-----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, I2g0uTeBFyNpTxQWRg0L3N5p21Gg8cMFTUTAq7K0mhncOrNBcluJ++n+d4ZcPsRn UyW4+qPYND/OUXjTj4MLYQ== 0001017062-98-002224.txt : 19981113 0001017062-98-002224.hdr.sgml : 19981113 ACCESSION NUMBER: 0001017062-98-002224 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981112 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: 98745019 BUSINESS ADDRESS: STREET 1: 2411 W LA PALMA AVE CITY: ANAHEIM STATE: CA ZIP: 92801 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 3RD QUARTER REPORT ON FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ---------- ----------- COMMISSION FILE NUMBER 0-16071 ---------------- CALCOMP TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-0888312 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2411 W. LA PALMA AVENUE, ANAHEIM, CALIFORNIA 92801 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES)
(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 OCTOBER 23, 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 September 27, 1998 (Unaudited) and December 28, 1997............................ 3 Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 1998 and September 28, 1997........................................... 4 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 1998 and September 28, 1997......................................................... 5 Notes to Unaudited Condensed Consolidated Financial Statements................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 19 Item 2. Changes in Securities and Use of Proceeds..................... 19 Item 6. Exhibits and Reports on Form 8-K.............................. 19 Signatures............................................................. 20
2 CALCOMP TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 27, DECEMBER 28, 1998 1997 ------------- ------------ (UNAUDITED) ASSETS ------ Current assets: Cash.............................................. $ 4,296 $ 6,494 Accounts receivable, net.......................... 18,738 26,208 Accounts receivable from affiliates............... 835 4,428 Inventories (Note 4).............................. 34,968 43,069 Prepaids and other current assets................. 4,209 4,783 --------- --------- Total current assets............................ 63,046 84,982 Property, plant and equipment, net.................. 29,323 29,048 Goodwill, net....................................... 75,468 79,994 Other assets........................................ 15,230 15,433 --------- --------- Total assets.................................... $ 183,067 $ 209,457 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable.................................. $ 18,145 $ 14,395 Accounts payable to affiliates.................... 3,006 5,591 Deferred revenue (Note 7)......................... 7,672 6,828 Accrued restructuring costs (Note 3).............. 2,667 5,049 Accrued reorganization costs...................... 6,035 6,878 Accrued salaries and related expenditures......... 5,803 4,487 Line of credit with Majority Shareholder (Note 5)............................................... 16,322 -- Other current liabilities......................... 22,683 22,600 --------- --------- Total current liabilities....................... 82,333 65,828 Other long-term liabilities......................... 7,859 8,371 Line of credit with Majority Shareholder (Note 5)... -- 59,525 Contingencies (Notes 2, 8 and 9) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 5,000,000 shares authorized, 1,000,000 issued and outstanding on September 27, 1998............................... 60,000 -- Common stock, $.01 par value, 60,000,000 shares authorized, 47,120,650 and 47,070,950 shares issued and outstanding on September 27, 1998 and December 28, 1997, respectively.................. 471 471 Additional paid-in capital........................ 292,804 287,322 Accumulated deficit............................... (265,345) (217,145) Accumulated other comprehensive income: Cumulative translation adjustment................ 5,410 5,550 Less: Treasury stock, at cost, 49,000 shares...... (465) (465) --------- --------- Total stockholders' equity........................ 92,875 75,733 --------- --------- Total liabilities and stockholders' equity...... $ 183,067 $ 209,457 ========= =========
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 NINE MONTHS ENDED --------------------------- --------------------------- SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Revenue................. $ 35,547 $ 47,336 $ 114,913 $ 159,919 Cost of revenue......... 32,289 45,360 102,095 135,780 ---------- ---------- ---------- ---------- Gross profit.......... 3,258 1,976 12,818 24,139 Operating expenses: Research and develop- ment................. 3,766 7,592 9,971 16,858 Selling, general and administrative....... 13,472 15,419 44,605 46,867 Corporate expenses from Majority Shareholder.......... 1,273 725 3,273 2,175 Gain on disposal of facilities (Note 6).. -- -- -- (5,873) ---------- ---------- ---------- ---------- Loss from operations.... (15,253) (21,760) (45,031) (35,888) Interest expense........ (431) (845) (2,868) (2,920) Other expense, net...... (69) (909) (141) (993) ---------- ---------- ---------- ---------- Loss before income taxes.................. (15,753) (23,514) (48,040) (39,801) Provision for income taxes.................. 95 225 160 752 ---------- ---------- ---------- ---------- Net loss................ $ (15,848) $ 23,739) $ (48,200) $ (40,553) ========== ========== ========== ========== Basic and diluted loss per share (Note 1)..... $ (0.34) $ (0.51) $ (1.02) $ (0.86) ========== ========== ========== ========== Weighted-average shares outstanding............ 47,120,650 46,943,435 47,100,606 46,913,578 ========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements. 4 CALCOMP TECHNOLOGY, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED --------------------------- SEPTEMBER 27, SEPTEMBER 28, 1998 1997 ------------- ------------- Operating activities: Net loss......................................... $(48,200) $(40,553) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................. 11,836 9,100 Restructuring payments......................... (2,382) (6,683) Investee income................................ (219) (913) Gain on disposal of facilities................. -- (5,873) Net changes in operating assets and liabilities................................... 21,406 5,244 -------- -------- Net cash used in operating activities........ (17,559) (39,678) Investing activities: Purchase of property, plant and equipment........ (6,888) (6,071) Dividends received............................... 121 168 Proceeds from disposition of property, plant and equipment....................................... -- 867 Proceeds from disposal of facilities............. -- 21,121 -------- -------- Net cash (used in) provided by investing activities.................................. (6,767) 16,085 Financing activities: Net proceeds from line of credit with Majority Shareholder..................................... 16,797 16,394 Issuance of warrant to purchase common stock..... 5,360 -- Exercise of stock options........................ 122 306 Reduction in revolving line of credit............ -- (2,948) -------- -------- Net cash provided by financing activities.... 22,279 13,752 Effect of exchange rate changes on cash............ (151) (536) -------- -------- Change in cash..................................... (2,198) (10,377) Cash at beginning of period........................ 6,494 15,290 -------- -------- Cash at end of period.............................. $ 4,296 $ 4,913 ======== ======== Supplementary disclosures of cash flow information: Net income taxes received........................ $ (869) $ (263) Interest paid.................................... $ 3,020 $ 2,948
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 nine month periods ended September 27, 1998, are not necessarily indicative of the results that may be expected for the Company's fiscal year or any other interim period. Certain reclassifications of prior year amounts have been made to conform to the current period presentation. It is suggested that the financial statements be read in conjunction with the information contained in the Company's Annual Report for the year ended December 28, 1997, on Form 10-K/A, filed with the Securities and Exchange Commission. The Company has adopted SFAS 128, "Earnings Per Share," and applied this pronouncement to all periods presented. This statement requires the presentation of both basic and diluted net income (loss) per share for financial statement purposes. Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share includes the effect of the potential shares outstanding, including dilutive stock options and warrants, using the treasury stock method. Because the impact of options and warrants are antidilutive, there is no difference between the loss per share amounts computed for basic and diluted purposes. As of December 29, 1997, the Company adopted SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net loss or stockholders' equity. SFAS 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in stockholder's equity, to be included in other comprehensive income. The components of comprehensive loss for the nine months ended September 27, 1998, and September 28, 1997, are as follows:
1998 1997 -------- -------- Net loss................................................ $(48,200) $(40,553) Foreign currency translation adjustment................. (140) (1,798) -------- -------- Comprehensive loss...................................... $(48,340) $(42,351) ======== ========
2. OPERATIONS AND FINANCING The Company's operations have resulted in net losses of $48.2 million, $75.2 million and $56.6 million for the nine months ended September 27, 1998 and the years ended December 28, 1997 and December 29, 1996, respectively. The Company's main source of financing has been a line of credit with Lockheed Martin Corporation (the "Majority Shareholder") which is made up of the Revolving Credit Agreement and the Cash Management Agreement, collectively referred to as the "Credit Agreements". Additional sources of financing have included cash received pursuant to the signing of a Joint Development Agreement with Eastman Kodak Company ("Kodak"), and the proceeds from the sale of the Company's headquarters facility. 6 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In July 1998, the Company entered into an Exchange Agreement with the Majority Shareholder, pursuant to which, the Company exchanged $60 million of outstanding debt owed to the Majority Shareholder under the Revolving Credit Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred Stock") of the Company (the "Debt Exchange"). In connection with the Debt Exchange, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company from $73 million to $13 million. In August and September 1998, the Cash Management Agreement was twice amended to increase the amount of borrowing available to the Company from $2 million to $14 million. At September 27, 1998, the Company had drawn a total of $16.3 million against the Credit Agreements. In November 1998, the Cash Management Agreement was further amended to increase the amount of borrowing available to the Company from $14 million to $30 million. The Company, based on currently projected operating requirements, anticipates that it will have fully drawn down the $43 million of credit line available under the Credit Agreements during January 1999, and will have a need for additional funding thereafter. Pending the outcome of its on-going review of the Company's operations, the Majority Shareholder has agreed to consider loaning the Company additional funds to satisfy the Company's near term operating requirements. The Company is aware the Majority Shareholder, in its Quarterly Report on Form 10-Q for the period ended September 30, 1998, which was filed with the Securities and Exchange Commission on November 2, 1998, disclosed the following: "The Corporation [Majority Shareholder] has been reviewing its relationship with CalComp [the Company]. This review, which has not been completed, has included assessments of CalComp's [the Company's] business strategy and proposed operating plans, CalComp's [the Company's] role in the Corporation's [Majority Shareholder's] overall business strategy, and the Corporation's [Majority Shareholder's] role as the primary source of financing for CalComp's [the Company's] operations. If, upon completion of this review, the Corporation [Majority Shareholder] should adopt a plan to terminate its role as a funding source or otherwise reduce its involvement with CalComp [the Company], significant charges in addition to those described in the preceding paragraph [see Note 9 for clarification of aforementioned charges] would likely be recognized by the Corporation [Majority Shareholder] in its consolidated financial statements at the time of plan adoption. These charges, which could range from $60 million to $100 million based on the preliminary data available, would be associated with the value of the Corporation's [Majority Shareholder's] investment and estimated costs related to the specific actions required by the plan." Even if the Majority Shareholder does agree to extend funds, the terms under which it would do so and the period of operations that such funds would permit are not now determined. Failure to obtain additional funding will result in material liquidity problems for the Company. In March 1998, the Company entered into the Joint Development Agreement with Kodak that provided an initial payment of $20 million in April 1998 and contemplates an additional $16 million in cash over the term to be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. In September 1998, the first milestone was