could have an adverse impact on the Company. The Company believes all of its current products are Year 2000 compliant. 16 CALCOMP TECHNOLOGY, INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For a discussion of legal proceedings, see Note 8 Contingencies--Legal of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS For a discussion of changes in securities, see Note 2 Operations and Financing of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1998 Annual Meeting of Shareholders of CalComp Technology, Inc. was held on June 11, 1998. A total of 45,100,218 of the Company's shares were present or represented by proxy at the meeting. This represented more than 95.764% of the Company's shares outstanding. The individuals named below were elected to serve one year terms as Directors of the Company.
TOTAL VOTE FOR TOTAL VOTE WITHHELD NAME EACH DIRECTOR FROM EACH DIRECTOR ---- -------------- ------------------- Arthur E. Johnson....................... 44,668,542 431,676 John C. Batterton....................... 44,673,442 426,776 Jeb S. Hurley........................... 44,673,442 426,776 Gary P. Mann............................ 44,661,942 438,276 Terry F. Powell......................... 44,662,442 437,776 Kenneth R. Ratcliffe.................... 44,668,542 431,676 Gerald W. Schaefer...................... 44,673,942 426,276 Walter E. Skowronski.................... 44,673,242 426,976
The amendment of the Company's Certificate of Incorporation to increase the total authorized shares of Common Stock from 60,000,000 to 125,000,000 was approved, with 44,516,671 shares voting for, 552,642 shares voting against, and 30,905 shares abstaining. The amendment of the Company's 1996 Stock Option Plan for Key Employees (the "Plan") to increase the maximum aggregate number of shares of Common Stock available for grant under the Plan from 2,000,000 to 4,000,000 shares was approved, with 44,858,068 shares voting for, 213,706 shares voting against, and 28,444 shares abstaining. The election of Ernst & Young L.L.P. as independent accountants was ratified, with 45,059,753 shares voting for, 23,700 shares voting against, and 16,765 shares abstaining. 17 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits--The following exhibits are included herein: 3.1 Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Company, filed on July 8, 1998. 3.2 Certificate of Designation of Series A Cumulative Redeemable Preferred Stock of the Company, filed on July 15, 1998. 27 Financial data schedule. (b) Reports on Form 8-K: Reports on Form 8-K filed by the Company during and subsequent to the Company's second quarter ended June 28, 1998 were as follows: Form 8-K dated March 29, 1998 filed on March 30, 1998, reporting under Item 5 the Company's Patent License and Joint Development Agreement with Eastman Kodak Co. Forms 8-K dated July 17, 1998 filed on July 17, 1998, reporting under Item 5 the Company's Exchange Agreement with Lockheed Martin Corporation. 18 CALCOMP TECHNOLOGY, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Calcomp Technology, Inc (Registrant) Date: August 7, 1998 /s/ John J. Millerick ------------------------------------ John J. Millerick Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 19 EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CALCOMP TECHNOLOGY, INC. (Pursuant to Section 242 of the General Corporation Law of the State of Delaware) CalComp Technology, Inc., a Delaware corporation (the "Corporation"), does hereby certify that the first sentence of Article 4 of the Corporation's Fourth Amended and Restated Certificate of Incorporation is amended to read in its entirety as follows: The total number of shares of stock which the Corporation shall have authority to issue is One Hundred Thirty Million (130,000,000) shares, of which One Hundred Twenty-Five Million (125,000,000) shares of the par value of One Cent ($.01) per share, amounting in the aggregate to One Million Two Hundred Fifty Thousand Dollars ($1,250,000), shall be Common Stock and Five Million (5,000,000) shares of the par value of One Cent ($.01) per share, amounting in the aggregate to Fifty Thousand Dollars ($50,000), shall be Preferred Stock . IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Amendment on this 6th day of July, 1998. --- CALCOMP TECHNOLOGY, INC. By: _________________________ John C. Batterton Chief Executive Officer Attest: _________________________ William F. Porter, Jr. EX-3.2 3 CERTIFICATE OF DESIGNATION FILED JULY 15, 1998 EXHIBIT 3.2 CERTIFICATE OF DESIGNATION OF SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK OF CALCOMP TECHNOLOGY, INC. CalComp Technology, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, (the "Corporation"), certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation: RESOLVED, that under the authority contained in Article 4(a) of the Fourth Amended