Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1996 Commission File Number 0-5449
COMARCO, Inc.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2088894
- ------------------------------- ----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22800 Savi Ranch Parkway, Suite 214, Yorba Linda, California 92808-1299
- ------------------------------------------------------------ -----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (714) 282-3832
---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 31, 1996.
Common Stock,
$.10 Par Value 4,802,809 Shares
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<PAGE>
Index to Form 10-Q
Page No.
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Part I. Financial Information
Condensed Consolidated Balance Sheets
July 31, 1996 and January 31, 1996 1
Condensed Consolidated Statements of Income
Quarters ended and Two Quarters Ended July 31, 1996
and July 30, 1995 2
Condensed Consolidated Statements of Cash Flows
Two Quarters ended July 31, 1996 and July 30, 1995 3
Notes to Condensed Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
July 31, 1996 January 31, 1996
ASSETS (Unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,296,000 $ 11,801,000
Short-term investments 2,076,000 2,657,000
Accounts receivable, net 8,771,000 7,335,000
Inventory 1,997,000 1,361,000
Other current assets 676,000 573,000
----------------- ----------------
Total current assets 24,816,000 23,727,000
Long-term investments 1,652,000 841,000
Property and equipment, net 1,285,000 1,174,000
Software development costs, net 1,654,000 1,401,000
Intangible assets, net 2,363,000 2,578,000
Other assets 231,000 268,000
----------------- ----------------
TOTAL ASSETS $ 32,001,000 $ 29,989,000
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 284,000 $ 547,000
Deferred revenue 1,396,000 1,410,000
Accrued liabilities 5,477,000 5,721,000
----------------- ----------------
Total current liabilities 7,157,000 7,678,000
Deferred income taxes 573,000 573,000
Stockholders' equity:
Common stock, $.10 par value,
33,705,000 shares authorized,
4,806,309 and 4,707,709 shares
outstanding at July 31, 1996 and
January 31, 1996, respectively 480,000 471,000
Capital contributed in excess
of par value 4,217,000 3,883,000
Retained earnings 19,574,000 17,384,000
----------------- ----------------
Total stockholders' equity 24,271,000 21,738,000
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,001,000 $ 29,989,000
================= ================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
*The condensed consolidated balance sheet as of January 31, 1996 has been
summarized from the Company's audited consolidated balance sheet as of that
date.
<PAGE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
Quarter Ended Two Quarters Ended
------------- ------------------
July 31, 1996 July 30, 1995 July 31, 1996 July 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenues $ 11,517,000 $ 14,347,000 $ 23,469,000 $ 28,189,000
Product sales 4,581,000 2,898,000 9,037,000 6,385,000
--------- --------- --------- ---------
16,098,000 17,245,000 32,506,000 34,574,000
---------- ---------- ---------- ----------
Direct costs:
Contract costs 7,114,000 9,602,000 15,499,000 18,868,000
Cost of product sales 2,089,000 1,130,000 4,196,000 2,848,000
--------- --------- --------- ---------
9,203,000 10,732,000 19,695,000 21,716,000
Indirect costs 5,344,000 5,303,000 9,635,000 10,342,000
--------- --------- --------- ----------
14,547,000 16,035,000 29,330,000 32,058,000
---------- ---------- ---------- ----------
Operating income 1,551,000 1,210,000 3,176,000 2,516,000
Net interest income 147,000 141,000 300,000 232,000
------- ------- ------- -------
Income before income taxes 1,698,000 1,351,000 3,476,000 2,748,000
Income taxes 610,000 513,000 1,286,000 1,072,000
------------- ------------- ------------- -------------
Net income $ 1,088,000 $ 838,000 $ 2,190,000 $ 1,676,000
============= ============= ============= =============
Earnings per share*
Primary $ .20 $ .17 $ .41 $ .33
========= ========= ========= ==========
</TABLE>
*Fully diluted earnings per share has not been presented as the effect is
immaterial.
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
--------- Two Quarters Ended ----------
July 31, 1996 July 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,190,000 $ 1,676,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,182,000 1,017,000
Loss on disposal of property and equipment 6,000 9,000
Deferred income taxes - 153,000
Provision for doubtful accounts receivable 18,000 15,000
Net purchases of trading securities (530,000) (312,000)
Increase in accounts receivable (1,454,000) (193,000)
Increase in inventory (636,000) (365,000)
Decrease (increase) in other current assets (103,000) 242,000
Decrease in other assets 37,000 17,000
Decrease in accounts payable (263,000) (110,000)
Increase (decrease) in deferred revenue (14,000) 103,000
Decrease in accrued liabilities (244,000) (366,000)
------------------ -----------------
Net cash provided by operating activities 189,000 1,886,000
Cash flows from investing activities:
Purchases of investments (1,250,000) (1,170,000)
Proceeds from sales of investments 1,550,000 932,000
Purchases of property and equipment (380,000) (413,000)
Software development costs (957,000) (1,239,000)
------------------ -----------------
Net cash used in investing activities (1,037,000) (1,890,000)
Cash flows from financing activities:
Proceeds from issuance of common stock 380,000 63,000
Purchase of common stock (37,000) -
Purchase of subordinated debentures - (844,000)
------------------ -----------------
Net cash provided (used) by financing activities 343,000 (781,000)
----------------- -----------------
Net decrease in cash and cash equivalents $ (505,000) $ (785,000)
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the two quarters for:
Interest $ - $ 41,000
Income taxes 1,427,000 1,090,000
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
COMARCO, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
July 31, 1996 and July 30, 1995
(Unaudited)
1. General
The financial statements have been prepared without audit. However, they
reflect all adjustments which in the opinion of management are necessary
to fairly state the Company's financial position at July 31, 1996 and
July 30, 1995 and the results of its operations and cash flows for the
quarter ended and two quarters ended July 31, 1996 and July 30, 1995. The
information has been prepared in accordance with Form 10-Q instructions,
but does not necessarily include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. The results of the quarter ended and two quarters ended July
31, 1996 are not necessarily indicative of the results to be obtained for
the full fiscal year.
2. Commitments and Contingencies
The Company announced during the second quarter of Fiscal Year 1997 that
it had agreed to purchase the assets of R.A.L. Consulting and Staffing
Services, Inc. ("RAL") an engineering, technical and administrative
staffing company serving primarily the commercial marketplace. The
acquisition was effective on August 1, 1996 and will be accounted for
under the purchase method of accounting for business combinations. The
terms of the purchase agreement require the Company to make an initial
payment to RAL at closing, and provide for additional payments subject to
the business attaining certain profitability objectives over the next
three years. The activity for CoSource Solutions, Inc., the newly-formed,
wholly-owned subsidiary of COMARCO, Inc. which purchased RAL's assets,
will be consolidated with the rest of the Company's operations beginning
in the third quarter of Fiscal Year 1997.
The Company also announced during the second quarter of Fiscal Year 1997
that it had reached a definitive agreement for its wholly-owned
subsidiary, Comarco Wireless Technologies, Inc. to purchase the callbox
operations assets of GTE Cellular Communications Corporation ("GTE-CCC").
The agreement ,which is still subject to various remaining approvals and
other conditions, is expected to be completed during the Company's third
quarter. The transaction will accounted under the purchase method of
accounting for business combinations. The terms of the GTE-CCC agreement
require the Company to make an initial payment to GTE at closing, and
provide for additional payments based on certain sales activities over
the ensuing two years.