achieved and a receivable of $2 million was recorded. For further discussion of the Joint Development Agreement, see Note 7. In July 1998, the Company engaged Solomon Smith Barney as an investment advisor to assist the Company in the consideration of strategic alternatives. In October 1998, the Company made the decision to focus its efforts and resources on the CrystalJet(TM) product line and to divest its Input Technologies, Cutter, and non-CrystalJet Service and Support businesses as these businesses were considered non-strategic. In connection with this decision, the Company will record a one-time non-cash impairment charge in the fourth quarter of approximately $60 million to write-down the carrying value of the net assets of these businesses to their estimated fair value. In 7 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) addition, the Company is currently evaluating the business model and strategy of its continuing operations. As a result, in the fourth quarter, the Company expects to record non-cash charges of approximately $30 to $35 million related to the impairment of certain long-lived assets, including goodwill. These non- cash charges will have no effect on the Company's current or future cash flows. Subject to obtaining sufficient financing to continue its operations, the Company is also evaluating the need to realign and restructure its continuing operations. The Company plans to complete this evaluation in the fourth quarter of 1998 and, if required, record the appropriate realignment and restructuring charges during that quarter. The Company has continued its focus on improving the Company's competitive position by resuming shipments of the new line of CrystalJet piezo inkjet printers. In addition, the Company has instituted additional improvements in the CrystalJet manufacturing process to allow for increased production and better operating performance of the CrystalJet product. However, no assurances can be given that the Company will be successful in realizing its goals for manufacturing and marketing the CrystalJet products. Further, even if the Company was to meet these goals, the Company anticipates that it would continue to incur operating losses at least through the first two quarters of 1999. Failure to achieve market acceptance of these products or the inability to timely achieve required production volumes at acceptable costs could have a further material adverse impact on the Company's consolidated financial position, results of operations and cash flows. 3. RESTRUCTURING During the fourth quarter of 1997, the Company expanded its plan to restructure its worldwide operations and provided a charge of approximately $4.8 million consisting primarily of $2.9 million for the elimination of 91 positions, relating to further realignment of the Company's international operations, and $1.9 million for lease termination and fixed asset disposition costs for certain international facilities. During the first nine months of 1998, the Company incurred cash expenditures aggregating $2.4 million that were applied against the reserve. At September 27, 1998, the restructuring accrual approximates $2.7 million, consisting of $1.9 million from the 1997 restructuring plan and $0.8 million remaining from the 1996 restructuring plan. The remaining amount of the 1997 plan principally relates to severance and lease termination obligations and that of the 1996 plan to lease termination obligations. Although subject to future adjustment, the Company believes that the amounts accrued at September 27, 1998 are adequate to complete these restructuring plans. 4. INVENTORIES Inventories consist of the following:
SEPTEMBER 27, DECEMBER 28, 1998 1997 ------------- ------------ (IN THOUSANDS) Raw materials and purchased components........... $11,050 $11,042 Work in process.................................. 546 434 Finished goods................................... 23,372 31,593 ------- ------- $34,968 $43,069 ======= =======
5. INDEBTEDNESS Credit Agreements with Majority Shareholder In July 1996, the Company and the Majority Shareholder entered into two separate agreements, a Revolving Credit Agreement and a Cash Management Agreement. The Revolving Credit Agreement was subsequently 8 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) amended and restated, pursuant to which the Majority Shareholder was to provide, from time to time, financing of up to $73 million for repayment of specified indebtedness and general corporate purposes, including financing the working capital needs of the Company and its subsidiaries. The Revolving Credit Agreement contains negative and affirmative covenants. As of December 28, 1997, the Company was in breach of certain of these financial covenants. On January 22, 1998, the Majority Shareholder waived compliance with these covenants. In March 1998, the Revolving Credit Agreement was further amended to extend the maturity date from July 22, 1998, to January 31, 1999, to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Revolving Credit Agreement upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. In July 1998, in connection with the Debt Exchange, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company from $73 million to $13 million. The Cash Management Agreement originally provided cash advances of up to $2 million to the Company by the Majority Shareholder for cash shortfalls. In March 1998, the Cash Management Agreement was amended to extend the maturity date from June 1, 1998, to January 31, 1999. In August and September 1998, the Cash Management Agreement was twice amended to increase the amount of borrowing available to the Company from $2 million to $14 million. On November 10, 1998, the Cash Management Agreement was further amended to increase the amount of borrowing available to the Company from $14 million to $30 million. The Revolving Credit Agreement provides for interest on borrowings, at the Company's option, at either (1) a rate per annum equal to the higher of the federal funds rate as published in the Federal Reserve System plus 0.5% or the rate publicly announced from time to time by Morgan Guaranty Trust Company of New York as its "prime" rate or (2) LIBOR plus 2.0%. There is no required prepayment or scheduled reduction of availability of loans under the Agreement. Borrowings under the Cash Management Agreement bear interest equal to the Federal Funds Rate. As of September 27, 1998, the Company had an aggregate outstanding balance of $16.3 million under the Credit Agreements, with interest rates ranging from 5.0% to 8.5%. The Debt Exchange On July 15, 1998, at the request of the Company, the Company and the Majority Shareholder effected an exchange of debt for equity whereby $60 million of outstanding indebtedness owed by the Company to the Majority Shareholder under the Revolving Credit Agreement was exchanged for 1,000,000 shares of Preferred Stock. In connection with the Debt Exchange, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company from $73 million to $13 million. The Company and the Majority Shareholder effected the Debt Exchange for the purpose of strengthening the Company's balance sheet and ensuring that the Company continued to meet the requirements for its common shares to trade on NASDAQ's National Market System. The Company received a fairness opinion from an outside financial advisor that the Debt Exchange was fair and reasonable to all of the Company's common stockholders. The Majority Shareholder, as holder of the Preferred Stock, is entitled to receive, when and if declared by the Board of Directors, and in preference to the holders of Common Stock, a cumulative annual dividend of $4.80 per share. The Preferred Stock has no conversion rights and is non-voting with certain exceptions. The Preferred Stock may be redeemed at the Company's option at $60 per share plus any accumulated, but unpaid dividends. Upon liquidation, the holders of the Preferred Stock are entitled to receive $60 per share plus any accumulated but unpaid dividends, prior to any distribution being made to the holders of Common Stock. After the occurrence of a change of control, as defined, the dividend rate on the Preferred Stock would be increased to 9 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $9.00 per share per annum plus 15% per annum on any accumulated but unpaid dividends (the "Adjusted Dividend Rate"). The Adjusted Dividend Rate would apply until the earlier of (1) the redemption by the Company of the Preferred Stock or (2) the acquisition of the combined voting power of the then outstanding voting stock of the Company. 6. DISPOSAL OF HEADQUARTERS FACILITY During the fourth quarter of 1996, the Company decided to sell its 27.9 acre headquarters facility in Anaheim, California and wrote the facility down to its then appraised value, less costs to sell, of $15.1 million. On June 24, 1997, the Company completed the sale of the facility to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for $21.5 million, less associated costs to sell. The headquarters facility sale resulted in a gain on disposal of $5.9 million. Proceeds from the sale of the property were used to reduce outstanding borrowings under the Revolving Credit Agreement. The Company has leased back approximately 138,500 square feet of space, or two of the ten buildings located on the property, under a one-year lease with an option to continue the lease for an additional year. In accordance with the lease agreement, the Company has exercised this option to extend the lease through June 23, 1999. 7. PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT On March 29, 1998, the Company entered into a five-year Patent License and Joint Development Agreement with Kodak covering the joint development of the Company's CrystalJet technology into a range of products, printers and consumables for commercial applications. Under the terms of the agreement, Kodak will contribute up to $36 million, $20 million of which was paid in April 1998 and an additional $16 million upon the achievement of certain milestones and the occurrence of certain events. In September 1998, the first milestone was achieved and a receivable of $2 million was recorded which was paid in October 1998. The agreement also calls for Kodak to pay royalties in respect of licenses granted thereunder which allow Kodak under certain circumstances to exploit the inkjet technology developed under the terms of the agreement. In addition to the license, the Company granted to Kodak a warrant for 8 million shares of its Common Stock with an exercise price of $3.88, vesting 50 percent on the first anniversary of the agreement and 50 percent on the second anniversary of the agreement. The warrant expires on the seventh anniversary of the agreement. At the date of grant, the fair market value of the stock warrant was $5.4 million, based on an independent appraisal, and has been reflected as an increase to additional paid-in capital in the accompanying condensed consolidated balance sheet. The remaining $14.6 million was recorded as deferred revenue and will be amortized into income as certain expenditures related to the Joint Development Agreement are incurred. As of September 27, 1998, the amount of deferred revenue amortized to income was $12.2 million. 8. CONTINGENCIES Legal A complaint was filed on January 25, 1997, in California Superior Court in Santa Clara County by Raster Graphics, Inc. ("Raster Graphics"), against Topaz Technologies, Inc., the Company's wholly-owned subsidiary ("Topaz"), the former shareholders of Topaz, and the Company. On June 17, 1998, the Court entered an order dismissing all claims in this suit following a settlement agreement which was entered into by all parties to the suit. A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom Technology Corp., against CalComp Inc., a wholly-owned subsidiary of the Company, in the U.S. District Court for the Central District of 10 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) California. The complaint alleged, among other things, that CalComp Inc.'s sale of ULTRASLATE digitizer tablets infringes three patents and infringes Wacom's common law trademark, ULTRAPEN. Wacom's request for a preliminary injunction concerning infringement of two of the three patents was denied by the Court on February 12, 1998. Wacom is also seeking damages and permanent injunctive relief with respect to alleged infringement of the three patents, pre-judgment interest and, among other things, has requested an award of its attorneys' fees and costs. The Company does not believe that any of the allegations made by Wacom in this suit have merit and intends to defend itself against all the claims. On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit against the Company, CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz, (collectively the "Defendants") alleging that the Defendants' manufacture and sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat. Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition apparatus and certain processes for manufacturing pulsed droplet deposition apparatus. The complaint also alleges that the Defendants have induced others to infringe these patents. The complaint seeks preliminary and permanent injunctive relief against infringement of the Xaar patents, increased damages for willful infringement of those patents, interest and award of its attorneys' fees and costs. The Company has reviewed these patents and believes that the Company will prevail over Xaar's claims, that the Company's piezoelectric technology is proprietary to the Company and that the Company's manufacture and sale of CrystalJet piezoelectric printheads does not infringe any valid claims of either of these patents. Further, the Company intends to defend itself against all claims in this lawsuit. In a separate action, on July 6, 1998, Xaar filed suit in the English High Court of Justice ("High Court") in London alleging that the Defendants and CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused, enabled, or assisted others to infringe, European patent (UK) number EP 0 277 703 ("'703 Patent"), which covers certain pulsed droplet deposition apparatus and certain processes for manufacturing pulsed droplet deposition apparatus, as a result of sales of the Company's CrystalJet printers in the U.K. The complaint seeks an injunction and damages or profits resulting from the alleged infringement and, among other things, interest on any sums due Xaar and an award of its costs. The Company has reviewed the patent in suit, believes that the Company will prevail over Xaar's claims in this suit and that the Company's sale of CrystalJet printers in the U.K. does not infringe any valid claims of this patent. The Company has also counterclaimed for an order revoking the '703 Patent. The Company intends to defend itself against all claims made and to pursue its counterclaim for the revocation of the '703 Patent. On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278 590 (the "'590 Patent") which also covers certain pulsed droplet deposition apparatus and certain processes for manufacturing pulsed droplet deposition apparatus and which involves technology similar to that in the '703 Patent. The Company is also party to other legal actions in the normal course of its business. The Company does not believe that the disposition of any of these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. Environmental Matters In connection with the June 1997 sale of the Company's headquarters facility in Anaheim, California, the Company agreed to remain obligated to address certain environmental conditions which existed at the site prior to the closing of the sale. In addition, the Majority Shareholder has guaranteed the performance of the Company under this environmental agreement. In 1988, the Company submitted a plan to the California Regional Water Quality Control Board ("the Water Board") relating to its facility in Anaheim, California. This plan contemplated site assessment and monitoring 11 CALCOMP TECHNOLOGY, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of soil and ground water contamination. In 1997, the Company, at the request of the Water Board, submitted work plans to conduct off-site water investigations and on-site soil remediation. The initial phase of work commenced in January 1998. As of September 27, 1998, the Company has established reserves which it considers to be adequate to cover the cost of investigations and tests required by the Water Board, any additional remediation that may be requested and potential costs of continued monitoring of soil and groundwater contamination, if required. The Company believes that it has adequately accrued for any future expenditures in connection with environmental matters and that such expenditures will not have a materially adverse effect on its consolidated financial condition, results of operation or cash flows. 9. SUBSEQUENT EVENT On October 27, 1998, the Company made the decision to focus its efforts and resources on the CrystalJet product line and to divest its Input Technologies, Cutter, and non-CrystalJet Service and Support businesses as these businesses were considered non-strategic. In connection with this decision, the Company will record a one-time non-cash impairment charge in the fourth quarter of approximately $60 million to write-down the carrying value of the net assets of these businesses to their estimated fair value. The Company will not depreciate or amortize any of the long-term assets of these businesses while they are held for disposal. Together, these businesses recorded sales of $53.4 million and $76.9 million for the nine months ended 1998 and 1997, respectively. The Company anticipates completing these divestiture efforts during 1999. In addition, the Company is currently evaluating the business model and strategy of its continuing operations. As a result, in the fourth quarter, the Company expects to record non-cash charges of approximately $30 to $35 million related to the impairment of certain long-lived assets, including goodwill. Subject to obtaining sufficient financing to continue its operations, the Company is also evaluating the need to realign and restructure its continuing operations. The Company plans to complete this evaluation in the fourth quarter of 1998 and, if required, record the appropriate realignment and restructuring charges during that quarter. 12 CALCOMP TECHNOLOGY, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report on Form 10-Q contains statements which, to the extent that they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements involve risks and uncertainties. The forward-looking statements in this report on Form 10-Q have been made subject to the safe harbor protections provided by Sections 27A and 21E. GENERAL The Company is a supplier of both input and output computer graphics peripheral products consisting of printers (including plotters), cutters, digitizers, and large format scanners. The Company's products and services have historically competed in several markets including CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing. In 1997, the Company introduced its new CrystalJetTM product line and initiated a transition plan to eliminate certain existing output product lines and accelerate the Company's end-of-life process for those products that will be discontinued. In October 1998, the Company made the decision to divest its Input Technologies, Cutter and non-CrystalJet Service and Support businesses in order to focus the Company's efforts and resources on the CrystalJet product line and the graphic arts market. The Company's future product offerings will be limited to the CrystalJet line of wide-format digital printers until subsequent CrystalJet product offerings are introduced. Failure to achieve market acceptance for these products or the inability to increase manufacturing volumes to achieve production efficiencies could have a material adverse impact on the Company's consolidated financial position and results of operations. The Company's ability to successfully maintain or increase its share of the graphic arts market requires adapting new technologies, such as its proprietary CrystalJet technology, and leveraging the channels of distribution in order to remain competitive. The Company encounters extensive competition in its business. The Company's business involves rapidly changing technologies requiring continued performance improvements at lower customer prices. The companies that participate in the industry are highly competitive and reduced unit selling prices and shortened product life cycles are expected to continue to place pressure on the Company's margins. Many of the Company's competitors have larger technical staffs, larger marketing and sales organizations and significantly greater financial resources than the Company. There can be no assurance that the products of existing or new competitors will not obtain greater market acceptance than the Company's products. In addition, the Company's strategy for its new products focuses on capturing consumable sales through establishing a strong installed base of CrystalJet products, both through CalComp-branded products and through the various channels provided by the Company's strategic partners. However, there can be no assurance that the Company will be able to achieve this strategic goal. For a further discussion of risk factors related to the Company's operations, see Item 1. "Business--Risk Factors Affecting the Company" contained in the Company's Annual Report for the year ended December 28, 1997, on Form 10-K/A, filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS Revenues. Revenues for the quarter ended September 27, 1998, declined $11.8 million, or 25%, to $35.5 million from the same period in 1997. Product revenues were down 46% and service revenue was down 28% versus the same period in 1997. The decline in product and service revenue was offset by $8.2 million of revenue recognized in the third quarter of 1998 from the Joint Development Agreement which consists of $6.2 million of royalty revenue and $2.0 million from milestone achievements for which there was no corresponding amount in the same period in 1997. The decline in product revenues resulted primarily from decreases in product demand for input and output products. Output product revenues declined primarily due to the maturity of the output products compared to competitors' products and lower customer demand resulting 13 from the Company's discontinuance of certain output products in anticipation and preparation for the CrystalJet product lines, as well as from delays in volume shipments of the CrystalJet wide format digital inkjet printers. Digitizer input product revenue also declined as a result of the impact of increasing interchangeability of mouse input devices as an alternative to digitizer tablet input devices made possible by recent releases of CAD application software. This trend is expected to continue but may be somewhat offset by broader use of digitizers in graphic arts applications. The current economic situation in Asia has also contributed to the decrease in revenue. The decrease in service revenue compared to the same period in 1997 is primarily a result of fewer service contracts being generated due to the lower product revenue base and a lower rate of service contract renewals as older generation products are retired from service. When the Company completes the divestitures of the Input Technologies, Cutter and non-CrystalJet Service and Support businesses, the related revenues will no longer be reflected in the results. For discussion of the Company's plans to divest these businesses, see Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements. Revenue for the nine months ended September 27, 1998 declined $45.0 million, or 28%, to $114.9 million compared to the same period in 1997. Product revenues were down 40% and service revenue was down 23%. The decline in product and service revenue was offset by $14.2 million of revenue recognized from the Joint Development Agreement consisting of $12.2 million of royalty and $2.0 million from milestone achievements. The decline in revenue for the nine-month period compared to the same period in 1997 was due to the factors that were discussed for the quarter. Gross Profit. In the third quarter of 1998, amounts recognized from the Joint Development Agreement made up $14.2 million of the gross profit for which there was no corresponding amount in the prior year. Excluding the profit from the Joint Development Agreement, gross profit as a percentage of revenue was a loss of 18% for the third quarter and a loss of 1% for the first nine months of 1998 compared to profit of 4% and 15%, respectively, for the same periods in 1997. These declines, exclusive of the royalty recognized from the Joint Development Agreement, were primarily due to lower revenues, selling price reductions required to transition out of mature and end-of-life products, the manufacturing inefficiencies resulting from decreased production volumes on the Company's mature output products, start up cost inefficiencies on new products, and delays in volume shipments of the CrystalJet wide format inkjet printers. Operating Expenses. Operating expenses for the third quarter of 1998 decreased 22%, or $5.2 million, to $18.5 million compared to the same period in 1997. Excluding the one time gain of $5.9 million from the sale of the Company's headquarters facility during the second quarter last year, operating expenses decreased $8.1 million, or 12%, for the nine-month period. These decreases resulted primarily from the benefits of cost reductions done to reduce staffing and facility expenses as well as to narrow the Company's focus on new technologies. Research and development expenses decreased $3.8 million in the third quarter of 1998 compared to the same period in 1997 and decreased $6.9 million in the first nine months of 1998 compared to the same period in 1997. As a percentage of net revenue research and development expense decreased 2% from 11% for the first nine months of 1997 to 9% for the first nine months of 1998. These decreases reflect the benefits of cost reductions resulting from the Company's decision to narrow its focus to its new technologies. Selling, general and administrative expenses decreased $1.9 million in the third quarter of 1998 compared to the same period in 1997. As a percentage of revenue, these expenses increased to 38% in the third quarter of 1998 compared to 33% for the third quarter of 1997. Spending decreased as a result of the reduced staffing and facility expenses from the 1997 restructuring actions and the Company's continuing efforts to reduce spending in relation to revenue. However, even with these efforts, spending increased as a percentage of revenue as the reduced spending is being compared to a significantly smaller revenue base. In the first nine months of 1998, selling, general and administrative expenses decreased $2.3 million as compared to the same period in 1997. The decline in spending was due to the same reasons noted for the quarter. As a percentage of revenue, these expenses increased to 39% compared to 29% for the same period in the prior year. The expenses did not commensurately decrease with revenue as legal expenses increased during 1998 resulting from the defense of current lawsuits. 