and Restated Certificate of Incorporation of the Corporation, the Board of Directors of the Corporation hereby designates 1,000,000 unissued shares of the Preferred Stock of the Corporation as 1,000,000 shares of "Series A Cumulative Redeemable Preferred Stock" having the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations of such preferences and/or rights as set by the Board of Directors of the Corporation as follows: Section 1. Designation and Amount. ---------------------- The shares of such series shall be designated as Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock"), par value $0.01 per share, and the number of shares constituting such series shall be 1,000,000. Section 2. Dividends. --------- (A) Subject to the prior and superior rights of any shares of any series of preferred stock ranking prior and superior to the Series A Preferred Stock in respect of dividends, the holders of shares of the Series A Preferred Stock, in preference to the holders 1 of shares of Common Stock, par value $0.01, of the Corporation (the "Common Stock") and any other stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends, shall be entitled to receive, when as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative dividends payable at the annual rate of $4.80 per share, and, subject to the provisions of Section 3 below, no more, in equal quarterly payments on March 31, June 30, September 30 and December 31 (or if any of such days is not a Business Day, the next succeeding Business Day) in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date that is at least 30 days after the date of original issue of the shares of Series A Preferred Stock. A holder of Series A Preferred Stock shall be entitled to receive payment of dividends by wire transfer by giving written instructions to the Corporation at least two business days prior to the payment date. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the date of original issue of the shares. Dividends shall accrue and be payable based on the number of days in each year and the numbers of days actually elapsed. Accrued but unpaid dividends payable under this Section 2 or any other Section of this Certificate of Designation shall accrue additional dividends at the rate of 8% per annum on the accrued but unpaid amount, and references in this Certificate of Designation to accrued but unpaid dividends shall be deemed to include such additional dividends. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of dividends at the time accrued and payable on the shares of Series A Preferred Stock shall be allocated pro rata on a share-by- share basis among all the shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than 45 days and no less than 10 days prior to the date fixed for the payment thereof. Section 3. Increase in Dividend Rate On Change of Control. ---------------------------------------------- (A) Notwithstanding the provisions of Section 2, after the occurrence of a Change of Control (as defined below), the dividend rate on shares of Series A Preferred Stock then outstanding shall be increased to $9.00 per share per annum plus 15% per annum on any accrued but unpaid dividends (and additional dividends, if any) (the "Adjusted Dividend Rate"). The Adjusted Dividend Rate shall apply until the earlier to occur of (i) the redemption by the Corporation of the Series A Preferred Stock or (ii) the acquisition of shares of Series A Preferred Stock by any Person (or group of Persons) who acquires more than 50% of the combined voting power of the then outstanding voting stock of the Corporation entitled to vote generally in the election of directors, if any, but the Adjusted Dividend Rate shall only be terminated to the extent that such Series A Preferred Stock is owned by such Person (or group of Persons). (B) For purposes of this Certificate of Designation, "Change in Control" shall mean a reduction in ownership by Lockheed Martin Corporation and its subsidiaries to 50% or below in the combined voting power of the then outstanding voting stock of the Corporation entitled to vote generally in the election of directors. 