3. Significant Accounting Policies - Per Share Information
The outstanding shares used for earnings per share calculations for all
years presented include the weighted average effect of common shares and
common share equivalents outstanding during the year. Common share
equivalents include dilutive stock options computed using the treasury
stock method. Convertible subordinated debentures, which were retired in
the first quarter of Fiscal Year 1996, are not considered common stock
equivalents and are not considered in the computation of fully diluted
earnings per share since the effect would be antidilutive. Consolidated
net income of the Company used for earnings per share purposes is diluted
as a result of stock options issued by the Company's subsidiaries which
enable their holders to obtain the subsidiaries' common stock. Primary
earnings per share is calculated as follows:
<PAGE>
3. Significant Accounting Policies - Per Share Information (continued):
<TABLE>
Quarter Ended Two Quarters Ended
------------- ------------------
July 31, 1996 July 30, 1995 July 31, 1996 July 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 1,088,000 $ 838,000 $ 2,190,000 $ 1,676,000
less - net income
allocated to subsidiary
dilutive stock options
oustanding (55,000) (17,000) (110,000) (31,000)
--------------- ------------- -------------- --------------
Net income used in
calculation of primary
income per share $ 1,033,000 $ 821,000 $ 2,080,000 $ 1,645,000
=============== ============ ============== ==============
Weighted average number
of common shares used in
calculation of primary
income per share 5,123,000 4,949,000 5,096,000 4,949,000
=============== ============ ============== ==============
Primary income per
common share $ .20 $ .17 $ .41 $ .33
=============== ============ ============== ==============
</TABLE>
4. Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This quarterly report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities
Exchange Act of 1934. These are in paragraphs 12,14,15,17,18, 21,
27, 30, and 31 of Management's Discussion and Analysis of Results
of Operations and Financial Condition. A more complete discussion
of business risks is included in the Company's Annual Report on
Form 10-K for the year ended January 31, 1996.
(a) Results of Operations
During the second quarter of Fiscal Year 1997 (year ending January
31, 1997), the Company recorded total revenues of $16.1 million,
down 6.4% from the revenues of $17.2 million for the comparable
period of the prior fiscal year. Revenues for the first two
quarters of Fiscal Year 1997 of $32.5 million are down 6.1% from
$34.6 million for the comparable period of the prior fiscal year.
Decreased year-to-year revenues are primarily due to:
o substantial completion as of September 30, 1995, of
the Company's contract with the Naval Air Warfare
Center ("NAWC") at China Lake, California,
partially offset by:
o increased sales of the Company's wireless
communications products, and
o increased other outsourced staffing services
revenue (other than the China Lake contract).
Total direct costs of $9.2 million for the second quarter of
Fiscal Year 1997 are down $1.5 million, or 14.0%, from $10.7
million for the second quarter of Fiscal Year 1996. Direct costs
for the first two quarters of Fiscal Year 1997 of $19.7 million
are down $2.0 million, or 9.2%, from $21.7 million for the
comparable period of the prior fiscal year. The decreases are due
to the completion of the China Lake contract, offset by increased
sales of wireless communications products, as discussed above. The
decrease in the amount of direct costs is greater than the
decrease in revenues since the Company's wireless communications
products business requires a smaller component of direct costs
than the outsourced staffing services business.
Total indirect costs of $5.3 million for the second quarter of
Fiscal Year 1997 are flat compared to the second quarter of Fiscal
Year 1996. Indirect costs for the first two quarters of Fiscal
Year 1997 of $9.6 million are down $.7 million, or 6.8%, from
$10.3 million for the comparable period of the prior fiscal year.
The decrease is due to the completion of the China Lake contract,
offset by increased sales of wireless communications products, as
discussed above.
Net interest income (interest income, less amortization of
offering costs and interest expense) for the second quarter of
Fiscal Year 1997 amounted to $147,000, as compared to $141,000 for
the comparable period of the prior fiscal year. Net interest
income for the first two quarters of Fiscal Year 1997 amounted to
$300,000, as compared to $232,000 for the comparable period of the
prior fiscal year. The increase in the two quarter period amount
is principally due to the repurchase of the Company's convertible
subordinated debentures outstanding and the accelerated
amortization of offering costs related to the Company's purchase
of its convertible subordinated debentures during the first
quarter of Fiscal Year 1996, as well as an increase in the amount
of the Company's invested funds. The Company recorded accelerated
offering cost amortization of $23,000 in the first quarter of
Fiscal Year 1996, when the Company retired the remaining $844,000
of its convertible subordinated debentures on April 15, 1995.
The Company's effective tax rate for the first two quarters of
Fiscal Year 1997 is 37% versus an effective tax rate of 39% for
the comparable period of the prior fiscal year.
The overall increase in net income from the prior fiscal year is
primarily due to the significant increase in the sales of wireless
communications products at higher operating income margins, as
well as increased net interest income.
Wireless Communications Products
Wireless communications products revenues increased 55.6% to $4.2
million for the second quarter of Fiscal Year 1997 from $2.7
million for the comparable period of the prior fiscal year.
Revenues increased 45.6% to $8.3 million for the two quarters
ended July 31, 1996 from $5.7 million for the comparable period of
the prior fiscal year. Sales from foreign sources were $2.4
million and $3.9 million for the second quarter of Fiscal Year
1996 and the two quarters ended July 31, 1996, respectively. In
comparison, foreign sales for all of Fiscal Year 1996 were $1.4
million. These increases are due to increased sales of the
Company's field measurement systems and revenue assurance systems
for major cellular telephone carriers. The Company has broadened
its product line with the introduction of its second generation of
field measurement equipment, including products supporting the
AMPS, TDMA, NAMPS, ETACS and GSM air interfaces. Summary operating
results for Comarco Wireless Technologies, Inc., the Company's
wireless communications products subsidiary, are as follows:
Two Quarters Ended Two Quarters Ended
July 31, 1996 July 30, 1995
------------- -------------
Revenues $8,285,000 $5,680,000
Cost of product sales 4,092,000 2,848,000
--------- ---------
Gross income 4,193,000 2,832,000
Gross income percentage 50.6% 49.9%
Indirect costs* 1,976,000 1,453,000
--------- ---------
Operating income $2,217,000 $1,379,000
========== ==========
*Indirect costs include selling, general, and administrative
expenses as well as research and development expenses.
The increased gross income percentage is due to the incremental
benefit of spreading the fixed costs of operations over a larger
activity base. In the first two quarters of Fiscal Year 1997, the
gross income percentage increased to 50.6% of revenues from 49.9%
of revenues for the comparable period of the prior fiscal year.
The increase in indirect costs of 36.0% for the first two quarters
of Fiscal Year 1997 over the comparable period of the prior fiscal
year is a result of the increase in revenues as well as an
increase in research and development expenses. Selling, general
and administrative expenses increased 52.4% from the first two
quarters of Fiscal Year 1996 to the first two quarters of Fiscal
Year 1997, while research and development expenses increased 10.8%
to $635,000 from the first two quarters of Fiscal Year 1996 to the
first two quarters of Fiscal Year 1997.
Operating income as a percentage of revenues is 26.3% for the
second quarter of Fiscal Year 1997, compared to 27.4% for the
comparable period of the prior fiscal year. Operating income as a
percentage of revenues is 26.5% for the first two quarters of
Fiscal Year 1997, compared to 24.2% for the comparable period of
the prior fiscal year.
As part of its product development program, the Company is
continuing its software product development program in its
wireless communications products business. In accordance with
Financial Accounting Standard No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed, the
Company capitalized $957,000 and $727,000, respectively, during
the first two quarters of Fiscal Years 1997 and 1996,
respectively. Corresponding amounts amortized were $650,000 and
$525,000, respectively. The Company's future product prospects
will depend in part on its ability to enhance the functionality of
its existing products in a timely and cost-effective manner and to
identify, develop, and achieve market acceptance of new products.