14 Corporate expenses from the Majority Shareholder increased $0.5 million to $1.3 million and $1.1 million to $3.3 million in the third quarter and first nine months of 1998, respectively, compared to the same periods in 1997 as a result of allocations received from the Majority Shareholder. Interest Expense. Interest expense decreased to $0.4 million for the third quarter of 1998 from $0.9 million in the same period in 1997 as the Company's outstanding balances under the Credit Agreements were substantially reduced during the third quarter of 1998 compared to the third quarter of 1997 due to the conversion of debt to equity effected in July 1998. Interest expense remained flat at $2.9 million for the first nine months of 1998 and 1997 due to the fact that while the Company's outstanding balances under the Credit Agreements fluctuated during the periods, the average balances were approximately the same for both periods. Income Tax Provision. Income tax provision of $0.1 million decreased for the third quarter of 1998 compared to the same period in 1997. For the nine-month period of 1998, income tax provision decreased to $0.2 million compared to $0.8 million for the same period in 1997. In 1998, the income tax provision resulted primarily from the provision of foreign taxes on profitable international locations offset by a state tax refund recorded in the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's operations have resulted in net losses of $48.2 million, $75.2 million and $56.6 million for the nine months ended September 27, 1998 and the years ended December 28, 1997 and December 29, 1996, respectively. The Company's main source of financing has been a line of credit with Lockheed Martin Corporation (the "Majority Shareholder") which is made up of the Revolving Credit Agreement and the Cash Management Agreement, collectively referred to as the "Credit Agreements". Additional sources of financing have included cash received pursuant to a Joint Development Agreement with Eastman Kodak Company ("Kodak") and the proceeds from the sale of the Company's headquarters facility. In August and September 1998, the Cash Management Agreement was twice amended to increase the amount of borrowing available to the Company from $2 million to $14 million. At September 27, 1998, the Company had drawn a total of $16.3 million against the Credit Agreements. In November 1998, the Cash Management Agreement was further amended to increase the amount of borrowing available to the Company from $14 million to $30 million. The Company, based on currently projected operating requirements, anticipates that it will have fully drawn down the $43 million of credit line available under the Credit Agreements during January 1999, and will have a need for additional funding thereafter. Pending the outcome of its on going review of the Company's operations, the Majority Shareholder has agreed to consider loaning the Company additional funds to satisfy the Company's near term operating requirements. The Company is aware the Majority Shareholder, in its Quarterly Report on Form 10-Q for the period ended September 30, 1998, which was filed with the Securities and Exchange Commission on November 2, 1998, disclosed the following: "The Corporation [Majority Shareholder] has been reviewing its relationship with CalComp [the Company]. This review, which has not been completed, has included assessments of CalComp's [the Company's] business strategy and proposed operating plans, CalComp's [the Company's] role in the Corporation's [Majority Shareholder's] overall business strategy, and the Corporation's [Majority Shareholder's] role as the primary source of financing for CalComp's [the Company's] operations. If, upon completion of this review, the Corporation [Majority Shareholder] should adopt a plan to terminate its role as a funding source or otherwise reduce its involvement with CalComp [the Company], significant charges in addition to those described in the preceding paragraph [see Note 9 for clarification of aforementioned charges] would likely be recognized by the Corporation [Majority Shareholder] in its consolidated financial statements at the time of plan adoption. These charges, which could range from $60 million to $100 million based on the preliminary data available, would be associated with the value of the Corporation's [Majority Shareholder's] investment and estimated costs related to the specific actions required by the plan." 15 Even if the Majority Shareholder does agree to extend funds, the terms under which it would do so and the period of operations that such funds would permit are not now determined. Failure to obtain additional funding will result in material liquidity problems for the Company. In July 1998, the Company entered into an Exchange Agreement with the Majority Shareholder, pursuant to which, the Company exchanged $60 million of outstanding debt owed to the Majority Shareholder under the Revolving Credit Agreement for 1,000,000 shares of Series A Preferred Stock (the "Preferred Stock") of the Company (the "Debt Exchange"). In connection with the Debt Exchange, the Revolving Credit Agreement was amended to reduce the amount of borrowing available to the Company under the Revolving Credit Agreement from $73 million to $13 million. The Company and the Majority Shareholder effected the Debt Exchange for the purpose of strengthening the Company's balance sheet and ensuring that the Company continued to meet the requirements for its common shares to trade on NASDAQ's National Market System. The Company received a fairness opinion from an outside financial advisor that the Debt Exchange was fair and reasonable to all of the Company's common stockholders. For further discussion of the Debt Exchange, see Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements. In July 1998, the Company engaged Salomon Smith Barney as an investment advisor to assist the Company in the consideration of strategic alternatives. In October 1998, the Company made the decision to focus its efforts and resources on the CrystalJet product line and to divest its Input Technologies, Cutter, and non-CrystalJet Service and Support businesses as these businesses were considered non-strategic. In connection with this decision, the Company will record a one-time non-cash impairment charge in the fourth quarter of approximately $60 million to write-down the carrying value of the net assets of these businesses to their estimated fair value. The Company anticipates completing these divestiture efforts in 1999. In addition, the Company is currently evaluating the business model and strategy of its continuing operations. As a result, in the fourth quarter, the Company expects to record non-cash charges of approximately $30 to $35 million related to the impairment of certain long-lived assets, including goodwill. These non-cash charges will have no effect on the Company's current or future cash flows. Subject to obtaining sufficient financing to continue its operations, the Company is also evaluating the need to realign and restructure its continuing operations. The Company plans to complete this evaluation in the fourth quarter of 1998 and, if required, record the appropriate realignment and restructuring charges during that quarter. The Company has continued its focus on improving the Company's competitive position by resuming shipments of the new line of CrystalJet piezo inkjet printers. The Company has instituted additional improvements in the CrystalJet manufacturing process to allow for increased production and better operating performance of the CrystalJet product. However, no assurances can be given that the Company will be successful in realizing its goals for manufacturing and marketing the CrystalJet products. Further, even if the Company was to meet these goals, the Company anticipates that it would continue to incur operating losses at least through the first two quarters of 1999. Failure to achieve market acceptance of these products or the inability to timely achieve required production volumes at acceptable costs could have a further material adverse impact on the Company's consolidated financial position, results of operations and cash flows. During the first nine months of 1998, the Company used $17.6 million of cash in its operations primarily to fund its continuing net losses of $48.2 million, net of depreciation and amortization of $11.8 million, offset by $21.4 million provided primarily from the receipt of $20 million from the Joint Development Agreement of which $14.6 million was recorded in deferred revenue. As of September 27, 1998, the balance in deferred revenue from the Kodak Joint Development Agreement was $2.4 million. In addition, $6.9 million was expended on plant and equipment, relating primarily to purchases of tooling and equipment for the development and manufacture of the CrystalJet product line. These uses of cash for operating and investing activities were funded substantially by the issuance of the stock warrant of $5.4 million to Kodak under the Joint Development Agreement and net borrowings from the Majority Shareholder of $16.8 million, pursuant to the Credit Agreements. 16 During the fourth quarter of 1997, the Company expanded its plan to restructure its operations worldwide and provided a charge of approximately $4.8 million consisting primarily of $2.9 million for the elimination of 91 positions, relating to further realignment of the Company's international operations, and $1.9 million for lease termination and fixed asset disposition costs for certain international facilities. During the first nine months of 1998, the Company incurred cash expenditures aggregating $2.4 million that were applied against the reserve. At September 27, 1998, the restructuring accrual approximates $2.7 million, consisting of $1.9 million from the 1997 restructuring plan and $0.8 million remaining from the 1996 restructuring plan. The remaining amount of the 1997 plan principally relates to severance and lease termination obligations and that of the 1996 plan to lease termination obligations. Although subject to future adjustment, the Company believes that the amounts accrued at September 27, 1998 are adequate to complete these restructuring plans. Year 2000 Compliance. Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. Others do not correctly process "leap year" dates. As a result, such systems and applications could fail or create erroneous results unless corrected to process data related to the year 2000 and beyond. The problems are expected to increase in frequency and severity as the year 2000 approaches, and are commonly referred to as the "Year 2000 Problem." The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including systems (such as general ledger, accounts payable, and payroll modules), customer services, infrastructure, embedded computer chips, networks and telecommunications equipment. The Company also relies, directly and indirectly, on external systems of business enterprises such as customers, suppliers, creditors, financial organizations and governmental entities, both domestic and international, for accurate exchange of data. The Company is continuing to assess the impact that the Year 2000 Problem may have on its operations and has identified the following four key areas of its business that may be affected: Products. The Company has completed Year 2000 compliance testing on its currently supported products. The products were classified into two categories: category I having no date related processing and category II having internal date clocks which will properly handle and roll-over calendar data. Based upon the evaluation and testing completed, the Company believes that its currently supported products are Year 2000 compliant. The Company's testing did not assess compliance of products modified by customers or third parties nor did it assess compliance of products connected to individual customer work environments. The Company has listed its currently supported products and test data on its Internet site. Internal Business Systems. The Year 2000 Problem could affect the systems, transaction processing computer applications and devices used by the Company to operate and monitor all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll), customer services, infrastructure, materials requirement planning, master production scheduling, networks and telecommunications systems. The Company has completed its assessment phase and believes that it has identified substantially all of the major systems, software applications and related equipment used in connection with its internal operations that must be modified or upgraded in order to minimize the possibility of a material disruption to its business. The Company is currently in its remediation phase of modifying and upgrading identified systems and expects to complete this phase by the beginning of the fourth quarter of 1999. The Company estimates that it will be Year 2000 compliant by the end of the fourth quarter of 1999. However, any unforeseen problems which occur during the testing phase may adversely effect the Company's Year 2000 readiness. Third-Party Suppliers. The Company relies, directly and indirectly, on external systems utilized by its suppliers for products used in the manufacture of its products. The Company will request confirmation from its suppliers of their Year 2000 compliance; however, there can be no assurance that these suppliers will resolve any or all Year 2000 Problems with their systems in a timely manner. Any failure of these third parties to resolve their Year 2000 Problems in a timely manner could result in the material disruption of the business of the Company. Any such disruption could have a material adverse effect on the Company's business, financial condition and results of operations. 