-----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, A+tcOjEThPZ89qVmBTNdV+DbLrtkUeVPv03vGHblLXqOCjJMTLOqvrpCMHbDqbB0 jZf7+TL68qS2+3mhOPXe5A== 0001017062-98-000808.txt : 19980413 0001017062-98-000808.hdr.sgml : 19980413 ACCESSION NUMBER: 0001017062-98-000808 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980410 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALCOMP TECHNOLOGY INC CENTRAL INDEX KEY: 0000818470 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 060888312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16071 FILM NUMBER: 98591623 BUSINESS ADDRESS: STREET 1: 2411 W LA PALMA AVE CITY: ANAHEIM STATE: CA ZIP: 92803 BUSINESS PHONE: 5128731540 MAIL ADDRESS: STREET 1: 60 SILVERMINE ROAD CITY: SEYMOUR STATE: CT ZIP: 06483 FORMER COMPANY: FORMER CONFORMED NAME: SUMMAGRAPHICS CORP DATE OF NAME CHANGE: 19920703 10-K 1 10-K FOR 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ---------------- [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ______________ to _______________ COMMISSION FILE NO. 0-16071 ---------------- CALCOMP TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-0888312 (STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.) OF INCORPORATION OR ORGANIZATION) 2411 W. LA PALMA AVENUE 92803 ANAHEIM, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714 ) 821-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value as of March 10, 1998, of Common Stock held by non-affiliates of the Registrant: $24,007,884 based on the last reported sale price on the National Market System as reported by NASDAQ, Inc. THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 10, 1998: 47,073,050 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS CalComp Technology, Inc. ("CalComp Technology" or the "Company"), formerly Summagraphics Corporation ("Summagraphics"), was incorporated under Delaware law in 1972. The mailing address of the Company's principal executive office is 2411 W. La Palma Avenue, Anaheim, California 92803. The Company's telephone number is (714) 821-2000. Except where the context indicates otherwise, references to an entity include its consolidated subsidiaries. The Company is a supplier of both input and output computer graphics peripheral products consisting of (i) printers (including plotters), (ii) cutters, (iii) digitizers, and (iv) large format scanners. In general, the Company's products are designed for use in the computer aided design and manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets, both domestically and internationally. The Company also maintains service, product support and technical assistance programs for its customers and sells software, supplies and after-warranty service. In recent years, the Company began transitioning its traditional pen, electrostatic and most thermal technology products to inkjet plotters and printers. Generally, inkjet technology products provide increased user productivity compared to traditional pen plotters and solid area fill capability for applications requiring graphic imaging. By the fourth quarter of 1997, the Company had substantially completed its strategy to discontinue its non-inkjet printer and plotter products. Further, in the fourth quarter of 1997, the Company completed the development of a new line of wide-format digital printers based on its proprietary piezo inkjet technology obtained through the acquisition of Topaz Technologies, Inc. ("Topaz") in 1996. This new line of printers will be marketed under the "CrystalJet(TM)" name and will be targeted to the graphic arts industry. The Company began shipping the initial market development and demonstration units of these printers in the first quarter of 1998. Volume shipments to customers are scheduled for the second quarter. The Company believes this new line of wide-format printers will be the first of a new generation of products based on its new technology. The Company plans to continue to market CalComp branded printers as well as CrystalJet(TM) print head technology. In addition, the Company expects to expand the market for its printers and print heads through the sale of complete printers or print heads to strategic partners, who will in turn leverage their existing brand names and distribution channels in various new markets such as the photographic, industrial packaging and textile printing markets. The products marketed through the Company's strategic partners, whether sold under the CalComp name or under private label, will contain the CrystalJet(TM) technology logo to establish CrystalJet(TM) technology brand awareness. The Company will also pursue various non-manufacturing licensing and royalty agreements for the CrystalJet(TM) technology and related inks. The Company believes this strategy will enable it to use its new CrystalJet(TM) technology to penetrate sizable new markets beyond graphic arts and create significant product differentiation opportunities due to print speeds, ink and media types associated with the new technology. The Company's strategy is to position itself as a leading-edge image marking company that, through continued development of proprietary piezo based print heads, ink, media, and printers, will capture substantial consumable sales in high ink consumption markets. In line with the Company's strategy, in December 1997, the Company and IRIS Graphics, a wholly-owned subsidiary of Scitex Corporation Ltd. ("IRIS Graphics"), jointly announced an agreement under which the Company will provide IRIS Graphics with wide-format color printers targeted at the high-end graphic and fine arts markets, featuring the Company's CrystalJet(TM) inkjet technology. In addition, in March of 1998, the Company and Eastman Kodak Co. ("Kodak"), entered into a joint development agreement covering the joint development of a range of CrystalJet(TM) based products, printers and consumables. See "Recent Developments." The Company anticipates that these will be the first of several strategic partnerships that it will enter into in furtherance of its market expansion plans. See "Risk Factors Affecting the Company." 2 BACKGROUND OF THE BUSINESS CalComp Inc. The principal business of the Company derives from that of CalComp Inc., formerly California Computer Products, Inc. ("CCP") which was incorporated in September 1958 to manufacture and market computer graphics products for the U.S. Government's NIMBUS Weather Satellite Program. In 1959, CCP introduced the world's first drum plotter, which translated computer output into visual data such as drawings, charts and graphics. CCP expanded its product offerings by introducing new plotters and controllers through the 1960's and 1970's. CCP added its first electrostatic plotter to its product line in 1979. During the 1980's and 1990's, CCP and subsequently CalComp Inc., continued to expand its product line through adapting various technologies to new products, including thermal transfer technology in printers, laser technology in printers/plotters, LED technology in plotters, bubble inkjet technology in plotters, and direct thermal technology in printers and plotters. CCP added the digitizer product line in 1980 through the acquisition of Talos Systems, Inc. In 1980, CCP was acquired by Sanders Associates, Inc., a defense electronics company in Nashua, New Hampshire. At the end of 1983, CCP was merged with and into Sanders Associates, Inc. and the business was conducted thereafter under the name of CalComp Group. In 1986, Sanders Associates, Inc. was acquired by Lockheed Corporation ("Lockheed") at which time CalComp Group became an operating unit of Lockheed's Information Systems Group. CalComp Inc. was incorporated in 1987 under California law to acquire the assets and liabilities of CalComp Group from Sanders Associates, Inc., and to operate as a separate legal entity and a wholly-owned indirect subsidiary of Lockheed. In March 1995, the businesses of Lockheed and Martin Marietta Corporation were combined to form Lockheed Martin Corporation, at which time CalComp Inc. became a subsidiary of Lockheed Martin in the Information and Technology Services Sector. Commencing in 1991 and continuing into 1996, CalComp Inc. experienced substantial net operating losses principally due to the negative impact on margins resulting from the migration of the hard copy output device industry to inkjet technology products and CalComp Inc.'s late entry into the inkjet market in fiscal 1994. In late 1995, Lockheed Martin Corporation and Summagraphics Corporation began discussions concerning a proposed combination of CalComp Inc. and Summagraphics Corporation which resulted in the combination of the companies on July 23, 1996. See "The Exchange." Summagraphics Corporation. Summagraphics Corporation manufactured and sold input and output computer graphics peripheral products, many of which competed with CalComp Inc. In 1996, Summagraphics encountered significant financial difficulties primarily due to problems with its output products. Due to continuing losses and pressure from its lenders and vendors, Summagraphics pursued various activities to raise additional capital including the sale of part or all of the Company. The Exchange. The Company, then Summagraphics Corporation, entered into a Plan of Reorganization and Agreement for the Exchange of Stock of CalComp Inc. for Stock of the Company (dated as of March 19, 1996 and subsequently as amended April 30, 1996 and June 5, 1996) pursuant to which the Company issued to Lockheed Martin Corporation ("Lockheed Martin" or the "Majority Shareholder") 40,742,957 shares of the Common Stock of the Company, representing 89.7% of the total outstanding shares of Common Stock of the Company following such issuance, in exchange for all of the outstanding capital stock of CalComp Inc. (the "Exchange"). The closing of the Exchange occurred on July 23, 1996 following approval of the Exchange by the stockholders of the Company. As a result of the Exchange, Lockheed Martin acquired control of the Company and CalComp Inc. became a wholly-owned subsidiary of the Company. In connection with the Exchange, the Company also changed its name from Summagraphics Corporation to CalComp Technology, Inc. and changed its year end from May 31 to a fifty-two, fifty-three week fiscal year ending on the last Sunday of December. The Exchange was accounted for as a "reverse acquisition," whereby CalComp Inc. was deemed to have acquired the Company, for financial reporting purposes. However, the Company remains the continuing legal entity and registrant for Securities and Exchange Commission ("SEC") filing purposes. Consistent with reverse acquisition accounting, the historical financial statements of the Company presented for the period ended 3 December 31, 1995, are the consolidated financial statements of CalComp Inc., and differ from the consolidated financial statements of the Company previously reported. In addition, the historical stockholders' equity as of December 31, 1995, has been retroactively restated to reflect the equivalent number of shares issued in connection with the Exchange. The accounts and results of operations of the Company have been included in the financial statements for the period ended December 29, 1996, from the date of the Exchange and reflect purchase price allocations and adjustments recorded as a result of the Exchange. Certain reclassifications of prior year amounts have been made to conform to the current year presentation. Immediately following the Exchange, each of the then directors and executive officers of the Company resigned and Lockheed Martin, as the owner of a majority of outstanding shares of the Common Stock of the Company, adopted a resolution by written consent increasing the size of the Board of Directors from six to seven members and elected seven new directors. The Board then appointed officers to fill the vacant offices. For so long as Lockheed Martin continues to beneficially own more than 50% of the outstanding voting stock of the Company, Lockheed Martin will be able to control the Board of Directors and approve any other matter submitted to a vote of the stockholders without the consent of the other stockholders of the Company. In addition, in connection with the Exchange, the Company entered into agreements providing for, among other things, a long term line of credit and cash advances for long term financing and operating requirements, administrative support in selected areas and the filing of a consolidated tax return. CalComp Technology, Inc. Subsequent to the Exchange, the Company moved its executive offices from Austin, Texas to Anaheim, California and substantially completed its business plan to reduce duplicative work force and corporate overhead between the companies, integrate manufacturing operations and eliminate certain unprofitable product lines. The Company also substantially completed efforts to rationalize CalComp Inc.'s and Summagraphics' respective sales, product support, distribution and marketing organizations, and to integrate each company's product offering and development activities. In November 1996, the Company acquired Topaz, a privately held company located in Sunnyvale, California, in exchange for 1,500,000 shares of the Company's Common Stock and $750,000 in cash. Subsequent to the acquisition, Topaz became a wholly-owned subsidiary of CalComp Technology, Inc. Topaz is a developer and manufacturer of the proprietary piezo inkjet printing technology which the Company is currently marketing under the "CrystalJet(TM)" name. RECENT DEVELOPMENTS On March 29, 1998, the Company and Kodak entered into a Patent License and Joint Development Agreement (the "Joint Development Agreement") covering a project (the "Project") for the joint development of the Company's existing CrystalJet(TM) piezo inkjet technology into a range of piezo inkjet products, printers and consumables for commercial application. The Joint Development Agreement has a term of five years and provides for the contribution by Kodak to the Project of up to $36,000,000, with $20,000,000 having been advanced upon the signing of the Joint Development Agreement and up to an additional $16,000,000 to be funded incrementally over the term upon the achievement of certain milestones and the occurrence of certain events. The Joint Development Agreement also provides for royalties to be paid by Kodak to the Company in respect of licenses granted thereunder by the Company to Kodak which allow Kodak under certain circumstances to exploit the inkjet technology developed pursuant to the Project. The Joint Development Agreement provides that Kodak will also provide technical personnel to work on the project, but that except as otherwise contemplated by the Joint Development Agreement, the Company will fund all other development and manufacturing expenses relating to the Project. If, during the term of the Joint Development Agreement, the Company desires to sell any of the CrystalJet(TM) assets related to the assets acquired by the Company from Topaz Technologies, Inc. (the "Topaz Assets"), the Company will be required to offer Kodak a right of first refusal to purchase such Topaz Assets. The Joint Development Agreement also includes OEM Agreements between the parties providing for the sale of future developed products by the Company to Kodak and the mutual purchase of certain inks and related media products developed in connection with the Project. 4 Pursuant to the Joint Development Agreement, the Company issued to Kodak a warrant (the "Warrant") to purchase 8,000,000 shares (the "Warrant Shares") of the Company's Common Stock (or approximately 15% of the Company's outstanding shares after giving effect to the issuance of the Warrant Shares) at an exercise price of $3.88 per share. The Warrant has a term of seven years and will become exercisable as to 4,000,000 of the Warrant Shares on March 29, 1999, and as to the remaining 4,000,000 Warrant Shares on March 29, 2000 (each a "Vesting Date"); provided, however, that in the event the Joint Development Agreement is terminated prior to a Vesting Date, the Warrant will terminate as to any unvested Warrant Shares. The Warrant contains standard adjustment provisions and piggyback registration rights covering the Warrant Shares. During the 24-month period after the issuance of the Warrant (and so long as the Joint Development Agreement has not been terminated), upon the issuance by the Company of additional shares of Common Stock, the number of Warrant Shares will be proportionately increased so that the number of Warrant Shares will continue to represent 15% of the issued and outstanding shares of the Company's Common Stock; provided, however that the exercise price of any additional Warrant Shares will be the same as the price of the additional shares of Common Stock issued by the Company. No adjustments will be required with respect to 1) shares of Common Stock issued to any employee, consultant, advisor, officer or director of the Company pursuant to a Board-approved plan; or shares issued in connection with stock dividend or stock split; or 2) shares issued in connection with certain merger, exchange, or acquisition of assets transactions. The Warrant also provides Kodak with a right of first refusal with respect to proposed issuances of the Company's capital stock during the 24-month period after the date of issuance of the Warrant. In connection with the Joint Development Agreement, Lockheed Martin Corporation, the Company's majority stockholder, has agreed, among other things, to vote its shares for the election of a Kodak-designated director to the Company's Board of Directors during the term of the Joint Development Agreement. PRODUCTS Through 1997, the Company continued to distribute graphics peripheral products targeted at CAD/CAM printing and publishing and graphic arts markets. The Company's products fall into two general product lines: (1) hard copy output products, consisting primarily of printers and plotters, and graphics cutters; and (2) input devices, consisting of digitizers and scanners. The Company also sells after-warranty service and supplies which support its product lines. HARD-COPY OUTPUT DEVICES The Company historically has produced and sold a wide variety of hard-copy output devices of which the two principal classes of products are printers (including plotters) and vinyl-cutting plotters ("cutters"). Printers are devices that place raster images (oriented dots) on various types of output media (either paper or film) producing text, pictures and/or graphic images. Plotters are devices that translate computer output data into hard-copy media, such as schematics, charts, maps, and computer-aided design ("CAD") drawings, pictures, and other images. The basic unit consists of a microprocessor, a controller, and a marking mechanism. These output devices are often interchangeable, with the difference between plotters and printers often being the firmware-based connectivity solutions. A cutter performs a function similar to a plotter, but rather than drawing an image onto a sheet of paper, it accurately cuts on various media (such as vinyl) along a programmed image employing the same technique as a plotter, except using a knife instead of a pen. Printers and Plotters CrystalJet(TM). In the fourth quarter, the Company completed the development of the first products in a new line of wide-format piezo inkjet digital printers, which are expected to be brought to market in the first half of 1998. These CrystalJet(TM) printers will be offered initially in 42" and 54" sizes and will be marketed primarily to the graphic arts industry. The key market applications benefiting from this new technology are ones requiring fast throughput of digital printed images at the highest level of print resolution and quality. The Company believes that this emerging market for "on-demand" digital color printing will replace many of the current traditional printing technologies. The Company expects that the new technology and products will have key strengths against the current field of competition participating in these markets. 5 The CrystalJet(TM) wide-format printers contain four print heads, one for each of the four process colors. The print heads can be adjusted to two different heights above the media: 1.0 mm or 2.5 mm, which allows for a range of media options. Each print head, which contains 256 nozzles, is spaced at 1/180th-inch intervals yielding a print swath of 1.4 inches per color. This unique feature gives the user the ability to control the resolution and print speed. Users can select, on a job by job basis, 180, 360, or 720 dots per inch ("dpi"); 2, 4 or 8 interleaved passes; bi-directional or unidirectional printing; and pixel drop size. The CrystalJet(TM) printers can print a 360 dpi resolution image at 120 square feet per hour and a 720 dpi resolution image at 70 square feet per hour. These printing speeds are believed to be three to four times faster than traditional thermal inkjet printers. In addition, the technology supports different droplet sizes providing users the capability of printing high quality images at various resolutions for numerous market applications not currently available with competing thermal or piezo technology. For a further discussion of the risks relating to the Company's transition to the CrystalJet(TM) product lines, see "Risk Factors Affecting the Company." Historical Output Products. Printers and plotters represented 24%, 28% and 35% of total revenue of the Company for fiscal years 1997, 1996 and 1995, respectively. In connection with the Company's plan to transition substantially all of its output products to its new CrystalJet(TM) technology, the Company has announced it will end-of-life substantially all of its non- CrystalJet(TM) based thermal inkjet output products. However, the Company will continue to offer these products into fiscal 1998 as it liquidates its existing inventories. Cutters The Company's cutter business which was acquired from Summagraphics in connection with the Exchange represented 7% of revenues in 1997. Cutters represented 23% and 16% of the revenues of Summagraphics prior to the Exchange for the fiscal years ended May 1996 and 1995, respectively. Cutters are output devices, similar in construction to a pen plotter, but employ a knife in place of a pen to cut vinyl for signs and banners, art film for screen printing, and various stencil materials for etching text and images into glass, wood and stone via an abrasive etching process. Cutter performance is primarily measured by speed, acceleration, and guaranteed accuracy. Additional features include knife type, tool pressure and software compatibility. Speed is measured by how many inches the knife moves per second. Acceleration is measured by how quickly the knife reaches its top speed and, therefore, is important since most signs consist of short lines. Guaranteed accuracy depends on the drive mechanism, either friction or sprocket, in the cutter. There are currently two types of knife systems used to cut material: drag and tangential. Drag knife units typically cost less, have less knife pressure capability, and are used for general sign applications. Tangential knife units are typically more expensive, with more knife pressure, greater precision cutting abilities and the ability to cut a wider variety of material. The Company's cutter products include: SummaSign Series. Combines high performance cutting with an advanced media handling system offering both sprocket and friction drive, and is capable of handling plain media, as well as half-inch industry standard punched media. SummaCut Series. A family of cutters designed for small, independent sign shops that produce a limited quantity of vinyl signs. The Company believes that the Summagraphics cutter products will continue to complement the existing CalComp Inc. product offerings by giving the Company a proven output device in its established marketing and distribution channels. INPUT DEVICES Digitizers Digitizers accounted for 25%, 22% and 17% of the revenues of the Company for fiscal years 1997, 1996 and 1995, respectively. Fiscal 1997 and part of fiscal 1996 included sales of Summagraphics products subsequent to the Exchange. Uses for digitizers include desktop publishing, image processing, simple mouse replacement 6 and pen-based computing. The Company's primary markets for digitizers are in computer-aided design, engineering and manufacturing (CAD/CAE/CAM). Digitizers typically are used with personal computers and workstations and support a broad range of software applications which include high-end computer aided publishing, construction management and costing, graphics design and animation, mapping and geographic information systems (GIS) and geological/seismic analysis. They also are used frequently with software systems such as AutoCAD. Newspaper publishers, for example, use the Company's digitizers as part of their complete computer-aided publishing systems for publication layout. Animation and graphics design uses for digitizers vary widely and include use in cinema productions, colorization of black and white movies and television weather and sports analysis. The cost of digitizers has come down significantly over the past few years, making them a viable mouse replacement. Digitizers offer significant advantages over other entry devices such as keyboards, mice, trackballs, lightpens, and touchpanels in graphics intensive applications, due to their high level of precision, greater functionality and increased productivity. Keyboards are primarily used to input text and numerical information and are not well suited for graphics applications. Mice are low accuracy, relative pointing devices commonly used with icon-based operating systems and low-resolution graphics applications. By contrast, digitizers are capable of inputting X-Y coordinate data to communicate an absolute position to within several thousandths of an inch. Absolute positioning allows accurate drawing and selection of discrete points on the surface of the digitizing tablet. The latter is critical to high accuracy tasks such as digitizing a map or an existing CAD drawing. The Company's digitizer products are primarily based on electromagnetic technology, whereby a cursor or a grid generates an electromagnetic field which is sensed by built-in electronic circuitry. This technical approach results in digitizers capable of higher resolution than other commonly-used technologies. Electromagnetic tablets offer the additional advantage of being relatively unaffected by temperature, humidity, electrical noise and the presence of conductive materials on the digitizing surface. Traditionally, customers using CAD applications, mapping applications and GIS applications have perceived the need for the high precision input offered by digitizers. Recent software releases in the CAD industry, whereby mouse input devices are interchangeable with digitizer tablets for CAD applications, have significantly reduced the customer need for digitizer products. This trend is expected to continue. Graphic arts applications have in the past favored mouse input devices. Customers in the graphic arts market have recently begun broader use of digitizers, which use is expected to continue to expand. Failure of the Company to replace or renew demand for CAD digitizer products could have an adverse impact on the Company's input device business. The Company's digitizer products include: DrawingBoard(TM) Digitizer Tablets. A family of high performance, low cost digitizer tablets which are designed for CAD, mapping, and GIS applications, and can be used in drawing, tracing, and presentation graphics applications. These digitizers come in a range of sizes and accuracies. The Company also produces a backlit version of this tablet. UltraSlate(TM) Digitizer Tablets. A family of small format digitizers which are thin and lightweight and have a pressure sensitive, cordless, batteryless pen for variable line weight input. These tablets are directed toward the graphic arts markets. SummaSketch(TM) III Digitizer Tablets. A family of digitizers which offer accuracy, reliability and ease of use. This product is primarily used in the CAD market for drawing and tracing. SummaGrid(TM) IV Digitizing Tablets. A set of high performance large format tablets that support CAD, GIS and mapping applications. Scanners Scanners are input devices which detect images on input media and translate the images into raster data for a computer. The Company markets a family of large format scanners, the ScanPlus(TM) III large format scanners 7 that are capable of fast, high volume scanning. These units, which can scan documents up to 36" wide, come in resolutions from 300 to 1000 dpi. The large format monochrome/color scanner addresses the needs of users who have to transfer hard copy drawings into a digital form. Applications for large format scanning include architectural engineering and construction (AEC), document management, mapping/GIS, and facilities management. Traditionally, converting to a digital form has been accomplished by either totally recreating the original drawing, utilizing a computer aided drafting package within the computer, or digitizing the original drawing using a large format digitizer. SUPPLIES The Company markets an extensive line of consumable inks and media for its printers and plotters. Supplies represented 25%, 26% and 26% of the revenues of the Company for fiscal years 1997, 1996 and 1995, respectively. Summagraphics had no supplies sales before the Exchange. In connection with the release of the new CrystalJet(TM) products, the Company intends to introduce a full line of ink and media supplies. The Company plans to market inks, under the name "CrystalInk", which will contain a complete set of both indoor dye-based ink and outdoor pigment-based ink. In addition, the Company intends to offer a full line of media products including opaque matte bond, premium bond, graphics presentation, glossy, adhesive- backed vinyl, canvas, and overlaminate material. The CrystalJet(TM) ink and media will be matched to provide the best possible image quality for CrystalJet(TM) products and will be specially formulated to fast dry, accommodating CrystalJet(TM) high speed printing. This matched ink and media system provides customers with one source for their printing needs. The Company's strategy for its new line of CrystalJet(TM) products is to establish a CrystalJet(TM) based-consumables business. The Company believes that the CrystalJet(TM) consumables business should replace and, as the installed base grows, exceed the Company's existing non-CrystalJet(TM) consumables business. The demands of the marketplace are extreme and require not only the ability to print fast with high resolution, but also require inks and substrates that can accommodate a full spectrum of color with outdoor durability. See "Risk Factors Affecting the Company--CrystalJet Technology". SERVICE AND SUPPORT The Company, through its North American Channels group, its international subsidiaries and selected third party providers, provides an extensive range of customer service and technical support for the Company's products. Service revenues accounted for 17%, 18% and 20% of the Company's revenues in 1997, 1996 and 1995, respectively. Technical support and customer service are provided through a twelve hour, five day telephone response network that provides customers with continuous access to trained technical support personnel. In addition, the Company provides product support and service through repair, exchange or replacement of products. The Company also maintains a staff of service technicians that are available for on-site service calls. During the past three years, the Company had entered certain agreements under which third parties provided service and technical support for the Company's traditional printer/plotter products. However, in view of the increased complexity of the Company's inkjet printer products, together with the need for increased emphasis on providing better response times to calls for service, the Company has moved away from using third parties in favor of its in-house service staff where feasible. RESEARCH AND DEVELOPMENT During each of the years 1997, 1996 and 1995, the Company expended funds for research and development activities of $23.3 million, $20.7 million and $17.3 million, respectively. The Company intends to continue to invest funds to develop technologies, such as the CrystalJet(TM) inkjet technology, that are expected to expand its product offerings. A significant portion of research and development funds in the output device market involve expanding inkjet technology and related platforms, with an emphasis on improving the Company's position in the area of image marking technology. For a discussion of the Company's research and development project with Kodak, see "Recent Developments." Additional funds are expected to be utilized to develop proprietary after- 8 market products such as inks and media. Research and development funds in the digitizer and cutter markets, where the Company has proprietary core technology, are expected to be devoted to developing new products and improving product performance while maintaining competitive pricing. PATENTS AND PROPRIETARY INFORMATION The Company owns numerous patents and patent applications, including domestic and foreign applications covering the CrystalJet(TM) technology, which are used in the operation of the Company's business and has developed a variety of proprietary information that is necessary for its business. While such patents, patent applications and other proprietary information are, in the aggregate, important to the operation of the Company's business, management of the Company does not believe that any individual patent, patent application or other intellectual property right is of such significance to the business of the Company that its loss or termination would materially affect the business of the Company. SALES AND DISTRIBUTION The Company sells hardware, supplies and service through a variety of distribution channels. Domestically, in 1997, the Company continued the ChannelWorks two-tiered distribution network introduced two years earlier. Through ChannelWorks, the number of domestic distributors was limited to those with broad market penetration capabilities and high efficiencies in their operations and logistics. Under ChannelWorks, products are generally sold through a limited number of distributors to value-added resellers serving the market applications targeted by the Company's products. Internationally, sales and distribution activities are determined by international sales management in coordination with in-country distributors and resellers to insure that sales and distribution efforts are appropriate for the country's market. In countries where the Company does not have a sales presence, orders are handled either by a local distributor or under a master distributor who is managed by the Company. See Note 12 of the "Notes to Consolidated Financial Statements." In 1998, the Company is modifying its distribution strategy for output products to sell its branded products through value-added resellers. The Company believes it can achieve an overall higher level of customer satisfaction with this approach. In addition, the Company intends to sell the new CrystalJet(TM) technology products to various strategic partners, such as IRIS Graphics and Kodak, who, in turn, will distribute such products under their private label. The Company believes this strategy will enable the Company to penetrate new markets and better service customer needs. See "Risk Factors Affecting the Company." COMPETITION General. The Company encounters extensive competition in all of its lines of business with numerous other parties, depending on the particular product or market environment. The Company's business involves rapidly changing technologies resulting in continued performance improvements at lower customer prices. The Company competes not only with other manufacturers of similar technologies, but also with firms that make products that may be substituted or exchanged for the Company's products. The parties with whom the Company competes differ depending on whether the product at issue is in the hard-copy plotter, printer and cutter market, or the digital input technology market. Many of the Company's competitors have larger technical staffs, larger marketing and sales organizations and significantly greater financial resources than the Company. The Company also faces additional competition from many smaller competitors. There can be no assurance that the products of existing or new competitors will not obtain greater market acceptance than the Company's products. Wide-Format Hard Copy Output Market. The wide-format hard copy output market is comprised of professional printing products having media handling capability of greater than 17" print width. The Company has historically competed in this market with the following four technologies: pen plotter, inkjet plotters and printers, direct thermal plotters and LED plotters. The parties with whom the Company competes vary depending on the nature of the technology and markets involved. The Company competes with a wide variety of competitors 9 in product performance, features and price in connection with the sale of its hard-copy output products. Traditional competitors in the wide-format hard copy market are: Hewlett Packard, Xerox, Encad, JDL, Oce, JRL and Mutoh. CrystalJet(TM) Products. In the fourth quarter of 1997, the Company announced its new line of wide-format digital printers featuring CrystalJet(TM) technology. The key market applications benefiting from this new technology are ones requiring fast throughput of digital printed images at the highest level of print resolution and quality. The Company anticipates that an emerging market for "on-demand" digital color printing will replace many of the current traditional printing technologies. The Company believes that the CrystalJet(TM) technology and products have a technical and competitive advantage over the current field of competitive products participating in these markets. Nevertheless, the traditional competitors in the wide-format hard copy market such as the companies listed in the prior paragraph are expected to compete on price, in an attempt to hold market share. It is also expected that current and new competitors with piezo technology capability, such as Brother, Epson, Xerox, Raster Graphics, Brady and Mimaki, may compete in these high productivity market segments. There is no assurance that new products of existing or new competitors will not obtain greater market acceptance than the Company's new products. Cutters. The flexible adhesive cutter market is a worldwide market with many competitors. Gerber Scientific and Roland claim the largest overall market share, while the Company is the major cutter company in Europe. The rest of the market is divided among a dozen or so companies, including the Company, Ioline, Graphtec and Mutoh. Input Devices. There are many suppliers of input devices with which the Company competes. A myriad of other signal-sensing devices are all capable of direct computer input and, to some extent, are interchangeable with other input devices. Various features distinguish the competitive products in this market. The input device selected by a customer will vary based upon intended application, price and performance. Major vendors in the worldwide digitizer market include the Company, along with Wacom, Seiko and Hitachi. In addition, there are many smaller companies such as ACECAD, Mutoh, GTCO and Graphtec. The Company is one of the largest providers of both small and large format digitizers. Wacom is the largest worldwide provider of small format tablets for the graphic arts market, while the Company is the largest supplier in the CAD market. Major providers in the scanner market are Vidar, Ideal, Contex and Oce. Market position is usually dictated by advertising, pricing and channel awareness rather than product differentiators. There can be no assurance that products of existing or new competitors will not obtain greater market acceptance than the Company's products or that the Company will be able to maintain its market share in the hard copy output, graphic cutter or input devices markets. RISK FACTORS AFFECTING THE COMPANY CrystalJet(TM) Technology In the fourth quarter of 1997, the Company completed the development of what is expected to be the first of a new generation of products based on its new CrystalJet(TM) piezo proprietary technology. The first of these piezo based products will be a new line of wide format digital printers which are expected to be brought to market in the first half of 1998. However, there can be no assurance that this product, or future products, will be accepted by the market place or that the Company will be able to manufacture these units in volume at costs which will make the large scale production of these products economically feasible. In conjunction with the introduction of the Company's new CrystalJet(TM) piezo inkjet technology, the Company intends to transition out of substantially all of its current thermal inkjet printer products by the end of 1998. Although the Company has recorded substantial reserves to reduce this end-of-life inventory to its estimated net realizable value, there can be no assurance that the Company will be able to liquidate this inventory at its current carrying value. 10 The Company's sales related to the end-of-life printer product lines represented 24%, 28% and 35% of the total revenues of the Company for fiscal 1997, 1996 and 1995, respectively. By the end of 1998, the Company's inkjet output product offerings will be limited to the new CrystalJet(TM) line of wide-format digital color printers. Failure to achieve market acceptance for these new products or the inability to timely achieve required production volumes at acceptable costs, could have a material adverse impact on the Company's business. Additionally, the Company's strategy for its new line of CrystalJet(TM) products is to establish a CrystalJet(TM) based-consumables business. The Company believes that the CrystalJet(TM) consumables business should replace and, as the installed base grows, exceed the Company's existing non- CrystalJet(TM) consumables business. There can be no assurance that the Company's will achieve this strategic goal. CrystalJet(TM) Technology and Manufacturing Risks The Company's CrystalJet(TM) manufacturing processes are highly complex, require the use of expensive and technically sophisticated equipment and will be continuously subject to modification in an effort to improve manufacturing yields and product quality. Technical or other difficulties in the manufacturing process can lower such manufacturing yields and result in products being less profitable than anticipated. Manufacturing difficulties and capacity limitations could also delay the Company's ability to deliver products in a timely manner. Delays or technical difficulties associated with new CrystalJet(TM) product introductions or product enhancements could have a material adverse effect on the Company's business. In addition to the technical and manufacturing risks inherent in the Company's new technology, the Company's believes that any significant business interruption affecting the Company's single CrystalJet(TM) manufacturing facility in Sunnyvale, California could materially and adversely affect CrystalJet(TM) product yields. Strategic Partnership Agreements The Company's CrystalJet(TM) strategy also is dependent on its ability to sign strategic partnership agreements with other companies, enabling it to leverage their established brand names and distribution channels. The Company has recently signed an agreement with IRIS Graphics to provide them with wide- format color printers, has entered into the Joint Development Agreement with Kodak, and has also had discussions with several other companies regarding strategic partnerships. The Company believes the strength of the CrystalJet(TM) technology will enable it to complete additional strategic agreements. However, there can be no assurance that the Company will be able to conclude such agreements. Contract Manufacturers The Company is dependent on various contract manufacturers to produce or assemble certain critical sub assemblies or products. There can be no assurance that the Company will be able to continue these third party relationships or that the contract manufacturers will continue to perform under their current contractual agreements. Any material interruption in these relationships could have a significant impact on the Company's ability to deliver products to customers, and therefore could have a material adverse impact on the Company's operations. Product Development The markets in which the Company's products compete are subject to rapid technological development. This rapid technological change results in the need to continually develop and bring to market new products to compete with competitive product offerings. The Company intends to continue investing in the development of new products and technology to enable it to aggressively compete within its various market segments; however, the availability of research and development funds is dependent on the Company's ability to internally fund its development and/or obtain continued external financing with respect to which no assurance can be given. 11 Suppliers The Company contracts with various outside vendors to obtain both component parts for its manufacturing process and for the acquisition of ink and media for its supplies business. Although the Company believes alternative vendors are available, any disruption in the relationship with these vendors could have an adverse impact on the Company's operations. In addition, any significant change in component price or delay in component availability could also negatively impact the Company's operations. Liquidity The Company's main sources of financing have been a $75 million line of credit with the Majority Shareholder under the Revolving Credit and Cash Management Agreements ("Credit Agreements") and the cash proceeds from the sale of the Company's headquarters facility. At December 28, 1997, the Company had drawn $59.5 million against that line which was scheduled to mature in July 1998. The Company was also in violation of certain financial ratio covenants under the Credit Agreements. In January 1998, the Majority Shareholder waived compliance with those covenants, and in March 1998, the Credit Agreements were amended to extend the maturity date to January 31, 1999, to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Credit Agreements upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. After determining that remaining amounts available under the line were not adequate to fund the Company's operations in the near term, the Company entered into a letter of intent in March, 1998 with a bank which contemplates an additional $25 million senior line of credit (the "Secured Agreement"). The Secured Agreement will allow the Company to borrow up to 80 percent of its eligible accounts receivable and 20 percent of eligible inventory through April, 2000. In addition, in March, 1998, the Company entered into the Joint Development Agreement with Kodak that provided $20 million in cash upon signing of the agreement and an additional $16 million in cash over the term to be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. Management believes these financial resources will be sufficient to satisfy the Company's liquidity requirements through 1998. If not, the Company will be required to seek additional financing from others or pursue other financing alternatives. No assurance can be given that, if required, additional financing will be available on acceptable terms or at all. Failure to obtain future financing or to have available continued access to such financing could result in material liquidity problems for the Company. For additional discussion of liquidity see "Item 7. Management's Discussion and Analysis Of Financial Condition and Results of Operations--Liquidity and Capital Resources." Foreign Market Risk Approximately 47%, 51%, and 53% of the Company's revenues in 1997, 1996 and 1995, respectively, were made internationally. International sales involve risks that are not necessarily applicable to domestic activities, such as exposure to currency fluctuations, offset obligations and changes in foreign economic and political environments. In addition, international transactions often involve increased financial and legal risks arising from widely different legal systems and customs. For additional information regarding the Company's revenue, operating profits and identifiable assets attributable to the Company's domestic and foreign operations, see Note 12 of the "Notes to Consolidated Financial Statements." ORGANIZATION The Company's business organization consists of two business units, the Input Technologies Division located in Scottsdale, Arizona which manufactures and/or distributes digitizers and scanners and the Digital Printing Systems Division located in Anaheim and Sunnyvale, California and Gistel, Belgium which manufactures and sells output products consisting of printers and cutters. Sales and service are organized geographically for both divisions, while the following functions are included within each division: Product Management is responsible for defining product requirements and remains responsible for the product through development, manufacturing and sales, to provide continuity to the Company's market commitment. 12 Product Development is charged with the design of an economically manufacturable product which meets the specifications originated by Product Management. Topaz is the development center for printers and printing technology for the Digital Printing Systems Division. Manufacturing performs all of the manufacturing operations, including the purchasing of materials, manufacturing, testing, packaging and shipping of products. Manufacturing consists of a blend of internal and outsourced capabilities. Marketing and Sales is responsible for the selection, management and support of distribution channels. Additionally, the North America Sales organization manages sales in territories where the Company has no operating subsidiaries or distributors through Budde International, Inc., a Master Distributor located in Anaheim, California. The Company's European operations are headquartered in Neuss, Germany. The Company's activities in the Asia/Pacific region are conducted through subsidiaries in Hong Kong, China and Australia. The Company is a party to a joint venture in Japan in which it has a 44% equity interest. Nippon Steel Corporation owns 51% and Sumitomo Corporation owns 5%. The joint venture, NS CalComp Corp., is the exclusive distributor for nearly all of the Company's products in Japan. See Note 6 of the "Notes to Consolidated Financial Statements." EMPLOYEES As of December 28, 1997, the Company employed approximately 885 people worldwide, of which 146 employees are involved in product development, manufacturing, marketing and headquarters operations in Anaheim, California. Approximately 191 employees are employed in the sales and service of the Company's products and are located at various strategic sites throughout North America, with many located in Anaheim, California. The Company employs approximately 137 people in support of its digitizer operations in Scottsdale, Arizona, and 133 people in support of inkjet products in Sunnyvale, California. In addition, there are approximately 252 employees in Europe and 26 employees in Asian operations, primarily involved with the importation, sales and service of the Company's products into their local geographic regions. ITEM 2. PROPERTIES The Company owns its Input Technologies Division facility in Scottsdale, Arizona which is comprised of a 68,000 square foot building on seven acres of land, and its cutter facility in Gistel, Belgium which is comprised of a 43,180 square foot building. During the fourth quarter of 1996, the Company decided to sell its 27.9 acre headquarter facility in Anaheim, California and wrote the facility down to its then current appraised value, less costs to sell, of $15,119,000 resulting in a loss of $10,908,000. On June 24, 1997, the Company completed the sale of the facility, to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for $21,500,000, less associated costs to sell. The headquarters sale resulted in a gain on disposal of $5,873,000. Proceeds from the sale of the property were used to reduce outstanding borrowings under a line of credit the Company has with the Majority Shareholder. The Company has leased back approximately 138,500 square feet of space, or two of the ten buildings located on the property. The Company has a one year lease with an option to continue the lease for an additional year. In accordance with the lease agreement, the Company has exercised this option to extend the lease through June 23, 1999. The Company also leases space at several field locations in the United States. These leased facilities are located in Sunnyvale, California; Livonia, Michigan; Bensalem, Pennsylvania; New Braunfels, Texas; Houston, Texas; and Macedonia, Ohio totaling approximately 51,532 square feet. The Company's Canadian subsidiary leases 13,815 square feet of space in Richmond Hill, Ontario. The Company leases 37,986 square feet of space in Europe, at locations in Vienna, Austria; Neuss, Germany; Bologna, Spain; Milan, Italy; Twyford, Berkshire, England; Paris, France; Madrid, Spain; Sollentuna, Sweden; and Amstelveen, Netherlands. Asian operations 13 occupy 10,340 square feet of space collectively in Sydney and Melbourne, Australia; Quarry Bay, Hong Kong; and Beijing, China. Prior to the move of the Company's corporate headquarters to Anaheim, California as a result of the Exchange, the Company's executive offices were located in a leased building in Austin, Texas having a total of 96,400 square feet of space. The Company is currently negotiating to terminate the lease on this vacant facility. The Company is also currently renegotiating certain European facility leases to reduce or eliminate excess space currently occupied by the Company's European subsidiaries. ITEM 3. LEGAL PROCEEDINGS A complaint was filed on January 25, 1997, by Raster Graphics, Inc. ("Raster Graphics"), against Topaz, the former shareholders of Topaz, Andreas Bibl, Deane Gardner and John Higginson (the former "Shareholders"), and the Company in California Superior Court in Santa Clara County. The complaint alleged, among other things, misappropriation of trade secrets, breach of fiduciary duty, unfair competition, breach of contract and conversion arising from the employment by Raster Graphics of the former Topaz Shareholders who founded Raster Graphics in 1987 where they participated in the development of certain inkjet technology. On April 18, 1997, Raster Graphics filed an amended complaint, dismissing its claims against the Company and amending the complaint to focus on technology relating to a test fixture that had been developed at Raster Graphics. The complaint seeks unspecified compensatory damages, punitive damages, costs and injunctive relief. The Company continues to believe that the inkjet printing technology developed by Topaz is proprietary to the Company and is not based on Raster Graphics technology, and that this lawsuit is without merit. A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the Company, in the U.S. District Court for the Central District of California. The complaint alleged among other things, that CalComp Inc.'s sale of ULTRASLATE digitizer tablets infringes U.S. Patents Nos. 4,878,553 (now Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes Wacom's common law trademark ULTRAPEN. Wacom's request for a preliminary injunction concerning infringement of the first two of three patents was denied by the Court on February 12, 1998. Wacom is also seeking damages and permanent injunctive relief with respect to alleged infringement of the three patents, pre-judgment interest and, among other things, has requested an award of its attorneys' fees and costs. The Company does not believe that any of the allegations made by Wacom in this suit have merit and intends to defend itself against all the claims. The Company is also party to other legal actions in the normal course of its business. The Company does not believe that the disposition of any of these matters will have a material adverse effect on its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's Common Stock currently is traded on the NASDAQ National Market System under the symbol "CLCP." The following table sets forth the high and low closing bid prices of the Common Stock for the periods, since the consummation of the Exchange, as reported by the NASDAQ.