There can be no assurance that the Company will be able to respond
to technological advances, changes in customer requirements, or
changes in regulatory requirements or industry standards, and any
significant delays in development, introduction or shipment of
products, or achievement of acceptable product costs, could have a
material adverse effect on the Company's business, operating
results and financial condition.
The Company's orders for wireless communications products totalled
$4.3 million for the second quarter of Fiscal Year 1997, up from
$3.7 million from the comparable prior period. For the twelve
month periods ended July 1996 and 1995, orders received were $15.5
million and $13.8 million, respectively. Because of the long sales
cycle involved in selling these products and the high unit sales
price, the Company believes that orders are best analyzed by
looking at a twelve month time period, as orders can fluctuate
significantly from quarter to quarter. The value of unfilled
product orders at July 31, 1996 totalled $1.1 million. An
additional $1.3 million of deferred revenue has been recorded for
anticipated customer warranty obligations.
The Company is optomistic about its long-term prospects, however,
the nature of the wireless communications products business is
inherently less predictable (than the Company's traditional
outsourced staffing services business) as the Company will
normally not have a significant amount of unfilled product orders
at the end of a period. Therefore, the amount of orders, sales
levels, and profits are more difficult to predict and may
fluctuate significantly from quarter to quarter.
The Company faces additional risk factors in developing its
wireless communications products business, including: foreign
marketing, capital requirements, technical requirements,
employees, competition, and proprietary information. A negative
impact to any of these risk factors could have a material adverse
effect on the Company's business, operating results, and financial
condition. Foreign marketing risks include: the need for export
licenses; tariffs and other potential trade restrictions
(including the need to be ISO 9000 certified); and changes in laws
governing the imposition of duties, quotas, taxes, or other
charges relating to the import or export of its products. Other
companies having a presence or doing business overseas may have
advantages over the Company in these areas. Certain components
used by the Company in its existing products are only available
from single or a limited number of suppliers, and the inability by
any of these suppliers to fulfill Company requirements may result
in an interruption in production. Access to technical design of
air interface devices is essential for the Company to anticipate
and develop compatible wireless communications products,
therefore, the inability to obtain such technical designs on a
timely basis would have a direct impact on product design and
schedule. The Company's future success also depends in large part
on the continued service of its key personnel, and on its ability
to continue to attract and retain qualified employees, especially
highly skilled engineers, for whom competition in the industry is
intense. In addition, the ability of the Company to compete
successfully depends upon a number of factors, including the rate
at which customers accept the Company's products in overseas
markets, product quality and performance, experienced sales and
marketing personnel, rapid development of new products and
features, evolving industry standards, and the number and nature
of the Company's competitors. There can be no assurance that the
Company will be able to compete successfully in the future. The
Company relies on a combination of trade secrets, copyrights,
trademarks, and contractual rights to protect its intellectual
property. There can be no assurance that the steps taken by the
Company will be adequate to protect of its technology; in
addition, the laws of certain foreign countries in which the
Company's products may be sold do not protect the Company's
intellectual property rights to the same extent as do the laws of
the United States.
Outsourced Staffing Services Revenue
Revenues provided by the Company's traditional outsourced staffing
services business area decreased 17.9%, from $14.5 million in the
second quarter of Fiscal Year 1996 to $11.9 million in the second
quarter of Fiscal Year 1997. Revenues from this business area
decreased 16.3%, from $28.9 million for the first two quarters of
Fiscal Year 1996 to $24.2 million for the first two quarters of
Fiscal Year 1997. Revenues in this business area decreased from
83.5% of the Company's total revenues in the first two quarters of
Fiscal Year 1996 to 74.5% of the Company's total revenues in the
first two quarters of Fiscal Year 1997. These decreases are due to
the completion of the Company's contract with the Naval Air
Warfare Center at China Lake, California, on September 30, 1995.
The China Lake contract accounted for approximately 17% of the
Company's total operating income and approximately 16% of the
Company's total revenue in the first two quarters of Fiscal Year
1996. The loss of this contract required the Company to reduce the
indirect organization supporting this business in line with the
reduced revenue base. The Company's remaining services revenue
increased 3% in the first two quarters of Fiscal Year 1997 over
the comparable period of the prior fiscal year.
Sales to the U.S. Government as well as to government prime
contractors were 54% and 43% of the Company's total revenue during
the first two quarters of Fiscal Years 1996 and 1997,
respectively. In the course of the Company's business, its
government contracts are periodically opened for competition. In
the past two months, the Company has won two contract
recompetition efforts to continue its support to the U.S.
Government at Fort Hood, Texas and Ft. Huachuca, Arizona. The
Company has no significant Government recompetitions over the next
18 months. The Company plans to aggressively compete for all work
opened for competition to the extent possible and selectively
pursue certain high value Government procurements. As of September
1996, the Company has outstanding proposals valued at
approximately $110 million for new efforts with Government
agencies. There can be no assurance that the Company will be
selected and awarded the work associated with these outstanding
proposals. In addition, government agencies may terminate their
contracts in whole or in part at their convenience. Government
agencies may remove funding previously provided or may not
exercise option periods. Therefore, there can be no assurance that
the Government will fund the portions of existing contracts that
are unfunded, or that the Governmental agencies will exercise any
options.
Operating income (revenues less direct costs, indirect costs, and
depreciation and amortization) for outsourced staffing services is
down 6.8% from $469,000 in the second quarter of Fiscal Year 1996
to $437,000 in the second quarter of Fiscal Year 1997. Operating
income for outsourced staffing services is down 15.7% from
$1,137,000 in the first two quarters of Fiscal Year 1996 to
$959,000 in the first two quarters of Fiscal Year 1997. The
reduced operating income is due to the impact of the completion of
the China Lake contract. The operating loss for the Company's
software products line continued at comparable levels due to a
concerted effort on the Company's part to complete a comprehensive
repositioning of the CASE tool products. The upgraded product was
released on February 29, 1996. Because of the long sales cycle
involved in selling the Company's software products, the Company
believes that the receipt of increased orders for the upgraded
product will occur over an extended period of time.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of ("Statement 121"). Statement 121 requires that
the Company review its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable. To the extent that the future
undiscounted net cash flows expected to be generated from an asset
are less than the carrying amount of the asset, an impairment loss
is recognized based on the difference between the asset's carrying
amount and its fair market value. The Company adopted Statement
121 as of February 1, 1996. The adoption of Statement 121 did not
have a material impact on the Company's financial condition or
results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-based Compensation ("Statement 123"). Statement 123
recommends, but does not require, the adoption of a fair value
based method of accounting for stock-based compensation of
employees, including common stock options. Statement 123 requires
a fair value based method of accounting for stock-based
compensation to individuals other than employees. The Company
currently intends to continue recording stock-based compensation
to employees under the intrinsic value method and does not intend
to adopt the fair value based method of accounting for stock-based
compensation to employees as permitted by Statement 123. Certain
pro forma disclosures will be required in the Company's financial
statements for the year ending January 31, 1997 as if the fair
value based method had been adopted.
(b) Financial Condition
The Company signed a loan agreement with a bank effective
September 26, 1994, which was amended effective August 1, 1996.