17 Facility Systems. Systems such as heating, sprinklers, elevators, test equipment and security systems at the Company's facilities may also be affected by the Year 2000 Problem. The Company has contacted the Anaheim facility owners seeking assurances of Year 2000 compliance. The Company has not yet assessed its facilities at other locations. The Company has incurred $0.3 million as of the nine-month period ended September 27, 1998 to address its Year 2000 issues. The Company presently estimates that the total cost of addressing its Year 2000 issues will be approximately $1.5 million to $2 million. This estimate was derived utilizing numerous assumptions, including the assumption that the Company has already identified its most significant Year 2000 issues, its Input Technologies, Cutter and non-CrystalJet Service and Support businesses would be sold and that the plans of its third party suppliers will be fulfilled in a timely manner without cost to the Company. However, there can be no guarantee that these assumptions are accurate, and actual results could differ materially from those anticipated. The Company recognizes the need for developing contingency plans to address the Year 2000 issues that may pose a significant risk to its on-going operations. Such plans could include the implementation of manual procedures to compensate for system deficiencies. During the remediation phase of the internal business systems, the Company will be evaluating potential failures and attempt to develop responses in a timely manner. However, there can be no assurance that any contingency plans evaluated and potentially implemented by the Company would be adequate to meet the Company's needs without materially impacting its operations, that any such plan would be successful or that the Company's results of operations would not be materially and adversely affected by the delays and inefficiencies inherent in conducting operations in an alternative manner. 18 CALCOMP TECHNOLOGY, INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For a discussion of legal proceedings, see "Note 8 Contingencies--Legal" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS For a discussion of changes in securities, see "Note 2 Operations and Financing" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, which is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS--THE FOLLOWING EXHIBITS ARE INCLUDED HEREIN: 3.1 Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Company, filed on July 8, 1998. 3.2 Certificate of Designation of Series A Cumulative Redeemable Preferred Stock of the Company, filed on July 15, 1998. 10.12 Employment Offer and Agreement between the Company and John J. Millerick dated July 12, 1996, as amended through July 31, 1998. 10.43 Amendment Nos. 1-3 dated March 20, 1998, August 24, 1998 and September 25, 1998, respectively, to Cash Management Agreement by and between the Company and Lockheed Martin Corporation dated as of July 23, 1996. (The Cash Management Agreement was filed as Exhibit 10.3 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and is incorporated herein by reference.) 10.44 Exchange Agreement entered into as of July 15, 1998, by and between the Company and Lockheed Martin Corporation. 27 Financial Data Schedule. (b) REPORTS ON FORM 8-K: Reports on Form 8-K filed by the Company during and subsequent to the Company's third quarter ended September 27, 1998 were as follows: Form 8-K dated July 17, 1998 filed on July 17, 1998, reporting under Item 5 the Company's Exchange Agreement with Lockheed Martin Corporation. Form 8-K dated September 25, 1998 filed on October 1, 1998, reporting under Item 5 the Company's Amendment to the Cash Management Agreement with Lockheed Martin Corporation. 19 CALCOMP TECHNOLOGY, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Calcomp Technology, Inc (Registrant) Date: November 11, 1998 /s/ John J. Millerick _____________________________________ John J. Millerick Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 20 EX-3.1 2 AMENDED AND RESTATED CERTIFICATE 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 SERIES A PREF. STOCK 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-10.12 4 EMPLOYMENT OFFER AND AGREEMENT FOR JOHN MILLERICK EXHIBIT 10.12 [LETTERHEAD OF CALCOMP] July 11, 1996 Mr. John J. Millerick 22 Putnam Road Acton, MA 01720 Dear Mr. Millerick: This letter is to confirm our offer of employment for the position of Senior Vice President, Chief Financial Officer reporting to me at our Anaheim facility. Your starting base salary will be $3,847 weekly with a $25,000 sign-on bonus. Your salary will be reviewed at twelve (12) month intervals. Presently, all merit reviews are conducted at the end of the third quarter of our fiscal year. We have a Management Incentive Compensation Plan and Stock Options Plan that are being recommended to our Board of Directors when we are a public company. The MICP Plan provides for a bonus opportunity at target of 40% and will be prorated for the year based on the number of months worked in 1996. However, in order for a partial payment of the MICP to be implemented, you must start work by August 15, 1996. The Stock Options Plan would offer 50,000 options the first year. The Stock Options Plan intent is to provide options that would be loaded heavily in the first year. The remainder of the options that are planned are 75,000 to be allocated in equal shares over a four year period subject to Board of Directors approval. I have been told that an Employment Agreement will be approved by the Board. It will be two years in duration and provide one year of severance if other than for just cause. This will be approved by the Board of Directors at a later Board meeting. The Company will arrange for the relocation of your family and household belongings under provisions of the Lockheed Martin Policy CPS-538. Your relocation costs will be covered up to $100,000, which also includes a home purchase offer. Temporary lodging, daily meal allowance (per diem) and car will be extended to you for one year. You will also be provided with two (2) round trips home each month during this one year period. You will be eligible for the relocation benefit during the first 18 months of your employment. Additionally, with respect to Section 10.0 Loss on Sale, in the Relocation Policy, capital improvements will be considered when calculating loss on sale. If not either pre-arranged or completed, this offer of employment is contingent upon your satisfactorily passing a pre-employment physical examination, including a drug screen urinalysis. If you have any questions, please call Roberta Diebold at (714) 821-2294. Employers are required to verify work authorization and identification for all new hires. We would appreciate your cooperation by bringing with you on the first day of employment documents to comply with this law. John J. Millerick July 11, 1996 Page 2 It is CalComp policy not to improperly use the intellectual property rights of others. You are requested not to bring or disclose any proprietary/confidential information of your former employers(s) to CalComp at any time. Among the benefits you will enjoy as a full-time CalComp employee, subject to certain eligibility requirements and waiting periods, is a program of Company paid group insurance which provides for basic life as well as accidental death and dismemberment. Employee paid benefits eligible to you are comprehensive medical, dental and vision coverage for you and your eligible dependents, and a program of income protection in case of long-term disability. In addition, you may obtain supplemental life insurance coverage for yourself and your dependents. Other benefits include paid sick leave, 12 paid holidays per year, paid vacation, pension plan, thrift plan, credit union and college tuition support programs. You will be entitled to three (3) weeks of vacation per year. Extra time will be granted by mutual agreement between you and me. Unfortunately, the plan document for the Lockheed Savings Plan Plus requires you to wait 12 months before being eligible to contribute, and this cannot be waived. It is a pleasure to make you this offer to join CalComp. We look forward to your association with the Company and know you will find it both personally and professionally rewarding. Please sign below and return this letter to us indicating your acceptance and start date. An additional copy is included for your records. Sincerely, /s/ GARY LONG - ------------- Gary Long President ved Enclosure /s/ JOHN J. MILLERICK 8-12-96 --------------------- ------------------ John J. Millerick Start Date [President's Stamp] [LETTERHEAD OF CALCOMP] July 12, 1996 Mr. John Millerick 22 Putnam Road Acton, MA 01720 Dear John: The following is provided as an addendum to my letter to you of July 11 and specifically addresses your interest in adding a severance clause to our offer letter. If, prior to the expiration of the two-year term of this agreement, employee's employment is terminated by the company other than for cause or due to death or disability, the company shall provide employee the following: a. One year's base salary plus one year's MICP at 100% in a lump sum in cash within thirty (30) days of the date termination. b. One year's benefits continuation as currently provided for company officers. c. Payment for executive out-placement services with the cost not to exceed ten percent (10%) of employee's annual base salary. Payment to be made as billed by the provider. Please acknowledge acceptance of this addendum by signing below and returning the signed copy to me. Regards, /s/ GARY R. LONG - ---------------- Gary R. Long Accepted: /s/ JOHN J. MILLERICK 7-12-96 ---------------------- ---------------- /s/ John J. Millerick Date [Stamp of President] [LOGO OF THE COMPANY] INTEROFFICE COMMUNICATION TO: JOHN MILLERICK IOC NO.: 96-AMEND FROM: KEVIN COLEMAN DATE: AUGUST 16, 1996 SUBJECT: AMENDMENT MS/EXT: 17/2622 This is an amendment to your offer of employment dated July 11, 1996. CalComp will reimburse you for COBRA payments through December 1996. All other conditions remain the same as stated in the previous letter. Sincerely, /s/ KEVIN COLEMAN - ----------------- Kevin Coleman Director Human Resources [LOGO OF CALCOMP INC.] INTEROFFICE COMMUNICATION TO: John Millerick IOC NO.: FROM: Kevin Coleman DATE: November 21, 1996 SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622 The following is provided as an addendum to your offer letter dated July 11, 1996 and is specifically related to the relocation benefit you were offered. Your relocation maximum benefit will be increased to $140,000. Temporary lodging, daily meal allowance (per diem), and car allowance will be extended to you for two years. You will also be provided with two round trips home each month during this two year period. You will be eligible for the relocation benefit during the first 30 months of employment. /s/ KEVIN COLEMAN Kevin Coleman Director Human Resources cc: G. Long Accepted: /s/ JOHN J. MILLERICK 11/21/96 --------------------------------- -------------- John J. Millerick Date [LOGO OF CALCOMP] INTEROFFICE COMMUNICATION TO: JOHN MILLERICK IOC NO.: FROM: KEVIN COLEMAN DATE: DECEMBER 1, 1997 SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622 The following is provided as an addendum to your offer letter dated July 11, 1996 and an addendum that was written on November 21, 1996, and is specifically related to the relocation benefit you were offered. Your relocation maximum benefit is increased to $450,000. /s/ KEVIN COLEMAN Kevin Coleman Vice President Human Resources cc: J. Batterton /s/ JOHN J. MILLERICK 12/1/97 - ------------------------------------ ------------------- Accepted: John J. Millerick-Sr. Vice President Date and Chief Financial Officer [LETTERHEAD OF CALCOMP] INTEROFFICE COMMUNICATION TO: John Millerick IOC NO.: FROM: Kevin Coleman DATE: July 31, 1998 SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622 The following is provided as an addendum to my letter to you of July 31, 1998 and specifically addresses your interest in adding a severance clause to your addendum letter. If, prior to the expiration of the twelve month term of this agreement, employee's employment is terminated by the company other than for cause or due to death or disability, the company will provide the employee the following: a. One year's base salary plus one year's MICP at 100% in a lump sum (minus applicable taxes) in cash within thirty (30) days of the termination. b. One year's benefits continuation as currently provided for company officers. c. Payment for executive out-placement services with the cost not to exceed ten percent (10%) of employee's annual base salary. Payment to be made as billed by the provider. Please acknowledge acceptance of this addendum by signing below and returning the signed copy to me. Kevin Coleman Vice President Human Resources cc: J. Batterton Accepted: ---------------------------------- -------------- John J. Millerick Date [LETTERHEAD OF CALCOMP] INTEROFFICE COMMUNICATION TO: John Millerick IOC NO.: FROM: Kevin Coleman DATE: July 31, 1998 SUBJECT: ADDENDUM TO OFFER LETTER MS/EXT.: 28/2622 The following is provided as an addendum to your offer letter dated July 11, 1996 and addendums dated November 21, 1996 and December 1, 1997 and is specifically related to the relocation benefit you were offered. You will be eligible for relocation benefits for the first forty-two months of employment. Temporary lodging, daily meal allowance(per diem), and car allowance will be extended to you for one additional year beginning August 12, 1998. You will also be provided with two round trips home each month during this one year period. Specifics to this agreement include: - -The purchase of your temporary household furniture for CalComp will result in a substantial savings for the company and is an excellent idea. It should be noted, however, that even though you are making this purchase and being reimbursed this expense plus gross-up, the furniture purchased from the furniture rental company is CalComp property. You will have the right, at your option, to purchase certain pieces at original cost. - -The reimbursement for upgrade certificates for your personal travel to and from Boston should be reduced to once a month. - -To capture the resulting cost savings, please exchange your full-size rental car for a mid-size rental. - -Going forward your per diem will be up to $25.00 a day while on temporary housing. Please indicate your acceptance of the above modifications to your temporary housing agreement by signature below and return to me at your convenience. Kevin Coleman Vice President Human Resources cc: J. Batterton T. Powell Accepted: ---------------------------------- -------------- John J. Millerick Date EX-10.43 5 FIRST AMENDMENT TO CASH MANAGEMENT AGREEMENT EXHIBIT 10.43 FIRST AMENDMENT TO CASH MANAGEMENT AGREEMENT This is the First Amendment ("First Amendment"), dated as of March 20, 1998, to the Cash Management Agreement ("Agreement") dated as of July 23, 1996 between CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin"). WHEREAS, the parties have agreed to extend the termination date of the Agreement to coincide with the Termination Date of the Amended and Restated Credit Agreement dated as of December 20, 1996 among CalComp Technology, CalComp, Inc., and Lockheed Martin, as amended (the "Revolving Credit Agreement"); NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed Martin hereby agree as follows: 1. Section 4(a) of the Agreement is hereby amended by adding at the beginning of the second sentence thereof the clause "Subject to the provisions of Section 5(c) hereof." 