HIGH LOW ------ ------ Year Ended December 28, 1997: Fourth Quarter............................................... 6 1/16 3 1/2 Third Quarter................................................ 5 1/2 1 7/8 Second Quarter............................................... 2 7/8 1 3/8 First quarter................................................ 2 3/4 2 3/16 Year Ended December 29, 1996: Fourth Quarter............................................... 3 2 Third Quarter................................................ 3 3/16 1 5/8
As of March 10, 1998, there were 311 record holders of the Company's Common Stock (which shares are believed to be beneficially owned by approximately 1,892 persons). The Company has never paid any dividends with respect to its Common Stock. Any future payment of dividends will be at the discretion of the Board of Directors and will depend on the financial condition and capital requirements of the Company, as well as other factors that the Board of Directors deems relevant. It is currently anticipated that the Company will retain future earnings, if any, to finance the operation and growth of its business. As long as Lockheed Martin continues to own 50 percent or more of the Common Stock, it will be able to elect the entire Board of Directors of the Company and, therefore, will be able to control all decisions with respect to its dividend policy. 15 ITEM 6. SELECTED FINANCIAL DATA The selected statement of operations and balance sheet data for each of the five years in the periods set forth below are derived from CalComp Technology, Inc.'s audited consolidated financial statements. The comparability of the selected financial data presented is significantly affected by the Exchange and the items discussed in the footnotes below. This selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of CalComp Technology, Inc. and related notes thereto included elsewhere herein. The following data is presented in thousands, except for per share data:
DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 25, DECEMBER 26, 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Revenue................. $200,158 $235,916 $281,655 $294,548 $300,151 Loss from operations.... (69,691)(3) (59,580)(2) (9,088) (23,464) (48,622) Net loss................ (75,188) (56,604) (10,718) (23,226) (46,639) Weighted average shares used in computing per share amounts.......... 46,951 42,946 40,743 40,743 40,743 Basic and diluted loss per share(1)........... $ (1.60) $ (1.32) $ (0.26) $ (0.57) $ (1.14) BALANCE SHEET DATA: Total assets............ $209,457 $276,085 $231,564 $228,312 $257,746 Long-term liabilities... 67,896 33,909 8,720 8,548 4,967
- -------- (1) Loss per share amounts for all years prior to 1997 have been restated, as required, to conform with the requirements of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The adoption of Statement No. 128 resulted in no changes in per share amounts previously reported. (2) Loss from operations includes charges of $10,090,000, related to the restructuring of the Company's operations and $10,908,000 related to the loss on the sale of the Company's headquarters facility. (See Note 2 of the "Notes to Consolidated Financial Statements"). (3) Loss from operations includes net charges of $3,788,000 related to additional restructuring of the Company's operations and $10,800,000 to reduce certain end-of-life product inventory to its estimated net realizable value. In addition, loss from operations includes a $5,873,000 realized gain on the sale of the Company's headquarters facility. (See Note 2 of the "Notes to Consolidated Financial Statements"). 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Report on Form 10-K contains statements which, to the extent that they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward looking statements involve risks and uncertainties. The forward looking statements in this Report on Form 10-K have been made subject to the safe harbor protections provided by Sections 27A and 21E. The following table sets forth, for the Company's fiscal years ended December 28, 1997, December 29, 1996, and December 31, 1995, items in the consolidated statements of operations of the Company as percentages of total revenue. The table and the subsequent discussion should be read in conjunction with the consolidated financial statements and related notes thereto of CalComp Technology included elsewhere herein. For more detailed information concerning the Company after consummation of the Exchange, see Item 1. Business and Note 2 of "Notes to the Consolidated Financial Statements". PERCENTAGE OF TOTAL REVENUES
YEARS ENDED -------------------------------------- DECEMBER 28, DECEMBER 29, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Revenue: Hardware and supplies.................. 74% 68% 67% Service................................ 17 18 20 Sales to affiliates.................... 9 14 13 --- --- --- Total revenue........................ 100 100 100 Cost of revenue: Hardware and supplies.................. 93 76 72 Service................................ 89 82 72 Sales to affiliates.................... 80 70 73 --- --- --- Total cost of revenue................ 91 76 72 --- --- --- Gross profit: Hardware and supplies.................. 7 24 28 Service................................ 11 18 28 Sales to affiliates.................... 20 30 27 --- --- --- Total gross profit................... 9 24 28 Operating expenses: Research and development............... 12 9 6 Selling, general and administrative.... 32 30 22 Corporate expenses from Majority Shareholder........................... 1 1 3 (Gain) loss on disposal of facilities.. (3) 5 -- Restructuring charge................... 2 4 -- --- --- --- Total operating expenses............. 44 49 31 --- --- --- Loss from operations.................... (35) (25) (3) --- --- --- Interest expense........................ 2 1 0 Other expense (income), net............. 1 (1) 0 --- --- --- Loss before income taxes................ (38) (25) (3) Provision for (benefit of) income taxes. -- (1) 1 --- --- --- Net loss................................ (38)% (24)% (4)% === === ===
GENERAL The Company's products and services compete in several markets including CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing. The Company's ability to successfully market its products requires adapting new technologies, such as the CrystalJet(TM) technology, and leveraging the channels of 17 distribution in order to remain competitive. The Company encounters extensive competition in all of its lines of business with numerous other parties, depending on the particular product or market environment. The Company's business involves rapidly changing technologies resulting in continued performance improvements at lower customer prices. The companies that participate in the industry are highly competitive. Reduced unit selling prices and shortened product life cycles are expected to continue to place pressure on the Company's margins. Many of the Company's competitors have larger technical staffs, larger marketing and sales organizations and significantly greater financial resources than the Company. There can be no assurance that the products of existing or new competitors will not obtain greater market acceptance than the Company's products. See Item 1. "Business-- Risk Factors Affecting the Company". On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp Inc., a wholly-owned subsidiary of Lockheed Martin Corporation ("Lockheed Martin" or the "Majority Shareholder"), effected a plan of reorganization for the exchange of CalComp Inc. stock for Summagraphics stock, after which Summagraphics changed its name to CalComp Technology, Inc. ("Company") (the "Exchange"). The newly reorganized Company adopted a fiscal year ending on the last Sunday of December. For accounting purposes, CalComp Inc. was treated as the acquiring company. Therefore, the historical financial statements are those of CalComp Inc. with the accounts and results of Summagraphics included from the date of the Exchange (See Note 2 of Notes to the Consolidated Financial Statements). During fiscal 1997, the purchase price allocation for the Exchange was adjusted to reflect the differences between the current and preliminary estimate of costs incurred to terminate facility leases and actual costs incurred related to various acquisition related liabilities. These purchase price allocation revisions resulted in an adjustment to increase goodwill by $3.6 million. In 1997, the Company introduced its new CrystalJet(TM) product line and initiated a transition plan to eliminate certain existing output product lines and accelerate the Company's end-of-life process for those products that will be discontinued. As a result, in the third and fourth quarters of 1997, the Company recorded credit memos of $5.2 million against revenue and inventory reserves of $12.4 million to cost of sales aggregating $17.6 million, primarily to reduce accounts receivable and certain end-of-life inventories to their estimated net realizable values, respectively. Although the Company has recorded these additional reserves to reflect their estimated net realizable values, there can be no assurance that the Company will be able to liquidate this inventory and collect these receivables at their current carrying values. In addition, as the Company's sales related to these end-of-life product lines represented 24%, 28%, and 35% of the revenues of the Company for fiscal 1997, 1996 and 1995, respectively, the Company's diversity of inkjet product offerings, by the end of 1998, will be limited to the new CrystalJet(TM) line of wide-format digital printers until subsequent CrystalJet(TM) product offerings are introduced. Failure to achieve market acceptance for these products or the inability to increase manufacturing volumes to achieve production efficiencies, could have a material adverse impact on the Company's consolidated financial position and results of operations. See Item 1 "Business--Risk Factors Affecting the Company". In addition, the Company's strategy for its new products focuses on capturing consumable sales through establishing a strong installed base of CrystalJet(TM) products, both through CalComp branded products and through the various channels provided by the Company's strategic partners. However, there can be no assurance that the Company will be able to achieve this strategic goal. RESULTS OF OPERATIONS Comparison of 1997 to 1996 Revenues. Revenues for 1997 declined $35.8 million, or 15%, to $200.2 million from the previous year, with hardware and supplies and sales to affiliates (collectively "product revenue") down 14% and service revenue down 19%. For purposes of Management's Discussion and Analysis of the Results of Operations, revenue and gross profit from sales to affiliates have been combined with hardware and supplies revenues and gross profit, since such sales have been consummated at prices and terms that are consistent with prices and terms available to unrelated third parties. The decline in product revenue resulted primarily from decreases in product 18 demand due to the maturity of the Company's output products compared to its competitors, the associated price reductions necessary to maintain market position and lower customer demand due to the Company's announcement of its intent to discontinue certain output products in anticipation of the release of the new CrystalJet(TM) product lines. These decreases were partially offset by increases in sales of the Company's cutter products resulting primarily from a full year of sales in 1997 compared to five months in 1996 subsequent to the Exchange. The lower service revenue compared to the prior year is a result primarily of fewer service contracts being generated due to the lower product revenue base, a lower rate of service contract renewals as older generation products are retired from service and the transition of customers to lower cost products, which traditionally do not capture the level of service contract renewals as higher priced products. The Company's foreign sales declined 23% in 1997, compared to the prior year, reflecting the decrease in demand for the Company's mature output products and the Company's responses to significant competitor pricing pressures. Gross Profit. Gross profit for 1997 decreased to 9% from 24% in 1996. Product gross profit decreased to 8% from 25% in the prior year while service gross profit decreased to 11% in 1997 from 18% in 1996. The decline in gross profit margin was attributable primarily to manufacturing inefficiencies resulting from decreased production volumes due to lower customer demand for the Company's mature output products, and selling price reductions for these mature products, necessitated by competitive pressures. The decrease in service gross profit is attributable to the transition to lower cost products which do not carry the same level of service margin as the older generation higher cost products which they replaced. The decline in gross profit was further impacted by the $17.6 million charge associated with the Company's decision to accelerate the transition from its current products to its new proprietary inkjet products. Excluding the effect of these charges, the gross profit percentage was 17%. Operating Expenses. Total operating expenses, excluding restructuring charges and the sale of the Company's headquarters facility, were $89.3 million in 1997, or 45% of revenue, compared to $94.1 million, or 40% of revenue, in 1996. Research and development expenses increased $2.6 million in 1997, to 12% of revenue from 9% of revenue in 1996. This higher spending level reflects costs incurred to develop the Company's new CrystalJet(TM) product line, which is expected to be the first of a new generation of products based on the Company's proprietary inkjet technology. The first of the CrystalJet(TM) products is expected to be released in the first half of 1998. The markets in which the Company's products compete are subject to rapid technological development. This rapid technological change results in the need to continually develop and bring to market new products to compete with its competitors' product offerings. The Company intends to continue its investment in the development of new products and technology to enable it to aggressively compete within its various market segments; however, the availability of research and development funds is dependent on the Company's ability to increase its revenue base, control expenses and return to profitability. Further, the availability of funds is heavily dependent on the Company's ability to obtain continued financing while it transitions to its new CrystalJet(TM) products. Selling, general and administrative expenses decreased $6.7 million in 1997, to 32% of revenue from 30% of revenue in 1996. The decline in spending resulted primarily from the benefits of staffing and facility consolidation as a result of restructuring actions taken in 1996 and 1997 to streamline the Company's infrastructure, as well as reductions in advertising and marketing spending as the Company phases out certain output product lines. These cost savings were partially offset by increased expenses related to a new management information systems, litigation and higher amortization expense resulting from additional intangible assets associated with the Summagraphics and Topaz acquisitions in 1996. Corporate expenses from Lockheed Martin decreased $0.7 million to $2.9 million in 1997 from $3.6 million in 1996. This decrease is attributable to the effect of recent acquisitions by Lockheed Martin on corporate charges whereby expenses are allocable over a larger base thereby reducing the corporate charge. Restructuring and Sale of Headquarters Facility. In the fourth quarter of 1996, the Company initiated a plan to restructure its operations worldwide and incurred a charge of approximately $10.1 million consisting of 19 $6.9 million for the elimination of an estimated 285 positions worldwide and $3.2 million for lease termination and related fixed asset disposition costs for the reorganization of the Company's European operations. During 1997, the Company incurred cash expenditures aggregating $8.0 million and non-cash charges of $0.1 million, related to severance payments, asset writedowns and lease payments for closed facilities. As of December 31, 1997, approximately $6.7 million of the 1996 restructuring charge utilized related to severance payments made to the 283 employees who have been terminated under the 1996 plan. As of December 28, 1997, substantially all of the 1996 restructuring plan had been completed, although certain lease obligations will continue through 1998. The Company recorded a $1.0 million credit in the fourth quarter of 1997 after concluding that most of the 1996 restructuring plan activities were completed or adequately provided for within the remaining restructuring accrual. In the fourth quarter of 1997, the Company expanded its plan to restructure its operations worldwide and incurred a charge of approximately $4.8 million consisting of $2.9 million for the elimination of an additional 91 positions relating to further realignment of the Company's international operations, and $1.9 million for lease termination and related fixed asset disposition costs for certain international facilities. During the fourth quarter, the Company incurred cash expenditures aggregating $0.6 million related to severance actions taken prior to year end. At December 31, 1997, the restructuring accrual approximated $5.0 million consisting of $4.2 million from the 1997 plan and $0.8 million remaining from the 1996 plan. During the fourth quarter of 1996, the Company decided to sell its 27.9 acre headquarters facility in Anaheim, California and wrote the facility down to its then current appraised value, less costs to sell, of $15.1 million resulting in a loss of $10.9 million. On June 24, 1997, the Company completed the sale of the facility, to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for $21.5 million, less associated costs to sell. The headquarters sale resulted in a gain on disposal of $5.9 million. Proceeds from the sale of the property were used to reduce outstanding borrowings under a line of credit the Company has with the Majority Shareholder. The Company has leased back approximately 138,500 square feet of space, or two of the ten buildings located on the property. The Company entered a one year lease with an option to continue the lease for an additional year. In accordance with the lease agreement, the Company has exercised this option to extend the lease through June 23, 1999. The 1997 restructuring is expected to reduce operating expenses and streamline the Company's infrastructure, resulting in approximately $3.5 million annually in reduced administrative and support expenses. Interest Expense. Interest expense increased to $3.0 million in 1997 from $1.0 million in 1996 due substantially to increases in the Company's outstanding balances under a line of credit with the Majority Shareholder. Also, interest expense in 1997 includes a full year of expense compared to five months in 1996 subsequent to the Exchange. Other Expense (Income), net. Other expense (income), net, declined $2.9 million to $1.4 million of net expense in 1997 compared to $1.5 million of net income in 1996. This decrease resulted primarily from foreign exchange transaction losses of $1.9 million in 1997 compared to a loss of $0.5 million in 1996, resulting from the strength of the U.S. dollar and its impact on the Company's international subsidiaries' U.S. dollar denominated liabilities. In addition, during 1996, the Company recorded interest income of $1.1 million resulting from a favorable determination by U.K. taxing authorities. Earnings for the Company's Japanese joint venture, which is accounted for on the equity method in other income, were consistent with the prior year. Income Taxes (Benefit). The 1997 net tax expense of $38,000 relates primarily to state tax expense of $0.3 million from the Company's combined state tax sharing allocations with Lockheed Martin, partially offset by the foreign tax loss carryback benefit from the Company's foreign operations. As the Company sustained a net loss in 1997, no federal income tax provision was necessary, nor was a tax benefit recorded as management determined that it was appropriate to increase the valuation allowance for deferred tax assets. It is the intention of management to assess the continued need for the valuation allowance for each period. In 1996, the income tax benefit of $2.5 million related primarily to the carryback benefit of foreign tax losses from the Company's foreign operations. 20 New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting (SFAS) No. 131, "Disclosures about Segments of and Enterprise and Related Information." SFAS 131 establishes standards for the way in which publicly-held companies report financial and descriptive information about its operating segments in financial statements for both interim and annual periods. The Statement also requires additional disclosures with respect to products and services, geographic areas of operation and major customers. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS 131 will have no impact on the Company's consolidated results of operations, cash flows or financial position, but may increase the level of disclosure of segment information. COMPARISON OF 1996 TO 1995 Revenue. Revenues for 1996 declined $45.7 million, or 16%, to $235.9 million from the previous year, with product revenue down 15% and service revenues down 21%. The decline in product revenue during 1996 was $34.1 million consisting of revenue declines of approximately $55.2 million resulting primarily from continuing competitive pressures on output products, pricing actions, continuing difficulties with implementation of the ChannelWorks distribution program and difficulties and delays associated with new product introductions. Such revenue declines were partially offset by revenue growth of approximately $21.1 million resulting primarily from the addition of the Summagraphics' cutter and digitizer product lines. Service revenue declines resulted from the drop in after-market service contract sales resulting from the decline in hardware sales and the transition to lower cost products, which traditionally do not capture the same level of service contract revenue as higher cost products. Gross Profit. The Company's gross profit for 1996 decreased to 24% from 28% in 1995. Product gross profit decreased to 25% from 28%, while service gross profit decreased to 18% from 28%. The decrease in product gross profit is attributable to continued competitive pricing pressure, continued shift in the mix of products sold towards lower cost, lower margin products, higher costs associated with the introduction of new products, and the phase out of mature, end of life products at reduced selling prices. The decrease in service gross profit is attributable to the transition to lower cost products which do not carry the same level of service margin as the older generation higher cost products which they replaced. In addition, service costs increased during the period as a result of customer usage rates higher than product specifications on LED/laser products requiring additional service calls and replacement parts, as well as from costs associated with product quality issues related to products introduced at the end of 1995 and in the first half of 1996. The companies that participate in the industry are highly competitive. Reduced unit selling prices and shortened product life cycles are expected to continue to place pressure on the Company's margins. Operating Expenses. Total operating expenses were $115.1 million in 1996, an increase of 31% or $27.0 million from the prior year and include a one-time restructuring charge of $21.0 million for facility write-downs and restructuring expenses. Total operating expenses prior to certain restructuring charges and facility writedowns were $94.1 million in 1996, a 7% increase from 1995 to 40% of revenue in 1996 versus 22% in 1995. Product development expenses increased $3.4 million to 9% of revenue from 6% in 1995. The increase resulted from ongoing new product development as well as expenses incurred to address product quality issues related to products introduced at the end of 1995 and in the first half of 1996. Selling, general and administrative expenses increased $7.3 million to 30% of revenue from 22% in 1995. Selling, general and administrative expense increases are attributable to expenses related to the Exchange; marketing and promotional expenses incurred to meet competitive pressures; costs associated with new management information systems; litigation; as well as the increase in goodwill amortization resulting from the Exchange and the decision to shorten CalComp Inc.'s existing goodwill amortization period from 40 years to 25 years. Corporate expenses from Lockheed Martin decreased $4.7 million to 1% of revenue from 3% in 1995 as a result of Lockheed Martin's decision to discontinue its practice of interest allocation to affiliates. The interest allocation in 1995 under this method was $4.6 million. 21 Restructuring Charges. The restructuring charges incurred in the fourth quarter of 1996, of $21.0 million, consisted of $10.9 million for the write- down of the Company's headquarters facility to its estimated fair market value, in anticipation of sale, lease termination and fixed asset disposition costs of $3.2 million related to the exiting from certain facilities, and severance costs of $6.9 million associated with the elimination of 285 positions worldwide. In the fourth quarter of 1996, approximately 68 employees were terminated resulting in payouts of approximately $0.7 million. Interest Expense. The Company's interest expense for the year was $1.0 million relating primarily to borrowings by the Company from Lockheed Martin made pursuant to the Credit Agreements (as defined below) entered into as part of the Exchange. There were no such charges or agreements in place in 1995. Other Income, net. Other income, net, declined $0.4 million to $1.5 million in 1996 from $1.9 million in 1995, as a result of a reduction in earnings of $0.9 million of a Japanese joint venture which is accounted for on the equity method in other income, foreign exchange transaction losses of $0.5 million versus a gain of $0.4 million in the prior year resulting from the strength of the U.S. dollar and its impact on the Company's international subsidiaries' U.S. dollar denominated liabilities, partially offset by increases in interest income of $1.1 million resulting primarily from a favorable determination by U.K. taxing authorities that the Company is entitled to interest on certain tax amounts refunded. Income Taxes (Benefit). The income tax benefit of $2.5 million for 1996 relates primarily to the carryback benefit of foreign tax losses from the Company's foreign operations. As the Company sustained a net loss in 1996, no federal income tax provision was necessary, nor was a tax benefit recorded as management determined that it was appropriate to increase the valuation allowance for deferred tax assets. In 1995, the Company's provision for income tax was $3.6 million relating primarily to the provision for foreign taxes on the Company's profitable foreign locations. SUPPLEMENTAL INFORMATION The Company uses a fifty-two, fifty-three week fiscal year which ends on the last Sunday in December. Fiscal 1997 and 1996 each contained fifty-two weeks. Fifty-three weeks were included in Fiscal 1995. The Company believes that the effects of inflation on its operations and financial condition are minimal. See Note 7 of Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report for information with respect to outstanding litigation. LIQUIDITY AND CAPITAL RESOURCES The Company's recent operations have resulted in net losses of $75.2 million, $56.6 million and $10.7 million for the years ended December 28, 1997, December 29, 1996 and December 31, 1995, respectively. The Company's main sources of financing have been a $75 million line of credit with the Majority Shareholder under the Revolving Credit and Cash Management Agreements ("Credit Agreements") and the proceeds from the sale of the Company's headquarters facility. At December 28, 1997, the Company had drawn $59.5 million against that line which was scheduled to mature in July 1998. The Company was also in violation of certain financial ratio covenants under the Credit Agreements. In January 1998, the Majority Shareholder waived compliance with those covenants, and in March 1998, the Credit Agreements were amended to extend the maturity date to January 31, 1999, to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Credit Agreements upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. After determining that remaining amounts available under the line are not adequate to fund the Company's operations in the near term, the Company entered into a letter of intent in March 1998 with a bank which contemplates an additional $25 million senior line of credit (the "Secured Agreement"). The Secured Agreement will allow the Company to borrow up to 80 percent of its eligible accounts receivable and 20 percent of eligible inventory through April, 2000. In addition, in March 1998, the Company entered into the Joint Development 22 Agreement with Kodak that provided $20 million in cash upon signing of the agreement and an additional $16 million in cash over the term to be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. Management believes these financial resources will be sufficient to satisfy the Company's liquidity requirements through 1998. If not, the Company will be required to seek additional financing from others or pursue other financing alternatives. No assurance can be given that, if required, additional financing will be available on acceptable terms or at all. The Company is implementing plans to improve the Company's competitive position by introducing a new line of CrystalJet(TM) piezo inkjet printers in the first half of 1998, as well as increasing operating efficiencies. The Company anticipates that these efforts will result in improved gross margins and operating results during fiscal 1998. However, no assurances can be given that the Company will be successful in realizing these goals. Failure to achieve market acceptance for these products or the inability to timely achieve required production volumes at acceptable costs could have a material adverse impact on the Company's business. During fiscal 1997, the Company used $47.5 million of cash in its operations primarily to fund its continuing net losses which included $10.5 million in payments relating to the Company's reorganization and restructuring plans announced in 1996 and 1997. In addition, $10.9 million was expended on property, plant and equipment, relating primarily to purchases of tooling and equipment for the development and manufacture of the new CrystalJet(TM) product line, and $2.9 million was expended to repay preexisting Summagraphics debt. These uses of cash were funded substantially by borrowings from the Company's Majority Shareholder of $30.6 million, pursuant to the Credit Agreements, $21.1 million in net proceeds from the sale of the Company's headquarters facility in Anaheim, California and $1.1 million in net proceeds from the sale of fixed assets. During 1997, the Company spent $0.7 million in the implementation of new management information systems, primarily with respect to its international locations. During 1997, the Company continued to invest heavily in fixed assets at the Topaz facility, and during 1998 will use the proceeds contributed by Kodak pursuant to the Joint Development Agreement to support the development and manufacture of the new CrystalJet(TM) products. The Company has no other significant commitments for capital expenditures. Although the Company believes that cost savings from the restructuring of its worldwide operations, which will be substantially completed in the first half of 1998, combined with the introduction of its proprietary new CrystalJet product line, will allow the Company to better respond to intense industry competition, no assurance can be given that such goals will be realized. The Company anticipates operating losses to continue through 1998. For a discussion of risk factors, see Item 1. "Business--Risk Factors Affecting the Company". Year 2000 Compliance. Many existing computer systems, applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. Such systems and applications could fail or create erroneous results unless corrected to process data related to the Year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including systems (such as general ledger, accounts payable and payroll modules), customer services, infrastructure, embedded computer chips, networks and telecommunications equipment. The Company also relies, directly and indirectly, on external systems of business enterprises such as customers, suppliers, creditors, financial organizations and governmental entities, both domestic and international, for accurate exchange of data. The Company has been investigating and continues to assess the impact, if any, which Year 2000 issues may have on its internal computer systems. Although the assessment process is not complete, based on information and estimates currently available, Year 2000 issues related to these systems will not have a material adverse effect on the operations of or on the financial results of the Company. The inability of customers, suppliers and other external enterprises with which the Company interacts to make timely changes to their own systems could have an adverse impact on the Company. The Company believes all of its products are Year 2000 compliant. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ---- Report of Independent Auditors........................................... 25 Consolidated Balance Sheets at December 28, 1997 and December 29, 1996... 26 Consolidated Statements of Operations for the Years Ended December 28, 1997, December 29, 1996 and December 31, 1995........................... 27 Consolidated Statements of Stockholders' Equity for the Years Ended December 28, 1997, December 29, 1996 and December 31, 1995.............. 28 Consolidated Statements of Cash Flows for the Years Ended December 28, 1997, December 29, 1996 and December 31, 1995........................... 29 Notes to Consolidated Financial Statements............................... 30
24 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders CalComp Technology, Inc. We have audited the accompanying consolidated balance sheets of CalComp Technology, Inc. as of December 28, 1997 and December 29, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CalComp Technology, Inc. at December 28, 1997 and December 29, 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Orange County, California January 19, 1998, except for Notes 1, 7, 8 and 13, as to which the date is March 30, 1998 25 CALCOMP TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 28, DECEMBER 29, 1997 1996 ------------ ------------ ASSETS: Current assets: Cash............................................... $ 6,494 $ 15,290 Accounts receivable (less allowance for doubtful accounts of $3,367 in 1997 and $4,603 in 1996).... 26,208 48,230 Accounts receivable from affiliates................ 4,428 8,633 Inventories (Note 3)............................... 43,069 57,765 Net assets held for sale (Note 2).................. -- 15,119 Prepaid expenses and other current assets.......... 4,783 5,866 -------- -------- Total current assets............................. 84,982 150,903 Property, plant and equipment, net (Note 3).......... 29,048 26,891 Investments (Note 6)................................. 5,682 5,022 Goodwill (net of accumulated amortization of $26,050 in 1997 and $20,324 in 1996)........................ 79,994 82,080 Other intangibles (net of accumulated amortization of $1,894 in 1997 and $271 in 1996).................... 5,857 7,866 Other assets......................................... 3,894 3,323 -------- -------- Total assets..................................... $209,457 $276,085 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable................................... $ 14,395 $ 27,554 Accounts payable to affiliates..................... 5,591 4,704 Deferred revenue................................... 6,828 9,217 Accrued salaries and related expenditures.......... 4,487 7,398 Accrued restructuring costs (Note 2)............... 5,049 9,355 Accrued reorganization costs (Note 2).............. 6,878 5,595 Line of credit..................................... -- 2,948 Other liabilities.................................. 22,600 22,901 -------- -------- Total current liabilities........................ 65,828 89,672 Line of credit with Majority Shareholder (Note 8).... 59,525 28,880 Other long-term liabilities.......................... 8,371 5,029 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued........................... -- -- Common stock, $.01 par value, 60,000,000 shares authorized, 47,070,950 and 46,898,650 shares issued and outstanding on December 28, 1997 and December 29, 1996, respectively................... 471 469 Additional paid-in capital......................... 287,322 286,860 Accumulated deficit................................ (217,145) (141,957) Cumulative translation adjustment.................. 5,550 7,597 Less: Treasury stock, at cost, 49,000 shares....... (465) (465) -------- -------- Total stockholders' equity....................... 75,733 152,504 -------- -------- Total liabilities and stockholders' equity....... $209,457 $276,085 ======== ========
See accompanying notes to consolidated financial statements. 26 CALCOMP TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED ---------------------------------------- DECEMBER 28, DECEMBER 29, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Revenue: Hardware and supplies................. $ 148,157 $ 161,083 $ 188,880 Service............................... 34,827 43,208 54,860 Sales to affiliates................... 17,174 31,625 37,915 ----------- ----------- ----------- Total revenue....................... 200,158 235,916 281,655 Cost of revenue: Hardware and supplies................. 138,061 122,649 135,880 Service............................... 30,831 35,498 39,233 Sales to affiliates................... 13,699 22,228 27,555 ----------- ----------- ----------- Total cost of revenue............... 182,591 180,375 202,668 ----------- ----------- ----------- Gross profit........................ 17,567 55,541 78,987 Operating Expenses: Research and development.............. 23,314 20,713 17,343 Selling, general and administrative... 63,129 69,843 62,507 Corporate expenses from Majority Shareholder (Note 5)................. 2,900 3,567 8,225 (Gain) loss on disposal of facilities (Note 2)............................. (5,873) 10,908 -- Restructuring charge (Note 2)......... 3,788 10,090 -- ----------- ----------- ----------- Loss from operations.................... (69,691) (59,580) (9,088) Interest expense........................ 4,037 989 -- Other expense (income), net (Note 4).... 1,422 (1,507) (1,942) ----------- ----------- ----------- Loss before income taxes................ (75,150) (59,062) (7,146) Provision for (benefit of) income taxes (Note 9)............................... 38 (2,458) 3,572 ----------- ----------- ----------- Net loss............................ $ (75,188) $ (56,604) $ (10,718) =========== =========== =========== Basic and diluted loss per share of common stock....................... $ (1.60) $ (1.32) $ (0.26) =========== =========== =========== Weighted-average number of shares outstanding (Note 1)............... 46,951,243 42,945,581 40,742,957 =========== =========== ===========
See accompanying notes to consolidated financial statements. 27 CALCOMP TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
NOTE COMMON STOCK ADDITIONAL CUMULATIVE RECEIVABLE ----------------- PAID-IN ACCUMULATED TRANSLATION TREASURY MAJORITY STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK SHAREHOLDER EQUITY ---------- ------ ---------- ----------- ----------- -------- ----------- ------------- Balance at December 25, 1994................... 40,742,957 $ 407 $ 265,243 $ (61,067) $ 5,955 $ -- $(48,056) $162,482 Net decrease in receivable from stockholder........... -- -- -- -- -- -- 12,403 12,403 Translation adjustment. -- -- -- -- 2,576 -- -- 2,576 Net loss............... -- -- -- (10,718) -- -- -- (10,718) ---------- ----- --------- ---------- ------- ------ -------- -------- Balance at December 31, 1995................... 40,742,957 407 265,243 (71,785) 8,531 -- (35,653) 166,743 Net decrease in receivable from stockholder........... -- -- -- -- -- -- 22,085 22,085 Deemed dividend of receivable from stockholder (Note 1).. -- -- -- (13,568) -- -- 13,568 -- Issuance of stock for acquisitions.......... 6,155,693 62 21,617 -- -- -- -- 21,679 Acquired treasury stock................. -- -- -- -- -- (465) -- (465) Translation adjustment. -- -- -- -- (934) -- -- (934) Net loss............... -- -- -- (56,604) -- -- -- (56,604) ---------- ----- --------- ---------- ------- ------ -------- -------- Balance at December 29, 1996................... 46,898,650 469 286,860 (141,957) 7,597 (465) -- 152,504 Exercise of stock options............... 172,300 2 462 -- -- -- -- 464 Translation adjustment. -- -- -- -- (2,047) -- -- (2,047) Net loss............... -- -- -- (75,188) -- -- -- (75,188) ---------- ----- --------- ---------- ------- ------ -------- -------- Balance at December 28, 1997................... 47,070,950 $ 471 $ 287,322 $ (217,145) $ 5,550 $ (465) $ -- $ 75,733 ========== ===== ========= ========== ======= ====== ======== ========
See accompanying notes to consolidated financial statements. 28 CALCOMP TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED -------------------------------------- DECEMBER 28, DECEMBER 29, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Operating activities: Net loss.............................. $(75,188) $(56,604) $(10,718) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization....... 15,041 12,631 9,845 Restructuring charge................ 3,788 10,090 -- Restructuring payments.............. (8,094) (735) -- (Gain) loss on disposal of facilities......................... (5,873) 10,908 -- Investee income..................... (828) (815) (1,645) Net changes in operating assets and liabilities........................ 23,625 (8,690) 11,406 -------- -------- -------- Net cash (used in) provided by operating activities............. (47,529) (33,215) 8,888 Investing activities: Net cash acquired in connection with acquisitions......................... -- 1,962 -- Purchase of property, plant and equipment............................ (10,942) (6,593) (10,824) Proceeds from disposition of property, plant and equipment.................. 1,093 135 841 Proceeds from sale of asset held for sale................................. 21,121 -- -- Dividends received.................... 168 311 672 -------- -------- -------- Net cash provided by (used in) investing activities............. 11,440 (4,185) (9,311) Financing activities: Proceeds from line of credit with Majority Shareholder................. 30,645 15,380 -- Net cash received from Majority Shareholder.......................... -- 24,600 2,978 Reduction in revolving line of credit. (2,948) (1,664) -- Exercise of stock options............. 464 -- -- -------- -------- -------- Net cash provided by financing activities....................... 28,161 38,316 2,978 Effect of exchange rate changes on cash. (868) (200) 770 -------- -------- -------- Change in cash.......................... (8,796) 716 3,325 Cash at beginning of year............... 15,290 14,574 11,249 -------- -------- -------- Cash at end of year..................... $ 6,494 $ 15,290 $ 14,574 ======== ======== ========