The loan agreement consists of (1) an $8 million revolving credit
facility, which expires June 30, 1998, and (2) a $5 million
guidance line of credit, which expires June 30, 1997. The
revolving credit facility and the guidance line of credit are
unsecured provided that the Company maintains certain covenants.
Currently, management anticipates that cash flow will remain at a
level which will enable the Company to avoid utilizing the credit
facility except to support letters of credit and acquisition
financing, and that the Company will be able to purchase
investments on a regular basis. The Company's cash and investment
balances averaged $15 million (includes highly liquid long-term
investments with maturities of 12 to 36 months) during the first
two quarters of Fiscal Year 1997. However, maintaining such cash
balances is predicated on the Company maintaining its business
base and is subject to the cost of financing new contracts,
acquisitions, and software product development costs.
During the second quarter of Fiscal Year 1997, the Company's
average days' sales in accounts receivable have remained steady
from the prior fiscal year's levels, at approximately 47 days.
Several additional key factors indicating the Company's financial
condition include:
July 31, 1996 January 31, 1996
------------- ----------------
Current ratio 3.47 3.09
Working capital $ 17,659,000 $ 16,049,000
Book value per share $5.05 $4.62
The Company continues to demonstrate improvements in the above
financial factors during the first two quarters of Fiscal Year
1997, primarily due to increased operating margins from increased
sales of wireless communications products.
The Company announced during the second quarter of Fiscal Year
1997 that it had agreed to purchase the assets of R.A.L.
Consulting and Staffing Services, Inc. ("RAL") an engineering,
technical and administrative staffing company serving primarily
the commercial marketplace. The acquisition was effective on
August 1, 1996. The terms of the purchase agreement required the
Company to make an initial payment to RAL at closing, and provide
for additional payments subject to the business attaining certain
profitability objectives over the next three years. The activity
for CoSource Solutions, Inc., the newly-formed, wholly-owned
subsidiary of COMARCO, Inc. which purchased RAL's assets, will be
consolidated with the rest of the Company's operations beginning
in the third quarter of Fiscal Year 1997.
The Company also announced during the second quarter of Fiscal
Year 1997 that it had agreed to purchase the assets of GTE
Cellular Communications Corporation ("GTE-CCC"), the callbox
operation of GTE. The acquisition is anticipated to be effective
during the third quarter of Fiscal Year 1997. The terms of the
GTE-CCC agreement require the Company to make an initial payment
to GTE at closing, and provide for additional payments based on
certain sales activities over the ensuing two years.
The two above stated acquisitions will be funded from the
Company's internal working capital and will not have a significant
impact on the Company's financial condition.
The Company has a significant commitment for capital expenditures
at July 31, 1996 for Comarco Wireless Technologies, Inc. The
Company has developed and intends to continue to develop new
product line extensions for the wireless communications industry.
This product development program is expected to be funded from the
Company's current working capital. Under the software development
portion of the Company's product development program, the Company
capitalized and amortized in accordance with Financial Accounting
Standard No. 86, Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed, $957,000 and $650,000,
respectively, in the first two quarters of Fiscal Year 1997.
The Company's Board of Directors has authorized a stock
re-purchase program of up to 1,000,000 shares. As of July 31,
1996, the Company has re-purchased and retired approximately
799,000 shares, which includes 2,500 shares re-purchased in the
first two quarters of Fiscal Year 1997. The average price paid per
share re-purchased under the program was $4.78.
The Company redeemed the remaining $844,000 of outstanding
convertible subordinated debentures in accordance with the
provisions of the debenture agreement on April 15, 1995.
The Company is subject to legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management,
the amount of ultimate liability with respect to these actions
will not materially affect the financial condition of the Company.
The Company believes that its cash flow from operations and
available bank borrowings will be sufficient to satisfy the
current and anticipated capital requirements for operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herewith:
10.19 Second Amendment to Loan Agreement dated August 30, 1996
between the Company and NationsBank of Virginia, N.A.
10.20 Second Amended and Restated Master Line of Credit Note
dated August 30, 1996 between the Company and NationsBank
of Virginia, N.A.
10.21 Second Amended and Restated Guidance Line of Credit Note
dated August 30, 1996 between the Company and NationsBank
of Virginia, N.A.
10.22 Asset Purchase Agreement among COMARCO, Inc., CoSource
Solutions, Inc., R.A.L. Consulting and Staffing Services,
Inc. and Robert A. Lovingood dated July 23, 1996.
10.23 Employment Agreement between COMARCO, Inc., CoSource
Solutions, Inc., and Robert A. Lovingood dated July 23,
1996.
10.24 Noncompetition and Confidentiality Agreement between
COMARCO, Inc., CoSource Solutions, Inc., and Robert A.
Lovingood dated July 23, 1996.
ll. Schedule of Computation of Net Income Per Share
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMARCO, Inc.
----------------------------------
(Registrant)
September 13, 1996
THOMAS P. BAIRD
----------------------------------
Thomas P. Baird
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Agreement") made this
- ----- day of June, 1996 by and among COMARCO, INC., a corporation organized
under the laws of the State of California (the "Borrower"), and the parties
listed on the signature page hereof (collectively, the "Original Guarantors" and
each an "Original Guarantor"), MANUFACTURING TRAINING TECHNOLOGY CENTER, INC.,
("MTTC"), a corporation organized under the laws of the State of California
(MTTC together with the Original Guarantors, being individually called a
"Guarantor" and collectively, the "Guarantors") and NATIONSBANK, N.A., a
national banking association, its successors and assigns (the "Lender").
RECITALS
A. The Lender has made certain credit facilities available to the
Borrower (the "Loans") as evidenced by, among other things, a Master Line of
Credit Note dated September 26, 1994 (the "Original Revolving Note") in the
maximum principal amount of $8,000,000 from the Borrower in favor of the Lender
and a Guidance Line of Credit Note dated September 26, 1994 (the "Original Line
of Credit Note") in the maximum principal amount of $5,000,000 from the Borrower
in favor of the Lender.
B. The Loans are governed by that certain Loan Agreement by and among
the Borrower, the Original Guarantors and the Lender dated September 26, 1994,
(the Loan Agreement, together with all revisions, amendments and modifications
is hereinafter called the "Loan Agreement"). All capitalized terms used herein
and not otherwise defined shall have the meanings given to such terms in the
Loan Agreement.
D. The parties hereto desire to add MTTC as a party to the Loan
Agreement, to extend the maturity date of the Loans and to modify certain
covenants, all as more fully set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Guarantors and
the Lender hereby agree as follows:
1. Recitals. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all respect and that the same are incorporated
herein and made a part hereof by reference.
2. The Master Line of Credit Note. From and after the date hereto, all
references in the Loan Agreement to the "Master Line of Credit Note" shall mean
that certain Second Amended and Restated Master Line of Credit Note of even date
herewith (the "Second Replacement Master Line of Credit Note") in the form of
Exhibit B-1 attached hereto. The Second Replacement Master Line of Credit Note
amends and restates in its entirety that certain Amended and Restated Master
Line of Credit Note dated October 31, 1995 (the "First Replacement Master Line
of Credit Note") from the Borrower in favor of the Lender in the maximum
principal amount of $8,000,000. The Borrower and the Lender agree that the
execution of this Agreement is not intended and shall not cause or result in an
novation with regard to the First Replacement Master Line of Credit Note. The
Second Replacement Master Line of Credit Note shall not operate as a novation of
any of the sums due or owing under the Master Line of Credit or nullify,
discharge, or release any sums due or owing under the Master Line of Credit or
the continuing contractual relationship of the parties hereto in accordance with
the provisions of this Agreement.