2. Section 5(c) of the Agreement is hereby amended to read as follows: "The maximum principal amount of Advances to be made by Lockheed Martin hereunder shall be $12,000,000 outstanding at any time, provided, -------- however, if on any date on or prior to April 3, 1998 the net cash ------- balance in the Concentration Account equals or exceeds $10,000,000, then the net cash balance shall, notwithstanding Section 4(a) of the Agreement, first be applied to reduce the Advances to $2,000,000. After April 3, 1998 or earlier application of the net cash balance as described in the preceding sentence, the maximum principal amount of Advances to be made by Lockheed Martin hereunder shall be $2,000,000 outstanding at any time." 3. Section 12 of the Agreement is hereby amended by substituting the phrase "January 31, 1999" for the phrase "June 1, 1998". 4. To the extent additional indebtedness of CalComp is created by or pursuant to this First Amendment, Lockheed Martin hereby waives compliance with Section 6.8 of the Revolving Credit Agreement. 5. This First Amendment shall be governed by and construed in accordance with the laws of the jurisdiction which govern the Agreement and its construction. 6. This First Amendment may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC. By: /s/ WALTER E. SKOWRONSKI By: /s/ JOHN J. MILLERICK ------------------------------ ------------------------------- W.E. Skowronski John J. Millerick Vice President and Treasurer Sr. Vice President and Chief Financial Officer SECOND AMENDMENT TO CASH MANAGEMENT AGREEMENT This is the Second Amendment ("Amendment"), dated as of August 24, 1998, to the Cash Management Agreement ("Agreement") dated as of July 23, 1996 between CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin"). WHEREAS, the parties have agreed to an increase in the amount available as Advances under the Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed Martin hereby agree as follows: 1. Section 4(a) of the Agreement is hereby amended by deleting from the second sentence thereof the clause "Subject to the provisions of Section 5(c) hereof." 2. Section 5(c) of the Agreement is hereby amended to read as follows: "The maximum principal amount of Advances to be made by Lockheed Martin hereunder shall be $5,500,000 outstanding at any time." 3. To the extent additional indebtedness is created by or pursuant to this Amendment, Lockheed Martin hereby waives compliance with Section 6.8 of the Amended and Restated Credit Agreement dated as of December 20, 1996, as amended, among CalComp Technology, CalComp, Inc., and Lockheed Martin. 4. This Amendment shall be governed by and construed in accordance with the laws of the jurisdiction which govern the Agreement and its construction. 5. This Amendment may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC. By: /s/ W. E. SKOWRONSKI By: /s/ JOHN J. MILLERICK -------------------- --------------------- W. E. Skowronski John J. Millerick Vice President and Treasurer Sr. Vice President and Chief Financial Officer THIRD AMENDMENT TO CASH MANAGEMENT AGREEMENT This is the Third Amendment ("Amendment"), dated as of September 25, 1998, to the Cash Management Agreement ("Agreement") dated as of July 23, 1996 between CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin"). WHEREAS, the parties have agreed to an increase in the amount available as Advances under the Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed Martin hereby agree as follows: 1. Section 4(a) of the Agreement is hereby amended by deleting from the second sentence thereof the clause "Subject to the provisions of Section 5(c) hereof." 2. Section 5(c) of the Agreement is hereby amended to read as follows: "The maximum principal amount of Advances to be made by Lockheed Martin hereunder shall be $14,000,000 outstanding at any time." 3. To the extent additional indebtedness is created by or pursuant to this Amendment, Lockheed Martin hereby waives compliance with Section 6.8 of the Amended and Restated Credit Agreement dated as of December 20, 1996, as amended, among CalComp Technology, CalComp, Inc., and Lockheed Martin. 4. This Amendment shall be governed by and construed in accordance with the laws of the jurisdiction which govern the Agreement and its construction. 5. This Amendment may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC. By: /s/ W. E. SKOWRONSKI By: /s/ JOHN J. MILLERICK ----------------------- ------------------------ W. E. Skowronski John J. Millerick Vice President and Treasurer Sr. Vice President and Chief Financial Officer EX-10.44 6 EXCHANGE AGREEMENT EXHIBIT 10.44 EXCHANGE AGREEMENT ------------------ This Exchange Agreement (the "Agreement") is dated as of July 15, 1998, by --------- and among CalComp Technology, Inc., a Delaware corporation (the "Company"), ------- CalComp Inc., a California corporation (the "Subsidiary") and Lockheed Martin ---------- Corporation, a Maryland corporation ("Lockheed Martin"). --------------- WITNESSETH WHEREAS, the Company, the Subsidiary and Lockheed Martin are parties to the Amended and Restated Revolving Credit Agreement, dated as of December 20, 1996, as amended March 20, 1998 (the "Credit Agreement") pursuant to which Lockheed ---------------- Martin has agreed to extend up to $73,000,000 in loans to the Company and the Subsidiary; WHEREAS, there is approximately $65,000,000 of indebtedness of the Company and the Subsidiary (the "Debt") outstanding under the Credit Agreement; ---- WHEREAS, the Company and the Subsidiary have requested Lockheed Martin to exchange up to $60 million of the Debt for shares of the Company's Series A Cumulative Redeemable Preferred Stock (the "Exchange"); and WHEREAS, Lockheed Martin has agreed to effect the Exchange and in connection therewith the parties desire to decrease the commitment under the Credit Agreement from $73,000,000 to $13,000,000. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Authorization and Exchange of the Series A Preferred Stock. ---------------------------------------------------------- 1.1. Authorization of the Series A Preferred Stock. Prior to Closing --------------------------------------------- (as defined in Section 1.3), the Company shall designate 1,000,000 shares of its Series A Cumulative Redeemable Preferred Stock (the "Preferred Shares"). The ---------------- Preferred Shares shall have the designations, preferences, voting powers, relative, participating, optional, or other special rights and privileges, and the qualifications, limitations and restrictions set forth in the Certificate of Designation (the "Certificate") attached hereto as Exhibit A. Prior to Closing, ----------- the Company shall authorize for issuance hereunder 1,000,000 Preferred Shares. Prior to Closing, the Certificate shall be filed with the Secretary of State of the State of Delaware. 1.2. Issuance of Series A Preferred Stock. At the Closing, and ------------------------------------ pursuant to the terms and subject to the conditions of this Agreement, the Company agrees to issue and deliver to Lockheed Martin and Lockheed Martin agrees to acquire from the Company, 1,000,000 Preferred Shares, in full repayment of $60 million of the Debt then outstanding under the Credit Agreement. A-1 1.3 Closing and Delivery of Shares. (a) The closing of the Exchange ------------------------------ (the "Closing") shall take place at such time and place on or prior to July 20, ------- 1998 as the Company and Lockheed Martin shall agree. (b) At the Closing, the Company shall deliver to Lockheed Martin one or more stock certificates representing 1,000,000 Preferred Shares, duly executed and registered by the Company in the name of Lockheed Martin, and Lockheed Martin shall deliver to the Company an acknowledgement of the repayment of $60 million of the Debt in form and content attached hereto as Exhibit C. (c) At Closing, the Company shall deliver a Secretary's Certificate in form and content reasonably satisfactory to Lockheed Martin to the effect that (i) the Preferred Shares are validly authorized, duly issued, fully paid and non-assessable shares of the Company entitled to the rights set forth in the Certificate; (ii) the representations and warranties of the Company set forth in this Agreement are true and correct; (iii) the Company has complied in all material respects with all of its covenants and agreements contained in the Agreement; and (iv) the Company's Fourth Amended and Restated Certificate of Incorporation (together with the Certificate) in the form attached to the Secretary's Certificate is in full force and effect. 2. Amendment to Credit Agreement. At the Closing, each of the Company, ----------------------------- the Subsidiary and Lockheed Martin shall execute and deliver Amendment No. 2 to the Credit Agreement in the form set forth in Exhibit B. --------- 3. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to Lockheed Martin that: 3.1 Due Authorization. Each of the Company and the Subsidiary has the ----------------- power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the issuance and exchange of the Preferred Shares have been duly authorized by the Board of Directors of the Company. No further approval or authorization of the Board of Directors or the shareholders of the Company will be required for the issuance and exchange of the Preferred Shares as contemplated herein. This Agreement has been duly executed and delivered by each of the Company and the Subsidiary, and constitutes a legal, valid and binding obligation of the Company and the Subsidiary enforceable against the Company and the Subsidiary in accordance with its terms. 3.2 Corporate Organization and Other Related Matters. ------------------------------------------------ (a) Each of the Company and the Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and has the requisite corporate power and authority to own, lease, and operate its assets, properties and business and to carry on its business as it is now being A-2 conducted or proposed to be conducted. The Company owns 100% of the outstanding capital stock of the Subsidiary. (b) The Company has full corporate power and authority to enter into this Agreement, to issue the Preferred Shares and to carry out and perform its obligations under the terms of this Agreement. (c) Subject to receiving the authorizations, approvals and permits, if any, of the type described in subsection 5.1(b) of this Agreement and except as otherwise contemplated by the Certificate attached hereto as Exhibit A, none of the execution and delivery of this Agreement, the issuance of - --------- the Preferred Shares, the performance by the Company of its obligations hereunder, or the consummation of the transactions contemplated hereby will (i) violate any provision of the Company's Fourth Amended and Restated Certificate of Incorporation or bylaws, (ii) with or without the giving of notice or the passage of time, or both, violate, or be in conflict with, or constitute a default under, or cause or permit the termination or the acceleration of the maturity of, any debt or obligation of the Company or any of its subsidiaries; (iii) require notice to or the consent of any party to any agreement or commitment, including, without limitation, any lease or license to which the Company or any of its subsidiaries is a party, or by which any of them or their properties are bound or subject; (iv) result in the creation or imposition of any security interest, lien or other encumbrance upon any property or assets of the Company or any of its subsidiaries under any agreement or commitment to which it is a party or by which it or its properties is bound or subject which, individually or in the aggregate, would have a material or adverse effect on the Company and its business; or (v) violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority to which the Company or any of its assets or properties is bound or the subject which, individually or in the aggregate, would have a material adverse effect on the Company and its business. 