See accompanying notes to consolidated financial statements. 29 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation CalComp Technology, Inc. (the "Company") is an 86.6% owned subsidiary of Lockheed Martin Corporation ("Lockheed Martin" or the "Majority Shareholder"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The financial statements do not include the accounts of AGT Holdings, Inc. and Access Graphics, Inc., which were transferred to the Majority Shareholder effective May 15, 1996. This transaction has been treated as a change in the reporting entity since the two entities are in dissimilar businesses to that of the Company and historically have been managed and financed separately by the Majority Shareholder. In addition, effective November 17, 1997, the Majority Shareholder sold its ownership interest in AGT Holdings, Inc. to an unrelated third party (Note 5). The acquisition of the Company by Lockheed Martin in August 1986 was accounted for as a purchase and a new basis of accounting was established for the Company's financial statements. This new basis resulted in certain assets and liabilities being recorded at their then fair market value. Accumulated depreciation, retained earnings, and cumulative translation adjustments reflect activity from August 1, 1986. For tax purposes, no revaluation occurred as a result of the business combination. On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp Inc., a wholly-owned subsidiary of Lockheed Martin Corporation at that time, effected a plan of reorganization for the exchange of CalComp Inc. stock for Summagraphics stock, after which Summagraphics changed its name to CalComp Technology, Inc. ("CalComp" or "the Company") ("the Exchange"). The newly reorganized Company adopted a fiscal year ending on the last Sunday of December. For accounting purposes, CalComp Inc. was treated as the acquiring company. Therefore, the historical financial statements are those of CalComp Inc. with the accounts and results of Summagraphics included from the date of the Exchange (Note 2). The equity method of accounting is used when the Company has a significant, but less than majority ownership interest in another company. Under the equity method, original investments are recorded at cost and adjusted by the Company's share of undistributed earnings or losses of the investee companies, which is recognized as a component of other income in the consolidated statements of operations. The Company's investment in NS CalComp Corporation (NSCC) is accounted for under the equity method. A portion of the profit on product sales to NSCC is deferred until realized through sales to third party customers. Operations and Financing The Company's recent operations have resulted in net losses of $75.2 million, $56.6 million and $10.7 million for the years ended December 28, 1997, December 29, 1996 and December 31, 1995, respectively. The Company's main sources of financing have been a $75 million line of credit with the Majority Shareholder under the Revolving Credit and Cash Management Agreements ("Credit Agreements") and the proceeds from the sale of the Company's headquarters facility. At December 28, 1997, the Company had drawn $59.5 million against that line which was scheduled to mature in July 1998. The Company was also in violation of certain financial ratio covenants under the Credit Agreements. In January 1998, the Majority Shareholder waived compliance with those covenants, and in March 1998, the Credit Agreements were amended to extend the maturity date to January 31, 1999, to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Credit Agreements upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. 30 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) After determining that remaining amounts available under the line are not adequate to fund the Company's operations in the near term, the Company entered into a letter of intent in March 1998 with a bank which contemplates an additional $25 million senior line of credit (the "Secured Agreement"). The Secured Agreement will allow the Company to borrow up to 80 percent of its eligible accounts receivable and 20 percent of eligible inventory through April, 2000. In addition, in March 1998, the Company entered into the Joint Development Agreement with Kodak that provided $20 million in cash upon signing of the agreement and an additional $16 million in cash over the term to be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. Management believes these financial resources will be sufficient to satisfy the Company's liquidity requirements through 1998. If not, the Company will be required to seek additional financing from others or pursue other financing alternatives. No assurance can be given that, if required, additional financing will be available on acceptable terms or at all. The Company is implementing plans to improve the Company's competitive position by introducing a new line of CrystalJet(TM) piezo inkjet printers, in the first half of 1998, as well as increasing operating efficiencies. The Company anticipates that these efforts will result in improved gross margins and operating results during fiscal 1998. However, no assurances can be given that the Company will be successful in realizing these goals. Failure to achieve market acceptance for these products or the inability to timely achieve required production volumes at acceptable costs could have a material adverse impact on the Company's consolidated financial position, results of operations and cash flows. Business The Company develops, manufactures, distributes and supports a wide variety of computer graphics products which it markets in the United States and throughout the world. The Company's principal products are printers and plotters, digitizers and cutters. Printers are units that place raster images on output media, either paper or film, by placing small dots on the media, while plotters are devices that translate computer output into hard copy visual data such as schematics, maps, charts and other drawings. Digitizers are devices that convert points, lines and drawings to digital impulses that can be input into a computer. Cutters are output devices, similar in construction to a pen plotter, but employ a knife in place of a pen to cut vinyl for signs and banners, art film for screen printing, and various stencil materials for etching text and images into glass, wood and stone via an abrasive etching process. The Company is dependent on certain distributors in North America and Asia through which it transacts a majority of its hardware sales. In management's opinion, other sources of distribution on comparable terms would be available if there was a disruption in the business relationship with these distributors. The Company is dependent on certain limited source suppliers for key technology components used in its products. Loss of such vendor relationships could have a significant impact on the Company's near term operating results. The Company also derives a significant portion of its revenues from the sale of services and supplies related to its hardware products. The Company's products and services compete in several markets including computer aided design ("CAD"), presentation graphics, graphic arts and printing and publishing. Each of these markets have several competitors, some of them larger than the Company. The Company's ability to successfully market its products requires adapting new technologies and leveraging the channels of distribution in order to remain competitive. Use of Estimates The development and use of estimates is inherent in the preparation of financial statements that are presented in accordance with generally accepted accounting principles. Significant estimations are made relative 31 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) to the valuation of accounts receivable, inventories, income taxes, and certain accrued liabilities, including, among others, those for warranties and contingent liabilities where an unfavorable outcome is considered probable and the amount of the loss is estimable. Actual results may differ from amounts estimated. Revenue Recognition Revenue is recognized from product sales when shipments are made and from services over the term of the service contract. In certain circumstances, the Company provides customers with stock rebalancing and price protection rights that permit these distributors, retailers, and dealers to return slow-moving products to the Company for credit or to receive price adjustments if the Company lowers the price of selected products within certain time periods. Stock rebalancing programs allow customers to return product and receive credit for the invoiced price less any post-sale pricing reductions. The effect of these programs is estimated and current period sales and cost of sales are reduced accordingly. Fiscal Year The Company uses a fifty-two, fifty-three week fiscal year which ends on the last Sunday in December. Fiscal 1997 and 1996 each contained fifty-two weeks. Fifty-three weeks were included in fiscal 1995. Concentration of Credit Risk The Company sells the majority of its products throughout the United States, Canada, Europe and Asia. Sales to the Company's recurring customers are generally made on an open account term while sales to occasional customers are made on a C.O.D. basis. The Company performs periodic credit evaluations of its ongoing customers and generally does not require collateral. Reserves are maintained for potential credit losses, and such losses have been within management's expectations. No single customer represented more than 10% of sales in any year presented. Accounts receivable from the Company's two largest distributors amounted to $6,702,000 and $8,016,000 at December 1997 and 1996, respectively. Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. The Company reserves for inventory that is determined to be obsolete or substantially in excess of forecasted demand. Property, Plant and Equipment Property, plant and equipment acquired are stated at cost less accumulated depreciation. Equipment under capital leases is stated at the lower of the present value of future minimum lease payments or fair value at the inception of the lease. Depreciation (including amortization of assets covered by capital leases) is computed using the straight-line method over the following estimated useful lives: Buildings.......................... 33 1/3 years Building improvements.............. 5 to 15 years Machinery and equipment............ 3 to 8 years Furniture and fixtures............. 5 to 8 years
Depreciation expense for fiscal years 1997, 1996 and 1995 totaled $7,692,000, $7,792,000 and $8,190,000, respectively. 32 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Intangible Assets Intangible assets, consisting of goodwill, patents and other intangibles (which include developed technology and an assembled workforce) are being amortized using the straight-line method over the estimated useful lives ranging from five to twenty-five years. As of January 1, 1996, the Company re-evaluated its remaining useful life of the goodwill related to the 1986 purchase of CalComp Inc. by Lockheed Martin, which was being amortized over forty years. The Company estimated the remaining useful life at that date to be fifteen years. Accordingly, the amortization period was adjusted to reflect this change in the estimated useful life, resulting in additional goodwill amortization of approximately $1,635,000 beginning in 1996. Recoverability of Long Lived Assets In accordance with SFAS No. 121, long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable. The recoverability test is performed at a consolidated level based on undiscounted net cash flows because the assets being tested do not have identifiable cash flows that are largely independent of other asset groupings. Based upon its analysis, the Company believes that no impairment of the carrying value of its long-lived assets inclusive of goodwill existed at December 28, 1997. The Company's analysis was based on an estimate of future undiscounted cash flows using forecasts contained in the Company's operating plan. It is at least reasonably possible that the Company's estimate of future undiscounted cash flows may change during fiscal 1998. In addition, if the Company's estimate of future undiscounted cash flows should change or if the operating plan is not achieved, future analyses may indicate insufficient future undiscounted net cash flows to recover the carrying value of the Company's long-lived assets, in which case such assets would be written down to estimated fair value. Stock Option Plans The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations, in accounting for its employee stock options because, as discussed in Note 11, the alternative fair value accounting provided for under Statement of Financial Accounting Standard No. 123, "Accounting for Stock- Based Compensation," (SFAS 123) requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized. Translation of Foreign Currencies The assets and liabilities of the Company's foreign subsidiaries, whose cash flows are primarily in their local currency, have been translated into U.S. dollars using the current exchange rates at each balance sheet date. The operating results of these foreign subsidiaries have been translated at average exchange rates that prevailed during each reporting period. Adjustments resulting from translation of foreign currency financial statements are reflected as cumulative translation adjustments in the consolidated balance sheet. Exchange gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than that of the entity's primary cash flow) are included in operations in the period in which they occur. Warranty Reserve The Company provides warranties on its products for various periods. The Company reserves for future warranty costs based on historical failure rates and repair costs. 33 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income Taxes The Company's operations are included in consolidated federal and combined state income tax returns of the Majority Shareholder. The provision for income taxes is calculated on a separate return basis, pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires recognition of deferred tax assets and liabilities based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Reclassifications Certain amounts in the 1996 and 1995 consolidated financial statements have been reclassified to conform to the current year presentation. Per Share Data Loss per share for fiscal 1997, 1996 and 1995 was computed based on the weighted average number of common shares outstanding during each period since common stock equivalents are antidilutive. The Company has adopted SFAS 128, "Earnings Per Share," and applied this pronouncement to all periods presented. This statement requires the presentation of both basic and diluted net income (loss) per share for financial statement purposes. Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share includes the effect of the potential shares outstanding, including dilutive stock options and warrants, using the treasury stock method. Because the impact of options and warrants are antidilutive, there is no difference between the loss per share amounts computed for basic and diluted purposes. Also, the adoption of SFAS 128 resulted in no change in amounts previously reported. Advertising Costs The Company expenses advertising costs as incurred. Advertising expenditures for the years 1997, 1996 and 1995 were $5,228,000, $8,980,000 and $5,847,000, respectively. Supplementary Cash Flow Information Changes in operating assets and liabilities are as follows for the years ended in December:
1997 1996 1995 -------- -------- ------- (IN THOUSANDS) Changes in operating assets and liabilities: Accounts receivable.......................... $ 24,500 $ 7,176 $ 9,618 Accounts receivable from affiliates.......... 1,270 3,599 (8,090) Inventories.................................. 12,683 (9,122) 4,353 Prepaid expenses and other current assets.... 1,249 (540) 487 Other assets................................. 630 902 (2,046) Accounts payable............................. (12,232) (648) (2,308) Accounts payable to affiliates............... 887 4,704 -- Accrued salaries and related expenditures.... (2,446) (369) (906) Deferred revenue............................. (2,389) (905) (2,678) Accrued reorganization costs................. (2,357) 5,595 -- Other liabilities............................ 1,766 (15,212) 3,379 Other long-term liabilities.................... 64 (1,355) 172 Decrease (increase) in net receivable from Majority Shareholder.......................... -- (2,515) 9,425 -------- -------- ------- Net changes in operating assets and liabilities................................... $ 23,625 $ (8,690) $11,406 ======== ======== =======
34 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In connection with the acquisition of Summagraphics Corporation (Note 2), the Company reclassified the net receivable as of the transaction date of $13,568,000 from the Majority Shareholder to accumulated deficit to reflect a deemed dividend of the Company's net receivable from the Majority Shareholder. Changes in operating assets and liabilities presented in the Consolidated Statements of Cash Flows are net of the effect of the acquisitions discussed in Note 2. Net income taxes paid to (received from) the Majority Shareholder and foreign governments were $(1,231,000), $1,424,000, and $2,638,000 for 1997, 1996 and 1995, respectively. Interest paid was $4,154,000, $445,000 and $0 for 1997, 1996 and 1995, respectively. Pending Adoption of New Accounting Standard In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information (SFAS 131)." SFAS 131 establishes standards for the way in which publicly held companies report financial and descriptive information about its operating segments in financial statements for both interim and annual periods. The Statement also requires additional disclosures with respect to products and services, geographic areas of operation and major customers. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The Company's adoption of SFAS 131 will have no impact on the Company's consolidated results of operations, cash flows or financial position but may increase the level of disclosure of segment information. 2. RESTRUCTURING AND ACQUISITIONS Restructuring of Operations and Sale of Headquarters Facility In the fourth quarter of 1996, the Company initiated a plan to restructure its operations worldwide and provided a charge of approximately $10,090,000, consisting primarily of $6,940,000 for the elimination of an estimated 285 positions worldwide and $3,150,000 for lease termination and related fixed asset disposition costs for the reorganization of the Company's European operations. During 1997, the Company incurred cash expenditures aggregating $7,986,000 and non-cash charges of $108,000, related to severance payments, asset writedowns and lease payments for closed facilities. As of December 31, 1997, approximately $6,736,000 of the 1996 restructuring charge utilized relates to severance payments made to the 283 employees who have been terminated under the 1996 plan. As of December 28, 1997, the majority of the 1996 restructuring plan has been completed although certain lease obligations will continue through 1998. The Company recorded a $1,000,000 credit in the fourth quarter of 1997 after concluding that most of the 1996 restructuring plan activities were completed or adequately provided for within the remaining restructuring accrual. In the fourth quarter of 1997, the Company expanded its plan to restructure its operations worldwide and provided a charge of approximately $4,788,000 consisting primarily of $2,900,000 for the elimination of an additional 91 positions, relating to further realignment of the Company's international operations, and $1,888,000 for lease termination and fixed asset disposition costs for certain international facilities. During the fourth quarter, the Company incurred cash expenditures aggregating $615,000 related to severance actions taken prior to year end. At December 31, 1997, the restructuring accrual approximates $5,049,000, consisting of $4,173,000 from the 1997 plan and $876,000 remaining from the 1996 plan. Also in 1997, the Company initiated a transition plan to rationalize certain existing output product lines and accelerate the Company's end-of-life process for those products that will be discontinued as a result of the introduction of a new generation of inkjet products based on the Company's proprietary CrystalJet(TM) technology. 35 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As a result, in the third and fourth quarters of 1997, the Company recorded credit memos of $5,200,000 against revenue and inventory reserves of $12,400,000 to cost of sales in the accompanying 1997 statement of operations to reduce accounts receivable and certain end-of-life product inventory to their estimated net realizable values, respectively. During the fourth quarter of 1996, the Company decided to sell its 27.9 acre headquarters facility in Anaheim, California and wrote the facility down to its then appraised value, less costs to sell, of $15,119,000, resulting in a loss of $10,908,000. On June 24, 1997, the Company completed the sale of the facility to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real Estate Capital partners for $21,500,000, less associated costs to sell. The headquarters sale resulted in a gain on disposal of $5,873,000. Proceeds from the sale of the property were used to reduce outstanding borrowings under a line of credit the Company has with the Majority Shareholder. The Company has leased back approximately 138,500 square feet of space, or two of the ten buildings located on the property under a one year lease with an option to continue the lease for an additional year. In accordance with the lease agreement, the Company has exercised this option to extend the lease through June 23, 1999. The restructuring and sale of the headquarters facility are expected to reduce operating expenses and streamline the Company's infrastructure. Acquisition of Summagraphics Corporation In July 1996, the Company completed a Plan of Reorganization (the "Exchange") for the exchange of Stock of CalComp Inc. for Stock of Summagraphics Corporation. Pursuant to this Exchange, the Company issued to Lockheed Martin 40,742,957 shares of Common Stock of the Company, representing 89.7% of the total outstanding shares of Common Stock of the Company following such issuance, in exchange for all of the outstanding capital stock of CalComp Inc. As a result of the exchange, Lockheed Martin acquired control of the Company and CalComp Inc. became a wholly-owned subsidiary of the Company. In connection with the Exchange, the Company changed its name to CalComp Technology, Inc. and changed its year end from May 31 to the last Sunday of December. The purchase was accounted for as a "reverse acquisition" whereby CalComp Inc. was deemed to have acquired CalComp Technology, Inc. (formerly Summagraphics Corporation) for financial reporting purposes. However, CalComp Technology, Inc. remains the continuing legal entity and registrant for Securities and Exchange Commission filing purposes. Consistent with reverse acquisition accounting, the historical financial statements of the Company presented for the year ended December 31, 1995 are the consolidated financial statements of CalComp Inc. and differ from the consolidated financial statements of the Company previously reported. In addition, the historical stockholders' equity as of December 31, 1995 has been retroactively restated to reflect the equivalent number of shares issued in connection with the Exchange. The accounts and results of operations of CalComp Technology, Inc. have been included in the financial statements from the date of acquisition and reflect purchase price allocations and adjustments. In connection with the Exchange, the Company had accrued $7,358,000 relating to the termination of facility leases and other costs and $4,612,000 related to severance costs. During 1996, the Company made all severance payouts. During 1997, the purchase price allocation for the Exchange was adjusted to reflect differences between the current and preliminary estimate of costs incurred to terminate facility leases and to reflect actual costs incurred related to various acquisition liabilities. This purchase price allocation adjustment resulted in an increase to goodwill and the reorganization accrual on the consolidated balance sheet of $3,640,000. The Company has expended $2,357,000 and $1,763,000 in 1997 and 1996, respectively, related to lease termination and rent payments on these facilities. 36 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Acquisition of Topaz Technologies, Inc. In November 1996, the Company acquired Topaz Technologies, Inc. ("Topaz"), a privately held company located in Sunnyvale, California in exchange for 1,500,000 shares of the Company's Common Stock and $750,000 in cash. Topaz became a wholly owned subsidiary of CalComp Technology, Inc. As a result of the acquisition, which was accounted for using the purchase method of accounting, the Company acquired $5.9 million in assets and assumed $1.6 million in liabilities and the results of operations of Topaz are consolidated with the Company's subsequent to the acquisition date. Topaz is a developer and manufacturer of proprietary inkjet printing technology. The Company anticipates the introduction of a new generation of CrystalJet(TM) inkjet products based on this new proprietary technology in the first half of 1998. The CrystalJet(TM) products being introduced will replace most existing output products. 3. BALANCE SHEET INFORMATION Additional information for certain balance sheet accounts is as follows as of December:
1997 1996 -------- -------- (IN THOUSANDS) Net inventories: Raw materials and purchased components.............. $ 11,042 $ 16,719 Work in process..................................... 434 699 Finished goods...................................... 31,593 40,347 -------- -------- $ 43,069 $ 57,765 ======== ======== Property, plant and equipment: Land, buildings and building improvements........... $ 6,330 $ 6,330 Machinery and equipment............................. 40,982 47,090 Furniture and fixtures.............................. 3,183 7,423 -------- -------- 50,495 60,843 Less accumulated depreciation....................... (21,447) (33,952) -------- -------- $ 29,048 $ 26,891 ======== ========
4. OTHER EXPENSE (INCOME), NET Other expense (income) consists of the following components for the years ended in December:
1997 1996 1995 ------ ------- ------- (IN THOUSANDS) The Company's share of equity investee earnings..................................... $ (828) $ (815) $(1,645) Foreign exchange transaction loss (gain)...... 1,891 544 (360) Interest income............................... (245) (1,388) (268) Other expense, net............................ 604 152 331 ------ ------- ------- Total..................................... $1,422 $(1,507) $(1,942) ====== ======= =======
5. TRANSACTIONS WITH MAJORITY SHAREHOLDER AND AFFILIATES The Majority Shareholder has billed the Company for certain corporate general and administrative costs under a formula acceptable for the United States Department of Defense contracting purposes. Additionally, prior to 1996, the Majority Shareholder had billed the Company for interest based on the Majority Shareholder's cost 37 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of borrowed funds. This allocation of interest is included in corporate expenses from Majority Shareholder on the consolidated statement of operations. Subsequent to July 23, 1996, the Majority Shareholder has charged the Company interest based on the terms of the credit agreement between the parties (Note 8). The interest expense, subsequent to July 23, 1996, based on the credit agreement, is included in interest expense on the consolidated statement of operations. Amounts charged to the Company, and included in Corporate expenses from Majority Shareholder were as follows for the years ended in December:
1997 1996 1995 ------ ------ ------ (IN THOUSANDS) Corporate general and administrative................ $2,900 $3,567 $3,578 Interest............................................ -- -- 4,647 ------ ------ ------ $2,900 $3,567 $8,225 ====== ====== ======
Additionally, the Company has entered into support agreements with the Majority Shareholder. The agreements provide, among other things, that the Majority Shareholder undertake to provide certain services for and at the request of the Company including, but not limited to, administration of the pension and savings plan, legal and other general administrative services, and group medical, liability and workers' compensation insurance. Expenses are allocated to the Company based on actual amounts incurred on behalf of the Company plus estimated overhead related to such amounts. Amounts billed to the Company were $4,223,000, $2,988,000 and $3,981,000 for 1997, 1996 and 1995, respectively. Such amounts are allocated to various cost elements in the financial statements based on relevant factors which include headcount and square footage. The Company purchases certain components from Lockheed Martin Commercial Electronics, a division of the Majority Shareholder. Purchases amounted to $4,273,000, $10,059,000 and $10,503,000 for the years ended December 1997, 1996 and 1995, respectively. Purchases from Lockheed Martin Commercial Electronics were made at prices and terms similar to those available from unrelated vendors. Accounts payable to these affiliates aggregated $5,591,000 and $4,704,000 as of December 1997 and 1996, respectively. The Majority Shareholder had, until July 23, 1996, a centralized domestic cash management system whereby the Company's cash surplus was transferred to the Majority Shareholder's accounts on a daily basis and cash disbursements were funded by the Majority Shareholder, as needed, to maintain the disbursement account at a zero balance. Since that date, the Company requests cash as needed to fund operations based on the credit agreement (Note 8) with the Majority Shareholder. These requests are processed as borrowings against the credit agreement with the Majority Shareholder. Excess funds are transferred to the Majority Shareholder as payments toward previous borrowings. On July 23, 1996, the Company reclassified the net receivable of $13,568,000 from the Majority Shareholder to accumulated deficit to reflect a deemed dividend of the Company's net receivable from the Majority Shareholder. The Company sells computer graphics equipment to Access Graphics, Inc. ("Access Graphics") for resale. The Company transferred its ownership interest in AGT Holdings, Inc., the parent company of Access Graphics, to the Majority Shareholder on May 15, 1996. In addition, effective November 17, 1997, the Majority Shareholder sold its ownership interest in AGT Holdings, Inc. to an unrelated third party. As a result, sales to Access Graphics for 1997, aggregating $6,401,000, are included in hardware and supplies revenue on the consolidated statement of operations. Sales to Access Graphics for 1996 and 1995 are included in sales to affiliates on the consolidated statements of operations and totaled $9,055,000 and $19,722,000, respectively. End user sales to other affiliated companies, including sales to NS CalComp KK (Note 6), were $17,174,000, $22,570,000 and $18,193,000 during 1997, 1996, and 1995, respectively. Sales to related parties have been consummated at prices and terms consistent with similar transactions with unrelated third parties. 38 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Accounts receivable from these affiliates related to such sales aggregated $4,428,000 and $8,633,000 as of December 1997 and 1996, respectively. 6. INVESTMENT IN NS CALCOMP KK In 1990, the Company sold a 56% interest in a previously wholly owned Japanese subsidiary, Nippon CalComp KK (now referred to as NSCC) to Nippon Steel Corporation (NSC) and Sumitomo Corporation. The Company's remaining 44% ownership interest in NSCC is accounted for under the equity method based on financial information for the twelve months ended in November. Summarized financial information for NSCC for the years ended in December is as follows:
1997 1996 1995 ------- ------- ------- (UNAUDITED) (IN THOUSANDS) Balance sheets: Current assets.................................. $33,760 $30,231 $35,534 Total assets.................................... 36,617 33,508 39,581 Current liabilities............................. 18,050 13,896 20,351 Total liabilities............................... 18,421 14,264 20,813 Statements of operations: Net sales....................................... $57,172 $60,184 $66,703 Gross profit.................................... 20,332 21,790 26,872 Net earnings.................................... 1,514 1,765 2,727
As of December 28, 1997, the carrying value of the Company's investment is less than the underlying equity in NSCC's net assets due to the profit in NSCC's inventory that has not been realized through sales to third party customers, a cumulative translation gain and differences resulting from stock sales by NSCC. As of December 28, 1997, $5,945,000 of consolidated retained earnings was represented by the undistributed net earnings of NSCC. Sales to NSCC amounted to $16,130,000, $20,602,000 and $16,815,000 in 1997, 1996, and 1995, respectively. Accounts receivable from NSCC are $4,399,000 and $5,608,000 as of December 1997 and 1996, respectively, and are included in accounts receivable from affiliates in the consolidated balance sheets. 7. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases various operating facilities and equipment under noncancelable operating leases. Most leases contain renewal options at stipulated amounts for varying periods. Certain agreements contain options for the purchase of equipment at a stipulated amount, which will approximate market at the end of the lease. Additionally, certain leases provide for periodic rental adjustments based on the Consumer Price Index or fair market values. Minimum rental payments under noncancelable operating leases are $3,194,000 in 1998, $2,613,000 in 1999, $1,920,000 in 2000, $1,729,000 in 2001, $1,099,000 in 2002 and $1,855,000 thereafter. However, due to the Company's restructuring program (Note 2), certain operating leases are being renegotiated to reduce or eliminate commitments and, if successful, these future minimum rental payments could be substantially reduced. Rent expense was $4,075,000, $2,200,000 and $3,700,000 in 1997, 1996 and 1995, respectively. Legal Proceedings A complaint was filed on January 25, 1997, by Raster Graphics, Inc. ("Raster Graphics"), against Topaz, the former shareholders of Topaz, Andreas Bibl, Deane Gardner and John Higginson (the former 39 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) "Shareholders"), and the Company in California Superior Court in Santa Clara County. The complaint alleged, among other things, misappropriation of trade secrets, breach of fiduciary duty, unfair competition, breach of contract and conversion arising from the employment by Raster Graphics of the former Topaz Shareholders who founded Raster Graphics in 1987 while they participated in the development of certain inkjet technology. On April 18, 1997, Raster Graphics filed an amended complaint, dismissing its claims against the Company and amending the complaint to focus on technology relating to a test fixture that had been developed at Raster Graphics. The complaint seeks unspecified compensatory damages, punitive damages, costs and injunctive relief. The Company continues to believe that the inkjet printing technology developed by Topaz is proprietary to Topaz and is not based on Raster Graphics technology and that this lawsuit is without merit. A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the Company, in the U.S. District Court for the Central District of California. The complaint alleged, among other things, that CalComp Inc.'s sale of ULTRASLATE digitizer tablets infringes U.S. Patents Nos. 4,878,553 (now Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes Wacom's common law trademark ULTRAPEN. Wacom's request for a preliminary injunction concerning infringement of the first two of the three patents was denied by the Court on February 12, 1998. Wacom is also seeking damages and permanent injunctive relief with respect to alleged infringement of the three patents, pre-judgment interest and, among other things, has requested an award of its attorneys' fees and costs. The Company does not believe that any of the allegations made by Wacom in this suit have merit and intends to defend itself against all the claims. The Company is also party to other legal actions in the normal course of its business. The Company does not believe that the disposition of any of these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. Environmental Matters In connection with the June 1997 sale of the Company's headquarters facility in Anaheim, California, the Company agreed to remain obligated to address certain environmental conditions which existed at the site prior to the closing of the sale. In addition, Lockheed Martin, the Company's Majority Shareholder, has guaranteed the performance of the Company under this environmental agreement. In 1988, the Company submitted a plan to the California Regional Water Quality Control Board ("the Water Board") relating to its facility in Anaheim, California. This plan contemplated site assessment and monitoring of soil and ground water contamination. In 1997, the Company, at the request of the Water Board, submitted work plans to conduct offsite water investigations and onsite soil remediation. The initial phase of work commenced in January 1998. As of December 28, 1997, the Company has established reserves which it considers to be adequate to cover the cost of investigations and tests required by the Water Board, any additional remediation that may be requested and potential costs of continued monitoring of soil and groundwater contamination, if required. The Company believes that it has adequately accrued for any future expenditures in connection with environmental matters and that such expenditures will not have a materially adverse effect on its consolidated financial condition or results of operations. Effective January 1, 1997, the Company adopted the American Institute of Certified Public Accounts' Statement of Position (SOP) No. 96-1, "Environmental Remediation Liabilities." In addition to providing a nonauthoratative discussion of major federal legislation dealing with environmental matters, SOP 96-1 also provides authoritative guidance on certain remediation liabilities. The impact of the adoption of this SOP was not material to the Company's consolidated results of operations, financial position or cash flows. 40 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. INDEBTEDNESS Credit Agreements with Majority Shareholder In July 1996, the Company and the Majority Shareholder entered into two separate agreements; the Revolving Credit Agreement and the Cash Management Agreement, collectively referred to as the "Credit Agreements". The Revolving Credit Agreement was subsequently amended and restated, pursuant to which the Majority Shareholder will provide, from time to time, financing of up to $73,000,000 for repayment of specified indebtedness and general corporate purposes, including financing the working capital needs of the Company and its subsidiaries. The Revolving Credit Agreement contained certain negative and affirmative covenants. As of December 28, 1997, the Company was in breach of certain of these financial covenants. On January 22, 1998, the Majority Shareholder waived compliance with these covenants. In March 1998, the Revolving Credit Agreement was further amended to extend the maturity date from July 22, 1998 to January 31, 1999, to eliminate the requirement for compliance with certain financial ratio covenants, to eliminate the right of the Majority Shareholder to cancel the Revolving Credit Agreements upon 120 days prior written notice, and to remove the security interest of the Majority Shareholder in the assets of the Company. The Revolving Credit Agreement bears interest, at the Company's option, at either (1) a rate per annum equal to the higher of the federal funds rate as published in the Federal Reserve System plus 0.5% or the rate publicly announced from time to time by Morgan Guaranty Trust Company of New York as its "prime" rate or (2) LIBOR plus 2.0%. There is no required prepayment or scheduled reduction of availability of loans under the Agreement. The Cash Management Agreement provides cash advances of up to $2,000,000 to the Company by the Majority Shareholder for cash shortfalls. In March 1998, the Cash Management Agreement was amended to extend the maturity date from June 1, 1998 to January 31, 1999. The agreement bears interest equal to the Federal Funds Rate. As of December 28, 1997, the Company has an aggregate outstanding balance under the Credit Agreements of $59,500,000 with interest rates ranging from 5.29% to 7.69%. Secured Agreement with Bank After determining that remaining amounts available under the line were not adequate to fund the Company's operations in the near term, the Company entered into a letter of intent in March, 1998 with a bank which contemplates an additional $25 million senior line of credit (the "Secured Agreement"). The Secured Agreement will allow the Company to borrow up to 80 percent of its eligible accounts receivable and 20 percent of eligible inventory through April, 2000. 9. TAXES BASED ON INCOME The provision for (benefit of) income taxes consists of the following for years ended in December:
1997 1996 1995 ----- ------- ------ (IN THOUSANDS) Current: Federal......................................... $ -- $ -- $ -- State........................................... 334 (201) (54) Foreign......................................... (296) (2,257) 3,626 ----- ------- ------ $ 38 $(2,458) $3,572 ===== ======= ======
41 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory tax rate on loss before income taxes and equity in income from subsidiaries excluded from the Exchange:
1997 1996 1995 -------- -------- ------- (IN THOUSANDS) Computed income taxes using statutory tax rate....................................... $(26,303) $(20,672) $(2,501) Increases (reduction) from: Operating losses without current tax benefit.................................. 16,701 9,259 3,932 Foreign taxes at rates other than statutory rate........................... 7,988 3,573 1,765 Goodwill amortization..................... 1,347 1,686 550 State taxes, net of federal benefit....... 217 (131) (82) Minority interest......................... (211) (251) (576) Write down of facility without current tax benefit.................................. -- 4,078 -- Foreign withholding tax................... -- -- 484 Other..................................... 299 -- -- -------- -------- ------- $ 38 $ (2,458) $ 3,572 ======== ======== =======
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary components of the Company's deferred tax assets and liabilities at December 28, 1997 and December 29, 1996 were as follows:
1997 1996 -------- -------- (IN THOUSANDS) Deferred tax liabilities related to: Excess of purchase book value over tax basis of property, plant and equipment..................................... $ 1,729 $ 3,435 Depreciation methods..................................... 2,072 2,072 Prepaid pension costs.................................... 986 1,143 -------- -------- 4,787 6,650 Deferred tax assets related to: Inventories.............................................. 12,145 15,433 Accumulated postretiree medical benefit obligation....... 1,838 1,476 Accrued liabilities...................................... 5,660 5,311 Accrued compensation and benefits........................ 869 2,901 Accounts receivable...................................... 1,421 1,287 Foreign net operating loss carryover..................... 8,750 -- Net operating loss carryover............................. 50,567 20,505 Foreign tax credit carryover............................. 16,671 22,305 Other, net............................................... 2 212 -------- -------- 97,923 69,430 -------- -------- Valuation allowance for deferred tax assets.............. (93,136) (62,780) -------- -------- $ -- $ -- ======== ========
The Company has provided a valuation allowance for its net deferred tax assets because of the likelihood that it will not be able to realize those assets during their carry forward or turnaround periods. 42 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has a net operating loss for federal income tax purposes of $119,000,000 expiring in years through 2012. The Federal net operating loss also includes $25,000,000 of expired tax credit carryover that was converted into net operating loss carry forward in 1997. Also, the Company has foreign net operating loss carry forwards in various European countries aggregating $23,000,000. Additionally, the Company has foreign tax credits of $16,700,000 expiring in years 1998 to 2001. For financial reporting purposes, loss before income taxes and equity in income from subsidiaries excluded from the exchange included the following components for the years ended in December:
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Pretax income (loss): United States................................... $(51,929) $(42,404) $(11,079) Foreign......................................... (23,221) (16,658) 3,933 -------- -------- -------- $(75,150) $(59,062) $ (7,146) ======== ======== ========
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $15,000,000 at December 28, 1997. Approximately $9,000,000 of those earnings are considered to be indefinitely reinvested. Distribution of foreign earnings, including the cumulative translation adjustment component, would not create a residual U.S. tax liability due to the availability of foreign tax credits to offset U.S. taxes. Withholding taxes of approximately $260,000 would be payable upon the remittance of the portion of the foreign earnings which is considered permanently reinvested. 10. EMPLOYEE BENEFIT PLANS A. Defined Benefit Plan Substantially all of the Company employees are covered by a contributory defined benefit plan sponsored by the Majority Shareholder. Normal retirement age is 65, but provision is made for earlier retirement. Benefits are based on salary and years of service. Substantially all benefits are paid from funds previously provided to trustees. The Majority Shareholder's funding policy is to make contributions that are consistent with U.S. government cost allowability and Internal Revenue Service deductibility requirements, subject to the full funding limits of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions made by the Majority Shareholder on behalf of the Company's employees are billed to the Company. In accordance with Statement of Financial Accounting Standards No. 87 "Employers' Accounting for Pensions," (SFAS 87), the cumulative net difference for all periods since SFAS 87 was adopted between amounts contributed to the plan and amounts recorded as net pension cost is recorded in the consolidated balance sheet. The Company has a supplemental executive retirement plan which is not material. Under this plan, benefits are paid directly by the Company and charged against liabilities previously accrued. Net pension cost for the years ended in December, as determined in accordance with SFAS 87, was:
1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Service cost--benefits accrued during the year........................................ $ 1,776 $ 2,016 $ 1,954 Interest cost on projected benefit obligation.................................. 2,902 2,794 2,756 Actual return on plan assets................. (8,943) (6,689) (2,824) Net amortization and deferral................ 4,703 2,916 (341) Employee contributions....................... (281) (359) (479) ------- ------- ------- $ 157 $ 678 $ 1,066 ======= ======= =======
43 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) An analysis of the funded status of the plan follows as of December:
1997 1996 ------- ------- (IN THOUSANDS) Plan assets at fair value.............................. $58,291 $50,805 Actuarial present value of benefit obligation: Vested benefits...................................... 32,170 29,946 Nonvested benefits................................... 848 1,118 ------- ------- Accumulated benefit obligation......................... 33,018 31,064 Effect of future salary increases...................... 4,375 4,464 ------- ------- Projected benefit obligation........................... 37,393 35,528 ------- ------- Plan assets in excess of projected benefit obligation.. $20,898 $15,277 ------- ------- Consisting of: Unrecognized net asset at initial application of SFAS 87.................................................. $ 222 $ 497 Unrecognized prior service cost...................... (303) (49) Unrecognized net gain................................ 18,333 12,026 Prepaid pension asset................................ 2,646 2,803 ------- ------- $20,898 $15,277 ======= =======
Plan assets are comprised of approximately 55% equity securities and 45% fixed income securities including cash equivalents. Actuarial determinations were based on various assumptions as illustrated in the following table. Net pension costs in 1997, 1996 and 1995 were based on assumptions in effect at the end of the respective preceding year. Benefit obligations as of the end of each year reflect assumptions in effect as of those dates.