2 Section 4. Voting Rights. ------------- Subject to the right to consent in certain limited circumstances as set forth in Section 5 below, the holders of shares of Series A Preferred Stock shall have no voting rights. Section 5. Certain Restrictions. -------------------- (A) For so long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock ("Junior Stock"); (ii) declare or pay dividends on or make any other distributions on any shares of other stock ranking in parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock ("Parity Stock"), except dividends paid ratably on the Series A Preferred Stock and all such Parity Stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) redeem or purchase or otherwise acquire for consideration any shares of Parity Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such Parity Stock in exchange for shares of any Junior Stock. (B) Without the prior written consent of the holders of a majority of the Series A Preferred Stock, the Corporation shall not issue any shares of capital stock ranking senior with respect to dividends or other distributions or in the event of dissolution, liquidation or winding up or in any way amend this Certificate of Designation or the Fourth Amended and Restated Certificate of Incorporation of the Corporation in any manner that would have an adverse effect on the rights of holders of Series A Preferred Stock. (C) The Corporation shall not permit any subsidiary of the Corporation or any employee stock ownership plan (or related trust) or other employee benefit plan (or related trust) for the employees of the Corporation or any subsidiary (other than, with respect to any plans other than an employee stock ownership plan, (i) in the normal operation of a plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended, (ii) any plan (or related trust) in existence on the date of this Certificate of Designation or (iii) any plan (or related trust) subsequently approved by the Corporation's stockholders), to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner. 3 Section 6. Redemption. ---------- (A) Provided that there are no dividend arrearages on the Series A Preferred Stock and the Corporation is in full compliance with the terms and conditions of this Certificate of Designation, the Corporation shall have the right, at its sole option and election, to redeem all or, subject to the provisions of the following sentence, a portion of the outstanding shares of the Series A Preferred Stock by paying therefor in cash $60 per share plus any unpaid dividends to the date of redemption (the "Redemption Price"). In the event that less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the aggregate Redemption Price for any such redemption shall be not less than $1,000,000. (B) Notice of any redemption of any shares of Series A Preferred Stock shall be given by mailing to each holder of shares of Series A Preferred Stock to be redeemed, at the holder's address as it appears on the books of the Corporation, written notice of redemption not less than 30 days and not more than 90 days prior to the date fixed for redemption (the "Redemption Date"). To facilitate the redemption of shares of Series A Preferred Stock, the Board of Directors may fix a record date for the determination of shares of Series A Preferred Stock to be redeemed and holders of shares of Series A Preferred Stock entitled to notice of redemption, provided that the record date may not be less than 30 days and may not be more than 60 days prior to the Redemption Date. Any notice that is mailed in such manner shall be conclusively presumed to have been duly given, whether or not any holder entitled to notice of redemption actually receives the notice. The failure of the Corporation to give such notice to any holder entitled to notice of redemption shall not affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock from any other holder of shares of Series A Preferred Stock. (C) Notice of redemption shall specify (i) the number of shares of Series A Preferred Stock shall be redeemed, (ii) the Redemption Date, (iii) the redemption price (which price shall include accrued but unpaid dividends thereon), and (iv) the place where payment of the redemption price is to be made upon surrender of the certificates representing the shares of Series A Preferred Stock. (D) In respect of each share of Series A Preferred Stock called for redemption in accordance with this Section 6, the Corporation shall be obligated to pay to the registered holder thereof the Redemption Price, upon surrender of the certificate or certificates representing the shares of Series A Preferred Stock at the office of the Corporation or any transfer or paying agent specified for that purpose, on or after the Redemption Date. In the event that less than all of the outstanding shares of Series A Preferred Stock are redeemed, the Corporation shall deliver a replacement certificate or certificates representing any unredeemed shares to the holder tendering such certificates. Unless the Corporation shall default in the payment of, or in providing for the payment of, the Redemption Price, dividends on each share of Series A Preferred Stock called for redemption, shall cease to accrue as of the Redemption Date. Except as otherwise expressly 4 provided in the preceding sentence, holders of shares of Series A Preferred Stock called for redemption shall not be entitled to any interest on the Redemption Price. (E) If, after notice of redemption has been given pursuant to paragraph (B) of this Section 5, on or prior to