3.3 Capitalization. The Company has authority to issue up to -------------- 125,000,000 shares, par value $.01 per share, of common stock and up to 5,000,000 shares, par value $.01 per share, of preferred stock. At the Closing the authorized capitalization of the Company, and shares of capital stock outstanding shall consist of: (a) Preferred Stock. A total of 5,000,000 shares, par value $.01 --------------- per share, of preferred stock, 1,000,000 shares of which shall be designated as Series A Cumulative Redeemable Preferred Stock. 1,000,000 Preferred Shares shall be issued and outstanding immediately following Closing. (b) Common Stock. A total of 125,000,000 shares Common Stock, ------------ approximately 47,120,650 of which shall be issued and outstanding. In addition, at Closing there will be outstanding warrants or options to acquire approximately 8,108,131 additional shares of Common Stock. Except as set forth above, at the Closing, there shall be no other securities of the Company outstanding. A-3 3.4 Securities Act. Subject to the accuracy of Lockheed Martin's -------------- representations in Section 4, the Exchange of the Preferred Shares in conformity with the terms of this Agreement constitutes a transaction exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"). -------------- 3.5 Governmental Consents. No consent, approval, order or --------------------- authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution, delivery and performance of this Agreement or the Exchange of the Preferred Shares, except for the qualification (or the taking of such action as may be necessary to secure an exemption from qualification, if available) of the Exchange under applicable blue sky laws, which filings and qualifications, if required, will be accomplished in a timely manner; provided, however, that solely with respect to the federal securities laws and the state "blue sky" securities laws, the representations and warranties of the Company provided in this Section 3.5 shall be subject to the accuracy of the representations of Lockheed Martin set forth in Section 4 hereof. 3.6 Valid Issuance of the Preferred Stock. The Preferred Shares, when ------------------------------------- issued in accordance with this Agreement, will be duly and validly issued and will be nonassessable capital shares of the Company and will have the designations, preferences, voting powers, relative, participating, optional, or other special rights and privileges, and the qualifications, limitations and restrictions set forth in the Certificate and will be fully paid capital shares of the Company. The Preferred Shares, when issued, will be free of any liens, claims, encumbrances or restrictions on transfer other than the restrictions on transfer under applicable state and federal securities laws. 3.7 Litigation, etc. Except as set forth on Schedule 3.7, there is no --------------- action, proceeding or investigation pending or, to the best of the Company's knowledge, threatened (or any basis therefor known to the Company), that questions the validity of this Agreement or any of the transactions contemplated hereby or the Preferred Shares to be issued pursuant to this Agreement or which could have a material adverse effect on the financial condition, results of operations, business or properties of the Company and its subsidiaries, taken as a whole. 3.8 Disclosure. No representation or warranty of the Company ---------- contained in this Agreement or in any written certificate furnished or to be furnished to Lockheed Martin pursuant hereto or thereby, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 3.9 No Violation. Neither the Company's execution and delivery of ------------ this Agreement nor the consummation by the Company of the transactions contemplated hereby will breach a material agreement to which the Company or any subsidiary of the A-4 Company is a party or by which its or any of its subsidiaries' assets are bound, or cause any such violation or breach, or accelerate or allow any person to accelerate, terminate, modify or cancel any material rights under any such agreement, or will result in the creation of any material lien on the assets or properties of the Company or any of its subsidiaries. Such execution, delivery and consummation will not violate or breach or constitute a default under any law, judgment, order, or decree to which the Company or any of its subsidiaries is subject or by which the properties or assets of the Company or any of its subsidiaries are bound. 4. Representations and Warranties of Lockheed Martin. Lockheed Martin ------------------------------------------------- represents and warrants that: 4.1 Authorization. This Agreement constitutes Lockheed Martin's valid ------------- and legally binding obligation, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting enforcement of the rights and remedies of creditors or by general principles of equity (whether applied at law or in equity); and Lockheed Martin has full corporate power and authority to enter into this Agreement. 4.2 Purchase for Own Account. Lockheed Martin is acquiring the ------------------------ Preferred Shares for its own account and not with a view to or for sale in connection with any distribution of the Preferred Shares. 4.3 Disclosure of Information. Lockheed Martin has received from the ------------------------- Company all information it has requested and considers necessary or appropriate for deciding whether to acquire the Preferred Shares in exchange for $60.0 million of the Company's Debt. Lockheed Martin has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Exchange of the Preferred Shares. 4.4 Restricted Securities. Lockheed Martin understands that the --------------------- Preferred Shares will be "restricted securities" under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that, under the Securities Act and applicable regulations thereunder, such securities may be resold without registration under the Securities Act only in certain limited circumstances. 4.5 Legends. Lockheed Martin understands that the certificates ------- evidencing the securities will bear the legend set forth below, together with any other legends required by applicable state securities laws: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT FOR THE HOLDER'S OWN ACCOUNT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF THE SECURITIES. A-5 THE SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED, AS APPLICABLE, UNDER THE SECURITIES ACT OF 1933 ("SECURITIES ACT") OR UNDER ANY APPLICABLE STATE -------------- SECURITIES LAW ("BLUE SKY LAWS"). AN OFFER TO SELL OR TRANSFER OR THE SALE ------------- OR TRANSFER OF THESE SECURITIES IS UNLAWFUL UNLESS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PERMIT, AS APPLICABLE UNDER THE SECURITIES ACT OR APPLICABLE BLUE SKY LAWS, OR UNLESS AN EXEMPTION FROM REGISTRATION AND/OR QUALIFICATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS (INCLUDING, WITHOUT LIMITATION, REGULATION S THEREUNDER) IS AVAILABLE. The legend set forth above shall be removed by the Company from any certificate evidencing Securities upon delivery to the Company of an opinion, in form and substance and by counsel reasonably satisfactory to the Company, that a registration statement under the Securities Act is at that time in effect with respect to the legended security or that such security can be freely transferred without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Preferred Shares were issued. 5. Conditions to Closing. --------------------- 5.1 Conditions to Lockheed Martin's Obligations at the Closing. ---------------------------------------------------------- Lockheed Martin's obligation to purchase the Preferred Shares at the Closing is subject to the satisfaction, at or prior to the Closing, of the following conditions: (a) Representations and Warranties True: Performance of ---------------------------------------------------- Obligations. Except for representations and warranties that by their terms speak - ----------- only as of a specified date, the representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing with the same force and effect as if they had been made as of the Closing, and the Company and the Subsidiary shall have performed all obligations and conditions herein required to be performed or observed by them on or prior to the Closing. (b) Securities Law Compliance. All authorizations, approvals and ------------------------- permits, if any, of every governmental authority or regulatory body of the Untied States or of any state that is required in connection with the Exchange pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing. (c) Corporate Documents. The Company shall have delivered to ------------------- Lockheed Martin or its counsel, copies of all corporate documents of the Company as Lockheed Martin shall reasonably request. A-6 (d) Fairness Opinion. Receipt by the Company of an opinion of ---------------- Duff & Phelps as to the fairness, from a financial point of view, of the transactions contemplated by this Agreement to the stockholders of the Company. (e) Payment of Interest and Fees. Payment of interest and fees ---------------------------- associated with the portion of the Debt being repaid. 5.2 Conditions to Obligations of the Company. The Company's ---------------------------------------- obligation to exchange the Preferred Shares at the Closing is subject to the satisfaction, at Closing, to the conditions that (i) the representations and warranties made by Lockheed Martin in Section 4 hereof shall be true and correct as of the Closing with the same force and effect as if they had been made as of the Closing, and (ii) the Company shall have received an opinion of Duff & Phelps as to the fairness, from a financial point of view, of the transactions contemplated by this Agreement to the holders of Common Stock of the Company in form and content reasonably satisfactory to the Company. 6. Miscellaneous. ------------- 6.1 Entire Agreement; Successors and Assigns. This Agreement, ---------------------------------------- together with its exhibits and schedules, shall collectively constitute the entire agreement among the Company, the Subsidiary and Lockheed Martin relating to the Exchange of the Preferred Shares and supersede any and all prior or contemporaneous oral or written agreements, understandings and discussions with respect thereto. Subject to the limitations hereof, the provisions hereof shall inure to the benefit of and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.2 Expenses. The Company, the Subsidiary and Lockheed Martin will -------- each bear their respective legal and other fees and expenses in connection with the transactions contemplated in this Agreement. 6.3 Governing law. This Agreement shall be governed by and construed ------------- in accordance with the internal laws of the State of Delaware without reference to any conflict of laws provisions of such laws. 6.4 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 Headings. The headings of the Sections and subsections of this -------- Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 6.6 Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be conclusively deemed effectively given upon personal delivery, on the date of receipt if sent by telecopier or overnight courier, charges prepaid, A-7 or five days after deposit in the United States mail, by registered or certified mail, postage prepaid, or facsimile, receipt confirmed, addressed as follows: If to the Company or the Subsidiary, addressed to: CalComp Technology, Inc. 2411 W. La Palma Avenue Anaheim, CA 92801 Attention: President and Corporate Secretary Facsimile: 714-821-2074 and 714-821-2470 With a copy (which shall not constitute notice) to: Hewitt & McGuire, LLP 19900 MacArthur Boulevard Suite 1050 Irvine, CA 92612 Attention: Charles S. Exon, Esquire Facsimile: 949-798-0511 If to Lockheed Martin, addressed to: Lockheed Martin Corporation 6801 Rockledge Drive Rockville, Maryland 20817 Attention: Treasurer Facsimile: 301-897-6927 With copies (which shall not constitute notice) to: Lockheed Martin Corporation 310 North Westlake Boulevard Suite 200 Westlake Village, CA 91362 Attention: Suzanna Fabos, Esquire Assistant General Counsel - Finance Facsimile: 805-381-1455 Miles & Stockbridge P.C. 10 Light Street Baltimore, Maryland 21202 Attention: David A. Gibbons, Esquire Facsimile: 410-385-3700 A-8 or at such other address as one party may designate to the others by ten days' advance written notice to Lockheed Martin or the Company, respectively. 6.7. Survival of Representations and Warranties. The representations ------------------------------------------ and warranties of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. 6.8. Amendments and Waivers. Any term or provision of this Agreement ---------------------- may be amended and the observance of any term, condition, or provision of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument signed by the Company, the Subsidiary and Lockheed Martin. 6.9. Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were excluded and shall be enforceable in accordance with its terms. 