1997 1996 1995 ----- ----- ----- Discount rate on benefit obligations................... 7.50% 7.75% 7.50% Average of full-career compensation increases for those employees whose benefits are affected by compensation levels................................................ 6.00% 6.00% 6.00% Expected long-term rate of return on plan assets....... 9.25% 9.00% 8.80%
Neither the Majority Shareholder nor the Company has any present intention of terminating any of its pension plans. However, if a qualified defined benefit plan is terminated, the Company would be required to vest all participants and purchase annuities with plan assets to meet the accumulated benefit obligation for such participants. B. Retiree Medical Plan The Company currently provides medical benefits under a contributory group medical plan sponsored by the Majority Shareholder for certain early (pre-65) retirees and under a noncontributory group Medicare supplement plan for retirees aged 65 and over (post-65) with greater than ten years of service. Under the accrual accounting methods of Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits other than Pensions," (SFAS 106), the present value of the actuarially determined expected future cost of providing medical benefits is attributed to each year of employee service. The service and interest cost recognized each year is added to the accumulated postretiree medical 44 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) benefit obligation. Net retiree medical benefit costs as determined under SFAS 106 for the years ended in December were:
1997 1996 1995 ----- ----- ----- (IN THOUSANDS) Service cost--benefits earned during the year....... $ 276 $ 325 $ 304 Interest cost on accumulated post retiree medical benefit obligation................................. 534 492 590 Actual return on plan assets........................ (289) (194) (129) Net amortization.................................... (20) (20) -- ----- ----- ----- $501 $ 603 $ 765 ===== ===== =====
The Company has implemented funding approaches to help manage future retiree medical costs. A 401(h) trust and a VEBA trust have been established to pre- fund benefit payments. At December 28, 1997, this trust held $3,872,000 in short term investment fund accounts. Earnings on trust assets are recorded as a reduction to annual SFAS 106 costs. Under SFAS 106, actual medical benefit payments to retirees reduce the Company's accumulated postretiree medical benefit obligation, and any trust funding reduces the unfunded portion of this obligation on the Company's balance sheet. An analysis of the funded status of the retiree medical benefit plan follows for the years ended December:
1997 1996 ------- ------- (IN THOUSANDS) Actuarial present value of benefit obligation: Retirees............................................. $ 8,116 $ 4,767 Employees eligible to retire......................... 823 789 Employees not eligible to retire..................... 1,612 1,646 ------- ------- Accumulated postretirement benefit obligation.......... 10,551 7,202 Plan assets at fair value.............................. (3,872) (2,902) ------- ------- Accumulated postretirement benefit obligation in excess of plan assets........................................ 6,679 4,300 Unrecognized net loss.................................. (3,360) (721) Unrecognized prior service cost........................ 138 158 ------- ------- Accrued postretirement benefit unfunded liability...... $ 3,457 $ 3,737 ======= =======
Actuarial determinations were based on various assumptions, as illustrated in the following table. Net retiree medical costs were based on assumptions in effect at the end of the respective preceding years. Benefit obligations as of the end of each year reflect assumptions in effect as of those dates.
1997 1996 1995 ---- ---- ---- Discount rate........................................... 7.75% 7.75% 7.50% Expected long-term rate of return on plan assets........ 9.25% 9.00% 8.80% Range of medical trend rates: Initial: Pre-65 retirees..................................... 8.00% 8.00% 8.00% Post-65 retirees.................................... 8.00% 8.00% 8.00% Ultimate: Pre-65 retirees..................................... 4.50% 4.50% 4.50% Post-65 retirees.................................... 2.00% 2.00% 2.00%
45 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Long-term medical trend rates are applicable to the calculation of benefit obligations for pre-65 and post-65 retirees after 6 and 11 years, respectively, in 1997, 7 and 12 years, respectively, in 1996 and 8 and 13 years, respectively, in 1995. An increase of one percentage point in the assumed medical trend rates would result in a 10.4% increase in accumulated postretirement benefit obligation to $11,647,000 at December 28, 1997, and a 1997 net retiree medical benefit cost under SFAS 106 of approximately $610,000. The Company believes that the cost containment features the Majority Shareholder has previously adopted and the funding approaches under way will allow it to effectively manage its retiree medical expenses. The Company and the Majority Shareholder will continue to monitor the costs of retiree medical benefits and may further modify the plans if circumstances warrant. C. Defined Contribution Plan The Company's Majority Shareholder maintains contributory 401(k) savings plans for salaried and hourly employees of the Majority Shareholder and its subsidiaries, which cover substantially all employees. Employees' eligible contributions are matched by the Majority Shareholder at a 50% rate. The Majority Shareholder charged to the Company expenses of $1,034,000, $1,131,000 and $1,152,000 in 1997, 1996 and 1995, respectively, for contributions made on behalf of the Company's employees. 11. STOCK PLANS A. Common Stock Reserved The following shares of common stock are reserved for issuance at December 28, 1997: 1996 stock option plan......................................... 1,990,500 1987 stock option plan......................................... 367,000 Warrants....................................................... 52,500 --------- 2,410,000 =========
B. Stock Option Plans The Company's Board of Directors has adopted the CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees ("the Plan"). Under the terms of the Plan, eligible key employees can receive options to purchase the Company's common stock or stock appreciation rights at prices not less than the fair value of the Company's common stock on the date of grant. Options and rights granted under the Plan generally vest over a three year period and expire ten years after the date of grant or six months after termination of employment. In connection with its acquisition of Summagraphics Corporation, the Company assumed 705,662 options outstanding under the Summagraphics 1987 Stock Plan at prices ranging from $.01 to $9.00 per share and which expire through 2005. 46 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of changes in stock issuable under employee option plans follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- ---------------- Outstanding at December 31, 1995.............. -- Options assumed through acquisition......... 705,662 $4.48 Granted..................................... 885,500 1.91 Canceled.................................... (132,273) 4.13 --------- ----- Outstanding at December 29, 1996.............. 1,458,889 2.95 Granted..................................... 573,000 2.85 Exercised................................... (172,300) 2.70 Canceled.................................... (323,139) 2.74 --------- ----- Outstanding at December 28, 1997.............. 1,536,450 $2.99 ========= =====
As of December 28, 1997, there were 821,050 shares available for future grants under the plan. The weighted average remaining contractual life and weighted average exercise price of options outstanding and of options exercisable as of December 28, 1997, were as follows:
OUTSTANDING EXERCISABLE ------------------------------------- -------------------- WEIGHTED WEIGHTED NUMBER OF WEIGHTED AVERAGE AVERAGE AVERAGE RANGE OF SHARES REMAINING EXERCISE SHARES EXERCISE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE --------------- ----------- ---------------- -------- ----------- -------- $1.75 to $2.31... 680,100 8.76 $1.94 206,800 $1.94 $2.38 to $3.13... 548,250 8.40 $2.88 92,730 $2.97 $3.50 to $9.00... 308,100 1.80 $5.50 274,434 $5.60
Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions; risk-free interest rate of 6.3%; dividends yield of 0%; volatility of the expected market price of the Company's common stock of 1.1; and a weighted-average expected life of the option of five years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 47 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The weighted-average fair values of options granted to employees during 1997 and 1996 were $2.85 and $1.64, respectively. The Company granted no options in 1995. For pro forma purposes, the estimated fair value of the Company's stock- based awards to employees is amortized over the vesting period of the underlying instruments. The results of applying SFAS 123 to the Company's stock-based awards to employees would approximate the following:
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ------------ ------------ Pro Forma: Net loss.................................... $ (76,113) $ (56,849) Basic and diluted loss per Common Share..... $ (1.62) $ (1.32)
C. Warrants The terms of warrants to acquire shares of common stock are as follows at December 28, 1997:
WARRANTS PRICE EXPIRATION DATE -------- ----- --------------- 15,000 $2.00 March 7, 2006 37,500 $1.75 December 6, 2000 ------ 52,500 ======
48 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. FINANCIAL INFORMATION RELATING TO SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS The Company operates in one industry segment, the manufacture, sale and support of computer graphics products. A summary of the Company's net sales, loss from operations and identifiable assets by geographic area is as follows (in thousands):
YEAR ENDED DECEMBER 28, 1997 ---------------------------------------------------------------- MAJORITY NORTH PACIFIC SHAREHOLDER AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED -------- -------- ------- ---------- ----------- ------------ Sales to unaffiliated customers.............. $ 88,170 $ 78,445 $16,369 $ -- $ -- $182,984 Sales to affiliated cus- tomers................. 17,174 -- -- -- -- 17,174 Transfers between geo- graphical areas........ 74,839 9,055 -- (83,894) -- -- -------- -------- ------- -------- ------- -------- Net sales............... $180,183 $ 87,500 $16,369 $(83,894) $ -- $200,158 ======== ======== ======= ======== ======= ======== Income (loss) from oper- ations................. $(42,105) $(25,424) $ (84) $ 822 $(2,900) $(69,691) ======== ======== ======= ======== ======= ======== Identifiable assets..... $113,459 $ 66,311 $35,513 $ (5,826) $ -- $209,457 ======== ======== ======= ======== ======= ======== YEAR ENDED DECEMBER 29, 1996 ---------------------------------------------------------------- MAJORITY NORTH PACIFIC SHAREHOLDER AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED -------- -------- ------- ---------- ----------- ------------ Sales to unaffiliated customers.............. $ 84,522 $101,405 $18,364 $ -- $ -- $204,291 Sales to affiliated customers.............. 31,625 -- -- -- -- 31,625 Transfers between geographical areas..... 78,441 6,216 -- (84,657) -- -- -------- -------- ------- -------- ------- -------- Net sales............... $194,588 $107,621 $18,364 $(84,657) $ -- $235,916 ======== ======== ======= ======== ======= ======== Income (loss) from operations............. $(36,452) $(18,814) $ (969) $ 222 $(3,567) $(59,580) ======== ======== ======= ======== ======= ======== Identifiable assets..... $148,065 $ 95,288 $39,652 $ (6,920) $ -- $276,085 ======== ======== ======= ======== ======= ======== YEAR ENDED DECEMBER 31, 1995 ---------------------------------------------------------------- MAJORITY NORTH PACIFIC SHAREHOLDER AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED -------- -------- ------- ---------- ----------- ------------ Sales to unaffiliated customers.............. $ 95,821 $122,177 $25,742 $ -- $ -- $243,740 Sales to affiliated customers.............. 37,915 -- -- -- -- 37,915 Transfers between geographical areas..... 83,579 -- -- (83,579) -- -- -------- -------- ------- -------- ------- -------- Net Sales............... $217,315 $122,177 $25,742 $(83,579) $ -- $281,655 ======== ======== ======= ======== ======= ======== Income (loss) from operations............. $ (6,035) $ 1,974 $ 1,966 $ 1,232 $(8,225) $ (9,088) ======== ======== ======= ======== ======= ======== Identifiable assets..... $145,186 $ 78,966 $15,023 $ (7,611) $ -- $231,564 ======== ======== ======= ======== ======= ========
In determining net income (loss) from operations for each geographic area, sales and purchases between geographic areas have been accounted for on the basis of internal transfer prices set by the Company. Identifiable assets by geographic area are those assets that are used in the Company's operations in each location. 49 CALCOMP TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) 13. SUBSEQUENT EVENT On March 29, 1998, the Company entered into a five-year Patent License and Joint Development Agreement with Kodak covering the joint development of the Company's technology into a range of products, printers and consumables for commercial applications. Under the terms of the agreement, Kodak will contribute up to $36 million, $20 million of which was advanced to the Company upon signing of the agreement, and the reminder of which will be funded incrementally upon the achievement of certain milestones and the occurrence of certain events. The agreement also calls for Kodak to pay royalties on the net selling price of Kodak products sold that use the licensed technology. In addition to the license, the Company granted to Kodak a warrant for 8 million shares of its Common Stock with an exercise price of $3.88, vesting 50 percent on the first anniversary of the agreement and 50 percent on the second anniversary of the agreement. The warrant expires on the seventh anniversary of the agreement. 14. VALUATION AND QUALIFYING ACCOUNTS For the years ended in December 1997, 1996 and 1995, certain supplementary information regarding valuation and qualifying accounts follows (in thousands):
BALANCES AT CHARGED BALANCES BEGINNING TO COST AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ----------- ----------- ----------- ---------- --------- Allowance for doubtful receivables: 1997........................ $ 4,603 $ 320 $ 1,556 $ 3,367 1996........................ $ 4,102 $ 536 $ 35 $ 4,603 1995........................ $ 3,411 $ 1,192 $ 501 $ 4,102 Reserves for excess and obsolete inventory: 1997........................ $30,393 $21,405 $20,600 $31,198 1996........................ $26,822 $ 4,854 $ 1,283 $30,393 1995........................ $29,898 $ 4,522 $ 7,598 $26,822
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has no disagreements on accounting or financial disclosure matters with its independent auditors. PART III Information required under Item 10 "Directors and Executive Officers of the Company," Item 11 "Executive Compensation," Item 12 "Security Ownership of Certain Beneficial Owners and Management," and Item 13 "Certain Relationships and Related Transactions" has been omitted from this report. Such is hereby incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on June 11, 1998, which the Company intends to file with the Securities and Exchange Commission no later than April 27, 1998. 50 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements. The following consolidated financial statements of the Company and the report of independent auditors are on pages 25 through 50 hereof. Report of Independent Auditors Consolidated Balance Sheets--December 28, 1997 and December 29, 1996 Consolidated Statements of Operations--Years ended December 28, 1997, December 29, 1996 and December 31, 1995 Consolidated Statements of Stockholders' Equity--Years ended December 28, 1997, December 29, 1996 and December 31, 1995 Consolidated Statements of Cash Flows--Years ended December 28, 1997, December 29, 1996 and December 31, 1995 Notes to Consolidated Financial Statements All Financial Statement Schedules have been omitted because they are not applicable or because the applicable disclosures have been included in the Consolidated Financial Statements or in the Notes thereto. (2) Lists of Exhibits.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2 Plan of Reorganization and Agreement for the Exchange of Stock of CalComp Inc. for Stock of Summagraphics Corporation by and among Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a California corporation, and Summagraphics Corpo- ration, a Delaware corporation, as amended (filed as Exhibit 2 to the Company's Form 10-K for the fiscal year ended May 31, 1996 and incorporated herein by reference). 3.1 Fourth Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Form 10-K for the fiscal year ended May 31, 1996 and incorporated herein by refer- ence). 3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Form 10-K for the fiscal year ended May 31, 1996 and incorpo- rated herein by reference). 10.1 Registration Rights Agreement dated as of July 23, 1996 between the Company and Lockheed Martin Corporation (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.2 Intercompany Services Agreement dated as of July 23, 1996 be- tween the Company and Lockheed Martin Corporation (filed as Ex- hibit 10.2 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.3 Cash Management Agreement dated as of July 23, 1996 between the Company and Lockheed Martin Corporation (filed as Exhibit 10.3 to the Company's Form 10-Q for the quarterly period ended Sep- tember 29, 1996, and incorporated herein by reference). 10.4 Tax Sharing Agreement dated as of July 23, 1996 between the Com- pany and Lockheed Martin Corporation (filed as Exhibit 10.4 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference).
51
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.5 Amended and Restated Revolving Credit Agreement dated as of De- cember 20, 1996 between the Company and Lockheed Martin Corpora- tion (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated December 20, 1996, and incorporated herein by reference). 10.6 Corporate Agreement dated as of July 23, 1996 between the Com- pany and Lockheed Martin Corporation (filed as Exhibit 10.6 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.7 CalComp Technology, Inc. 1996 Stock Option Plan for Key Employ- ees (filed as Exhibit 10.7 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.10 Senior Executive Retirement Plan ("SERP") Agreement between Lockheed Martin Corporation and Gary R. Long dated November 8, 1995 (filed as Exhibit 10.10 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.11 Employment Agreement (with Temporary Assignment Memorandum) be- tween the Company and Winfried Rohloff dated June 25, 1996 (filed as Exhibit 10.11 to the Company's Form 10-Q for the quar- terly period ended September 29, 1996, and incorporated herein by reference). 10.12 Employment Offer and Agreement between the Company and John J. Millerick dated July 12, 1996 (filed as Exhibit 10.12 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.15 OEM Agreement for Asahi and Absolut plotters between the Company and Copyer Co., Ltd. dated September 19, 1996 (filed as Exhibit 10.15 to the Company's Form 10-Q for the quarterly period ended September 29, 1996, and incorporated herein by reference). 10.19 Change of Control Termination Benefit Agreement between the Com- pany and Harold H. Simeroth dated December 13, 1996 (filed as Exhibit 10.19 to the Company's Form 10-K for the fiscal year ended December 29, 1996 and incorporated herein by reference). 10.20 Change of Control Termination Benefit Agreement between the Com- pany and John J. Millerick dated December 13, 1996 (filed as Ex- hibit 10.19 to the Company's Form 10-K for the fiscal year ended December 29, 1996 and incorporated herein by reference). 10.22 Agreement and Plan of Reorganization entered into as of November 18, 1996, by and among the Company, CalComp Acquisition Sub, Inc., Topaz Technologies, Inc., Andreas Bibl, Deane Gardner and John Higginson (filed as Exhibit 99.2 to the Company's Current Report on Form 8-K dated November 18, 1996, and incorporated herein by reference). 10.23 Termination Agreement between the Company and John C. Batterton dated March 7, 1997, (filed as Exhibit 10.23 to the Company's Form 10-Q for the quarter ended March 30, 1997, and incorporated herein by reference). 10.24 Change of Control Termination Agreement between the Company and John C. Batterton dated March 7, 1997, (filed as Exhibit 10.24 to the Company's Form 10-Q for the quarter ended March 30, 1997, and incorporated herein by reference). 10.25 Headquarters Lease Agreement dated as of June 24, 1997, between the Company and Lincoln--RECP Anaheim, OPCO, LLC (filed as Ex- hibit 10.25 to the Company's Form 10-Q for the quarter ended June 29, 1997, and incorporated herein by reference). 10.26 Agreement of Purchase and Sale and Joint Escrow Instructions dated as of April 4, 1997, between the Company and Lincoln Prop- erty Company, N.C. Inc. (filed as Exhibit 10.25 to the Company's Form 10-Q for the quarter ended June 29, 1997, and incorporated herein by reference).