3. The Guidance Line of Credit Note. From and after the date hereto,
all references in the Loan Agreement to the "Guidance Line of Credit Note" shall
mean that certain Second Amended and Restated Guidance Line of Credit Note of
even date herewith (the "Second Replacement Guidance Line of Credit Note") in
the form of Exhibit C attached hereto. The Second Replacement Guidance Line of
Credit Note amends and restates in its entirety that certain Amended and
Restated Guidance Line of Credit Note dated October 31, 1995 (the "First
Replacement Guidance Line of Credit Note") from the Borrower in favor of the
Lender in the maximum principal amount of $5,000,000. The Borrower and the
Lender agree that the execution of this Agreement is not intended and shall not
cause or result in an novation with regard to the First Replacement Guidance
Line of Credit Note. The Second Replacement Guidance Line of Credit Note shall
not operate as a novation of any of the sums due or owing under the Guidance
Line of Credit or nullify, discharge, or release any sums due or owing under the
Guidance Line of Credit or the continuing contractual relationship of the
parties hereto in accordance with the provisions of this Agreement.
4. Assumption of Obligations. MTTC covenants, promises and agrees to
perform each and all of the covenants, agreements and obligations in the Loan
Documents to be performed by the Original Guarantors, at the times, in the
manner and in all respects as provided therein, and to be bound by each and all
of the terms and provisions of the Loan Agreement as though the Loan Agreement
had originally been jointly and severally made by the Borrower, the Original
Guarantors and MTTC. The Borrower and each of the Original Guarantors shall
remain liable for the performance of each and all of the covenants, agreements
and obligations in the Loan Documents to be performed by the Borrower and the
Original Guarantors, as the case may be. All references in the Loan Agreement to
the "Guarantor" or the "Guarantors" shall hereafter be deemed to include MTTC.
5. Conditions Precedent. This Agreement shall become effective on the
date the Lender receives the following documents, each of which shall be
satisfactory in form and substance to the Lender:
a. The Second Replacement Master Line of Credit Note in the form
of Exhibit B-1 attached hereto and incorporated herein by reference, payable to
the order of the Lender in the maximum principal amount of $8,000,000;
b. The Second Replacement Guidance Line of Credit Note in the
form of Exhibit C attached hereto and incorporated herein by reference, payable
to the order of the Lender in the maximum principal amount of $5,000,000;
c. A Continuing and Unconditional Guaranty (the "MTTC Guaranty")
in the form of Exhibit D attached hereto and incorporated herein by reference,
issued and delivered by MTTC in favor of the Lender;
d. A Security Agreement in the form of Exhibit E attached hereto
and incorporated herein by reference, from MTTC in favor of the Lender;
e. A Covenant Not to Encumber in the form of Exhibit F attached
hereto and incorporated herein by reference, issued and delivered by MTTC in
favor of the Lender;
f. The Lender shall have received a certificate dated as of the
Closing Date by the Secretary or Assistant Secretary of MTTC covering:
(i) true and complete copies of MTTC's corporate charter,
bylaws, and all amendments thereto;
(ii) true and complete copies of the resolutions of MTTC's
Board of Directors authorizing (i) the execution, delivery and performance of
the Loan Documents, and (ii) the guaranty of the Loans; and
(iii) the incumbency, authority and signatures of the
officers of MTTC authorized to sign this Agreement and the other Loan Documents
to which MTTC is a party.
g. Proof that the Borrower has paid all costs and expenses to the
Lender in connection with this Agreement, including but not limited to all the
Lender's attorneys fees; and
h. Such other information, instruments, opinions, documents,
certificates and reports as the Lender may deem necessary.
6. Replacement Exhibits. Exhibits "B-1", and "C" to the Loan Agreement
are being replaced in their entirety with Exhibits "B-1" and "C" attached
hereto. The Borrower shall execute and deliver to the Lender on the date hereof
the Second Replacement Master Line of Credit Note and the Second Replacement
Guidance Line of Credit Note in substitution for and not satisfaction of, the
First Replacement Master Line of Credit Note and the First Replacement Guidance
Line of Credit Note, and the Second Replacement Master Note and the Second
Replacement Guidance Line of Credit Note shall be the "Notes" for all purposes
of the Loan Documents. The notes being substituted pursuant to this Agreement
shall be marked "Replaced" and returned to the Borrower promptly after the
execution and delivery of the Second Replacement Master Line of Credit Note and
the Second Replacement Guidance Line of Credit Note to the Lender.
7. Counterparts. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
8. Loan Documents; Governing Law; Etc. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia. The headings and
captions in this Agreement are for the convenience of the parties only and are
not a part of this Agreement.
9. Acknowledgments. The Borrower and the Guarantors hereby confirm to
the Lender the enforceability and validity of each of the Loan Documents. In
addition, the Borrower and each of the Guarantors hereby agree to the execution
and delivery of this Agreement and the terms and provisions, covenants or
agreements contained in this Agreement shall not in any manner release, impair,
lessen, modify, waive or otherwise limit the liability and obligations of the
Borrower or any of the Guarantors under the terms of any of the Loan Documents,
except as otherwise specifically set forth in this Agreement. The Borrower and
each Guarantor hereby issue, remake, ratify and confirm the representations,
warranties and covenants contained in the Loan Documents.
10. Modifications. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered under seal by the duly authorized representatives as of
the date and year first written above.
THE BORROWER:
WITNESS OR ATTEST: COMARCO, INC.
- -------------------------- By:--------------------------(SEAL)
Name:
Title:
THE GUARANTORS:
WITNESS OR ATTEST: COMARCO WIRELESS TECHNOLOGIES, INC.,
a company organized under the laws of the
State of Delaware
- -------------------------- By:--------------------------(SEAL)
Name:
Title:
WITNESS OR ATTEST: INTERNATIONAL BUSINESS SERVICES, INC.,
a company organized under the laws of
the District of Columbia
- -------------------------- By:--------------------------(SEAL)
Name:
Title:
WITNESS OR ATTEST: DECISIONS AND DESIGNS, INC.,
a company organized under the laws of the
Commonwealth of Virginia
- -------------------------- By:--------------------------(SEAL)
Name:
Title:
WITNESS OR ATTEST: LCTI, INC.,
a company organized under the laws of the
State of Maryland
- -------------------------- By:--------------------------(SEAL)
Name:
Title:
WITNESS OR ATTEST: MANUFACTURING TRAINING TECHNOLOGY CENTER,
INC., a corporation organized under
the laws of the State of California
- -------------------------- By:--------------------------(SEAL)
Name:
Title:
THE LENDER:
WITNESS: NATIONSBANK, N.A.
________________________ By:__________________________(SEAL)
Elaine T. Eaton
Vice President
SECOND AMENDED AND RESTATED MASTER LINE OF CREDIT NOTE
THIS SECOND AMENDED AND RESTATED MASTER LINE OF CREDIT NOTE (this
"Agreement") is entered into as of this __ day of June 1996, by COMARCO, INC., a
corporation organized under the laws of the State of California (the "Borrower")
in favor of NATIONSBANK, N.A., a national banking association, its successors
and assigns (the "Lender"). RECITALS A. The Lender made a secured revolving loan
(the "Master Line of Credit") to the Borrower in the maximum principal amount of
$8,000,000, which Master Line of Credit is evidenced by that certain Master Line
of Credit Note (the "Original Master Line of Credit Note") dated September 26,
1994 from the Borrower to the Lender in the maximum principal amount of
$8,000,000 or so much thereof as may be advanced or readvanced. The Original
Master Line of Credit Note was amended and restated in its entirety pursuant to
the provisions of that certain Amended and Restated Master Line of Credit Note
dated October 31, 1995 from the Borrower in favor of the Lender in the maximum
principal amount of $8,000,000 (the "First Replacement Master Line of Credit
Note"). B. The Master Line of Credit is governed by the provisions of that
certain Loan Agreement of even date with the Original Master Line of Credit Note
by and among the Borrower, the Guarantors named therein and the Lender (the same
as may be amended from time to time is hereafter called the "Original Loan
Agreement"). All capitalized terms used herein and not otherwise defined herein
shall have the meanings given to such terms in the Original Loan Agreement. C.