6.10. Contract Interpretation. Ambiguities, inconsistencies, and ----------------------- conflicts in this Agreement shall be resolved by applying the most reasonable interpretation under the circumstances, giving full consideration to the parties' intentions at the time this Agreement is entered into. No consideration shall be given as to the party that actually drafted the Agreement. * * * * * * A-9 IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed by their duly authorized representatives as of the date first written above. CALCOMP TECHNOLOGY, INC., a Delaware corporation By:___________________________________ John J. Millerick Senior Vice President and Chief Financial Officer CALCOMP INC., a California corporation By:___________________________________ John J. Millerick Senior Vice President and Chief Financial Officer LOCKHEED MARTIN CORPORATION, a Maryland corporation By:___________________________________ Walter E. Skowronski Vice President and Treasurer A-10 EXHIBIT A --------- CERTIFICATE OF DESIGNATION OF SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK OF CALCOMP TECHNOLOGY, INC. CalComp Technology, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, (the "Corporation"), certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation: RESOLVED, that under the authority contained in Article 4(a) of the Fourth Amended and Restated Certificate of Incorporation of the Corporation, the Board of Directors of the Corporation hereby designates 1,000,000 unissued shares of the Preferred Stock of the Corporation as 1,000,000 shares of "Series A Cumulative Redeemable Preferred Stock" having the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations of such preferences and/or rights as set by the Board of Directors of the Corporation as follows: Section 1. Designation and Amount. ---------------------- The shares of such series shall be designated as Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock"), par value $0.01 per share, and the number of shares constituting such series shall be 1,000,000. Section 2. Dividends. --------- (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 A-11 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. A-12 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. A-13 Section 6. Redemption. ---------- (A) Provided that there are no dividend arrearages on the Series A Preferred Stock and the Corporation is in full compliance with the terms and conditions of this Certificate of Designation, the Corporation shall have the right, at its sole option and election, to redeem all or, subject to the provisions of the following sentence, a portion of the outstanding shares of the Series A Preferred Stock by paying therefor in cash $60 per share plus any unpaid dividends to the date of redemption (the "Redemption Price"). In the event that less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the aggregate Redemption Price for any such redemption shall be not less than $1,000,000. (B) Notice of any redemption of any shares of Series A Preferred Stock shall be given by mailing to each holder of shares of Series A Preferred Stock to be redeemed, at the holder's address as it appears on the books of the Corporation, written notice of redemption not less than 30 days and not more than 90 days prior to the date fixed for redemption (the "Redemption Date"). To facilitate the redemption of shares of Series A Preferred Stock, the Board of Directors may fix a record date for the determination of shares of Series A Preferred Stock to be redeemed and holders of shares of Series A Preferred Stock entitled to notice of redemption, provided that the record date may not be less than 30 days and may not be more than 60 days prior to the Redemption Date. Any notice that is mailed in such manner shall be conclusively presumed to have been duly given, whether or not any holder entitled to notice of redemption actually receives the notice. The failure of the Corporation to give such notice to any holder entitled to notice of redemption shall not affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock from any other holder of shares of Series A Preferred Stock. (C) Notice of redemption shall specify (i) the number of shares of Series A Preferred Stock shall be redeemed, (ii) the Redemption Date, (iii) the redemption price (which price shall include accrued but unpaid dividends thereon), and (iv) the place where payment of the redemption price is to be made upon surrender of the certificates representing the shares of Series A Preferred Stock. (D) In respect of each share of Series A Preferred Stock called for redemption in accordance with this Section 6, the Corporation shall be obligated to pay to the registered holder thereof the Redemption Price, upon surrender of the certificate or certificates representing the shares of Series A Preferred Stock at the office of the Corporation or any transfer or paying agent specified for that purpose, on or after the Redemption Date. In the event that less than all of the outstanding shares of Series A Preferred Stock are redeemed, the Corporation shall deliver a replacement certificate or certificates representing any unredeemed shares to the holder tendering such certificates. Unless the Corporation shall default in the payment of, or in providing for the payment of, the Redemption Price, dividends on each share of Series A Preferred Stock called for redemption, shall cease to accrue as of the Redemption Date. Except as otherwise expressly A-14 provided in the preceding sentence, holders of shares of Series A Preferred Stock called for redemption shall not be entitled to any interest on the Redemption Price. (E) If, after notice of redemption has been given pursuant to paragraph (B) of this Section 5, on or prior to the Redemption Date in respect of any shares of Series A Preferred Stock, the Corporation deposits with a bank or trust company in the United States that, as of the date of the most recent available financial statements of the bank or trust company, has a capital and surplus of at least $50,000,000, a sum sufficient to redeem, on the Redemption Date, the shares called for redemption, with instructions to the bank or trust company to pay on or after the Redemption Date the redemption price to the respective holders of shares of Series A Preferred Stock upon surrender of the certificate or certificates representing the shares of Series A Preferred Stock, then from and after the date on which such moneys are deposited the deposit shall be deemed to constitute full payment to the holders for such shares of Series A Preferred Stock, and the holders shall have no rights in respect of the shares of Series A Preferred Stock called for redemption except the right to receive payment of the redemption price from the bank or trust company. Any moneys or, if applicable, other property held by any such bank or trust company that shall remain unclaimed by the holders of Series A Preferred Stock at the end of six years after the Redemption Date shall become the property of and be paid to the Corporation. Section 7. Conversion. ---------- The shares of Series A Preferred Stock shall have no conversion rights. Section 8. Reacquired Shares. ----------------- Any shares of Series A Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 9. Rank. ---- The Series A Preferred Stock shall rank, with respect to voting powers, preferences and relative, participating, optional and other special rights of the shares of such series and the qualifications, limitations and restrictions thereof, including, without limitation, with respect to the payment of dividends and the distribution of assets, whether upon liquidation or otherwise, (i) equally with respect to all shares of Parity Stock, (ii) prior to all shares of Junior Stock and to all shares of the Common Stock and (iii) prior to all shares of any other class or series of preferred stock of the Corporation, unless such other class or series by its terms ranks equally with or senior to the Series A Preferred Stock. A-15 Section 10. Liquidation, Dissolution, Winding Up and Other Events. ----------------------------------------------------- Upon the liquidation (voluntary or otherwise), dissolution, reorganization, sale of all or any substantial portion of the assets or winding up of the Corporation, no distribution shall be made to the holders of the Common Stock unless, prior thereto, the holders of shares of the Series A Preferred Stock shall have received the product of $60 times any unredeemed shares of the Series A Preferred Stock, plus any accrued but unpaid dividends to the date of payment (the "Series A Liquidation Preference"). Following payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of the Series A Preferred Stock. In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference, then such remaining assets shall be distributed ratably to the holders of the Series A Preferred Stock. Section 11. Definitions. ----------- For the purposes of the provisions governing the shares of Series A Preferred Stock, the following terms have the meanings set forth below: "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Person" shall mean any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a trust or other entity. A Person, together with such person's Affiliates and Associates (as those terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Corporation with such Person, shall be deemed a single "Person." A-16 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed in its name and on its behalf on this 14th day of July 1998, by its President who acknowledges that this Certificate of Designation is the act of the Corporation and that to the best of his knowledge, information and belief and under penalties for perjury, all matters and facts contained in this Certificate of Designation are true in all material respects. ATTEST: CALCOMP TECHNOLOGY, INC. ____________________________ By:_______________________(SEAL) William F. Porter, Jr. John C. Batterton Secretary President and Chief Executive Officer A-17 EXHIBIT B --------- AMENDMENT NO. 2 TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Amendment No. 2, dated July 15, 1998 (the "Amendment"), to the Amended and Restated Revolving Credit Agreement, dated as of December 20, 1996, as amended March 20, 1998 (the "Credit Agreement"), among CalComp Technology, Inc., a Delaware corporation ("Technology"), CalComp Inc., a California corporation ("CalComp", and together with Technology, the "Borrowers"), and Lockheed Martin Corporation, a Maryland corporation (the "Lender"). Capitalized terms used but not defined herein shall have the meaning given them in the Credit Agreement. WHEREAS, the Borrowers and the Lender are parties to an Exchange Agreement, dated July __, 1998 (the "Exchange Agreement"), pursuant to which they have agreed to (i) exchange all or a portion of the outstanding Loans for shares of Technology's Series A Cumulative Redeemable Preferred Stock, and (ii) reduce Lender's Commitment under the Credit Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and in the Exchange Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowers and the Lender agree as follows: 1. Reduction in Commitment. The definition of "Commitment" contained in Section ----------------------- 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Commitment" means $13,000,000, as such amount may be reduced from time to time pursuant to Section 2.7 hereof. The Commitment represents a reduction in the Original Commitment." 2. April 1998 Waiver. Borrowers and Lender agree that (i) the transactions ----------------- contemplated by the Exchange Agreement are outside the scope of Section 2.1(c) of the Credit Agreement and thus Lender's April 1, 1998 waiver (the "April 1998 Waiver") of its rights under Section 2.1(c) of the Credit Agreement is inapplicable to such transactions, and (ii) with respect to the Commitment established by this Amendment, the April 1998 waiver shall remain in effect until January 31, 1999. 3. Additional Waivers. Lender hereby waives any Defaults existing at the date ------------------ hereof. With respect to the transactions contemplated by the Exchange Agreement, Lender waives compliance with Section 2.8 of the Credit Agreement to the extent payments of Loan principal are required to be made in immediately available funds. B-1 4. No Other Changes. Except as specifically modified by this Amendment, the ---------------- Credit Agreement shall remain in full force and effect and no additional changes, modifications, or amendments shall be inferred that are not expressly set forth herein. 5. Counterparts. This document may be signed in any number of counterparts with ------------ the same effect as if the signatures thereto and hereto were upon the same instrument. 6. Governing Law. This document shall be construed in accordance with and ------------- governed by the laws of the State of Maryland, without reference to the conflict of laws provisions of such laws. IN WITNESS WHEREOF, the parties have caused this document to be duly executed and delivered as of the day and year first above written. LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC. By: _____________________________ By: _____________________________ Walter E. Skowronski John J. Millerick Vice President and Treasurer Sr. Vice President and Chief Financial Officer CALCOMP INC. By: _____________________________ John J. Millerick Sr. Vice President and Chief Financial Officer B-2 EXHIBIT C --------- ACKNOWLEDGEMENT OF REPAYMENT OF DEBT Lockheed Martin Corporation ("LMC") hereby acknowledges receipt of 1,000,000 shares of Series A Cumulative Redeemable Preferred Stock of Calcomp Technology, Inc. (the "Company") in full satisfaction of Sixty Million Dollars ($60,000,000) of Loans outstanding on the date hereof under the Amended and Restated Revolving Credit Agreement, dated as of December 20, 1996, as amended, among LMC, the Company and CalComp Inc., a California corporation. July 15, 1998 LOCKHEED MARTIN CORPORATION By: _____________________________ Walter E. Skowronski Vice President and Treasurer C-1 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 9-MOS DEC-27-1998 DEC-28-1997 SEP-27-1998 SEP-28-1997 4,296 4,913 0 0 22,795 43,178 3,222 3,971 34,968 53,734 63,046 100,638 67,994 88,244 38,671 59,588 183,067 230,153 82,333 111,081 0 0 0 0 60,000 0 471 470 32,404 109,989 183,067 230,153 114,913 159,919 114,913 159,919 102,095 135,780 102,095 135,780 57,990 61,020 0 0 2,868 2,920 (48,040) (39,801) 160 752 (48,200) (40,553) 0 0 0 0 0 0 (48,200) (40,553) (1.02) (.86) (1.02) (.86)
-----END PRIVACY-ENHANCED MESSAGE-----