52
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.29 1997 Second Amendment to 1994 Addendum to Joint Venture Relationships between CalComp Inc., Nippon Steel Corpora- tion, Sumitomo Corporation and NS CalComp Corp., dated September 10, 1997 (filed as Exhibit 10.29 to the Company's Form 10-Q for the quarter ended September 28, 1997, and incorporated herein by reference). 10.30 Relocation Agreement for John C. Batterton, dated Septem- ber 16, 1997 (filed as Exhibit 10.30 to the Company's Form 10-Q for the quarter ended September 28, 1997, and incor- porated herein by reference). 10.31 Termination Agreement with Addendum for Winfried Rohloff, dated November 25, 1997. 10.32 Settlement Agreement and General Release for Harold Simeroth, dated January 28, 1998. 10.33 Change of Control Termination Benefit Agreement between the Company and James R. Bell dated April 1, 1998. 10.34 Patent License and Joint Development Agreement dated March 29, 1998, between the Company and Eastman Kodak Co. 10.35 Warrant to Purchase Common Stock of the Company issued to Eastman Kodak Co., March 29, 1998. 10.36 Agreement Regarding Election of Directors between Lockheed Martin Corporation (the Company's Majority Shareholder) and Eastman Kodak Co., dated March 29, 1998. 10.37 Amendment No. 1, dated March 20, 1998, to Amended and Re- stated Revolving Credit Agreement between the Company and Lockheed Martin Corporation. 10.38 First Amendment, dated March 20, 1998, to Cash Management Agreement between the Company and Lockheed Martin Corpora- tion. 10.39 CalComp Technology, Inc. 1998 Management Incentive Compen- sation plan, approved January 27, 1998. 10.40 CalComp Technology, Inc. 1998 Deferred Management Incen- tive Compensation Plan, approved January 27, 1998. 10.41 Waiver of Rights, dated April 1, 1998, by Lockheed Martin Corporation, under Amended and Restated Revolving Credit Agreement between the Company and Lockheed Martin Corpora- tion. 21 Subsidiaries (filed as Exhibit 21 to the Company's Form 10-K for the fiscal year ended December 29, 1996 and in- corporated herein by reference). 23 Consent of Independent Auditors 27 Financial Data Schedule
REPORTS ON FORM 8-K Reports on Form 8-K filed by the Company during the fourth quarter of the Company's fiscal year ended December 28, 1997 were as follows: None. 53 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, CALCOMP TECHNOLOGY, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. CalComp Technology, Inc. /s/ John C. Batterton By: _________________________________ John C. Batterton President and Chief Executive Officer April 9, 1998 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF CALCOMP TECHNOLOGY, INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ John C. Batterton President and Chief April 9, 1998 ____________________________________ Executive Officer John C. Batterton /s/ John J. Millerick Senior Vice President and April 9, 1998 ____________________________________ Chief Financial Officer John J. Millerick (Principal Financial and Accounting Officer) /s/ Arthur E. Johnson Chairman of the Board of April 9, 1998 ____________________________________ Directors Arthur E. Johnson /s/ Gary P. Mann Director April 9, 1998 ____________________________________ Gary P. Mann /s/ Terry F. Powell Director April 9, 1998 ____________________________________ Terry F. Powell /s/ Gerald W. Schaefer Director April 9, 1998 ____________________________________ Gerald W. Schaefer Director ____________________________________ Jeb S. Hurley /s/ Kenneth R. Ratcliffe Director April 9, 1998 ____________________________________ Kenneth R. Ratcliffe /s/ Walter E. Skowronski Director April 9, 1998 ____________________________________ Walter E. Skowronski
54 EX-10.31 2 TERMINATION AGREEMENT - WINFRIED ROHLOFF 11-25-97 EXHIBIT 10.31 [LOGO OF CALCOMP] INTEROFFICE COMMUNICATION TO: W. ROHLOFF IOC NO.: FROM: J. BATTERTON DATE: NOVEMBER 25, 1997 SUBJECT: TERMINATION OF THE CONTRACT OF EMPLOYMENT The following is an addendum to the Termination Agreement dated November 25, 1997: Mr. Rohloff shall also receive all amounts due him under the Lockheed Martin and CalComp Deferred MICP Plans and shall have all rights with respect to stock options granted to him (under the terms of the Lockheed Martin and CalComp stock option plans) which exist at the time of his termination. /s/ John C. Batterton - -------------------------------------- John C. Batterton President and Chief Executive Officer CalComp Technology, Inc. [LETTERHEAD OF CALCOMP] TERMINATION AGREEMENT between CalComp GmbH, Hermann-Klammt-Strasse 1, 41460 Neuss, Germany, represented by its sole shareholder, CalComp Technology, Inc., 2411 West LaPalma Avenue, Anaheim, California 92801, USA, the latter being represented by John C. Batterton, President and Chief Executive Officer of CalComp Technology, Inc. - hereinafter referred to as the "Company" - and Winfried Rohloff, Im Wingert 19, 40699 Erkrath, Germany. 1. The parties agree that Mr. Rohloff's employment contract with the Company shall be terminated effective December 31, 1997. The termination takes place upon request of the Company. 2. Mr. Rohloff will resign as Geschaeftsfuehrer (Managing Director) of the Company effective December 31, 1997. Also effective December 31, 1997, he will resign from all other positions and offices held by him for the Company or CalComp Technology, Inc. or other CalComp companies. CalComp Technology, Inc. assures Mr. Rohloff that it will formally approve of all his actions in his capacity of Geschaeftsfuehrer (Managing Director) of the Company and in the performance of his other positions and offices. 3. The employment contract will be duly performed through December 31, 1997, i.e., the Company shall pay to Mr. Rohloff the monthly base salary, settle accounts in relation to the MICP component and pay the amount following from this and make payment in lieu of the remaining vacation time. The Company will reimburse Mr. Rohloff for all travel and relocation expenses remaining to be paid as well as expenses arising in connection with the return to Germany in accordance with the Lockheed Martin Corporate Policy No. CPS-539. Mr. Rohloff will receive final tax assistance through CalComp's agent, presently Ernst & Young, under the provisions covered by the Lockheed Martin Corporate policy. 4. The Company shall pay to Mr. Rohloff a severance indemnity as final compensation for the loss of his job in the amount of DM 1,090,535 (gross). This compensation shall be due for payment on December 31, 1997, taxed in accordance with (S)(S) 3 Ziff. 9, 24, 34, 39 b Abs. 3 Nr. 10 EStG (Income Tax Act). 5. The Company acknowledges to Mr. Rohloff the non-forfeitable pension claims according to the employment contract of December 1, 1987 and the Versorgungsordnung (Pension Plan) of the Company as amended on January 1, 1988. The parties agree that the pension commitment has existed since July 1, 1980. The Company will inform Mr. Rohloff in a separate letter pursuant to (S) 2 Abs. 6 BetrAVG (Company Pension Act) of the amount of the non- forfeitable pension claims, the calculation of the amount being based on December 31, 1997 as the termination date. 6. Mr. Rohloff will return to the Company everything in his possession owned by the Company, CalComp Technology, Inc. and other CalComp companies, including all documents relating to the affairs of the companies, including business correspondence and any copies. 7. Upon the performance of this agreement all mutual claims of the parties arising from the employment contract and its termination shall have been discharged and settled forever. This also concerns all U.S. companies and all foreign subsidiaries of CalComp. Anaheim: November 25, 1997 Anaheim: November 25, 1997 for CalComp GmbH /s/ John C. Batterton /s/ Winfried Rohloff - ------------------------------------- ----------------------------- John C. Batterton Winfried Rohloff President and Chief Executive Officer CalComp Technology, Inc. EX-10.32 3 SETTLEMENT AGREEMENT - HAROLD SIMEROTH 1-28-98 EXHIBIT 10.32 SETTLEMENT AGREEMENT AND GENERAL RELEASE This is a Settlement Agreement and General Release ("Agreement") between CalComp (as defined below) and Harold Simeroth ("Employee") and is effective when signed by both parties. CALCOMP AND EMPLOYEE AGREE AS FOLLOWS: 1. Definitions: a. "CalComp," as used in this Agreement, includes CalComp Technology, Inc., a California corporation, its parent, subsidiaries, affiliates and divisions; the officers, directors, agents, representatives, attorneys and employees of each of them; and all predecessors, successors, heirs, administrators, executors and assigns of each of them. b. "Employee," as used in this Agreement, includes Employee and his/her heirs, administrators, executors, agents, representatives and assigns. 2. This Agreement is a good faith settlement of an actual and/or potential dispute between CalComp and Employee and is entered into only for the purpose of resolving any differences and to avoid the burden, expense, delay and uncertainties of litigation and administrative actions. It is not an admission of fault, misconduct, or other wrongdoing by either CalComp or Employee, nor is it an admission that CalComp has committed any act of discrimination or violated any other Federal, State or Local law, regulation or ordinance (including, but not limited to, the Age Discrimination in Employment Act of 1967, commonly referred to as ADEA, or the Americans with Disabilities Act, commonly referred to as ADA), or that Employee's termination was unwarranted, unjustified, discriminatory or otherwise unlawful. 3. Employee's Termination Date is February 13, 1998. Employee's last day worked is January 23, 1998. On the last day worked, CalComp will pay employee: (1) All vacation earned through the Termination Date; and (2) 3 weeks of base pay as ordinary severance/termination pay in lieu of notice. When both parties have signed this Agreement, CalComp will pay Employee, as a lump sum, an amount equivalent to an additional forty weeks of his/her base salary/wages (less applicable withholding) as the full, complete and final settlement of all of Employee's claims and potential claims against CalComp as defined above, including but not limited to: wages, salary, overtime pay, back pay, reinstatement, pay in lieu of notice, commissions, bonuses, vacation, sick pay, benefits, insurance, business expense reimbursement, compensatory and punitive and liquidated damages, attorneys fees and other costs and expenses, one week of which is expressly consideration for waiver of potential ADEA claims. CalComp may offset from such additional amount any funds under any contract, Promissory Note, relocation agreement, expense reimbursement, or other obligation owed by Employee to CalComp, and will remit the remainder to the Employee. 4. In the event Employee violates any provision of this Agreement or if any of the representations made by Employee herein were false when made, including but not limited to the waiver of claims provisions, CalComp may either (a) rescind this Agreement and demand that Employee remit the entire sum specified in Paragraph 3, plus interest accrued at the rate of 10% per annum, within 10 calendar days after receipt of notice to do so from CalComp, or (b) demand and receive specific performance of this Agreement and recover all damages from Employee caused to CalComp by his/her breach of this Agreement, including any loss, cost, damage, or expense, including attorneys fees. 5. Employee further agrees that as a condition of this Agreement, his/her employment relationship with CalComp has been permanently and irrevocably severed. Employee understands and expressly agrees that CalComp has no obligation, contractual or otherwise, to rehire, reemploy, recall or hire Employee in the future. 6. Additional Provisions. Employee also agrees, for the total equivalent --------------------- period of pay specified in Paragraph 3, in weeks, following the Termination Date, to refund to CalComp any amount of such pay which represents pay for any period after he/she begins employment with any other CalComp company (mitigation of damages). 7. In consideration of the payment by CalComp to Employee referenced in Paragraph 3 and the benefits referenced in Paragraph 11, and also any special provisions added to this Agreement, Employee hereby irrevocably and unconditionally releases and forever discharges CalComp of and from any and all actions, causes of actions, suits, debts, charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, and expenses (including attorney's fees and other costs naturally occurred), of any nature whatsoever in law or equity, which he/she ever had, now has, or may hereinafter have against CalComp. Employee further agrees that he/she expressly waives any right to make any claim, file any action, or recover any damages or other relief in any legal proceeding against or from CalComp, and further agrees to forebear from filing any complaint, allegation, charge or lawsuit with respect to any matter, including but not limited to breach of contract, false claims, statutorily created employee rights, and claims under ADEA and ADA occurring prior to the effective date of this Settlement Agreement and General Release. 8. CalComp encourages Employee to disclose the contents of this Agreement to, and discuss it with, his/her attorneys, accountants, tax advisors and immediate family. 9. Employee acknowledges that this Agreement resolves, discharges and extinguishes all claims which he/she has against CalComp, whether known or --- unknown, and which accrue prior to or in connection with the execution of this Agreement. Employee expressly waives any and all rights under Section 1542 of the California Civil Code, which reads as follows: "(Certain claims not affected by general release.) A general release does ------------------------------------------------- not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 10. This Agreement is the entire agreement between the parties and supersedes all prior negotiations, agreements and understandings regarding all matters (whether relating to or occurring during the hiring, employment or termination of Employee by CalComp). This Agreement is to be construed as a whole, according to its fair meaning and not strictly for or against any of the parties, excluding only such provisions as are specifically determined by any court to be illegal or invalid, and any such exclusion will not affect the validity of the remaining parts, terms or provisions. 11. Employee's medical benefits will expire on February 28, 1998. If Employee is a member of the 401k Savings and/or Pension Plans, those benefits will terminate in accordance with the current provisions of the applicable plan. Employee will also have all rights required under the Consolidated Omnibus Budget Reconciliation Act of 1986 (commonly referred to as "COBRA"), including the right to continued group health care coverage for a limited period at Employee's expense. A notification of those rights, along with the applicable election forms, will be mailed to Employee within the applicable time. Both parties, by their signature below, acknowledge and represent that (a) they have carefully read this entire Agreement, have understood all of its provisions and have been afforded an opportunity to review this Agreement with their respective attorneys as desired, (b) they voluntarily accept all of the provisions of this Agreement, (c) no binding oral representations concerning the terms or effects of this Agreement have been made by the other party, and (d) this Agreement is being executed voluntarily and without duress or undue influence. This Agreement may not be signed by both CalComp and Employee on the same day. Employee can accept this offer only by signing and returning this form to CalComp within twenty-one (21) days of Employee's initial receipt of this offer. Even after signature, Employee may rescind (cancel) this agreement by returning the Agreement on or before THE 7TH DAY AFTER RECEIPT OF THE FUNDS, and by returning the funds paid to Employee for the release of all claims, and stating in writing that Employee wishes to cancel the Agreement. CALCOMP TECHNOLOGY, INC. EMPLOYEE By: /s/ Kevin Coleman By: /s/ Harold Simeroth ----------------------------- ------------------------ Title: V.P. Human Resources -------------------------- Vice President - Human Resources Date: 1/28/98 ---------------------- Date: January 23, 1998 --------------------------- EX-10.33 4 CHANGE OF CONTROL/TERMINATION - JAMES BELL 4-1-98 EXHIBIT 10.33 [LETTERHEAD OF CALCOMP] April 1, 1998 Mr. James R. Bell Sr. Vice President and General Manager Input Technologies Division RE: CALCOMP TECHNOLOGY, INC. - CHANGE OF CONTROL TERMINATION BENEFIT AGREEMENT Dear Jim: CalComp Technology, Inc. ("CalComp") is a publicly held corporation. Lockheed Martin Corporation ("Lockheed Martin") currently owns more than 50% of the voting securities of CalComp. If at any future time Lockheed Martin, one or more subsidiaries of Lockheed Martin, or a combination thereof ceases to own or control (directly or indirectly) more than 50% of the voting securities of CalComp, or if the Input Technologies Division is sold, then, for the purposes of this letter a "change of control" of CalComp shall be deemed to have occurred. The term "voting securities" shall mean securities able to vote for directors or securities convertible into or exchangeable or exercisable for securities able to vote for directors. We understand that the prospect of a change of control may trouble you, but as a key and valued employee we want you to remain with the Company to help keep the Company running properly. That is why we are offering you the benefits described in this agreement. If a change of control occurs and if within 18 months from the date of the change of control (1) you are involuntarily terminated by the Company or any successor owner (except for terminations for cause) or; (2) you are removed from the position held immediately prior to the change and the effect is a material reduction of status, responsibilities or duties and you then terminate your employment within 60 days after having your status reduced or; (3) your base salary in effect at the time of the change of control is reduced, and you then terminate your employment within 60 days after having your salary reduced, then you will be eligible to receive the benefits described below. No other severance or similar benefits will be paid to you. 1. SEVERANCE BENEFIT You will be eligible for a lump-sum severance payment determined under the following formula: an amount equal to one and a half (1 1/2) years' annual base salary immediately prior to the change of control plus an amount equal to one year's Management Incentive Compensation Plan Award at your target level, all less statutory deductions but excluding voluntary deductions, such as for savings plans. (Example: If your salary is $100,000 and your target is 20%, you will receive $150,000 + $20,000 for a total of $170,000, less withholdings). 2. ACCRUED VACATION BENEFIT You will be eligible for a lump-sum cash payment, if applicable, for any vacation earned but not taken through the Effective Date of termination. JAMES R. BELL APRIL 1, 1998 PAGE 2 3. OUTPLACEMENT You also will receive outplacement assistance from a firm selected by the Company. This assistance will include: (1) group job search and training by a professional outplacement firm; and (2) resume preparation and secretarial assistance. Cost not to exceed $20,000.00. 4. MEDICAL/DENTAL COVERAGE You will be eligible for up to 18 months' continuation of your current medical/dental coverage in accordance with the Company's customary COBRA procedures. As part of your benefits, the Company will, at no charge to you, continue your medical/dental coverage, including coverage for your dependents, for the first 12 months following the date your employment with the Company ends or, if earlier, until you become eligible for coverage under a health plan of another employer. Alternatively, a lump sum payment can be made in lieu of continuation of benefits coverage. 5. ADDITIONAL PAYMENT TO SUPPLEMENT LOSS OF PENSION EARNINGS If a change in control occurs, we understand your participation in the Pension Plan could cease and the pension you will be entitled to receive will be less than what you had expected if you had remained a participant through age 60. To address this issue, we will pay you an additional payment of $52,593.24, which is taxable. 6. AMENDMENTS The Company has the right to modify any of the terms set forth in this letter to clarify unclear provisions or remedy omissions, but it will not make any change that it determines would materially reduce the value of the benefits offered to you under this letter. Thank you in advance for your continued service. Sincerely, /s/ John C. Batterton John C. Batterton President and CEO ACCEPTED: /s/ James Bell - ---------------------- James Bell EX-10.34 5 PATENT LICENSE BETWEEN CO. & KODAK - 3-29-98 EXHIBIT 10.34 CALCOMP/KODAK PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT THIS PATENT LICENSE AND JOINT DEVELOPMENT AGREEMENT ("Agreement") is made and entered into as of this 29th day of March, 1998 (the "Effective Date"), by and between Calcomp Technology, Inc. ("CALCOMP"), a Delaware corporation having a principal place of business at 2411 West La Palma Avenue, Anaheim, California 92801, and Eastman Kodak Company ("KODAK"), a New Jersey corporation having a principal place of business at 343 State Street, Rochester, New York 14650. R E C I T A L S : - --------------- A. CALCOMP has developed new technology related to drop-on-demand piezo inkjet printheads and associated drop-on-demand piezo inkjet print engines (herein referred to as "Printheads" and "Print Engines", respectively, as defined below). B. KODAK has developed new technology related to certain inks, paper and other media (herein referred to as "Inks", and "Media", respectively, as defined below) for use in inkjet printing systems, and which, therefore, is believed should also be useful in the new CALCOMP technology. C. KODAK desires a license to make, use and sell Printheads and associated Print Engines and inkjet printers (herein referred to as "Printers" as defined below) which use the new CALCOMP technology and the new KODAK technology. D. CALCOMP and KODAK desire to jointly develop additional Printheads and associated Print Engines for various applications and certain related Inks, and to cross-license one another to the foregoing technology developed in such joint development effort. E. CALCOMP and KODAK desire to purchase for resale and to distribute certain of each other's Inks for use in certain applications, and CALCOMP also desires to purchase for resale certain of KODAK's Media for use in certain applications. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, CALCOMP and KODAK hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms, whether used ----------- in the singular or the plural shall have the following meaning: 1.1 Affiliate shall mean any company, partnership, joint venture, or --------- other entity which directly or indirectly controls, is controlled by or is under common control with a party. Control shall mean the possession of fifty percent (50%) or more of the voting stock or the power to direct or cause the direction of the management and policies 2 of the controlled entity, whether through the ownership of voting securities, by contract or otherwise, but only for so long as such control exists. Provided, however, that any such Affiliate of KODAK shall agree in writing with KODAK, and any such Affiliate of CALCOMP shall agree in writing with CALCOMP, to abide by the terms of this Agreement. 1.2 Inks means solvent-based pigmented inks, water-based pigmented ---- inks, or dye-based inks for use in Printers. 1.3 Print Engine means a system comprising one or more Printheads, a ------------ Printhead and carriage support system, an Ink reservoir and system for supplying such Ink from the reservoir to the Printhead, a Printhead maintenance and capping station, drive electronics for the Print Engine, and which also may or may not include as mutually agreed in writing by the Project General Managers of the parties identified in Article X ("Joint Development Direction") with respect to a specific Print Engine, a Media drive system and a mechanical horizontal beam structure. 1.4 Printhead means a drop-on-demand piezo inkjet printhead in which --------- individual ink drops are selectively expelled by activating corresponding individually associated ink channels, each channel having two or more walls formed from piezo materials, through corresponding individually associated nozzles, and assemblies thereof. 1.5 CALCOMP Background Technology means technical information, ----------------------------- inventions, concepts, product designs, component designs, trade secrets, know-how, techniques, designs, processes, communications protocols, software algorithms (whether patentable or not), patents, patent applications, including any patents issuing thereon and any and all divisions, continuations and continuations-in-part thereof, and any and all reissues and reexaminations of any such patents, copyrights, copyright registrations and applications, and all other intellectual property rights (excluding, however, trade names or trademarks) conceived, originated, discovered, developed or otherwise made by CALCOMP, solely or jointly with others, or by others under CALCOMP's direction, and which are related to Printheads, Print Engines or Printers, or to dye-based or solvent-based pigmented Inks, and which were so made (i) prior to March 29, 1998, or (ii) independently of and during the term of the Joint Development Project. 1.6 Exclusive Field: See Exhibit J(1) for this Section 1.6. --------------- 1.7 Improvement means inventions, concepts, products, components, ----------- trade secrets, know-how techniques, designs, processes communications protocols, software, whether patentable or not, patents, patent applications, including any patents issuing thereon and any and all divisions, continuations and continuations-in-part thereof, and any and all reissues and reexaminations of any such patents, copyrights, copyright registrations and applications, and all other intellectual property rights (excluding, however, trade names or trademarks) which (i) are conceived, discovered, developed or 3 otherwise made by or on behalf of either CALCOMP or KODAK or jointly by the parties, (ii) are so made in the conduct of the Joint Development Project, and (iii) are related to Printheads, Print Engines, Printers, or Ink or Media. 1.8 Joint Development Project means the development project between ------------------------- KODAK and CALCOMP for the development of certain Printheads and associated Print Engines, if required, and which may also include mutually agreed upon Printers, Inks or Media as further described in the Operating Work Plan to be prepared for the Joint Development Project as described in Section X.3(d) of this Agreement. 1.9 Media means paper and other media on which the Ink used in a ----- Printer is printed. 1.10 KODAK Background Technology means technical information, --------------------------- inventions, concepts, product designs, component designs, trade secrets, know-how, techniques, designs, processes, communications protocols, software algorithms (whether patentable or not), patents, patent applications, including any patents issuing thereon and any and all divisions, continuations and continuations-in-part thereof, and any and all reissues and reexaminations of any such patents, copyrights, copyright registrations and applications, and all other intellectual property rights (excluding, however, trade names and trademarks) conceived, originated, discovered or developed by KODAK, solely or jointly with others, or by others under KODAK's direction, and which are related to water-based pigmented Inks or Media, and were so made (i) prior to March 29, 1998 or (ii) independently of and during the term of the Joint Development Project. 1.11 Nonexclusive Field is as defined in Section 3.2 of this ------------------ Agreement. 1.12 Master OEM Agreement No. 1 means that certain OEM Agreement -------------------------- between KODAK and CALCOMP, dated March 29, 1998, covering OEM sales of Printheads, Print Engines, Printers, Inks, and Media, if any, by CALCOMP to KODAK. 1.13 Master OEM/Supply Agreement No. 2 means that certain Agreement --------------------------------- between KODAK and CALCOMP, dated March 29, 1998, covering CALCOMP-branded sales of Inks and Media by KODAK to CALCOMP and supply of KODAK-branded Inks and KODAK-branded Media by KODAK to CALCOMP. 1.14 Printer means a system with printing capability that ------- incorporates a Printhead and/or a Print Engine. 1.15 Net Sales means the amount of monies received by a party or its --------- Affiliates in the sale or any other transfer of the product in question to independent unrelated third parties in bona fide arm's length commercial transactions, excluding commission payments to third parties, discounts, freight allowances, returns, refunds, bad debts, installation costs, training costs, technical assistance costs and taxes applicable thereto; 4 provided, however, that if a party transfers the product in question to (i) an Affiliate for its own internal commercial use in the Exclusive Field or Nonexclusive Field, or (ii) to any unrelated third party (other than an Affiliate) for non-monetary consideration for purposes other than trade or beta testing, the amount of money to be used in determining the applicable Net Sales on such product shall be equal to the amount that such party would have received in a sale of the same volume of such product to an unrelated third party in a bona fide arm's length commercial transaction. 1.16 ULC Printhead: See Exhibit J(2) for this Section 1.16. ------------------------------------------------------- 1.17 Topaz Assets means those assets acquired by CALCOMP through its ------------ acquisition of Topaz Technologies, Inc., and any substitution, additions, replacements, improvements, betterments and developments thereto, as more fully described on Exhibit G attached hereto. -------------------------- 2. JOINT DEVELOPMENT ----------------- 2.1 Scope of Joint Development. CALCOMP agrees to use its best -------------------------- efforts to achieve the goals and complete the Joint Development Project. KODAK agrees to work jointly with CALCOMP as set forth in this Agreement to support it in achieving the goals and completing the Joint Development Project. The parties acknowledge and agree that CALCOMP has the primary responsibility for achieving the goals and completing the Joint Development Project and in particular Milestones #1 and #2 as described on Exhibit B to this Agreement. 2.2 Term. The Joint Development Project will begin March 29, 1998 ---- and shall continue until completion of development of the ULC Printhead, unless earlier terminated or extended by written agreement of the parties or as otherwise provided under Article 14 of this Agreement ("Term and Termination"). 2.3 Costs of Joint Development Project: See Exhibit J(3) for this ---------------------------------- Section 2.3. X. JOINT DEVELOPMENT DIRECTION --------------------------- X.1 Joint Development Managers. Upon signing of this Agreement, the following -------------------------- two Project General Managers for each party shall be appointed to direct the overall conduct of the Joint Development Project activities: For KODAK: A. Gable For CALCOMP: A. Bibl 5 Each party shall also appoint a Technical Director to manage day-to-day technical activities of the Joint Development Project but such appointees shall not have authority to decide on issues or proposals which reasonably would be expected to have a material effect on the overall conduct of the Joint Development Project in the absence of, or in lieu of, the written approval of the Project General Managers. The Technical Director for KODAK shall be A. Lubinsky, and the Technical Director for CALCOMP shall be D. Gardner. Any change in the designated Program General Managers or Technical Directors shall require advance written notice to the other party. The Project General Managers and Technical Directors shall have no authority to modify or amend the terms of this Agreement. X.2 Joint Development Decisions. All decisions with regard to any material --------------------------- proposal, issue, or course of action under the Joint Development Project shall be by mutual written agreement of the Project General Managers, unless otherwise specified Agreement. X.3 Joint Development Responsibilities. The Project General Managers shall be ---------------------------------- responsible for the following: a) Overall direction of the Joint Development Project; b) Staffing and facility requirements of the Joint Development Project; c) Scheduling and conducting at least quarterly reviews of the Joint Development Project, the Operating Work Plan for the Joint Development Project, and preparation of suitable progress reports of the project results, including an annual overall written review of the Joint Development Project for the parties; and d) Preparing, updating, modifying if necessary, and reviewing the Operating Work Plan for the Joint Development Project in accordance with the milestones and project work set forth in Exhibit A. The first such Operating Work Plan shall be prepared by the parties within sixty (60) days from the Effective Date of this Agreement. X.4 Joint Development Personnel. Each party agrees to make its employees and --------------------------- nonemployee consultants reasonably available at their respective places of employment to consult with the other party on issues arising from work performed on the Printheads and Print Engines of the Joint Development Project, including without limitation technical performance, manufacturing materials and manufacturing process, manufacturing costs, and related issues. X.5 Joint Development Facilities. During the Joint Development Project, a ---------------------------- small number of representatives of each party may, upon reasonable notice and at times reasonably acceptable to the other party, (i) visit the facilities where the Joint Development Project is being conducted, (ii) consult informally, during such visits and by telephone, with personnel of the other party performing work on the Joint Development Project, and (iii) 6 work in the facilities and with the representatives of the other party who are performing work on the Joint Development Project. Each party at the request of the other party shall cause appropriate individuals working on the Joint Development Project to be reasonably available for meetings at the location of the facilities where such individuals are employed at times reasonably convenient to the party responding to such request. X.6 Joint Development Records. Each party shall keep complete, accurate and ------------------------- authentic notes, data and records of the work performed on the Printheads and Print Engines under the Joint Development Project in accordance with its established company practices and shall be obligated to provide all such documentation to the other party upon written request at reasonable intervals. Each party shall further have the right to inspect and make copies of such notes, data and records so maintained by persons carrying out the Joint Development Project at reasonable times; provided, however, that such inspection and copying shall not confer upon the inspecting or copying party any ownership rights with respect to such notes, data or records except as expressly provided in this Agreement. Y. Ownership of Improvements ------------------------- Y.1 By CALCOMP. CALCOMP shall own all right, title and interest in and to any ---------- Improvements developed by CALCOMP or KODAK, solely or jointly, which relate to Printheads, Print Engines, Printers, dye based Inks, and/or solvent- based pigmented Inks, including all intellectual property rights (excluding trade names and trademarks), and CALCOMP shall have the right to apply for copyrights, patents (including utility and design patents), or other protection for such intellectual property rights anywhere in the world under its own name and at its own expense. If KODAK makes any Improvement related to Printheads, Print Engines, Printers, dye-based Inks and/or solvent-based pigmented Inks, KODAK shall, and hereby does, transfer to CALCOMP all right, title and interest in and to such Improvement. KODAK agrees that it shall promptly notify CALCOMP of any Improvement and shall take all actions and execute all documents as CALCOMP may reasonably request, to effectuate the acknowledgment of CALCOMP's ownership of the Improvement and the vesting in CALCOMP of complete and exclusive ownership of any such Improvement. KODAK shall secure, maintain and defend for CALCOMP's benefit, all rights in such Improvements, including the right to submit any patent or copyright or application or registration. Notwithstanding the foregoing, KODAK shall have the right to develop independently from CALCOMP and without use of any of the CALCOMP Background Technology, its own inkjet printheads and associated print engines and printers as well as dye-based Inks, solvent-based pigmented Inks and other Media or water-based pigmented Inks and will own all rights therein, including all intellectual property rights. In connection with KODAK's right to develop independently from CALCOMP its own dye-based Inks and solvent-based pigmented Inks and maintain KODAK's ownership of all rights therein, the parties acknowledge that KODAK may use CALCOMP Background Technology with respect to Printheads, Print 7 Engines and Printers and prototypes thereof developed in the Joint Development Project; provided, however, that such KODAK independent development activity shall not use CALCOMP Background Technology directed to dye-based Inks or solvent-based pigmented Inks. Y.2 By KODAK. KODAK shall own all right, title and interest in and to any -------- Improvements developed by KODAK or CALCOMP, solely or jointly, which relate to water-based pigmented Inks or Media, including all intellectual property rights (excluding trade names or trademarks), and KODAK shall have the right to apply for copyrights, patents (including utility and design patents), or other protection for such intellectual property rights anywhere in the world under its own name and at its own expense. If CALCOMP makes any Improvement related to water-based pigmented Inks or Media, CALCOMP shall, and hereby does, transfer to KODAK all right, title and interest in and to such Improvement. CALCOMP agrees that it shall promptly notify KODAK of any Improvement and shall take all actions and execute all documents as KODAK may reasonably request, to effectuate the acknowledgment of KODAK's ownership of the Improvement and the vesting in KODAK of complete and exclusive ownership of any such Improvement. CALCOMP shall secure, maintain and defend for KODAK's benefit, all rights in such Improvements, including the right to submit any patent or copyright or trademark application or registration. Notwithstanding the foregoing, CALCOMP shall have the right to develop independently from KODAK and without use of any of the KODAK Background Technology, its own water-based pigmented Inks and Media and will own all rights therein, including all intellectual property rights. In connection with CALCOMP's right to develop independently from KODAK its own dye-based, solvent-based pigmented Inks, and water-based pigmented Inks and maintain CALCOMP's ownership of all rights therein, the parties acknowledge that CALCOMP may conduct such independent development with respect to dye-based, solvent-based pigmented Inks, or water-based pigmented Inks using Printheads, Print Engines and Printers and prototypes thereof developed in the Joint Development Project; provided, however, that such CALCOMP independent development activity shall not use KODAK Background Technology directed to dye-based, solvent-based pigmented Inks, or water-based pigmented Inks. 3. LICENSES -------- 3.1 Exclusive License to KODAK. CALCOMP hereby grants to KODAK and its -------------------------- Affiliates, subject to KODAK's and its Affiliates' compliance with its material obligations under this Agreement, a perpetual, exclusive, worldwide license under the CALCOMP Background Technology and under all Improvements owned by CALCOMP, subject to the provisions of paragraph 3.7 below, to make and have made the Printheads, Print Engines, and Printers and to use and sell the Printheads and Print Engines, and Printers within the Exclusive Field. Such license shall be fully paid-up with respect to Improvements owned by CALCOMP and shall be royalty-bearing as set forth in Section 4.2 with respect to CALCOMP Background Technology. 8 3.2 Nonexclusive License to KODAK. CALCOMP hereby further grants to KODAK ----------------------------- and its Affiliates, subject to KODAK's and its Affiliates' compliance with its material obligations under this Agreement, a perpetual, non-exclusive, worldwide license under the CALCOMP Technology and under all Improvements owned by CALCOMP, subject to the provisions of paragraph 3.7 below, to make and have made the Printheads, Print Engines, and Printers and to use and sell the Printheads, Print Engines, and Printers within the Nonexclusive Field. Such license shall be fully paid-up with respect to Improvements owned by CALCOMP and shall be royalty-bearing as set forth in Section 4.2 with respect to CALCOMP Background Technology. The Nonexclusive Field includes the worldwide markets for products and services outside of the Exclusive Field and the ULC Printhead with the exception of the following applications: 3.2.1 Industrial Packaging Printing Applications which mean specially configured monochrome or color piezo inkjet printing systems using a flat- bed printer having a print area of at least 3 feet by 3 feet for printing onto corrugated paper packaging, paper board packaging and other similar packaging substrates; 3.2.2 Label/Ticket Printing Applications which mean specially configured monochrome or color piezo inkjet printing systems for printing labels or tickets onto substrates having a print width of less than 6 inches; 3.2.3 Postal Printing Applications which mean specially configured monochrome or color piezo inkjet printing systems primarily intended for printing on postal envelopes or franking printing for postage stamp applications; 3.2.4 Design and Pattern Printing Applications which mean monochrome or color, high volume, production piezo inkjet printing systems which print recurring designs and patterns directly on textile fabrics, fabric-like substrates and similar home furnishing materials such as wall and floor coverings. Design and Pattern Printing Applications shall not include short-run piezo inkjet printing systems for proofing designs or patterns or piezo inkjet printing systems for signage or displays or piezo inkjet printing systems which print via sublimation onto cloth or other substrates; and 3.2.5 CAD/CAM Applications which mean monochrome and/or color piezo ink jet printing devices, primarily for engineering, architectural, manufacturing, design and construction markets, which create two dimensional line drawings and three dimensional color renderings to provide hard copy working documents. The applications specifically excluded from the Nonexclusive Field in the foregoing Sections 3.2.1 through 3.2.5 shall not be construed to limit or in any way restrict the rights granted to KODAK under this Agreement with respect to the Exclusive Field or the ULC Printhead. 9 3.3 Certain Third Party Rights. KODAK acknowledges that CALCOMP has -------------------------- granted certain exclusive rights, for a period of up to six (6) months to a third party solely with respect to 25 picoliter contone Printheads. ------ Accordingly, KODAK agrees that until the foregoing exclusive rights granted to the third party terminate, its non-exclusive license rights under this Agreement solely with respect to such 25 picoliter contone Printheads shall be expressly subject to the third party's exclusive rights. 3.4 Exclusive License For ULC Printhead: See Exhibit J(4) for this --------------------------------------------------------------- Section 3.4. - ------------ 3.5 Nonexclusive License for Inks to KODAK. CALCOMP hereby further grants -------------------------------------- to KODAK and its Affiliates, subject to KODAK's and its Affiliates' compliance with its material obligations under this Agreement, a non-exclusive, worldwide license under the CALCOMP Background Technology and under all Improvements owned by CALCOMP, to make, have made, use and sell dye-based Inks and solvent-based pigmented Inks. Such license shall be fully paid-up with respect to Improvements owned by CALCOMP and shall be royalty-bearing as set forth in Section 4.2 with respect to CALCOMP Background Technology. 3.6 Nonexclusive License For Inks to CALCOMP. KODAK hereby grants to ---------------------------------------- CALCOMP and its Affiliates, subject to CALCOMP's and CALCOMP'S Affiliates' compliance with its material obligations under this Agreement, a perpetual, non- exclusive, worldwide license under the KODAK Background Technology and under all Improvements owned by KODAK, to make, have made, use and sell water-based pigmented Inks. Such license shall be fully paid-up with respect to Improvements owned by KODAK and shall be royalty-bearing as set forth in Section 4.3 with respect to KODAK Background Technology. Notwithstanding the foregoing license grant, CALCOMP and its Affiliates shall not have the right to make or have made (other than by KODAK or its Affiliates) water-based pigmented Inks covered by KODAK Background Technology which are the subject of the Joint Development Project and are successfully completed prior to the termination of the Joint Development Project, meaning that a jointly developed water-based pigmented Ink is available for sale in commercial volumes, until five (5) years after such water-based pigmented Ink is first made available for sale in commercial volumes; provided that CALCOMP and its Affiliates shall have the right to make any other water-based pigmented Ink covered by KODAK Background Technology in the Nonexclusive Field five (5) years after the effective date of this Agreement. Notwithstanding the foregoing, in the event that KODAK fails to meet its performance, minimum volume and/or pricing obligations relating to the supply of water-based pigmented Inks (which were the subject of the Joint Development Project and were successfully completed prior to the termination of the Joint Development Project), to CALCOMP or its Affiliates for a continuous period of more than ninety (90) days, and following receipt of notice from CALCOMP or its Affiliates of the ninety (90) day default, fails to cure such default within ninety (90) additional days, CALCOMP and its Affiliates shall thereafter have the right to make or have made such water-based pigmented Inks. 3.7 KODAK's Right to Make and Have Made. KODAK and its Affiliates shall ----------------------------------- not have the right to make or have made (other than by CALCOMP), Printheads or Print Engines covered by CALCOMP Background Technology which are the subject of the Joint Development 10 Project and are successfully completed prior to termination of the Joint Development Project, meaning that each of a jointly-developed Printhead and its associated Print Engine, if any is required, is available for sale in commercial volumes, until five (5) years after such Printhead and associated Print Engine are first made available for sale in commercial volumes; provided that KODAK and its Affiliates shall have the right to make any other Printhead or Print Engine not part of the Joint Development Project (including other piezo and non-piezo printheads and print engines) in the Exclusive Field or Nonexclusive Field five (5) years after the effective date of this Agreement. Notwithstanding the foregoing, in the event that CALCOMP fails to meet its performance, minimum volume and/or pricing obligations relating to the supply of Printheads, or Print Engines (which were the subject of the Joint Development Project and were successfully completed prior to the termination of the Joint Development Project), to KODAK or its Affiliates for a continuous period of more than ninety (90) days, and following receipt of notice from KODAK or its Affiliates of the ninety (90) day default, fails to cure such default within ninety (90) additional days, KODAK and its Affiliates shall thereafter have the right to make or have made such Printheads or Print Engines. 