The Borrower has requested that the Lender extend the maturity date of the
Master Line of Credit and the Lender has agreed to on the condition, among
others, that the Borrower execute and deliver this Agreement. NOW, THEREFORE, in
consideration of the premises and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Lender and the
Borrower covenant and agree as follows:
1. The Recitals. The parties hereto acknowledge and agree that the
above Recitals are true and correct in all respects and that the same are
incorporated herein and made a part hereof by reference.
2. The Master Line of Credit Note. The First Replacement Master Line
of Credit Note is hereby amended and restated in its entirety as follows:
MASTER LINE OF CREDIT NOTE
$8,000,000 McLean, Virginia
FOR VALUE RECEIVED, COMARCO, INC., a corporation organized
under the laws of the State of California (the "Borrower")promises to
pay to the order of NATIONSBANK, N.A., a national banking association,
its successors and assigns (the "Lender"), the principal sum of EIGHT
MILLION DOLLARS ($8,000,000) (the "Principal Sum"), or so much thereof
as has been or may be advanced or readvanced to or for the account of
the Borrower, together with interest thereon at the rate or rates
hereinafter provided, in accordance with the following:
1. Interest. Except as otherwise expressly set forth below,
amounts outstanding hereunder shall bear interest at the Prime Rate
(as hereinafter defined, plus the Additional Percentage (hereinafter
defined).
For purposes hereof, the "Prime Rate" means the fluctuating
prime rate of interest established and declared by the Lender from time
to time. The Prime Rate does not necessarily represent the lowest rate
of interest charged by the Lender to its borrowers.
For purposes hereof, the "Additional Percentage" shall mean
the percentage applicable to this Note in accordance with the
following:
(i) If the Borrower's ratio of Total Liabilities to
Tangible Net Worth is less than or equal to 1.00 to 1.00, the
Additional Percentage shall be zero percent (0%);
(ii) If the Borrower's ratio of Total Liabilities to
Tangible Net Worth is less than or equal to 1.50 to 1.00, but greater
than 1.00 to 1.00, the Additional Percentage shall be one quarter of
one percent (.25%); and
(iii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is greater than 1.50 to 1.00, the Additional Percentage shall
be one half of one percent (.50%).
The initial Additional Percentage shall be calculated based on the
Borrower's consolidated financial statements for the quarter ending
March 31, 1996. Thereafter, the applicable Additional Percentage shall
be calculated and adjusted quarterly, based on the quarterly financial
statements required to be submitted to the Lender pursuant to paragraph
4 of Article VI of the Loan Agreement. Such quarterly changes shall be
effective commencing five (5) Business Days after submission by the
Borrower of the required financial statements; it being understood,
however, that in the event the quarterly financial statements are not
submitted when due, the Applicable Percentage shall be one-half of one
percent (.50%) until such financials are submitted as required, at
which time the Applicable Percentage (for the balance of the quarterly
period) shall be determined as set forth above.
In addition, so long as no event of default or any act, event or
condition which, with notice or the passage of time or both, would
constitute an event of default under any Loan Document has occurred and
is continuing, the Borrower shall have the right to elect that
specified amounts advanced under this Note, bear interest for specified
periods (each being herein referred to as a "LIBOR Rate Funding
Period"), at the LIBOR Rate, plus the Additional LIBOR Rate Percentage
(as hereinafter defined) in effect at the commencement of the LIBOR
Rate Funding Period. Election by the Borrower of a LIBOR Rate interest
rate as herein provided shall be made in a writing delivered to the
Lender not less than three (3) Business Days prior to the date of on
which the LIBOR Rate is to begin, and shall specify (1) the business
day on which the LIBOR Rate is to be effective and the period for which
the LIBOR Rate shall be applicable (which shall be only 30, 60, 90 or
180 days and the expiration of which may not be later than the
"Maturity Date"); and (2) the principal amount of this Note which shall
bear interest at the LIBOR Rate, plus the Applicable LIBOR Rate
Percentage (each being herein referred to as a "LIBOR Rate Funding
Segment"). The Borrower may not revoke any such election without the
Lender's written consent. Upon the expiration of an applicable LIBOR
Rate Funding Period, unless notice of LIBOR Rate election from the
Borrower, the rate of interest applicable to any LIBOR Rate Funding
Segment (after the expiration thereof) shall automatically convert at
the end of the applicable LIBOR Rate Funding Period, to the Prime Rate,
plus the Applicable Percentage.
For purposes hereof, the "LIBOR Rate" shall mean the per annum rate of
interest, as determined by the Lender in its sole discretion, at which
deposits in United States Dollars in an amount approximately equal to
the amount for which the rate is to be fixed and with maturities
comparable to the interest period selected by the Borrower, to be the
averages of rates per annum for 11:00 a.m. (London, time), two (2)
Business Days prior to the first day of such LIBOR Rate Funding Period
for delivery on the first such day of such LIBOR Rate Funding Period,
in amounts comparable to the applicable LIBOR Rate Funding Segment, as
adjusted for Federal Reserve Board reserve requirements and similar
assessments, if any, imposed upon the Lender.
For purposes hereof, the "Additional LIBOR Rate Percentage" shall mean
the percentage applicable to this Note in accordance with the
following:
(i) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is less than or equal to 1.00 to 1.00, the Additional LIBOR
Rate Percentage shall be one and one half percent (1.50%);
(ii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is less than or equal to 1.50 to 1.00, but greater than 1.00
to 1.00, the Additional LIBOR Rate Percentage shall be one and three
quarters of one percent (1.75%); and
(iii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is greater than 1.50 to 1.00, the Additional LIBOR Rate
Percentage shall be two percent (2.00%).
The initial Additional LIBOR Rate Percentage shall be calculated based
on the Borrower's consolidated financial statements for the quarter
ending March 31, 1996. Thereafter, the applicable Additional LIBOR Rate
Percentage shall be calculated and adjusted quarterly, based on the
quarterly financial statements required to be submitted to the Lender
pursuant to paragraph 4 of Article VI of the Loan Agreement. Such
quarterly changes shall be effective commencing five (5) Business Days
after submission by the Borrower of the required financial statements;
it being understood, however, that in the event the quarterly financial
statements are not submitted when due, the Applicable LIBOR Rate
Percentage shall be two percent (2.00%) until such financial statements
are submitted as required, at which time the Applicable LIBOR Rate
Percentage (for the balance of the quarterly period) shall be
determined as set forth above. It is expressly understood, however,
that once the additional LIBOR Rate Percentage is determined in
connection with any particular LIBOR Rate Funding Segment, such
Additional LIBOR Rate Percentage shall remain in effect for the period
for which the applicable LIBOR Rate election is made.
All interest payable under the terms of this Note shall be
calculated on the basis of a 360-day year and the actual number of days
elapsed.