the Redemption Date in respect of any shares of Series A Preferred Stock, the Corporation deposits with a bank or trust company in the United States that, as of the date of the most recent available financial statements of the bank or trust company, has a capital and surplus of at least $50,000,000, a sum sufficient to redeem, on the Redemption Date, the shares called for redemption, with instructions to the bank or trust company to pay on or after the Redemption Date the redemption price to the respective holders of shares of Series A Preferred Stock upon surrender of the certificate or certificates representing the shares of Series A Preferred Stock, then from and after the date on which such moneys are deposited the deposit shall be deemed to constitute full payment to the holders for such shares of Series A Preferred Stock, and the holders shall have no rights in respect of the shares of Series A Preferred Stock called for redemption except the right to receive payment of the redemption price from the bank or trust company. Any moneys or, if applicable, other property held by any such bank or trust company that shall remain unclaimed by the holders of Series A Preferred Stock at the end of six years after the Redemption Date shall become the property of and be paid to the Corporation. Section 7. Conversion. ---------- The shares of Series A Preferred Stock shall have no conversion rights. Section 8. Reacquired Shares. ----------------- Any shares of Series A Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 9. Rank. ---- The Series A Preferred Stock shall rank, with respect to voting powers, preferences and relative, participating, optional and other special rights of the shares of such series and the qualifications, limitations and restrictions thereof, including, without limitation, with respect to the payment of dividends and the distribution of assets, whether upon liquidation or otherwise, (i) equally with respect to all shares of Parity Stock, (ii) prior to all shares of Junior Stock and to all shares of the Common Stock and (iii) prior to all shares of any other class or series of preferred stock of the Corporation, unless such other class or series by its terms ranks equally with or senior to the Series A Preferred Stock. 5 Section 10. Liquidation, Dissolution, Winding Up and Other Events. ----------------------------------------------------- Upon the liquidation (voluntary or otherwise), dissolution, reorganization, sale of all or any substantial portion of the assets or winding up of the Corporation, no distribution shall be made to the holders of the Common Stock unless, prior thereto, the holders of shares of the Series A Preferred Stock shall have received the product of $60 times any unredeemed shares of the Series A Preferred Stock, plus any accrued but unpaid dividends to the date of payment (the "Series A Liquidation Preference"). Following payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of the Series A Preferred Stock. In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference, then such remaining assets shall be distributed ratably to the holders of the Series A Preferred Stock. Section 11. Definitions. ----------- For the purposes of the provisions governing the shares of Series A Preferred Stock, the following terms have the meanings set forth below: "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Person" shall mean any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a trust or other entity. A Person, together with such person's Affiliates and Associates (as those terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Corporation with such Person, shall be deemed a single "Person." 6 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed in its name and on its behalf on this 14th day of July 1998, by its President who acknowledges that this Certificate of Designation is the act of the Corporation and that to the best of his knowledge, information and belief and under penalties for perjury, all matters and facts contained in this Certificate of Designation are true in all material respects. ATTEST: CALCOMP TECHNOLOGY, INC. ____________________________ By:_______________________(SEAL) William F. Porter, Jr. John C. Batterton Secretary President and Chief Executive Officer 7 EX-27 4 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 1,000 6-MOS 6-MOS DEC-27-1998 DEC-28-1997 DEC-29-1997 DEC-30-1996 JUN-28-1998 JUN-29-1997 4,913 8,568 0 0 23,968 50,716 3,140 4,763 36,087 57,740 66,682 115,547 69,080 85,185 38,676 56,452 180,710 246,446 133,168 104,235 0 0 0 0 0 0 471 469 48,195 133,297 189,710 246,446 79,366 112,583 79,366 112,583 69,806 90,420 69,806 90,420 39,410 36,143 0 0 2,437 2,011 (32,287) (16,287) 65 527 (32,352) (16,814) 0 0 0 0 0 0 (32,352) (16,814) (.69) (.36) 0 0
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