4. LICENSE FEES AND ROYALTIES -------------------------- 4.1 License Fees and Milestone Payments to CALCOMP. In partial ---------------------------------------------- consideration for the licenses and other rights granted to KODAK by this Agreement and the Master OEM Agreement No. 1, and for CALCOMP's joint development obligations set forth in this Agreement, KODAK shall pay to CALCOMP the License Fee payments set forth on Exhibit B to this Agreement according to the Schedule set forth in such Exhibit B. 4.1.1 Other Payments. KODAK shall also pay to CALCOMP the other -------------- payments set forth on Exhibit B to this Agreement upon achievement and completion of the associated Milestone events specified on Exhibit B. 4.1.2 Partial Performance. Partial performance of a Milestone does ------------------- not obligate KODAK for partial payment of the payment for such Milestone. Otherwise, failure to perform a Milestone shall be handled as set forth in Section 14.3 of this Agreement. 4.1.3 Independent Events. Each of the payments set forth in Exhibit ------------------ B is independent of the other payments such that CALCOMP's failure to meet one Milestone does not excuse KODAK's obligation to make future milestone payments, unless the Agreement is terminated by KODAK pursuant to Article 14 of this Agreement ("Term and Termination"). 4.2 Royalties to CALCOMP: See Exhibit J(5) for this Section 4.2. ------------------------------------------------------------- 4.3 Royalties to KODAK: See Exhibit J(6) for this Section 4.3. ----------------------------------------------------------- 11 4.4 Termination of all Royalties. Notwithstanding the foregoing Sections ---------------------------- 4.1 through 4.3, neither party shall owe any royalties under this Agreement to the other seven (7) years after the termination of the Joint Development Project, which may be extended pursuant to Section 2.2 of this Agreement. 4.5 Royalty-Bearing Products. Except as set forth in Sections 4.2 and ------------------------ 4.3, neither party shall pay royalties to the other party on any other products made under the licenses granted under this Agreement. 5. AGREEMENT TO PURCHASE CALCOMP WARRANTS -------------------------------------- Simultaneously with the execution of this Agreement, CALCOMP will grant warrants to KODAK in the form of the Common Stock Purchase Warrant attached hereto as Exhibit C. 6. CALCOMP'S AND KODAK'S COMMITMENTS --------------------------------- 6.1 Supply of Printheads and Print Engines. Until KODAK has the right to -------------------------------------- make and have made Printheads, and Print Engines, which are the subject of the Joint Development Project, CALCOMP will supply to KODAK and KODAK will purchase from CALCOMP, KODAK's reasonable requirements of such Printheads, and Print Engines under Master OEM Agreement No. 1, at preferred OEM pricing subject to the terms and conditions set forth in such Master OEM Agreement No. 1. 6.2 Minimum Purchase Volumes for Print Engines. If in any year KODAK ------------------------------------------ fails to purchase the minimum purchase volumes as mutually agreed upon under Master OEM Agreement No. 1 of a specific Printhead and associated Print Engine which has been designated in writing by the Project General Managers for use in the Exclusive Field, the exclusive license set forth in Section 2.1 of this Joint Development Agreement will automatically become a non-exclusive license solely with respect to that specific Printhead. 6.3 Supply of Inks. Until CALCOMP has the right to make and have made -------------- water-based pigmented Inks which are developed as a part of the Joint Development Project, KODAK will supply to CALCOMP and CALCOMP will purchase from KODAK, CALCOMP's reasonable requirements of such water-based pigmented Inks under Master OEM/Supply Agreement No. 2 at preferred OEM pricing subject to the terms and conditions, including mutually agreed upon pricing and specifications, set forth in such Master OEM/Supply Agreement No. 2. 6.4 Supply of Printers. CALCOMP agrees to supply KODAK upon request with ------------------ its reasonable requirements of Printers which are used or developed in the Joint Development Project in connection with the Printheads and Print Engines which are the subject of the Joint 12 Development Project at preferred OEM pricing, subject to the terms and conditions, including mutually agreed upon pricing and specifications, set forth in Master OEM Agreement No. 1. 6.5 Supply of Media. CALCOMP agrees to purchase from KODAK its reasonable --------------- requirements of KODAK-branded Media or CALCOMP-branded Media which is used or developed in the Joint Development Project in connection with the Printheads and Print Engines which are the subject of the Joint Development Project at preferred pricing, subject to the terms and conditions, including mutually agreed upon pricing and specifications, set forth in Master OEM/Supply Agreement No. 2. 6.6 Purchase of Inks from CALCOMP. CALCOMP agrees to sell KODAK upon ----------------------------- request its reasonable requirements of dye-based Inks and solvent-based pigmented Inks which are used or developed under the Agreement in connection with the Printheads and Print Engines which are the subject of the Joint Development Project at preferred OEM pricing, subject to the terms and conditions, including mutually agreed upon pricing and specifications, set forth in Master OEM Agreement No. 1. 6.7 Distribution of Inks. Each party (as herein designated in this -------------------- Section 6.7 a "First Party") hereby appoints the other party (as herein designated in this Section 6.7 a "Second Party") as a distributor of the Inks which are jointly developed under the Joint Development Project and made or have made by the First Party for distribution and resale of such Inks by the Second Party or its Affiliates in the Nonexclusive Field; provided, however, that for each such Ink sold under the Second Party's or its Affiliate's own brand or the brand of a reseller, the Second Party will on the label and packaging of the Ink and in the marketing and sales activities and promotional literature associated with the Ink, designate the Ink for use only in Printheads, and associated Print Engines and Printers, developed under the Joint Development Project and sold under the Second Party's or its Affiliate's own brand or under the brand of a third party reseller who is reselling Printheads, and associated Print Engines and Printers, developed under the Joint Development Project which have been purchased from the Second Party or its Affiliates. 6.8 CALCOMP Commitment of Funds. CALCOMP hereby commits that it will --------------------------- devote all of the funds it has committed to use in the Joint Development Project in calendar years 1998 and 1999 as specified in Section 2.3.2 of this Agreement and all of the monies and all of the payments specified in Exhibit B (except the payment(s) in item B thereof) to the conduct of the Joint Development Project in accordance with the provisions in Section 2.3.2 of this Agreement, and that it will provide KODAK in each of calendar years 1998 and 1999 within sixty (60) days of the close of each calendar quarter an accounting and a written report confirming the foregoing expenditures for the Joint Development Project. Such accounting and written report shall be subject to audit by KODAK in accordance with Section 8.1 of this Agreement. 6.9 KODAK Pigments. KODAK will consider, but makes no binding commitment, -------------- to supply pigments for purchase by CALCOMP for use in the manufacture of Inks. 13 (Article 7 is not used.) - ------------------------ 8. REPORTS AND PAYMENT ------------------- 8.1 Records. Each of KODAK and CALCOMP will keep complete, true, and ------- accurate books of account and records for the purpose of showing the derivation of all amounts payable to the other party under this Agreement and the use of funds provided by the other party for which a specific use is required by this Agreement. Such books and records will be kept at such party's principal place of business for at least two (2) years following the end of the calendar quarter to which they pertain. Upon reasonable advance notice by the other party and not more than once per year, such books and records will be open during reasonable business hours for audit for the sole purpose of verifying royalty statements, or compliance with the permitted uses of funds specified in Section 2.3 and Exhibit B in this Agreement or required contributions of funds and other resources specified in Section 2.3 by a certified public accounting firm who is retained on other than a contingent fee basis, who has agreed to be bound by the confidentiality provisions of Article 12 of this Agreement ("Confidentiality"), and who is reasonably acceptable to the party being audited. 8.2 Written Reports. Each party agrees to make quarterly written reports --------------- to the other party within sixty (60) days after the end of each calendar quarter during the life of this Agreement for which the reporting party is required to make such report, and as of such dates, stating in each such report the Net Sales accruing during the preceding three (3) calendar months and upon which royalty is payable as provided in Article 4 of this Agreement ("License Fee and Royalties"). The first such report shall be due for a party in the calendar quarter following the quarter in which such party makes available for sale products on which royalty is payable under Article 4 and shall include the entire Net Sales which accrued prior to the date of such report. 8.3 Payment Of Royalties. At the time each party provides a quarterly -------------------- written report as set forth in Section 8.2 ("Written Reports"), the reporting party shall pay to the other party royalties in United States dollars by wire transfer. 8.4 Cost of Audits. Audits shall be at the expense of the auditing party -------------- unless a variation or error exceeding U.S. $10,000, or the equivalent, is discovered in the course of any such inspection, whereupon all costs relating thereto shall be paid by the party being audited. Furthermore, the audited party will promptly pay to the other party the full amount of any underpayment. 9. PROPRIETARY RIGHTS ------------------ 9.1 CALCOMP Background Technology. Subject to the rights and licenses ----------------------------- granted to KODAK and its Affiliates hereunder, CALCOMP retains all rights, title, and interest in the 14 CALCOMP Background Technology, including, without limitation, all patents, copyrights, trade secrets, and any other intellectual property and proprietary rights. 9.2 KODAK Background Technology. Subject to the rights and licenses --------------------------- granted to CALCOMP and its Affiliates hereunder, KODAK retains all rights, title, and interest in the KODAK Background Technology, including, without limitation, all patents, copyrights, trade secrets, and any other intellectual property and proprietary rights. 10. TRADEMARKS AND LOGOS -------------------- Except as provided in this Article 10 ("Trademarks and Logos"), nothing contained in this Agreement shall be construed as granting any right or license to either party to use the trade names or trademarks of the other. 10.1 Logo. Each Printer incorporating a Printhead, Print Engine, or ULC ---- Printhead, which is purchased by KODAK or its Affiliates from CALCOMP or made by or for KODAK or its Affiliates under the licenses granted by CALCOMP under Article 3 ("Licenses") of this Agreement, shall bear a logo referencing the incorporation of CALCOMP's CRYSTALJET technology as depicted on Exhibit E to this Agreement, as may be amended from time to time by CALCOMP (the "Technology Logo"). The foregoing requirements with respect to the use of the Technology Logo shall apply during the term of this Agreement but only for so long as: 10.1.1 All Printers manufactured and sold by CALCOMP and its Affiliates bear the Technology Logo; 10.1.2 CALCOMP requires that all printers manufactured for CALCOMP or its Affiliates or by a third party under license of technology or patents granted by CALCOMP or its Affiliates bear the Technology Logo, meet or exceed the applicable Printer, Printhead or Print Engine quality standards in the Nonexclusive Field by producing a print quality reasonably comparable to or better than that produced by printers in the top 5 printing products which directly compete with Printers incorporating a Printhead or Print Engine, and conform to the standards for use of the Technology Logo set forth in Exhibit E; and 10.1.3 All of the Printers manufactured by CALCOMP or its Affiliates for KODAK or its Affiliates, in the Nonexclusive Field meet the quality standards in the Nonexclusive Field by producing a print quality reasonably comparable to or better than that produced by printers in the top 5 printing products which directly compete with Printers incorporating a Printhead or Print Engine, and conform to the standards for use of the Technology Logo set forth in Exhibit E. 15 In the event that CALCOMP does not comply with the provisions of 10.1.1, 10.1.2 or 10.1.3 above, KODAK AND ITS Affiliates have the right to be released from the foregoing requirements to use the Technology Logo without incurring any financial liability or obligation under this Agreement relating to such release. 10.2 License of Technology Logo. CALCOMP hereby grants to KODAK and its -------------------------- Affiliates a non-exclusive, non-transferable, worldwide, right and license to use the Technology Logo solely on or in connection with the manufacture, advertisement, promotion, distribution and sale of Printers incorporating Printheads, Print Engines, or the ULC Printhead purchased by KODAK or by KODAK's Affiliates from CALCOMP under Master OEM Agreement No. 1 or made under the licenses granted by CALCOMP under Article 3 ("Licenses") of this Agreement, respectively. 10.3 Quality Control for the Technology Logo for Purchased Printheads. ---------------------------------------------------------------- KODAK agrees that all Printers incorporating a Printhead, Print Engine, and/or ULC Printhead purchased by KODAK or its Affiliates from CALCOMP under Master OEM Agreement No. 1 and which Printers are manufactured by or for KODAK or its Affiliates other than by CALCOMP and bear the Technology Logo shall produce a print quality reasonably comparable to or better than that produced by printers in the top 5 printing products which directly compete with such Printers and comply with the standards for use of the Technology Logo set forth in Exhibit E. KODAK agrees upon reasonable request by CALCOMP, to deliver free of charge to CALCOMP, a sample of specified models of Printers manufactured by or for KODAK or its Affiliates other than by CALCOMP and/or photographs clearly showing the presentation of the Technology Logo on the Printer, provided however that for each such specified model of Printer KODAK and its Affiliates shall be required to furnish such samples no more than once in any consecutive six (6) month period during the term of this Agreement. Should CALCOMP at any time determine that the quality of any of the Printers bearing the Technology Logo manufactured by or for KODAK or its Affiliates other than by CALCOMP does not reasonably conform to the aforementioned print quality set forth in this Section 10.3 and the standards for use of the Technology Logo set forth in Exhibit E, CALCOMP will provide written notice to KODAK specifying the nature of the nonconformance. Upon receipt of such notice, KODAK shall use commercially reasonable efforts to correct the nonconformance. If KODAK does not reasonably correct the nonconformance within ninety (90) days from receipt of written notice from CALCOMP, KODAK shall stop shipping the aforesaid Printers. 10.4 Quality Control for Technology Logo for Licensed Printheads. KODAK ----------------------------------------------------------- agrees that each Printer incorporating a Printhead, Print Engine, or ULC Printhead manufactured by or for KODAK or its Affiliates under the licenses granted by CALCOMP under Article 3 ("Licenses") of this Agreement and bearing the Technology Logo shall produce a print quality reasonably comparable to or better than that produced by the printheads in the top 5 printing products which directly compete with such Printer and comply with the standards for use of the Technology Logo set forth in Exhibit E. KODAK agrees upon reasonable request by CALCOMP, to deliver free of charge to CALCOMP, a sample of specified models of each 16 Printhead, Print Engine, and/or ULC Printhead manufactured by or for KODAK other than by CALCOMP, samples of prints produced by such Printhead, and photographs clearly showing the presentation of the Technology Logo on the Printer in which such Printhead is used, provided however that for each such specified model of Printhead KODAK and its Affiliates shall be required to furnish such samples no more than once in any consecutive six (6) month period during the term of this Agreement. Should CALCOMP at any time determine that the quality of any of the aforesaid Printers bearing the Technology Logo manufactured by or for KODAK or its Affiliates other than by CALCOMP does not reasonably conform to the aforementioned print quality set forth in this Section 10.4 and the standards for use of the Technology Logo set forth in Exhibit E, CALCOMP will provide written notice to KODAK specifying the nature of the nonconformance. Upon receipt of such notice, KODAK shall use commercially reasonable efforts to correct the nonconformance. If KODAK does not reasonably correct the nonconformance within ninety (90) days from receipt of written notice from CALCOMP, KODAK shall stop shipping the aforesaid Printers. 10.5 Use of the Technology Logo. KODAK agrees that the presentation and -------------------------- image of the Technology Logo shall be reasonably uniform, and consistent and presented in a manner reasonably conforming to CALCOMP's standards (as set forth in Exhibit E) for the use and display of the Technology Logo with respect to all models of Printers (within a specified line of Printers) bearing the Technology Logo. The Technology Logo will be readily visible to a user of the Printer and may not be used on or in reference to any product other than Printers incorporating a Printhead, Print Engine or a ULC Printhead purchased by KODAK or by KODAK's Affiliates from CALCOMP under Master OEM Agreement No. 1 or manufactured by or for KODAK or KODAK's Affiliates under the Licenses granted under Article 3 ("Licenses") of this Agreement. 10.6 Advertising. During the period specified in Section 10.1 above, ----------- KODAK agrees that it will include in substantially all KODAK advertisements for the Printers the Technology Logo in clearly visible form and a statement that the Printers incorporate CRYSTALJET technology under license from CALCOMP. KODAK agrees to promptly review any and all advertisements which include the Technology Logo to which CALCOMP has objected in writing with respect to KODAK's use of the Technology Logo and will use commercially reasonable efforts to correct that portion to which CALCOMP has reasonably objected. 10.6 Ownership. KODAK hereby agrees that it shall acquire no ownership --------- interest in the Technology Logo by virtue of this Agreement. 10.7 Warranty and Indemnification. CALCOMP warrants to KODAK and its ---------------------------- Affiliates that the Technology Logo does not violate the rights of any third party and that it has full power to make this Agreement and to grant the rights as provided herein. CALCOMP agrees to defend and indemnify KODAK and its Affiliates against any claims (and to pay any damages and attorneys' fees awarded) based on allegations that use of the Technology Logo infringes the trademark rights of any third party, which allegations, if true, would constitute a breach of the foregoing express warranty, provided that CALCOMP is -------- promptly notified of and tendered the 17 defense to such claims with counsel of its own choosing and no settlement is made without CALCOMP's prior written consent. 11. PURCHASE AND SALE ----------------- The terms and conditions relating to the purchase and sale of products between the parties are to be governed by Master OEM Agreement No. 1 and Master OEM/Supply Agreement No. 2 as appropriate, entered into between the parties concurrently with this Agreement. 12. CONFIDENTIALITY --------------- 12.1 CALCOMP's Confidential Information. KODAK agrees to maintain the ---------------------------------- confidential nature of trade secrets and proprietary information relating to the Joint Development Project belonging to CALCOMP (i) which is disclosed to KODAK by CALCOMP in tangible form clearly labeled as confidential at the time of disclosure, or (ii) which is disclosed to KODAK by CALCOMP initially in non- tangible form and identified as confidential at the time of disclosure and, within thirty (30) days following the initial disclosure, is summarized and designated as confidential in a written memorandum delivered to KODAK ("CALCOMP's Confidential Information"). KODAK shall not use CALCOMP's Confidential Information for any purpose other than exercising the rights granted to KODAK under and in the performance of this Agreement. KODAK shall not disclose CALCOMP's Confidential Information to any third party without the prior written consent of CALCOMP. 12.2 KODAK's Confidential Information. CALCOMP agrees to maintain the -------------------------------- confidential nature of trade secrets and proprietary information relating to the Joint Development Project belonging to KODAK (i) which is disclosed to CALCOMP by KODAK in tangible form clearly labeled as confidential at the time of disclosure, or (ii) which is disclosed to CALCOMP by KODAK initially in non- tangible form and identified as confidential at the time of disclosure and, within thirty (30) days following the initial disclosure, is summarized and designated as confidential in a written memorandum delivered to CALCOMP ("KODAK'S Confidential Information"). CALCOMP shall not use KODAK's Confidential Information for any purpose other than exercising the rights granted to CALCOMP under and in the performance of this Agreement. CALCOMP shall not disclose KODAK's Confidential Information to any third party without the prior written consent of KODAK. 12.3 Period of, and Exclusions from, Confidentiality Obligations. The ----------------------------------------------------------- foregoing obligations of confidentiality on the parties under this Article 12 shall apply until seven (7) years after termination of the Joint Development Project, but these obligations shall not apply to information that: 12.3.1 prior to the transmittal was of general public knowledge; 18 12.3.2 becomes a matter of general public knowledge otherwise than as a consequence of a breach under this Agreement; 12.3.3 is made public by the party claiming confidentiality; 12.3.4 is required to be disclosed by applicable law or regulation; provided however, that the party who may be required to disclose such information shall notify the other party in sufficient time for the owner of such Confidential Information to file the appropriate documents with the court to obtain a protective order to enforce the confidentiality requirements of this Agreement; 12.3.5 the receiving party can establish by competent proof was in its possession at the time of disclosure by the disclosing party and was not acquired, directly or indirectly, from the disclosing party; 12.3.6 is received from a third party; provided, however, that the receiving party has no reason to know such information was obtained by said third party, directly or indirectly, from the other party under a nondisclosure agreement; 12.3.7 the receiving party can establish was independently developed without recourse to the confidential information of the other party; 12.3.8 is submitted to governmental or non-governmental agencies to obtain the issuance of marketing or safety approvals for products developed under the terms of this Agreement; 12.3.9 is disclosed to agents and subcontractors of the parties in the furtherance of the parties' permitted development, manufacturing or marketing activities under the terms of this Agreement under confidentiality provisions which are the same or similar to those set forth in this Agreement; 12.3.10 is disclosed in patents filed in furtherance of the parties' permitted development, manufacturing, and marketing activities under the terms of this Agreement; or 12.3.11 is product-related information which (i) is reasonably required to be disclosed in connection with the manufacture or marketing of Printheads, Print Engines, Printers, Inks, or Media developed or manufactured under the terms of this Agreement and (ii) is disclosed under confidentiality provisions which are the same or similar to those set forth in this Agreement where appropriate. 12.4 Injunctive Relief. The parties acknowledge that in certain ----------------- cases it is possible that neither party may have an adequate remedy at law if the other party violates the terms of this Article 12 ("Confidentiality") and that in such cases each party, unless it is in breach of a 19 material obligation of this Agreement, may have the right to seek injunctive relief or otherwise to specifically enforce any of the covenants in this Article 12 ("Confidentiality") if the other party fails to perform such covenants. 13. WARRANTIES AND REPRESENTATIONS; DISCLAIMER OF IMPLIED WARRANTIES ---------------------------------------------------------------- 13.1 Each party to this Agreement represents and warrants that (i) it has the full power, right, and authority to enter this Agreement and to grant the rights and licenses granted hereunder to the other party, (ii) that it has entered into no prior agreements or undertaken any prior obligations, nor shall it enter into any such agreements or undertake any such obligations during the term of this Agreement, which conflict with the performance of its duties and licenses granted hereunder to the other party, (iii) it is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it was incorporated, and (iv) that it shall guarantee the performance of its Affiliates under this Agreement. 13.2 CALCOMP represents and warrants as of the Effective Date that there are no outstanding liens, claims, or other encumbrances on the rights in CALCOMP Background Technology which are designated for use in the Joint Development Project to be conducted hereunder with KODAK. A complete list of the patents and patent applications which are included in CALCOMP's Background Technology as of the Effective Date of this Agreement is set forth in the attached Exhibit D. Upon request no more than twice each year during the term of this Agreement, CALCOMP will provide KODAK with an updated list of its patents and patent applications included in CALCOMP Background Technology. 13.3 THE FOREGOING WARRANTIES ARE EXCLUSIVE, ARE THE ONLY WARRANTIES MADE BY THE PARTIES IN CONNECTION WITH THIS AGREEMENT AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND OF NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTIES. 14. TERM AND TERMINATION -------------------- 14.1 Term. This Agreement and the Joint Development Project shall remain ---- in effect for a period of five (5) years from the Effective Date specified on the first page hereof, unless earlier terminated or extended by written agreement of the parties or earlier terminated under Section 2.2 or this Article 14. 14.2 Termination for Breach. Unless otherwise specified in this ---------------------- Agreement, the default by one party of a material obligation of such party under this Agreement shall entitle the other party to give the party in default written notice describing such default in detail (including 20 supporting documentation) and requiring it to remedy such default. If such default is not fully remedied within ninety (90) days after the date of such notice, the notifying party shall be entitled to, in addition to all other remedies available to such party, terminate this Agreement by a written notice to the defaulting party. 14.3 Failure to Meet Milestones and Termination. Notwithstanding Section ------------------------------------------ 2.1 above, Exhibit B sets forth a completion date for each Milestone. (a) CALCOMP acknowledges that it is the party primarily responsible for completing Milestones #1 and #2 under this Agreement. In the event the failure to complete Milestone #1 or #2 is caused by CALCOMP's failure to meet its material obligations under this Agreement relating to completion of such Milestone, KODAK shall notify CALCOMP in writing of the specific nature of the failure and shall give CALCOMP a cure period of ninety (90) days to cure the failure and to comply. The deadline for the completion of such Milestone will be extended by the cure period. If CALCOMP does not cure such failure and complete such Milestone within such cure period, (i) KODAK shall not make the payment to CALCOMP for completion of the Milestone, and (ii) KODAK may terminate this Agreement upon providing written notice to CALCOMP within (60) days of the completion date for such Milestone, as extended. (b) The parties acknowledge and agree that Milestone #3 is substantially dependent upon the efforts of both parties as described in the Operating Work Plan of the Joint Development Project in Exhibit A. In the event that the parties are not able to complete Milestone #3 by the completion date set forth in Exhibit B, and such failure is caused by one party's failure to meet its material obligations under this Agreement relating to completion of such Milestone, the other party shall notify the first party of the specific nature of the failure and shall give the first party a cure period (at least 90 days) to permit the party to cure the failure and to comply. The deadline for completion of Milestone #3 will be extended by the cure period. In the event, the failure to complete Milestone #3 is caused by CALCOMP's failure to meet its obligations under this Agreement relating to completion of such Milestone, then (i) KODAK shall not make the payment to CALCOMP for completion of the Milestone, and (ii) KODAK may terminate this Agreement upon providing written notice to CALCOMP within sixty (60) days of the completion date for such Milestone, as extended. (c) In the event that neither party is in default with respect to its material obligations under this Agreement relating to completion of a Milestone and such Milestone is not completed by the completion deadline for such Milestone in Exhibit B, there shall be a reasonable additional period of time at least ninety (90) days following such date within which the parties will have to complete the Milestone. If the Milestone is still not completed after expiration of such additional period, and the parties do not mutually agree in writing to extend the completion date for such Milestone, then (i) KODAK will not make the payment to CALCOMP related to completion of such Milestone, and (ii) KODAK may terminate this Agreement upon providing written notice to CALCOMP within sixty (60) days of the final completion date for such Milestone, as extended. 21 (d) In the event the failure to complete Milestone #1, Milestone #2 or Milestone #3 by the completion date set forth in Exhibit B is caused by KODAK's failure to meet its material obligations under this Agreement relating to completion of such Milestone and KODAK does not cure such failure with the result that CALCOMP is unable to complete the Milestone, CALCOMP shall be entitled to give KODAK written notice of the specific nature of the failure (including supporting documentation) and requiring KODAK to remedy such failure. If such failure is not fully remedied within ninety (90) days after the date of such notice, KODAK shall promptly pay CALCOMP the full amount of the applicable Milestone payment. 14.4 Termination on Insolvency. Either party may terminate this Agreement ------------------------- at any time upon or after the filing against the other party by any third party of a petition in bankruptcy or insolvency, which proceeding is not discharged within 120 days, or upon or after any adjudication that the other party is insolvent, or upon or after the filing by the other party of any petition or answer seeking reorganization, readjustment or arrangement of the business of the other party under any law relating to bankruptcy or insolvency, or upon or after the appointment of a receiver for all or substantially all of the property of the other party of any assignment or attempted assignment for the benefit of creditors, or upon or after the institution of any proceedings for the liquidation or winding up of the other party's business. 22 14.5 Rights Upon Termination. ----------------------- 14.5.1 In the event of any valid termination of this Agreement under Sections 14.2, 14.3 or 14.4 hereof, each party's rights under this Agreement shall be terminated. Except as provided in Section 14.5.2, Section 14.5.3, and Section 14.5.5 hereof, the termination of the parties' rights shall include the termination of any rights of each party to continue to use the technology belonging to the other party. No termination shall impact either party's rights to collect for accrued or previously paid royalties. 14.5.2 In the event of any valid termination of this Agreement by one party under Section 14.2 of this Agreement, unless the one party is in breach of any material obligation under this Agreement, the licenses granted to the non-breaching party in this Agreement shall continue in perpetuity and shall be fully-paid up. 14.5.3 In the event of any valid termination of this Agreement by one party under Section 14.3 or 14.4 of this Agreement, unless the one party is in breach of a material obligation under this Agreement, the licenses granted to the non-breaching party in this Agreement shall continue with royalties due and payable for the period and on the terms set forth in this Agreement. 14.5.4 Notwithstanding the above, if this Agreement terminates for any reason other than breach of KODAK's obligation in Section 10.3 or 10.4 of this Agreement, or if it expires, KODAK may continue to sell for 180 days after termination or expiration the inventory of finished or completed Printers bearing the Technology Logo which exists as of the termination or expiration date. If the Agreement terminates due to breach of KODAK's obligation in Section 10.3 or Section 10.4 of this Agreement, KODAK shall not have the foregoing right to continue to sell such inventory of Printers. 14.5.5 In the event of any valid termination of this Agreement other than termination under Sections 14.2, 14.3, or 14.4 hereof, the licenses granted to a party under this Agreement shall continue with royalties due and payable for the period and on the terms set forth in this Agreement, unless such party is in breach of a material obligation under this Agreement. 15. DISPUTE RESOLUTION ------------------ The parties will attempt in good faith to resolve any controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity hereof promptly by negotiations between executives of the parties who have authority to settle the controversy or claim and who do not have direct responsibility for the administration of this Agreement. The disputing party shall give the other party written notice of the dispute. Within thirty (30) days after receipt of the notice, the receiving party shall submit to the disputing party a 23 written response. The notice and response shall include (a) a statement of each party's position and a summary of the evidence and arguments supporting its position, and (b) the name and title of the executive who will represent that party. The executives shall meet at a mutually acceptable time and place within forty (40) days of the date of the disputing party's notice and thereafter as they reasonably deem necessary to exchange relevant information and to attempt to resolve the controversy or claim. If the controversy or claim has not been resolved pursuant to the mediation procedure within ninety (90) days of the commencement of such procedure, or if either party will not participate in mediation, either party may initiate litigation in a state or federal court having jurisdiction thereof and located in the judicial district in which the other party has its principal office. All statutes of limitation shall be tolled while the alternative dispute resolution procedures described in this Article are pending. 16. GOVERNMENT APPROVALS -------------------- KODAK and CALCOMP acknowledge that each party has determined that this Agreement is not subject to "pre-merger" clearance procedures in the United States ("US") and the European Community ("EC"). Accordingly, KODAK and CALCOMP agree that in the event any required clearance for this Agreement is required in the US or the EC and/or any necessary filing is not approved by any jurisdiction which requires such a filing, the parties shall amend this Agreement to the extent necessary to comply with any such required clearance or filing, with such amendment to contain commercially reasonable provisions which preserve the economic equity of both parties. 17. PUBLICITY; MUTUAL PRESS RELEASE ------------------------------- Neither party shall disclose the terms of this Agreement without the prior written consent of the other party. CALCOMP and KODAK have agreed to the wording of the press release in the attached Exhibit I. Both parties shall publish this press release on a mutually agreed-on date. Nothing in this Section 17 will prevent CALCOMP or KODAK from disclosing matters required to be disclosed by the Securities and Exchange Commission or other governmental authorities. 18. MISCELLANEOUS ------------- 18.1 Nonassignability. Except in connection with the sale of all or ---------------- substantially all of the Printhead assets or Printhead business of either party to which this Agreement relates other than a competitor of the other party listed in Exhibit H, which the parties may mutually agree to amend in writing from time to time during the term of this Agreement, and except as contemplated under Section 18.18, neither party may assign, transfer or sublicense any of the 24 rights or obligations under this Agreement, without the prior written consent of the other party. This Agreement will inure to the benefit of and bind each party's successors and assigns. 18.2 Failure to Enforce. The failure of either party to enforce at any ------------------ time or for any period of time the provisions of this Agreement shall not be construed to be a waiver of such provisions or of the right of such party to enforce each and every such provision. 18.3 Governing Law. Except as set forth in Article 15 of this Agreement ------------- ("Dispute Resolution"), this Agreement shall be deemed to have been made in the State of New York, United States of America, and shall be governed by and construed according to the laws of the State of New York without reference to its conflict of laws provisions. 18.4 Severability. In the event that any of the provisions of this ------------ Agreement shall be held by a court or other tribunal of competent jurisdiction to be unenforceable, such provisions shall be deleted from this Agreement and the remaining portions of this Agreement shall remain in full force and effect, except where the economic equity of both parties hereto is materially affected by such unenforceability. 18.5 Notice. Any notice required or permitted to be given to the parties ------ hereto shall be given in writing and be either personally delivered, sent by registered or certified mail, return-receipt requested, postage prepaid (except during time of postal strike), or sent by facsimile to the other party to the address set forth below. Any notice sent by personal delivery or registered mail shall be deemed to be received on the date of delivery. Any notice sent by facsimile shall be deemed to have been received by the party to whom it was sent on the first business day following its transmission. Furthermore, while any party may change its address by written notice to the other party in accordance with this Section 18.5, all addresses for notice must be addresses to which notices can be personally delivered. Address for Notice to KODAK Address for Notice to CALCOMP --------------------------- ----------------------------- Eastman Kodak Company CalComp Technology, Inc. 343 State Street 14555 North 82nd Street Rochester, NY 14650-0414 Scottsdale AZ 85260-2599 Attention: President, Kodak Professional Attention: Corporate Secretary 18.6 Force Majeure. Neither party shall be liable to the other party ------------- hereto for any loss, injury, delay, damages or other casualties suffered or incurred by such other party due to strikes, riots, storms, fires, acts of God, or war or any other cause beyond the reasonable control of either party. 25 18.7 Headings. Headings to articles, paragraphs and sections of this -------- Agreement are to facilitate reference only, do not form a part of this Agreement, and shall not in any way affect the interpretation hereof. 18.8 Survival From This Agreement. The rights and obligations of the ---------------------------- parties hereto under Article 9 ("Proprietary Rights") and Article 12 ("Confidentiality") of this Agreement shall survive and continue after any expiration or termination of this Agreement and shall bind the parties and their representatives, successors, heirs and assignees. 18.9 Exhibits. All exhibits to which this Agreement refers are hereby -------- incorporated into and made a part of this Agreement. 18.10 Entire Agreement. This Agreement constitutes the entire agreement ---------------- between KODAK and CALCOMP, and there are no other understandings, agreements or representations, express or implied, written or oral, not specified herein. This Agreement may only be amended by express written agreement signed by authorized representatives of both parties. 18.11 Conflicts in Documentation. In the event that a conflict arises -------------------------- between this Agreement and any work order or purchase order related to the Joint Development Project, this Agreement shall govern and prevail, and the conflicting terms and conditions of any such documents shall be deemed deleted, and shall not be binding upon either party. In connection with the terms of Articles 1 through 18. of this Agreement and attached Exhibits A through J, the terms of such Exhibits shall be construed in a manner that is consistent with the terms of such Articles; and in the event of any conflict between such Articles and Exhibits, the terms of Articles 1. through 18. shall prevail. 18.12 Independent Contractors. In the performance of the duties ----------------------- contemplated under this Agreement, the status of the parties including employees and agents of each, shall be that of independent contractors and not as employees, agents, or fiduciaries of the other party and as such neither party shall have any right to make commitments for or on behalf of the other party. 18.13 Acts of Employees. Each party shall be responsible for the safety ----------------- of its employees and agents with respect to activities relating to the Joint Development Project under this Agreement and for liability for damages or personal injuries, including death, resulting from such activities without any warranty, liability, or indemnification on the part of the other party. 18.14 Loaned Equipment. Each party shall have independent discretion in ---------------- determining which of their own equipment will be furnished in connection with the Joint Development Project. All such equipment loaned by one party to the other shall remain the property of the party making such loan and shall be returned upon request. 18.15 Sample Materials. Each party understands and acknowledges that any ---------------- sample or prototype materials furnished by either party to the other in connection with the Joint 26 Development Project are experimental and such samples are provided only for experimental use without any representation, assurance, or warranty on the part of either party. 18.16 Right To Work With Third Parties. Subject to the terms of this -------------------------------- Agreement, each party shall be free to engage in other work, alone or with others, and to furnish information to and receive information from others. 18.17 Export Licenses. This Agreement, and any technical information --------------- provided under this Agreement, may be subject to restrictions concerning the export or products or technical information from the United States which may be imposed by the U.S. Government or any other competent authority. Accordingly, the parties agree that they shall not export or re-export, directly or indirectly, any technical information acquired under this Agreement or any products utilizing any such technical information to any country for which the U.S. Government or other competent authority at the time of export requires an export license or other approval, without first obtaining the written consent to do so from the Department of Commerce or other agency of the U.S. Government or Department of Commerce or other agency of the U.S. Government or from other competent authority when required by an applicable statute or regulation. 