2. Payments and Maturity. The unpaid Principal Sum, together
with interest thereon at the rate or rates provided above, shall be
payable as follows:
(a) Except as otherwise provided in this Note, this
Note shall be payable in successive monthly installments of accrued and
unpaid interest only, on the last day of each month commencing July 31,
1996, and on the last day of each month thereafter to maturity;
(b) Unless sooner paid, the unpaid Principal Sum,
together with all accrued and unpaid interest thereon shall be due and
payable in full on June 30, 1998.
The fact that the balance hereunder may be reduced to
zero from time to time pursuant to the Loan Agreement will not affect
the continuing validity of this Note or the Loan Agreement, and the
balance may be increased to the Principal Sum after any such reduction
to zero.
3. Default Interest. Upon the occurrence of an Event of
Default (as hereinafter defined), the unpaid Principal Sum shall bear
interest thereafter at a rate two percent (2%) per annum in excess of
the then highest current rate or rates of interest hereunder until such
Event of Default is cured.
4. Late Charges. If the Borrower shall fail to make any
payment under the terms of this Note within five (5) days after the
date such payment is due, the Borrower shall pay to the Lender on
demand a late charge equal to five percent (5%) of such payment.
5. Application and Place of Payments. All payments hereunder
shall be applied first to the payment of any late charges and costs of
collections then due hereunder, second to the payment of accrued and
unpaid interest then due hereunder, and the remainder, if any, shall be
applied to the unpaid Principal Sum. Notwithstanding the foregoing,
accrued and unpaid interest on amounts outstanding hereunder bearing
interest on a LIBOR Rate basis shall be due and payable on the last day
of the applicable LIBOR Rate Funding Period (as herein defined) and if
such LIBOR Rate Funding Period is longer than ninety (90) days, on the
ninetieth (90th) day of each LIBOR Rate Funding Period. All payments on
account of this Note shall be paid in lawful money of the United States
of America in immediately available funds on or before 11:00 a.m.
(Washington, D.C. time) at its principal office in McLean, Virginia or
at such other times and places as the Lender may at any time and from
time to time designate in writing to the Borrower.
6. Prepayment. The Borrower may prepay amounts accruing
interest based on the Prime Rate, in whole or in part, at any time
without notice to the Lender without premium or penalty. No prepayment
of any other amounts outstanding hereunder shall be permitted without
the prior written consent of the Lender.
7. Loan Agreement and Other Loan Documents. This Note is the
"Master Line of Credit Note" described in a Loan Agreement dated as of
September 26, 1994 by and among the Borrower, the guarantors named
therein and the Lender (as amended, modified, restated, substituted,
extended and renewed at any time and from time to time, the "Loan
Agreement"). The indebtedness evidenced by this Note is included within
the meaning of the term "Obligations" as defined in the Loan Agreement.
This Note amends and restates in its entirety that certain Amended and
Restated Master Line of Credit Note dated September 26, 1994 in the
maximum principal amount of $8,000,000 from the Borrower in favor of
the Lender. The term "Loan Documents" as used in this Note shall mean
collectively this Note, the Guidance Line of Credit Note, any
Acquisition Term Note, the Loan Agreement and any other instrument,
agreement, or document previously, simultaneously, or hereafter
executed and delivered by the Borrower, the Guarantors and/or any other
person, singularly or jointly with any other person, evidencing,
securing, guaranteeing, or in connection with the Principal Sum, this
Note and/or the Loan Agreement. All capitalized terms used herein and
not otherwise defined shall have the meanings given to such terms in
the Loan Agreement.
8. Events of Default. The occurrence of any one or more of
the following events shall constitute an event of default
(individually, an "Event of Default" and collectively, the "Events of
Default") under the terms of this Note:
(a) The failure of the Borrower to pay to the Lender
within five (5) days of when due any and all amounts payable by the
Borrower to the Lender under the terms of this Note; or
(b) The occurrence of an event of default (as defined
therein) under the terms and conditions of any of the other Loan
Documents, including, but not limited to the Loan Agreement.
9. Remedies. Upon the occurrence of an Event of Default, at
the option of the Lender, all amounts payable by the Borrower to the
Lender under the terms of this Note shall immediately become due and
payable by the Borrower to the Lender without notice to the Borrower,
or any other person, and the Lender shall have all of the rights,
powers, and remedies available under the terms of this Note, any of the
other Loan Documents and all applicable laws. The Borrower, the
Guarantors and all endorsers, guarantors, and other parties who may now
or in the future be primarily or secondarily liable for the payment of
the indebtedness evidenced by this Note hereby severally waive
presentment, protest and demand, notice of protest, notice of demand
and of dishonor and non-payment of this Note and expressly agree that
this Note or any payment hereunder may be extended from time to time
without in any way affecting the liability of the Borrower, and any
guarantors and endorsers.
10. Expenses. The Borrower promises to pay to the Lender on
demand by the Lender all costs and expenses incurred by the Lender in
connection with the collection and enforcement of this Note,
including, without limitation, reasonable attorneys' fees and expenses
and all court costs.
11. Notices. Any notice, request, or demand to or upon the
Borrower or the Lender shall be deemed to have been properly given or
made when delivered in accordance with the Loan Agreement.
12. Miscellaneous. Each right, power, and remedy of the Lender
as provided for in this Note or any of the other Loan Documents, or now
or hereafter existing under any applicable law or otherwise shall be
cumulative and concurrent and shall be in addition to every other
right, power, or remedy provided for in this Note or any of the other
Loan Documents or now or hereafter existing under any applicable law,
and the exercise or beginning of the exercise by the Lender of any one
or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by the Lender of any or all such other
rights, powers, or remedies. No failure or delay by the Lender to
insist upon the strict performance of any term, condition, covenant, or
agreement of this Note or any of the other Loan Documents, or to
exercise any right, power, or remedy consequent upon a breach thereof,
shall constitute a waiver of any such term, condition, covenant, or
agreement or of any such breach, or preclude the Lender from exercising
any such right, power, or remedy at a later time or times. By accepting
payment after the due date of any amount payable under the terms of
this Note, the Lender shall not be deemed to waive the right either to
require prompt payment when due of all other amounts payable under the
terms of this Note or to declare an Event of Default for the failure to
effect such prompt payment of any such other amount. No course of
dealing or conduct shall be effective to amend, modify, waive, release,
or change any provisions of this Note.
13. Partial Invalidity. In the event any provision of this
Note (or any part of any provision) is held by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this
Note; but this Note shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had not been contained in
this Note, but only to the extent it is invalid, illegal, or
unenforceable.
14. Captions. The captions herein set forth are for
convenience only and shall not be deemed to define, limit, or describe
the scope or intent of this Note.
15. Applicable Law. The Borrower acknowledges and agrees
that this Note shall be governed by the laws of the Commonwealth of
Virginia, even though for the convenience and at the request of the
Borrower, this Note may be executed elsewhere.
16. Arbitration. Any controversy or claim between or among the
parties hereto including but not limited to those arising out of or
relating to this Agreement or any of the other Loan Documents ,
including any claim based on or arising from any alleged tort, shall be
determined by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state law), the
rules of practice and procedure for the arbitration of commercial
disputes of Judicial Arbitration and Mediation Services, Inc.
(J.A.M.S.) and the "special rules" set forth below. In the event of any
inconsistency, the special rules shall control. Judgment upon any
arbitration award may be entered in any court having jurisdiction. Any
party to this agreement may bring an action, including a summary or
expedited proceeding, to compel arbitration of any controversy or claim
to which this Agreement applies in any court having jurisdiction over
such action.