18.18 Right To Sell Topaz Assets. In the event during the term of this -------------------------- Agreement, CALCOMP desires to sell any of the Topaz Assets (other than in the ordinary course of its business), CALCOMP shall first offer to KODAK a right to purchase the Topaz Assets, or such portion thereof to be sold. CALCOMP shall deliver to KODAK a written notice (the "Sale Notice") of its desire to sell Topaz Assets, stating with specificity which assets will be sold. Thereafter, KODAK shall engage an accounting firm or investment banking firm of nationally recognized standing to render an appraisal as to the value of the Topaz Assets available for sale. Such appraisal shall be rendered within sixty (60) days from the Sale Notice and the cost thereof shall be shared equally by KODAK and CALCOMP. KODAK and CALCOMP shall have a period of thirty (30) days from the date of such appraisal to negotiate a definitive asset sale agreement containing terms and conditions standard for transactions of this type. The agreed upon price for the assets, if any, shall be within ten percent (10%) of the range set forth in the appraisal. If no definitive agreement can be reached within such thirty-day period, CALCOMP shall be free to sell the assets to a third party, provided, however, that the terms of the sale are no more favorable than those offered to KODAK during the negotiation period. 18.19 Right To Sell A Portion Of Topaz Assets. In the event CALCOMP sells --------------------------------------- only a portion of the Topaz Assets, whether to KODAK or a third party purchaser, KODAK's right of first refusal set forth in Section 18.18 above shall continue with respect to the Topaz Assets still owned by CALCOMP. 27 18.20 Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original, but such counterparts shall together constitute one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. CALCOMP TECHNOLOGY, INC. Signature: /s/ John C. Batterton -------------------------------- Printed Name: John C. Batterton Title: President and CEO EASTMAN KODAK COMPANY Signature: /s/ Patrick T. Siewert -------------------------------- Printed Name: Patrick T. Siewert Title: President, Kodak Professional and Vice President, Eastman Kodak Company EX-10.35 6 WARRANT TO PURCHASE COMMON STOCK - KODAK 3-29-98 EXHIBIT 10.35 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), AND THIS WARRANT CANNOT BE SOLD OR TRANSFERRED AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY ISSUING THIS WARRANT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT. 8,000,000 Shares (Subject to Adjustment) CALCOMP TECHNOLOGY, INC. COMMON STOCK PURCHASE WARRANT MARCH 29, 1998 This certifies that, for value received in connection with the Patent License and Joint Development Agreement dated as of March 29, 1998 (the "Joint Development Agreement") between Eastman Kodak Company ("Kodak" or "Warrantholder") and Calcomp Technology, Inc., a Delaware corporation ("Company"), Warrantholder is entitled to subscribe for and purchase from the Company 8,000,000 shares of the Company's Common Stock, par value $0.01 ("Warrant Stock"), at the price of $3.8797 per share (the average closing sales price of Calcomp Technology, Inc. Common Stock for the period of twenty trading days ending on the trading day immediately prior to the effective date of the Joint Development Agreement) ("Exercise Price"), subject to the terms and conditions stated herein. 1. Exercise of Warrant ------------------- 1.1 Exercisability of Warrant. This Warrant shall become vested as ------------------------- to one-half (1/2) of the shares of Warrant Stock underlying this Warrant upon the first anniversary of this Warrant, and the remaining one-half (1/2) upon the second anniversary hereof (each, a "Vesting Date"); provided, however, that in the event that the Joint Development Agreement is terminated prior to a Vesting Date, this Warrant shall not be effective as to any Warrant Stock that was to be vested on such Vesting Date. 1.2 Manner of Exercise. Subject to Section 1.1, the rights ------------------ represented by this Warrant may be exercised in whole or in part with respect to the vested shares by the Warrantholder from time to time by the surrender of this Warrant and delivery of an executed Subscription Agreement in the form attached hereto as Schedule A to the Company at its principal executive office located at 2411 West LaPalma Avenue, Anaheim, CA. 92803-3250, or such other place as the Company shall designate in writing, at any time or times prior to the Expiration Date (as defined below), accompanied by payment for the Common Stock so subscribed by wire transfer per the Company's instructions or certified check payable to the Company. In the event of a partial -2- exercise, the Company shall give a new Warrant with respect to the Warrant Shares which remain unexercised. 1.3 Expiration Date. This Warrant shall terminate on the date which --------------- is seven (7) years from the date of this Warrant ("Expiration Date"). 2. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to the Warrantholder as follows: 2.1 Organization. The Company (i) is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite power and authority to carry on its business, to own and hold its properties and assets, and to issue and carry out the provisions of this Warrant. 2.2 Authorization. The execution, delivery and performance by the ------------- Company of this Warrant have been duly and validly authorized by the Company's Board of Directors, and no authorization or approval of the Company's stockholders is required in connection therewith. This Warrant constitutes the legal, valid and binding obligation of the Company and is enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally. 2.3 No Conflict. The execution, delivery and performance by the ----------- Company of this Warrant: (i) will not conflict with, result in a breach of or constitute a default under any material contract, agreement, indenture, loan or credit agreement, deed of trust, mortgage, lease, security agreement or other arrangement to which the Company is a party or by which the Company or any of its properties or assets is bound or affected; (ii) will not cause the Company to violate or contravene any provision of its Fourth Amended and Restated Certificate of Incorporation or Bylaws; or (iii) will not conflict with or result in a breach of or require any authorization, consent, approval, permit, exemption or other action by or notice to any court or administrative or governmental body pursuant to any law, statute, rule or regulation to which the Company is subject or any material instrument, order, judgment or decree to which the Company is subject. 2.4 Warrant Stock. All of the shares of Common Stock issuable upon ------------- exercise of this Warrant have been duly authorized and reserved for issuance and, upon payment thereon and issuance thereof in accordance with the terms of this Warrant, will be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and other charges with respect to the issue thereof. The Company further warrants and agrees that during the period within which this Warrant may be exercised the Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 2.5 Capitalization. The authorized capital stock of the Company -------------- consists of 60,000,000 shares of Common Stock ("Common Stock"), of which approximately 47,092,950 shares are issued and outstanding on the date of this Warrant, and 5,000,000 shares of Preferred -3- Stock, of which none are issued and outstanding on the date of this Warrant. All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. The Company has approximately 108,131 shares of Common Stock reserved for issuance upon exercise of warrants outstanding prior to the date hereof. The Company has also reserved shares of Common Stock under the Company's Stock Option Plans for issuance to employees, officers, directors and consultants of the Company as may be determined by the Company's Board of Directors from time to time, of which approximately 2,396,591 options to purchase shares of Common Stock are presently outstanding. 3. Restrictions on Transfer. ------------------------ 3.1 Restrictions on Transfer and Warrantholder Representations. In ---------------------------------------------------------- acquiring the Warrant and the Warrant Stock (collectively, the "Securities"), Warrantholder makes the following representations, warranties and agreements: (a) The Warrant is acquired for Warrantholder's own account for investment purposes and not with a view to any offering or distribution, and Warrantholder has no present intention of selling or otherwise disposing of the Warrant or the Warrant Stock in violation of applicable securities laws. Upon exercise, Warrantholder will confirm, in respect of securities obtained upon such exercise, that Warrantholder is acquiring such securities for Warrantholder's own account and not with a view to any offering or distribution in violation of applicable securities laws. Warrantholder acknowledges that shares of Warrant Stock issued upon exercise of this Warrant will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act. (b) The Securities shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Warrant, which conditions are intended, among other things, to ensure compliance with the provisions of the Securities Act. The Warrantholder will cause any proposed purchaser, assignee, transferee or pledgee of the Securities held by the Warrantholder to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Warrant. (c) Warrantholder represents and warrants to the Company the following: (i) Warrantholder has received all the information it considers necessary or appropriate to evaluate the risks and merits of an investment in the Company, and has had an opportunity to discuss the Company's business, management, financial affairs and prospects with the Company's management. (ii) Warrantholder is able to bear the economic risks related to a purchase of the Securities. Warrantholder has the capacity to protect its own interests in connection with the subject transactions. -4- 3.2 Restrictive Legend. Each certificate representing (i) the shares ------------------ of Warrant Stock and (ii) any other securities issued in respect of the securities referenced in clause (i) upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by this Warrant or by law) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT." Warrantholder consents to the Company making a notation on its records and giving instructions to any transfer agent of the securities of the Company required to bear the legend set forth above in order to implement the restrictions on transfer established in this Section 3. 4. Adjustments. The number of shares of Common Stock or other ----------- securities for which Warrantholder is entitled to subscribe and purchase from the Company pursuant to this Warrant and the Exercise Price for such shares shall be subject to adjustment from time to time only as follows: 4.1 Adjustments for Stock Splits and Combinations. If the Company at --------------------------------------------- any time or from time to time after the date hereof effects a subdivision of the outstanding Common Stock, the number of shares of Common Stock for which Warrantholder is entitled to subscribe and purchase from the Company upon exercise of this Warrant shall be proportionately increased and the Exercise Price then in effect immediately before the subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time after the date hereof combines the outstanding shares of Common Stock, the number of shares of Common Stock for which Warrantholder is entitled to subscribe and purchase from the Company shall be proportionately decreased and the Exercise Price then in effect immediately before the subdivision shall be proportionately increased. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective. 4.2 Adjustments for Certain Dividends and Distributions. In the --------------------------------------------------- event the Company at any time or from time to time after the date hereof makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the number of shares of Common Stock for which Warrantholder is entitled to subscribe and purchase from the Company upon exercise of this Warrant shall be proportionately increased and the Exercise Price then in effect shall be proportionately decreased as of the time of such issuance or, in the event such a record date is fixed, as of the close of business on such record date; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed -5- therefor, the number of shares of Common Stock for which Warrantholder is entitled to subscribe and purchase from the Company and the Exercise Price therefor shall be recomputed accordingly as of the close of business on such record date and thereafter the number of shares of Common Stock then issuable on exercise of this Warrant and the Exercise Price therefor shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions. 4.3 Adjustment for Reclassification, Exchange and Substitution. If ---------------------------------------------------------- the Common Stock issuable upon the exercise of this Warrant is changed into the same or a different number of shares of any class or classes of stock, whether by reclassification, recapitalization or otherwise (other than a subdivision or combination of shares or stock dividend or a capital reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), then and in any such event Warrantholder shall have the right thereafter to purchase the kind and amount of stock and other securities and property receivable upon such reclassification, recapitalization or other change, by holders of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, recapitalization or change, all subject to further adjustment as provided herein. 4.4 Adjustment for Reorganizations, Mergers, Consolidations or Sales ---------------------------------------------------------------- of Assets. If at any time or from time to time there is a capital - --------- reorganization or any merger of the Company with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Company to any other person or any voluntary or involuntary liquidation, dissolution or winding up of the Company (any such transaction referred to herein as a "Reorganization") involving the Common Stock then, as a part of such Reorganization, provision shall be made so that Warrantholder shall thereafter be entitled to receive, upon exercise of this Warrant, the number of shares of stock or other securities or property of the Company or of the successor corporation resulting from such Reorganization to which a holder of the number of shares of Common Stock deliverable upon exercise of this Warrant would have been entitled on such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of Warrantholder after such Reorganization to the end that the provisions of this Section 4 (including adjustments of the Exercise Price then in effect and number of shares of stock purchasable upon exercise of this Warrant) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. 4.5 Adjustment for Dilutive Effective of New Share Issuances. During -------------------------------------------------------- the 24 month period after the date of this Warrant, and as long as the Joint Development Agreement has not been terminated, upon the issuance by the Company at any time of additional shares of Common Stock, the number of shares of Common Stock for which the Warrantholder is entitled to subscribe and purchase from the Company shall be proportionately increased so that the total number of shares of Common Stock issuable upon exercise of this Warrant plus any shares of Common Stock purchased by Warrantholder by a partial exercise of this Warrant, shall equal 15% of the issued and outstanding shares of the Company; provided, however, that the exercise price of the additional shares of Common Stock issuable shall be the same as the purchase price of the additional shares of Common Stock issued by the Company; provided further that no adjustment shall be necessary with respect to: (1) Shares of Common Stock issued to any employee, consultant, advisor, officer -6- or director of the Company or any subsidiary thereof pursuant to any incentive or Compensation agreement, arrangement, or plan approved by the Board of Directors; (ii) shares of Common Stock issued in connection with any stock dividend or stock split; and (iii) shares of Common Stock issued in connection with any merger, exchange, acquisition of assets, or other reorganization transaction not involving a Reorganization (as defined in Section 4.4). Any adjustment under this subsection shall become effective as of the close of business on each date of issuance by the Company of additional shares of Common Stock. 4.6 Notice of Adjustments. Upon any adjustments of the Exercise --------------------- Price or the amount or kind of securities or other property issuable upon exercise of this Warrant, then and in each case the Company shall give written notice of such adjustment by first class mail, postage prepaid, addressed to the Warrantholder at its address registered on the books of the Company, which notice shall state the Exercise Price resulting from such adjustment and the amount and kind of securities purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4.7 Notice of Record Date. The Company shall mail or cause to be --------------------- mailed to the Warrantholder all notices specifying any record date for shareholders of its Common Stock with respect to any dividend, distribution or other right, or with respect to any shareholder meeting to be held at which a vote is to be taken for the purpose of approving any reorganization, recapitalization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding up of the affairs of the Company. The Company shall also provide to the Warrant holder all reports, proxy statements and registration statements that it normally provides to its shareholders. 4.8 Warrantholder's Right to Negotiate for Sales of Company Common -------------------------------------------------------------- Stock - ----- (a) If during the 24 month period after the date of this Warrant, and as long as the Joint Development Agreement has not been terminated, in the event the Company wishes to sell shares of its capital stock other than to any employee, consultant, advisor, officer, or director of the Company or any subsidiary thereof pursuant to any incentive or compensation agreement, arrangement, or plan approved by the Board of Directors (the "Company Shares"), it shall first offer the right to purchase such Company Shares to Warrantholder. (b) The Company and Warrantholder shall negotiate the purchase price and other selling terms with respect to the Company Shares. The Company and Warrantholder shall have a period of thirty (30) days to negotiate a purchase price and other selling terms for the Company Shares. If no agreement on price and selling terms can be reached within such thirty-day period, the parties shall jointly select an investment banking firm of nationally recognized standing to mediate the negotiations between the parties, and the parties shall have an additional thirty-day period after the investment banking firm is selected to reach an agreement. If no agreement can be reached within such additional thirty-day period, the Company shall be entitled to pursue its offering with respect to the Company Shares so long as the Warrantholder is included as an offeree provided, that the number of Company Shares to be offered to the Warrantholder shall be in the sole discretion of the managing underwriter of such offering. -7- 4.9 The Company's Right to Negotiate for Company Stock to be Sold by ---------------------------------------------------------------- Warrantholder. - -------------- (a) In the event Warrantholder wishes to sell five percent (5%) or more of its Registerable Securities (as defined under Section 7.1 (a) hereof), whether through a public offering pursuant to Section 7 or through a private placement to one or more purchasers, Warrantholder shall first offer such shares (the "Offered Shares") to the Company. The Company and Warrantholder shall have a period of thirty (30) days to negotiate a purchase price and other selling terms for the Offered Shares. If no agreement on price and selling terms can be reached within such thirty day period, the parties shall jointly select an investment banking firm of nationally recognized standing to mediate the negotiations between the parties, and the parties shall have an additional thirty-day period after the investment banking firm is selected to reach an agreement. If no agreement can be reached within such additional thirty-day period, Warrantholder shall be entitled to pursue its offering with respect to the Offered Shares. For the purposes of computing the five percent threshold all sales by Warrantholder within any thirteen (13) month period shall be aggregated. 5. Transfer of Warrant. This Warrant may be assigned or transferred, in ------------------- whole or in part, subject to compliance with the Securities Act and any applicable State securities laws, by the Warrantholder to an affiliate of Warrantholder. Otherwise, all assignments or transfers of this Warrant shall be with the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. 6. No Voting Rights. Except as set forth herein, this Warrant shall not ---------------- entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company, and no dividend or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares of Warrant Stock which may be purchased hereunder until and unless, and except to the extent that, the Warrantholder has duly exercised its rights under this Warrant. 7. Registration Rights. Subject to the terms and conditions of the ------------------- Registration Rights Agreement dated as of July 23, 1996 by and between the Company and Lockheed Martin Corporation, the Warrantholder shall have the following registration rights relating to the Warrant Stock: 7.1 Registration Procedures. If, at any time the Company proposes to ----------------------- register (including for this purpose a registration effected by the Company for stockholders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration form relating to: (i) a registration of a stock option, stock purchase or compensation or incentive plan or of stock issued or issuable pursuant to any such plan, or a dividend investment plan; (ii) a registration of securities proposed to be issued in exchange for securities or assets of or, in connection with a merger or consolidation with, another corporation; or (iii) a registration of securities proposed to be issued in exchange for other securities of the Company), the Company shall, each such time, promptly give the Warrantholder written notice of such registration. Upon the written request of the Warrantholder given within 20 days after receipt of such written notice from the Company, the Company shall, subject to the provisions of Section 7.5 (in the case of an underwritten offering), cause to be registered under the Securities Act all of -8- the Registerable Securities that the Warrantholder has requested to be registered; provided, however, in the event and to the extent the Warrantholder may freely sell its Registerable Securities without registration under the Securities Act without regard to any restrictions set forth in Rule 144 promulgated under the Securities Act ("Rule 144") and the person acquiring the securities does not acquire "restricted securities" within the meaning of Rule 144, the Company may elect not to register such Registerable Securities. For purposes of this Section 7: (a) the term "Registerable Securities" means: (i) the Common Stock issued upon exercise of this Warrant, and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, this Warrant or such Common Stock, (iii) other securities issuable upon exercise of this Warrant pursuant to Section 4 hereof. (b) the terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with Securities Act, and the declaration or ordering of the effectiveness of such registration statement or document by the Securities and Exchange Commission. 7.2 Obligations of the Company. Whenever required under this Warrant -------------------------- to effect the registration of any Registerable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the Securities and Exchange Commission ("SEC") a registration statement with respect to such Registerable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Warrantholder, keep such registration statement effective for up to 180 days; (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish to the Warrantholder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of Registerable Securities owned by it; (d) Use its best efforts to register and qualify the securities covered by such registration statement under the securities laws of such jurisdictions as the Company believes shall be reasonably appropriate for the distribution of the securities covered by the registration statement and such jurisdictions as the Warrantholder shall reasonably request, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction, and further provided that (anything in this Warrant to the contrary notwithstanding with respect to the bearing of expenses) -9- if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by the Warrantholder and provided there is no exemption from such requirement by reason of the Company's obligation to pay such expenses pursuant to the foregoing provisions of this Section 7.2, such expenses shall be payable by the Warrantholder, to the extent required by such jurisdiction; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with terms generally satisfactory to the managing underwriter of such offering. The Warrantholder shall also enter into and perform its obligations under such an agreement. 7.3 Furnish Information. It shall be a condition precedent to the ------------------- obligations of the Company to take any action pursuant to this Warrant that the Warrantholder shall furnish to the Company such information regarding itself, the Registerable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of their Registerable Securities. In that connection, the Warrantholder shall be required to represent to the Company that all such information which is given is both complete and accurate in all material respects. 7.4 Expenses of Registration. All Registration Expenses (as defined ------------------------ below) incurred in connection with any registration, qualification or compliance pursuant to this Warrant shall be borne by the Company, and Selling Expenses (as defined below) shall be borne by the Company other than Selling Expenses applicable to the Registerable Securities, which shall be borne by the Warrantholder. For purposes of this Warrant, the term "Registration Expenses" means all expenses incurred by the Company in complying with Section 7.1 hereof, including, without limitation, all registration and filing fees, underwriters' expense allowances, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but not including the compensation of regular employees of the Company which shall be paid in any event by the Company), and the term "Selling Expenses" means all underwriting discounts and selling commissions applicable to the sale of Registerable Securities and the fees and disbursements of any counsel of the Warrantholder. 7.5 Underwriting Requirements. The right of the Warrantholder to ------------------------- "piggyback" in an underwritten public offering of the Company's securities pursuant to this Section 7.5 shall be conditioned upon the Warrantholder's participation in such underwriting and the inclusion of its Registerable Securities in the underwriting to the extent provided herein, and Warrantholder's entering into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of Section 7.1 and this Section 7.5, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may exclude some or all of the Registerable Securities from such registration and underwriting, provided, that the Warrantholder shall be allowed to participate in the offering in the same proportion (based on the total number of securities requested to be registered) as any other stockholder of the Company existing as of the date of this Warrant participating in the offering. -10- 7.6 Delay of Registration. The Warrantholder shall not have any --------------------- right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Warrant. 7.7 Indemnification. If any Registerable Securities are included in --------------- a registration statement pursuant to the terms of this Warrant: (a) To the extent permitted by law, the Company will indemnify and hold harmless the Warrantholder, its officers, directors and partners, any underwriter (as defined in the Securities Act) for the Warrantholder and each person, if any, who controls the Warrantholder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they or any of them may become subject under the Securities Act, the 1934 Act or any other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise from or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any state securities law; and the Company will reimburse the Warrantholder, and each such officer, director or partner, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity contained in this Section 7.7 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises from or is based upon a violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Warrantholder, underwriter or controlling person. (b) To the extent permitted by law, the Warrantholder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter (within the meaning of the Securities Act) for the Company, any person who controls such underwriter, any other person selling securities in such registration statement ("Other Holder") or any of the directors or officers or any person who controls such Other Holder against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or Other Holder or director, officer or controlling person may become subject, under the Securities Act, the 1934 Act or any other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise from or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Warrantholder expressly for use in connection with such registration; and the Warrantholder will reimburse any -11- legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person, Other Holder, or any such officer, director or controlling person thereof in connection with investigation or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 7.7(b) shall not apply to amounts paid in settlement of any such loss, claim damage, liability or action if such settlement is effected without the consent of the Warrantholder which consent shall not be unreasonably withheld; provided, that in no event shall any indemnity under this Section 7.7(b) exceed the gross proceeds from the offering received by the Warrantholder. (c) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 7.7 is applicable but for any reason is held to be unavailable from the Company or the Warrantholder, the Company and the Warrantholder shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted) to which the Company and the Warrantholder may be subject in such proportion so that the Warrantholder is responsible for that portion of the foregoing amount represented by the ratio of the proceeds received by the Warrantholder in the offering to the total proceeds received from the offering by the Company and all selling stockholders (other than the Warrantholder), and the Company shall be responsible for the portion represented by the ratio of proceeds received by the Company to the total proceeds received by the Company and all selling stockholders (other than the Warrantholder); provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7.7(c), each person, if any, who controls the Company or the Warrantholder within the meaning of the Securities Act, each officer of the Company who shall have signed the registration statement and each director of the Company shall have the same rights to contribution as the Company. (d) No settlement shall be effected without the prior written consent of the Warrantholder unless (i) the obligations of the Company for indemnification or contribution pursuant to this Warrant survive and are not extinguished by reason of the settlement and remain in full force and effect under applicable federal and state laws, rules, regulations and orders or (ii) all claims and actions against the Warrantholder and each person who controls a participating holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act are extinguished by the settlement and the indemnifying party obtains a full release of all claims and actions against the Warrantholder and each such control person, which release shall be to the reasonable satisfaction of the Warrantholder. (e) Promptly after receipt by an indemnified party under this Section 7.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7.7, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain -12- its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to notify an indemnifying party within a reasonable time of the commencement of any such action, to the extent proven to be prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7.7, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7.7. 7.8 No Assignment of Registration Rights. The rights to cause the ------------------------------------ Company to register Registerable Securities pursuant to this Warrant may not be assigned. 7.9 "Market Stand-off" Agreement. The Warrantholder hereby agrees ---------------------------- that it shall not, to the extent requested by the Company and an underwriter of Common Stock (or other securities) of the Company, sell or otherwise transfer or dispose of any Registerable Securities in a market transaction during the 60-day period following the effective date of a registration statement of the Company filed under the Securities Act to the extent not included in the Registration Statement, or such longer period as may be reasonably specified in such Registration Statement. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registerable Securities of the Warrantholder until the end of such period. 8. Loss or Mutilation. Upon receipt by the Company of evidence ------------------ satisfactory to it in the exercise of reasonable discretion, of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity satisfactory to it in the exercise of reasonable discretion, and, in the case of mutilation, upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 9. No Impairment. The Company will not, by amendment of its Fourth ------------- Amended and Restated Certificate of Incorporation or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any share of stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares upon the exercise of this Warrant at the time outstanding. 10. Reports. The Company shall provide to the Warrantholder, ------- promptly after filing thereof, copies of all reports, registration statements and proxy statements which the Company files with the Securities and Exchange Commission. -13- 11. Miscellaneous Matters. --------------------- (a) As used herein, the term "Common Stock" shall mean the Company's presently authorized Common Stock and stock of any other class into which such presently authorized Common Stock may hereafter have been converted. (b) As used herein, the word "person" shall mean an individual or entity. (c) This Warrant shall be governed by and interpreted in accordance with the internal laws, and not the law of conflicts, of the State of Delaware. (d) All notices under this Warrant shall be given as set forth in this Warrant. (e) The Company will not, at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. CALCOMP TECHNOLOGY, INC. By: /s/ John C. Batterton -------------------------------------- John C. Batterton President and Chief Executive Officer EASTMAN KODAK COMPANY By: /s/ Patrick T. Siewert -------------------------------------- Patrick T. Siewert Vice President -14- SCHEDULE "A" SUBSCRIPTION AGREEMENT ____________________, ____ To: Calcomp Technology, Inc. The undersigned, pursuant to the provisions set forth in the Calcomp Technology, Inc. Common Stock Purchase Warrant dated as of _____________, hereby agrees to subscribe for and purchase __________ shares of the Common Stock covered by such Warrant, and makes payment herewith in full for such Common Stock at the Exercise Price. The undersigned represents and warrants to you that the undersigned is acquiring the shares covered hereby for the undersigned's own account for investment purposes and not with a view to any offering or distribution in violation of applicable securities laws. Signature:________________________ Printed Name and Title: ________________________ Address:__________________________ EX-10.36 7 AGREEMENT RE: DIRECTORS LOCKHEED & KODAK 3-29-98 EXHIBIT 10.36 AGREEMENT REGARDING ELECTION OF DIRECTORS THIS AGREEMENT is dated as of the 29th day of March, 1998 and is by and between LOCKHEED MARTIN CORPORATION, a Maryland corporation having a principal place of business at 6801 Rockledge Drive, Bethesda, Maryland 20817 ("Lockheed Martin") and EASTMAN KODAK COMPANY, a New York Jersey corporation having a principal place of business at 343 State Street, Rochester, New York 14650 ("Kodak"). WHEREAS, Calcomp Technology, Inc., a Delaware corporation and a subsidiary of Lockheed Martin ("Calcomp"), and Kodak are entering into a certain agreements regarding the joint development of certain inkjet technology and the cross-licensing of certain intellectual property (the "Kodak Agreements"); and WHEREAS, Lockheed Martin owns approximately 86.6% of the outstanding common stock of Calcomp and has entered into certain agreements with Calcomp regarding the financing and management of Calcomp's business; and WHEREAS, to induce Kodak to enter into the business transactions with Calcomp, Lockheed Martin and Kodak wish to provide for representation by Kodak on Calcomp's Board of Directors; NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth, the parties hereby agree as follows; 1. The Lockheed Martin hereby agrees that it will vote all of its shares of capital stock in Calcomp in favor of a senior executive of Kodak to be named from time to time by Kodak for a seat on the board of directors of Calcomp for the period that Kodak has a contractual right under the Kodak Agreements. At the sole election of Kodak each year, Kodak shall have the right, exercisable by providing written notice to Lockheed Martin and Calcomp on or before the record date for the shareholders meeting to elect Calcomp directors, to waive its right to have a seat on the board of directors of Calcomp for such year and, in lieu thereof, to appoint a senor executive of Kodak to serve as an observer to all Calcomp board of director meetings for such year. 2. All notices and other communications hereunder shall be in writing and shall be deemed given to the person upon receipt if delivered personally or sent by registered, certified, or express mail, postage prepaid, or reputable courier services, changes prepaid to such party's address: If to Kodak to: 343 State Street Rochester, New York 14650 Attention: President, Kodak Professional -2- With a copy to: 343 State Street Rochester, New York 14650 Attention: General Counsel If to Lockheed Martin to: 6801 Rockledge Drive Bethesda, Maryland 20817 Attention: Senior Vice President and General Counsel If to Calcomp to: 2411 West LaPalma Avenue Anaheim, California 92803-3250 Attention: Corporate Secretary or to such other address as either of them may have designated for that purpose by such notice to the other. 3. This Agreement shall not be assigned by any party without the prior written consent of the other parties, and any attempted assignment without such consent shall be void. This Agreement shall be binding on and inure to the benefit of the parties hereto, their successors and any permitted assigns. 4. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. EASTMAN KODAK COMPANY /s/ Patrick T. Siewert ---------------------------- Patrick T. Siewert Vice President LOCKHEED MARTIN CORPORATION /s/ John E. Montague ---------------------------- Name: John E. Montague Title: Corporate Vice President Financial Strategies EX-10.37 8 AMENDMENT NO.1 RESTATED REVOLVING CREDIT AGREEMENT EXHIBIT 10.37 AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT AND TERMINATION OF SECURITY AGREEMENT Amendment No. 1, dated March 20, 1998 (the "Amendment"), to the Amended and Restated Revolving Credit Agreement, dated as of December 20, 1996 (the "Credit Agreement"), among CalComp Technology, Inc., a Delaware corporation ("Technology"), CalComp, Inc., a California corporation ("CalComp", and together with Technology, the "Borrowers"), and Lockheed Martin Corporation, a Maryland corporation (the "Lender"). WHEREAS, in order to facilitate anticipated discussions regarding future financing arrangements, Borrowers and Lender have agreed to make certain changes to the Credit Agreement, to extend the Termination Date of the Credit Agreement, and to terminate the December 20, 1998 Security Agreement ("Security Agreement") made by Borrowers in favor of Lender; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowers and the Lender agree as follows: 1. Termination Date. The definition of "Termination Date" in Section 1.1 of ---------------- the Credit Agreement is hereby amended by substituting the phrase "January 31, 1999" for the phrase "July 22, 1998". 2. Security. Section 1.1 of the Credit Agreement is amended by deleting -------- therefrom the definitions of "Security Agreement" and "Collateral" and Section 2.12 of the Credit Agreement is deleted in its entirety. Lender hereby releases all right and interest in the Collateral (as defined in the Security Agreement) and the Security Agreement is hereby terminated. 3. Financial Covenants. Lender hereby waives compliance by Borrowers with the ------------------- provisions of Section 6.1 (Maximum Leverage Ratio), Section 6.2 (Minimum Fixed Charge Coverage Ratio) and Section 6.3 (Minimum Quick Ratio) of the Credit Agreement for all measurement periods through and including the Termination Date. 4. No Other Changes. Except as specifically modified by this Amendment, the ---------------- Credit Agreement shall remain in full force and effect and no additional changes, modifications, or amendments shall be inferred that are not expressly set forth herein. 5. Counterparts. This document may be signed in any number of counterparts with ------------ the same effect as if the signatures thereto and hereto were upon the same instrument. 6. Governing Law. This document shall be construed in accordance with and ------------- governed by the laws of the State of Maryland, without reference to the conflict of laws provisions of such laws. IN WITNESS WHEREOF, the parties have caused this document to be duly executed and delivered as of the day and year first above written. LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC. By: /s/ Walter E. Skowronski By: /s/ John J. Millerick -------------------------- ------------------------ Walter E. Skowronski John J. Millerick Vice President and Treasurer Sr. Vice President and Chief Financial Officer CALCOMP INC. By: /s/ John J. Millerick ---------------------------- John J. Millerick Sr. Vice President and Chief Financial Officer EX-10.38 9 FIRST AMENDMENT CASH MANAGEMENT AGREEMENT 3-20-98 EXHIBIT 10.38 FIRST AMENDMENT TO CASH MANAGEMENT AGREEMENT This is the First Amendment ("First Amendment"), dated as of March 20, 1998, to the Cash Management Agreement ("Agreement") dated as of July 23, 1996 between CALCOMP TECHNOLOGY INC., a Delaware corporation ("CalComp Technology") and LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed Martin"). WHEREAS, the parties have agreed to extend the termination date of the Agreement to coincide with the Termination Date of the Amended and Restated Credit Agreement dated as of December 20, 1996 among CalComp Technology, CalComp, Inc., and Lockheed Martin, as amended (the "Revolving Credit Agreement"); NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CalComp Technology and Lockheed Martin hereby agree as follows: 1. Section 4(a) of the Agreement is hereby amended by adding at the beginning of the second sentence thereof the clause "Subject to the provisions of Section 5(c) hereof," 2. Section 5(c) of the Agreement is hereby amended to read as follows: "The maximum principal amount of Advances to be made by Lockheed Martin hereunder shall be $12,000,000 outstanding at any time, provided, -------- however, if on any date on or prior to April 3, 1998 the net cash ------- balance in the Concentration Account equals or exceeds $10,000,000, then the net cash balance shall, notwithstanding Section 4(a) of the Agreement, first be applied to reduce the Advances to $2,000,000. After April 3, 1998 or earlier application of the net cash balance as described in the preceding sentence, the maximum principal amount of Advances to be made by Lockheed Martin hereunder shall be $2,000,000 outstanding at any time." 3. Section 12 of the Agreement is hereby amended by substituting the phrase "January 31, 1999" for the phrase "June 1, 1998". 4. To the extent additional indebtedness of CalComp is created by or pursuant to this First Amendment, Lockheed Martin hereby waives compliance with Section 6.8 of the Revolving Credit Agreement. 5. This First Amendment shall be governed by and construed in accordance with the laws of the jurisdiction which govern the agreement and its construction. 6. This First Amendment may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. LOCKHEED MARTIN CORPORATION CALCOMP TECHNOLOGY, INC. By: /s/ W. E. Skowronski By: /s/ John J. Millerick ------------------------------ ---------------------------- W. E. Skowronski John J. Millerick Vice President and Treasurer Sr. Vice President and Chief Financial Officer EX-10.39 10 CALCOMP TECHNOLOGY 1998 MANAGEMENT INCENTIVE PLAN EXHIBIT 10.39 CalComp Technology, Inc. ------------------------ 1998 MANAGEMENT INCENTIVE COMPENSATION PLAN ------------------------------------------- Approved January 27, 1998 ARTICLE I --------- PURPOSE OF THE PLAN ------------------- This plan is established to provide a further incentive to selected employees to promote the success of CalComp Technology, Inc. by providing an opportunity to receive additional compensation for above average performance measured against individual and business unit goals. The Plan is intended to achieve the following: 1. Improved cost effectiveness. 2. Stimulate employees to work individually, as teams, and as individual business units to meet objectives and goals consistent with enhancing shareholder values. 3. Facilitate the Company's ability to retain qualified employees and to attract top executive talent. ARTICLE II ---------- STANDARD OF CONDUCT AND PERFORMANCE EXPECTATION ----------------------------------------------- 1. It is expected that the Company, business unit and individual goals and objectives established for this Plan will be accomplished in accordance with the Company's policy on ethical conduct in business with the Government and all other customers. It is a prerequisite before any award can be considered that a participant will have acted in accordance with the CalComp Technology, Inc. Code of Ethics and Business Conduct and fostered an atmosphere to encourage all employees acting under the participants' supervision to perform their duties in accordance with the highest ethical standards. Ethical behavior is imperative. Thus, in achieving one's goals, their individual commitment and adherence to the Company's ethical standards will be considered paramount in determining awards under this Plan. 2. Plan participants whose individual performance is determined to be less than acceptable are not eligible to receive incentive awards. 1 ARTICLE III ----------- DEFINITIONS ----------- 1. ANNUAL SALARY -- The regular base salary of a Participant during a fiscal year of the Company, determined by multiplying by 52 the Participant's weekly base salary rate effective during the first full pay period in December preceding the year of payment, but excluding any incentive compensation, commissions, over-time payments, payments under work-week plan, indirect payments, retroactive payments not affecting the base salary or applicable to the current year, and any other payments of compensation of any kind. 2. BOARD OF DIRECTORS -- The Board of Directors of the Company. 3. COMMITTEE -- The Compensation Committee of the Board of Directors as from time to time appointed or constituted by the Board of Directors. 4. COMPANY -- CalComp Technology, Inc. and its Subsidiaries. 5. EMPLOYEE -- Any person who is employed by the Company and who is paid a salary as distinguished from an hourly wage. The term shall be deemed to include any person who was employed by the Company during all or any part of the year with respect to which an appropriation is made to the Plan by the Board of Directors but shall not include any employee who, during any part of such year, was represented by a collective bargaining agent. 6. PARTICIPANT -- Any Employee selected to participate in the Plan in accordance with its terms. 7. PLAN -- This CalComp Technology, Inc. Management Incentive Compensation Plan (MICP). ARTICLE IV ---------- ELIGIBILITY FOR PARTICIPATION ----------------------------- Those Employees who through their efforts are able to contribute significantly to the success of the Company in any given calendar year will be considered eligible for selection for participation in the Plan with respect to that year. Participants are selected each plan year based on recommendations by the Company President or Company function head. Those eligible shall include all Employees considered by the Committee to be key Employees of the Company. No member of the Committee shall be eligible for participation in the plan. 2 ARTICLE V --------- INCENTIVE COMPENSATION PAYMENTS ------------------------------- 1. CALCULATION OF PAYMENTS -- Incentive compensation payments to Participants shall be calculated in accordance with the formula and procedures set forth in Exhibit A hereto. All such payments shall be in cash. 2. INDIVIDUAL PERFORMANCE FACTORS - The Individual Performance Factors of Participants, as provided in Exhibit A shall be determined by the Company President and/or Company function head. The performance factors of the President of CalComp Technology, Inc. shall be determined by the Committee and the Committee shall review the Individual Performance Ratings of other Participants who are elected officers of the Company. The Committee may at the request of any member of the Committee review the performance ratings of any other Participant or groups of Participants. The Committee may make adjustments in any such performance factors as it considers appropriate. 3. BUSINESS UNIT FACTORS - The business unit factors as provided for in Exhibit A, shall be determined by the President and the Board of Directors and shall thereafter be reviewed with and be subject to the approval of the Committee. The Committee may make adjustments in any such factor as it considers appropriate. The Board of Directors shall, as soon as feasible in each year, review with the Committee the business unit objectives which may relate to the determination of such business unit factors. Business unit performance may contain specific individual performance factors. 4. COMPANY FACTORS - The company factors as provided for in Exhibit A, shall be determined by the Board of Directors and shall thereafter be reviewed with and be subject to the approval of the Committee. The Committee may make adjustments in any such factor as it considers appropriate. The Board of Directors shall, as soon as feasible in each year, review with the Committee the company objectives which may relate to the determination of such company factors. 5. RECOMMENDATION BY THE COMMITTEE. A. As early as feasible after the end of each year in respect of which incentive compensation payments are to be made, the Committee shall establish an incentive fund which shall be equal to a percentage, to be determined by the Committee at that time, to the Company's pretax earnings for the year in which incentive compensation payments are to be made. For purposes of the Plan, pretax earnings shall (i) consist of pretax earnings from operations; (ii) shall not include any earnings attributable to extraordinary items as determined by generally accepted accounting principles; and (iii) shall be computed prior to the deduction of incentive compensation payments to be 3 paid under the Plan. B. To the extent that the aggregate of all proposed payments of incentive compensation to all Participants as determined by the application of the formula set forth in Exhibit A (subject to any adjustments made by the Committee under Paragraph 2 or 3 above) exceeds the amount of the incentive fund as determined under Paragraph 4.A. above, all proposed payments of incentive compensation to Participants shall be reduced on a prorata basis. C. If the Company's pretax earnings, as defined in Paragraph 4A, are less than the aggregate of all proposed payments of incentive compensation (as determined by the application of the formula set forth in Exhibit A subject to 2 or 3 above), the Committee may, in its discretion, establish an incentive fund without regard to the pretax earnings guideline of Paragraph 4A. If the Committee does so, Paragraph 4B shall not apply and the Committee's recommendation to the Board of Directors shall both state that the pretax earnings guideline would be exceeded and set forth the reasons the Committee believes that the proposed incentive compensation payments should nevertheless be made. D. The Committee will recommend to the Board of Directors the authorization of an appropriation to the Plan by the Company for distribution to Participants in an amount equal to the incentive fund as computed pursuant to the provisions of this Paragraph 4. 6. APPROPRIATIONS TO THE PLAN - The Board of Directors may, notwithstanding any provision of the Plan, make adjustments in any proposed incentive compensation payment under the Plan, and subject to any such adjustments, the Board of Directors will appropriate to the Plan the amount as recommended by the Committee for distribution to the Participants; provided that, the Board of Directors may appropriate an amount which is less than the amount recommended by the Committee in which event all proposed payments of incentive compensation to Participants shall be reduced on a prorata basis. 7. METHOD OF PAYMENT - The amount so determined for each Participant with respect to each calendar year shall be paid to such Participant in full or on a deferred basis as determined by the Committee. Such determination as to deferred payments shall be governed by the Committee's judgement as to the time of payment best serving the interests of the Company. Deferred payments shall be made pursuant to such terms and conditions, as may be determined or provided for by the Committee, only to Participants who continue in the employ of the Company or are retired under a retirement plan approved by the Board of Directors, or to the estates of, or beneficiaries designated by, Participants who shall have died while in such employ or after such retirement. In the event of termination of employment by a Participant for any reason other than such retirement or death, then such participant 4 or his estate or his beneficiary or beneficiaries, shall after such termination receive a distribution or distributions of any amounts deferred by the Committee, if any, the amount (not in excess of the unpaid deferred payments) and time of which shall be determined or provided for by the Committee. Participants may also elect to defer payments to the extent provided in the CalComp Technology, Inc. Deferred Management Incentive Plan. 8. RIGHTS OF PARTICIPANTS - All payments are subject to the discretion of the Board of Directors. No Participant shall have any right to require the Board of Directors to make any appropriation to the Plan for any calendar year, nor shall any Participant have any vested interest or property right in any share in any amounts which may be appropriated to the Plan. Payments made under the Plan and distributed to Participants shall not be recoverable from the Participant by the Company. ARTICLE VI ---------- ADMINISTRATION -------------- The Plan shall be administered under the direction of the Committee. The Committee shall have the right to construe the Plan, to interpret any provision thereof, to make rules and regulations relating to the Plan, and to determine any factual question arising in connection with the Plan's operation after such investigation or hearing as the Committee may deem appropriate. Any decision made by the Committee under the provisions of this Article shall be conclusive and binding on all parties concerned. The Committee may delegate to the officers or employees of the Company the authority to execute and deliver those instruments and documents, to do all acts and things, and to take all other steps deemed necessary, advisable or convenient for the effective administration of this MICP Plan in accordance with its terms and purpose. ARTICLE VII ----------- AMENDMENT OR TERMINATION OF PLAN -------------------------------- The Board of Directors shall have the right to terminate or amend this Plan at any time and to discontinue further appropriations thereto. 5 ARTICLE VIII ------------ EFFECTIVE DATE -------------- The Plan shall be effective with respect to the operations of the Company for the year 1998 and the years subsequent thereto. A participant who receives an award from this Plan is no longer eligible for any incentive compensation payment from any similar plan which may have been administered by the Lockheed Corporation, Martin Marietta Corporation, or the Lockheed Martin Corporation. 6 EXHIBIT A CALCULATION OF MANAGEMENT INCENTIVE COMPENSATION PAYMENTS A. AWARD FORMULA ------------- 1. Incentive compensation payments will be calculated by multiplying the Participant's Annual Salary by the applicable "target" of the Participant's position (as defined in B), and that result will then be multiplied by the Management Performance Commitment Matrix(MPCM) Rating for the participant. The MPCM Rating measures performance in three key result areas: Shareholder Satisfaction, Customer Satisfaction and Employee Satisfaction. The Board of Directors determines the overall weighting of each area on an annual basis with no area receiving less than ten percent weight. The established weighting will apply to all managers in the Plan. Within each area specific performance metrics will be established with measures for threshold, target, and maximum performance for each MPCM line item. The Board determines the MPCM for the company on an annual basis, with target performance corresponding to the operating plan. All individual MPCM scores will be calculated on Company/Business Unit/Individual needs and measures performance against objectives. 2. Partial awards for Participants who terminate employment during a Plan Year may be recommended for consideration based on the following at the discretion of the Company President and subsequent approval of the Board of Directors: Termination Method MICP Award Voluntary May be considered for an award if on active status January 2 of the following Plan Year with a minimum of six (6) full months as an active Plan Participant during the Plan Year. Lay Off May be pro-rated based on the conditions of the case with a minimum of six (6) full months as an active Plan Participant during the Plan Year. Retirement May be considered for a pro-rated award with a minimum of six (6) full months as an active Participant during the Plan Year and the Participant goes directly into retirement status upon termination. 3. The aggregate of all Participant's Incentive Awards determined under item C below will be recommended to the Committee for its consideration. 7 4. Any calculation of incentive awards under this exhibit shall be subject to the provisions of the Plan and in the event of any conflict between the terms or application of this Exhibit A and the Plan, the Plan shall prevail. B. TARGET LEVELS ------------- Target levels are based on the level of importance and responsibility of the position in the organization as determined by the Company President or the Board of Directors, as appropriate. Position Target -------- ------ President 45%* Designated Officers 40%* Other Eligible Positions 30% 20% *Requires Board of Directors' approval C. COMPANY/INDIVIDUAL BUSINESS UNIT PERFORMANCE WEIGHTING FACTORS -------------------------------------------------------------- 1. The following corresponds to each MICP level within both the Headquarters and the Business Units staffs:
Level % COMPANY WEIGHT % INDIVIDUAL WEIGHT ----- ----------------- ------------------- Headquarters ------------ CEO/CFO 100% 0% Sr. Vice President 85% 15% Vice President 80% 20% Director 75% 25% Business Unit % COMPANY WEIGHT % BUSINESS UNIT WEIGHT ------------- ----------------- ---------------------- Sr. Vice President 25% 75% Vice President 20% 80% Director 15% 85%
For purposes of measuring the business units, presently these groups consist of Input Technologies Division, Digital Printing Systems Division, Topaz Technologies, Inc. and Headquarters. 2. Intermediate company factors as deemed appropriate by the Board of Directors for results achieved, may be assigned in increments of 0.05. 8 EX-10.40 11 CALCOMP TECHNOLOGY 1998 DEFERRED MGMT INCENTIVE PLAN EXHIBIT 10.40 CalComp Technology, Inc. ------------------------ 1998 DEFERRED MANAGEMENT INCENTIVE ---------------------------------- COMPENSATION PLAN ----------------- Approved January 27, 1998 ARTICLE I --------- PURPOSES OF THE PLAN -------------------- The purposes of the CalComp Technology, Inc. Deferred Management Incentive Compensation Plan (the "Deferral Plan") are to provide certain key management employees of CalComp Technology, Inc. and its subsidiaries (the "Company") the opportunity to defer receipt of Incentive Compensation awards under the CalComp Technology, Inc. Management Incentive Compensation Plan (the "MICP"). Except as expressly provided hereinafter, the provisions of this Deferral Plan and the MICP shall be construed and applied independently of each other. The Deferral Plan applies solely to MICP awards and expressly does not apply to any special awards which may be made under any of the Company's other incentive plans, except and to the extent specifically provided under the terms of such other incentive plans and the relevant awards. ARTICLE II ---------- DEFINITIONS ----------- Unless the context indicates otherwise, the following words and phrases shall have the meanings hereinafter indicated: 1. ACCOUNT -- The bookkeeping account maintained by the Company for each Participant which is credited with the Participant's Deferred Compensation and earnings (or losses), and which is debited to reflect distributions and forfeitures. 2. ACCOUNT BALANCE -- The total amount credited to a Participant's Account at any point in time. 3. AWARD YEAR -- The calendar year with respect to which an Eligible Employee is awarded Incentive Compensation. 4. BENEFICIARY -- The person or persons (including a trust or trusts) validly designated by a Participant, on the form -1- provided by the Company, to receive distributions of the Participant's Account Balance, if any, upon the Participant's death. In the absence of a valid designation, or if the designated Beneficiary has predeceased the Participant, the Beneficiary shall be the person or persons entitled by will or the laws of descent and distribution to receive the amounts otherwise payable to the Participant under this Deferral Plan; a Participant may amend his or her Beneficiary designation at any time before the Participant's death. 5. BOARD -- The Board of Directors of CalComp Technology, Inc. 6. COMMITTEE -- The committee described in Section 1 of Article VIII. 7. COMPANY -- CalComp Technology, Inc. and its subsidiaries. 8. DEFERRAL AGREEMENT -- The written agreement executed by an Eligible Employee on the form provided by the Company under which the Eligible Employee elects to defer Incentive Compensation for an Award Year. 9. DEFERRED COMPENSATION -- The amount of Incentive Compensation credited to a Participant's Account under the Deferral Plan for an Award Year. 10. DEFERRAL PLAN -- The CalComp Technology, Inc. Deferred Management Incentive Compensation Plan, adopted by the Board on August 7, 1996. 11. ELIGIBLE EMPLOYEE -- An employee of the Company who is a participant in the MICP and who has satisfied such additional requirements for participation in this Deferral Plan as the Committee may from time to time establish. In the exercise of its authority under this provision, the Committee shall limit participation in the Plan to employees whom the Committee believes to be a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended. -2- 12. INCENTIVE COMPENSATION -- The MICP amount granted to an employee for an Award Year. 13. INTEREST -- The rate of return under which earnings will be credited to a Participant's Account based on the interest rate applicable under Cost Accounting Standard 415, Deferred Compensation. 14. MICP -- The CalComp Technology, Inc. Management Incentive Compensation Plan. 15. PARTICIPANT -- An Eligible Employee for whom Incentive Compensation has been deferred for one or more years under this Deferral Plan; the term shall include a former employee whose Deferred Compensation has not been fully distributed. ARTICLE III ----------- ELECTION OF DEFERRED AMOUNT --------------------------- 1. Timing of Deferral Elections. An Eligible Employee may elect to ---------------------------- defer Incentive Compensation for an Award Year by executing and delivering to the Company a Deferral Agreement no later than September 15 of the Award Year or such other date established by the Committee for an Award Year that is not later than September 30 of that Award Year. An employee who first qualifies as an Eligible Employee after September 15 of an Award Year may elect to defer Incentive Compensation for that Award Year by entering into a Deferral Agreement up to thirty (30) days after the date on which such employee first becomes a participant in the MICP. An Eligible Employee's Deferral Agreement shall be irrevocable when delivered to the Company. Each Deferral Agreement shall apply only to amounts deferred in that Award Year and a separate Deferral Agreement must be completed for each Award Year for which an Eligible Employee defers Incentive Compensation. -3- 2. Amount of Deferral Elections. An Eligible Employee's deferral ---------------------------- election may be stated as: (A) a dollar amount which is at least $5,000 and is an even multiple of $1,000, (B) the greater of $5,000 or a designated percentage of the Eligible Employee's Incentive Compensation (adjusted to the next highest multiple of $1,000), (C) the excess of the Eligible Employee's Incentive Compensation over a dollar amount specified by the Eligible Employee (which must be an even multiple of $1,000), or (D) all of the Eligible Employee's Incentive Compensation. An Eligible Employee's deferral election shall be effective only if the Participant is awarded at least $10,000 of Incentive Compensation for that Award Year, and, in the case of a deferral election under paragraph (c) of this Section 2, only if the resulting excess amount is at least $5,000. 3. Effect of Taxes on Deferred Compensation. The amount that would ---------------------------------------- otherwise be deferred and credited to an Eligible Employee's Account will be reduced by the amount of any tax that the Company is required to withhold with respect to the Deferred Compensation. ARTICLE IV ---------- CREDITING OF ACCOUNTS --------------------- 1. Crediting of Deferred Compensation. Incentive Compensation that ---------------------------------- has been deferred hereunder shall be credited to a Participant's Account as of the day on which the Incentive Compensation would have been paid to the Participant if no Deferral Agreement had been made. 2. Crediting of Earnings. Earnings shall be credited to a --------------------- Participant's Account beginning with the day as of which Deferred Compensation is credited to the Participant's Account. Any amount distributed from a Participant's Account shall be -4- credited with earnings through the last day of the month preceding the month in which a distribution is made. The earnings credited shall be determined as follows: The Participant's Account shall be credited with interest, compounded monthly, at a rate equivalent to the then published rate for computing the present value of future benefits at the time cost is assignable under Cost Accounting Standard 415, Deferred Compensation, as determined by the Secretary of the Treasury on a semi-annual basis pursuant to Pub. L. 92-41, 85 Stat. 97. ARTICLE V --------- PAYMENT OF BENEFITS ------------------- 1. General. The Company's liability to pay benefits to a ------- Participant or Beneficiary under this Deferral Plan shall be measured by and shall in no event exceed the Participant's Account Balance. Except as otherwise provided in this Deferral Plan, a Participant's Account Balance shall be paid to him in accordance with the Participant's elections under Sections 2 and 3 of this Article, and such elections shall be continuing and irrevocable. All benefit payments shall be made in cash and, except as otherwise provided, shall be debited against the Participant's Account Balance at the end of the month preceding the date of distribution. 2. Election for Commencement of Payment. At the time a Participant ------------------------------------ first completes a Deferral Agreement, he or she shall elect from among the following options governing the date on which the payment of benefits shall commence: (A) Payment to begin on or about the January 15th or July 15th next following the date of the Participant's termination of employment with the Company for any reason. (B) Payment to begin on or about January 15th of the year next following the year in which the Participant terminates employment with the Company for any reason. -5- (C) Payment to begin on or about the January 15th or July 15th next following the date on which the Participant has both terminated employment with the Company for any reason and attained the age designated by the Participant in the Deferral Agreement. 3. Election for Form of Payment. At the time a Participant first ---------------------------- completes a Deferral Agreement, he or she shall elect the form of payment of his or her Account Balance from among the following options: (A) A lump sum. (B) Annual payments for a period of years designated by the Participant which shall not exceed fifteen (15). The amount of each annual payment shall be determined by dividing the Participant's Account Balance at the end of the month prior to such payment by the number of years remaining in the designated installment period. The installment period may be shortened, in the sole discretion of the Committee, if the Committee at any time determines that the amount of the annual payments that would be made to the Participant during the designated installment period would be too small to justify the maintenance of the Participant's Account and the processing of payments. 4. Prospective Change of Payment Elections. At the time of entering --------------------------------------- into a Deferral Agreement for an Award Year, a Participant may modify his payment elections under Sections 2 and 3 with respect to the portion of his or her Account allocable to the amounts to be deferred for that Award Year and subsequent Award Years. If a Participant has different payment elections in effect, the Company shall maintain sub-accounts for the Participant to determine the amounts subject to each payment election; no modification of payment elections will be accepted if it would require the Company to maintain more than three (3) sub-accounts within the Participant's Account in order to make payments in accordance with the Participant's elections. 5. Acceleration upon Early Termination. Notwithstanding a ----------------------------------- Participant's payment elections under Sections -6- 2 and 3, if the Participant terminates employment with the Company other than by reason of layoff, death or disability and before the Participant is eligible to commence receiving retirement benefits under a pension plan maintained by the Company (or before the Participant has attained age 55 if the Participant does not participate in such a pension plan), the Participant's Account Balance shall be distributed to him or her in a lump sum on or about the January 15th or July 15th next following the date of the Participant's termination of employment with the Company. 6. Death Benefits. Upon the death of a Participant before a -------------- complete distribution of his or her Account Balance, the Account Balance will be paid to the Participant's Beneficiary in accordance with the payment elections applicable to the Participant. If a Participant dies while actively employed or otherwise before the payment of benefits has commenced, payments to the Beneficiary shall commence on the date payments to the Participant would have commenced, taking account of the Participant's termination of employment (by death or before) and, if applicable, by postponing commencement until after the date the Participant would have attained the commencement age specified by the Participant. Whether the Participant dies before or after the commencement of distributions, payments to the Beneficiary shall be made for the period or remaining period elected by the Participant. 7. Early Distributions in Special Circumstances. Notwithstanding a -------------------------------------------- Participant's payment elections under Sections 2 and 3 of this Article V, a Participant or Beneficiary may request an earlier distribution in the following limited circumstances: (a) Hardship Distributions. The Committee shall have the ---------------------- power and discretion at any time to approve a payment to a Participant if the Committee determines that the Participant is suffering from a serious financial emergency caused by circumstances beyond the Participant's control which would cause a hardship to the Participant unless such payment were made. Any such hardship payment will be in a lump sum and will not exceed the lesser of (i) the amount necessary to satisfy the financial emergency (taking account of the income tax liability associated with the distribution), or (ii) the Participant's Account Balance. -7- (b) Withdrawal with Forfeiture. A Participant may elect at -------------------------- any time to withdraw ninety percent (90%) of the amount credited to the Participant's Account. If such a withdrawal is made, the remaining ten percent (10%) of the Participant's Account shall be permanently forfeited, and the Participant will be prohibited from deferring any amount under the Deferral Plan for the Award Year in which the withdrawal is received (or the first Award Year in which any portion of the withdrawal is received). (c) Death or Disability. In the event that a Participant ------------------- dies or becomes permanently disabled before the Participant's entire Account Balance has been distributed, the Committee, in its sole discretion, may modify the timing of distributions from the Participant's Account, including the commencement date and number of distributions, if it concludes that such modification is necessary to relieve the financial burdens of the Participant or Beneficiary. 8. Acceleration upon Change in Control. ----------------------------------- (a) Notwithstanding any other provision of the Deferral Plan, the Account Balance of each Participant shall be distributed in a single lump sum within fifteen (15) calendar days following a "Change in Control." (b) For purposes of this Deferral Plan, a Change in Control shall include and be deemed to occur upon the following events: (1) A tender offer or exchange offer is consummated for the ownership of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities entitled to vote in the election of directors of the Company. (2) The Company is merged, combined, consolidated, recapitalized or otherwise reorganized with one or more other entities that are not Subsidiaries and, as a result of the -8- merger, combination, consolidation, recapitalization or other reorganization, less than 75% of the outstanding voting securities of the surviving or resulting corporation shall immediately after the event be owned in the aggregate by the stockholders of the Company (directly or indirectly), determined on the basis of record ownership as of the date of determination of holders entitled to vote on the action (or in the absence of a vote, the day immediately prior to the event). (3) At any time within any period of two years after a tender offer, merger, combination, consolidation, recapitalization, or other reorganization or a contested election, or any combination of these events, the "Incumbent Directors" shall cease to constitute at least a majority of the authorized number of members of the Board. For purposes hereof, "Incumbent Directors" shall mean the persons who were members of the Board immediately before the first of these events and the persons who were elected or nominated as their successors or pursuant to increases in the size of the Board by a vote of at least three-fourths of the Board members who were then Board members (or successors or additional members so elected or nominated). (4) The stockholders of the Company approve a plan of liquidation and dissolution or the sale or transfer of substantially all of the Company's business and/or assets as an entirety to an entity that is not a Subsidiary. (c) The Committee may cancel or modify this Section 8 at any time prior to a Change in Control. In the event of a Change in Control, this Section 8 shall remain in force and effect, and shall not be subject to cancellation or modification for a period of five years, and any defined term used in Section 8 shall not, for purposes of Section 8, be subject to cancellation or modification during the five year period. -9- 9. Deductibility of Payments. In the event that the payment of ------------------------- benefits in accordance with the Participant's elections under Sections 2 and 3 would prevent the Company from claiming an income tax deduction with respect to any portion of the benefits paid, the Committee shall have the right to modify the timing of distributions from the Participant's Account as necessary to maximize the Company's tax deductions. In the exercise of its discretion to adopt a modified distribution schedule, the Committee shall undertake to have distributions made at such times and in such amounts as most closely approximate the Participant's elections, consistent with the objective of maximum deductibility for the Company. The Committee shall have no authority to reduce a Participant's Account Balance or to pay aggregate benefits less than the Participant's Account Balance in the event that all or a portion thereof would not be deductible by the Company. 10. Change of Law. Notwithstanding anything to the contrary herein, ------------- if the Committee determines in good faith, based on consultation with counsel, that the federal income tax treatment or legal status of the Plan has or may be adversely affected by a change in the Internal Revenue Code, Title I of the Employee Retirement Income Security Act of 1974, or other applicable law or by an administrative or judicial construction thereof, the Committee may direct that the Accounts of affected Participants or of all Participants be distributed as soon as practicable after such determination is made, to the extent deemed necessary or advisable by the Committee to cure or mitigate the consequences, or possible consequences of, such change in law or interpretation thereof. 11. Tax Withholding. To the extent required by law, the Company --------------- shall withhold from benefit payments hereunder, or with respect to any Incentive Compensation deferred hereunder, any Federal, state, or local income or payroll taxes required to be withheld and shall furnish the recipient and the applicable government agency or agencies with such reports, statements, or information as may be legally required. -10- ARTICLE VI ---------- EXTENT OF PARTICIPANTS' RIGHTS ------------------------------ 1. Unfunded Status of Plan. This Deferral Plan constitutes a mere ----------------------- contractual promise by the Company to make payments in the future, and each Participant's rights shall be those of a general, unsecured creditor of the Company. No Participant shall have any beneficial interest in any specific assets that the Company may hold or set aside in connection with this Deferral Plan. Notwithstanding the foregoing, to assist the Company in meeting its obligations under this Deferral Plan, the Company may set aside assets in a trust described in Revenue Procedure 92-64, 1964-2 C.B. 44, and the Company may direct that its obligations under this Deferral Plan be satisfied by payments out of such trust. The assets of any such trust will remain subject to the claims of the general creditors of the Company. It is the Company's intention that the Plan be unfunded for Federal income tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974. 2. Nonalienability of Benefits. A Participant's rights under this --------------------------- Deferral Plan shall not be assignable or transferable and any purported transfer, assignment, pledge or other encumbrance or attachment of any payments or benefits under this Deferral Plan, or any interest therein shall not be permitted or recognized, other than the designation of, or passage of payment rights to, a Beneficiary. ARTICLE VII ----------- AMENDMENT OR TERMINATION ------------------------ 1. Amendment. The Board may amend, modify, suspend or discontinue --------- this Deferral Plan at any time subject to any shareholder approval that may be required under applicable law, provided, however, that no such amendment shall have the effect of reducing a Participant's Account Balance or postponing the time when a Participant is entitled to receive a distribution of his Account Balance. Further, no amendment may alter the formula for crediting interest to Participants' Accounts with respect to amounts for which deferral elections have previously been made, unless the amended formula is not less favorable to Participants than that previously in effect, or unless each affected Participant consents to such change. -11- 2. Termination. The Board reserves the right to terminate this Plan ----------- at any time and to pay all Participants their Account Balances in a lump sum immediately following such termination or at such time thereafter as the Board may determine. ARTICLE VIII ------------ ADMINISTRATION -------------- 1. The Committee. This Deferral Plan shall be administered by a ------------- Committee of Board Members who are not eligible to participate in the Plan. The members of the Committee shall be designated by the Board. A majority of the members of the Committee (but not fewer than two) shall constitute a quorum. The vote of a majority of a quorum or the unanimous written consent of the Committee shall constitute action by the Committee. The Committee shall have full authority to interpret the Plan, and interpretations of the Plan by the Committee shall be final and binding on all parties. 2. Delegation and Reliance. The Committee may delegate to the ----------------------- officers or employees of the Company the authority to execute and deliver those instruments and documents, to do all acts and things, and to take all other steps deemed necessary, advisable or convenient for the effective administration of this Deferral Plan in accordance with its terms and purpose. In making any determination or in taking or not taking any action under this Deferral Plan, the Committee may obtain and rely upon the advice of experts, including professional advisors to the Company. No member of the Committee or officer of the Company who is a Participant hereunder may participate in any decision specifically relating to his or her individual rights or benefits under the Deferral Plan. 3. Exculpation and Indemnity. Neither the Company nor any member of ------------------------- the Board or of the Committee, nor any other person participating in any determination of any question under this Deferral Plan, or in the interpretation, administration or application thereof, shall have any liability to any party for any action taken or not taken in good faith under this Deferral Plan or for the failure of the Deferral Plan or any Participant's rights under the Deferral Plan to achieve intended tax consequences, or to comply with any other law, compliance with which is not required on the part of the Company. -12- 4. Facility of Payment. If a minor, person declared incompetent, or ------------------- person incapable of handling the disposition of his or her property is entitled to receive a benefit, make an application, or make an election hereunder, the Committee may direct that such benefits be paid to, or such application or election be made by, the guardian, legal representative, or person having the care and custody of such minor, incompetent, or incapable person. Any payment made, application allowed, or election implemented in accordance with this Section shall completely discharge the Company and the Committee from all liability with respect thereto. 5. Proof of Claims. The Committee may require proof of the death, --------------- disability, incompetency, minority, or incapacity of any Participant or Beneficiary and of the right of a person to receive any benefit or make any application or election. 6. Claim Procedures. The procedures when a claim under this Plan is ---------------- denied by the Committee are as follows: (A) The Committee shall: (i) notify the claimant within a reasonable time of such denial, setting forth the specific reasons therefore; and (ii) afford the claimant a reasonable opportunity for a review of the decision. (B) The notice of such denial shall set forth, in addition to the specific reasons for the denial, the following: (i) identification of pertinent provisions of this Plan; (ii) such additional information as may be relevant to the denial of the claim; and (iii) an explanation of the claims review procedure and advice that the claimant may request an opportunity to -13- submit a statement of issues and comments. (C) Within sixty days following advice of denial of a claim, upon request made by the claimant, the Committee shall take appropriate steps to review its decision in light of any further information or comments submitted by the claimant. The Committee may hold a hearing at which the claimant may present the basis of any claim for review. (D) The Committee shall render a decision within a reasonable time (not to exceed 120 days) after the claimant's request for review and shall advise the claimant in writing of its decision, specifying the reasons and identifying the appropriate provisions of the Plan. ARTICLE IX ---------- GENERAL AND MISCELLANEOUS PROVISIONS ------------------------------------ 1. Neither this Deferral Plan nor a Participant's Deferral Agreement, either singly or collectively, shall in any way obligate the Company to continue the employment of a Participant with the Company, nor does either this Deferral Plan or a Deferral Agreement limit the right of the Company at any time and for any reason to terminate the Participant's employment. In no event shall this Plan or a Deferral Agreement, either singly or collectively, by their terms or implications constitute an employment contract of any nature whatsoever between the Company and a Participant. In no event shall this Plan or a Plan Agreement, either singly or collectively, by their terms or implications in any way obligate the Company to award Incentive Compensation to any Eligible Employee for any Award Year, whether or not the Eligible Employee is a Participant in the Deferral Plan for that Award Year, nor in any other way limit the right of the Company to change an Eligible Employee's compensation or other benefits. 2. Incentive Compensation deferred under this Deferral Plan shall not be treated as compensation for purposes of calculating the amount of a Participant's benefits or -14- contributions under any pension, retirement, or other plan maintained by the Company, except as provided in such other plan. 3. Any written notice to the Company referred to herein shall be made by mailing or delivering such notice to the Company at 2411 West LaPalma Avenue, P.O. Box 3250, Anaheim, CA 92803 to the attention of the Director, Human Resources. Any written notice to a Participant shall be made by delivery to the Participant in person, through electronic transmission, or by mailing such notice to the Participant at his or her place of residence or business address. 4. In the event it should become impossible for the Company or the Committee to perform any act required by this Plan, the Company or the Committee may perform such other act as it in good faith determines will most nearly carry out the intent and the purpose of this Deferral Plan. 5. By electing to become a Participant hereunder, each Eligible Employee shall be deemed conclusively to have accepted and consented to all of the terms of this Deferral Plan and all actions or decisions made by the Company, the Board, or Committee with regard to the Deferral Plan. 6. The provisions of this Deferral Plan and the Deferral Agreements hereunder shall be binding upon and inure to the benefit of the Company, its successors, and its assigns, and to the Participants and their heirs, executors, administrators, and legal representatives. 7. A copy of this Deferral Plan shall be available for inspection by Participants or other persons entitled to benefits under the Plan at reasonable times at the offices of the Company. 8. The validity of this Deferral Plan or any of its provisions shall be construed, administered, and governed in all respects under and by the laws of the State of Delaware, except as to matters of Federal law. If any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 9. This Deferral Plan and its operation, including but not limited to, the mechanics of deferral elections, the issuance of securities, if any, or the payment of cash hereunder -15- is subject to compliance with all applicable federal and state laws, rules and regulations and such other approvals by any regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. 10. At no time shall the cumulative amount of Incentive Compensation deferred under this Deferral Plan by all Eligible Employees for all Award Years exceed $50,000,000. ARTICLE X --------- EFFECTIVE DATE -------------- This Deferral Plan was originally adopted by the Board on August 7, 1996 and became effective upon adoption to awards of Incentive Compensation for the Company's fiscal year ending December 31, 1996 and subsequent fiscal years. -16- EX-10.41 12 AMENDED AND RESTATED RIGHTS WAIVER EXHIBIT 10.41 [LETTERHEAD OF LOCKHEED MARTIN] APRIL 1, 1998 CalComp Technology, Inc. CalComp, Inc. c/o CalComp Technology, Inc. 2411 W. LaPalma Avenue Anaheim, California 92601 Attention: Chief Financial Officer Re: Amended and Restated Revolving Credit Agreement ("Credit Agreement"), dated as of December 20, 1996 and amended as of March 20, 1998, among CalComp Technology, Inc. and CalComp Inc. (collectively, the "Borrowers") and Lockheed Martin Corporation (the "Lender") Lender hereby waives its rights under Section 2.1(c) of the Credit Agreement through January 31, 1999 and agrees not to terminate the Credit Agreement under the provisions of Section 2.1(c) prior to such date. This waiver shall be governed by and construed in accordance with the laws of the State of Maryland, without reference to any conflict of laws provisions of such laws. In accordance with Section 8.2(a) of the Credit Agreement, this waiver shall be effective only upon execution by both the Borrowers and the Lender. Lockheed Martin Corporation By /s/ WALTER E. SKOWRONSKI ---------------------------- Walter E. Skowronski Vice President and Treasurer Agreed. CalComp Technology, Inc. By: /s/ JOHN J. MILLERICK ------------------------------ Name: John J. Millerick ---------------------------- Title: Senior Vice President & CFO --------------------------- CalComp Inc. By: /s/ JOHN J. MILLERICK ------------------------------ Name: John J. Millerick ---------------------------- Title: Senior Vice President & CFO --------------------------- EX-23 13 CONSENT - INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements pertaining to the Summagraphics Corporation 1987 Stock Plan (Form S-8 No. 33- 19583 and No. 333-34007), 1988 Employee Stock Purchase Plan (Form S-8 No. 33- 25348), 1988 Non-Employee Director Stock Option Plan (Form S-8 No. 33-26415), and CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees (Form S-8 No. 333-19533) of our report dated January 19, 1998, except for Notes 1, 7, 8 and 13, as to which the date is March 30, 1998, with respect to the consolidated financial statements of CalComp Technology, Inc. included in the Annual Report (Form 10-K) for the year ended December 28, 1997. /s/ Ernst & Young - ------------------------- Orange County, California April 6, 1998 EX-27 14 ART 5 FOR 1997 10-K
5 1,000 YEAR YEAR DEC-28-1997 DEC-29-1996 DEC-30-1996 JAN-01-1996 DEC-28-1997 DEC-29-1996 6,494 15,290 0 0 34,003 61,466 3,367 4,603 43,069 57,765 84,982 150,903 50,495 60,843 21,447 33,952 209,457 276,085 125,353 89,672 0 0 0 0 0 0 471 469 75,262 152,035 209,457 276,085 200,158 235,916 200,158 235,916 182,591 180,375 269,849 295,496 0 0 0 0 4,037 989 (75,150) (59,062) 38 (2,458) (75,188) (56,604) 0 0 0 0 0 0 (75,188) (56,604) 0 0 (1.60) (1.32)
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