(a) Special Rules. The arbitration shall be conducted
in the city of the Borrower's domicile at time of this Agreement's
execution and administered by J.A.M.S. who will appoint an arbitrator;
if J.A.M.S. is unable or legally precluded from administering the
arbitration, then the American Arbitration Association will serve. All
arbitration hearings will be commenced within 90 days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of
cause, be permitted to extend the commencement of such hearing for up
to an additional 60 days.
(b) Reservation of Rights. Nothing in this Agreement
shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained
in this Note or (ii) be a waiver by the Lender of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent
state law; or (iii) limit the right of the Lender (a) to exercise self
help remedies such as (but not limited to) setoff, or (b) to foreclose
against any real or personal property collateral, or (c) to obtain from
a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver.
Lender may exercise such self help rights, foreclosure upon such
property, or obtain such provisional or ancillary remedies before,
during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. Neither the exercise of self help remedies
nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the
right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to
such remedies.
3. Governing Law, Etc. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia and shall
be deemed to be an instrument under seal pursuant to said law. The headings used
in this Agreement are for the convenience of the parties and shall not be used
to interpret or construe the provisions hereof.
4. Not A Novation. It is expressly understood and agreed that the
indebtedness evidenced by the First Replacement Master Line of Credit Note has
not been extinguished or discharged hereby. The Borrower and the Lender agree
that the execution of this Agreement is not intended and shall not cause or
result in a novation with regard to the First Replacement Master Line of Credit
Note.
5. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall constitute an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
WITNESS the signature and seal of the Borrower by its duly authorized
officer as of the day and year first above written.
WITNESS OR ATTEST: COMARCO, INC.
- ------------------------------- By:--------------------------(SEAL)
Name:
Title:
SECOND AMENDED AND RESTATED GUIDANCE LINE OF CREDIT NOTE
THIS SECOND AMENDED AND RESTATED GUIDANCE LINE OF CREDIT NOTE (this
"Agreement") is entered into as of this __ day of June 1996, by COMARCO, INC., a
corporation organized under the laws of the State of California (the "Borrower")
in favor of NATIONSBANK, N.A., a national banking association, its successors
and assigns (the "Lender").
RECITALS
A. The Lender made a secured revolving loan (the "Guidance Line of
Credit") to the Borrower in the maximum principal amount of $5,000,000, which
Guidance Line of Credit is evidenced by that certain Guidance Line of Credit
Note (the "Original Guidance Line of Credit Note") dated September 26, 1994 from
the Borrower to the Lender in the maximum principal amount of $5,000,000 or so
much thereof as may be advanced or readvanced. The Original Guidance Line of
Credit Note was amended and restated in its entirety pursuant to the provisions
of that certain Amended and Restated Guidance Line of Credit Note dated October
31, 1995 from the Borrower in favor of the Lender in the maximum principal
amount of $5,000,000 (the "First Replacement Guidance Line of Credit Note").
B. The Guidance Line of Credit is governed by the provisions of that
certain Loan Agreement of even date with the Original Guidance Line of Credit
Note by and among the Borrower, the Guarantors named therein and the Lender (the
same as may be amended from time to time is hereafter called the "Original Loan
Agreement"). All capitalized terms used herein and not otherwise defined herein
shall have the meanings given to such terms in the Original Loan Agreement.
C. The Borrower has requested that the Lender extend the maturity date
of the Guidance Line of Credit and the Lender has agreed to on the condition,
among others, that the Borrower execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Lender and the Borrower covenant and agree as follows:
1. The Recitals. The parties hereto acknowledge and agree that the
above Recitals are true and correct in all respects and that the same are
incorporated herein and made a part hereof by reference.
2. The Guidance Line of Credit Note. The First Replacement Guidance
Line of Credit Note is hereby amended and restated in its entirety as follows:
GUIDANCE LINE OF CREDIT NOTE
$5,000,000 McLean, Virginia
FOR VALUE RECEIVED, COMARCO, INC., a corporation organized
under the laws of the State of California (the "Borrower")promises to
pay to the order of NATIONSBANK, N.A., a national banking association,
its successors and assigns (the "Lender"), the principal sum of FIVE
MILLION DOLLARS ($5,000,000) (the "Principal Sum"), or so much thereof
as has been or may be advanced or readvanced to or for the account of
the Borrower, together with interest thereon at the rate or rates
hereinafter provided, in accordance with the following:
1. Interest. Except as otherwise expressly set forth below,
amounts outstanding hereunder shall bear interest at the Prime Rate
(as hereinafter defined, plus the Additional Percentage (hereinafter
defined).
For purposes hereof, the "Prime Rate" means the fluctuating
prime rate of interest established and declared by the Lender from time
to time. The Prime Rate does not necessarily represent the lowest rate
of interest charged by the Lender to its borrowers.
For purposes hereof, the "Additional Percentage" shall mean
the percentage applicable to this Note in accordance with the
following:
(i) If the Borrower's ratio of Total Liabilities to
Tangible Net Worth is less than or equal to 1.00 to 1.00, the
Additional Percentage shall be one eighth of one percent (.125%);
(ii) If the Borrower's ratio of Total Liabilities to
Tangible Net Worth is less than or equal to 1.50 to 1.00, but greater
than 1.00 to 1.00, the Additional Percentage shall be three eighths of
one percent (.375%); and
(iii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is greater than 1.50 to 1.00, the Additional Percentage shall
be five eighths of one percent (.625%). The initial Additional
Percentage shall be calculated based on the Borrower's consolidated
financial statements for the quarter ending March 31, 1996. Thereafter,
the applicable Additional Percentage shall be calculated and adjusted
quarterly, based on the quarterly financial statements required to be
submitted to the Lender pursuant to paragraph 4 of Article VI of the
Loan Agreement. Such quarterly changes shall be effective commencing
five (5) Business Days after submission by the Borrower of the required
financial statements; it being understood, however, that in the event
the quarterly financial statements are not submitted when due, the
Applicable Percentage shall be five eighths of one percent (.625%)
until such financials are submitted as required, at which time the
Applicable Percentage (for the balance of the quarterly period) shall
be determined as set forth above.
In addition, so long as no event of default or any act, event or
condition which, with notice or the passage of time or both, would
constitute an event of default under any Loan Document has occurred and
is continuing, the Borrower shall have the right to elect that
specified amounts advanced under this Note, bear interest for specified
periods (each being herein referred to as a "LIBOR Rate Funding
Period"), at the LIBOR Rate, plus the Additional LIBOR Rate Percentage
(as hereinafter defined) in effect at the commencement of the LIBOR
Rate Funding Period. Election by the Borrower of a LIBOR Rate interest
rate as herein provided shall be made in a writing delivered to the
Lender not less than three (3) Business Days prior to the date of on
which the LIBOR Rate is to begin, and shall specify (1) the business
day on which the LIBOR Rate is to be effective and the period for which
the LIBOR Rate shall be applicable (which shall be only 30, 60, 90 or
180 days and the expiration of which may not be later than the
"Maturity Date"); and (2) the principal amount of this Note which shall
bear interest at the LIBOR Rate, plus the Applicable LIBOR Rate
Percentage (each being herein referred to as a "LIBOR Rate Funding
Segment"). The Borrower may not revoke any such election without the
Lender's written consent. Upon the expiration of an applicable LIBOR
Rate Funding Period, unless notice of LIBOR Rate election from the
Borrower, the rate of interest applicable to any LIBOR Rate Funding
Segment (after the expiration thereof) shall automatically convert at
the end of the applicable LIBOR Rate Funding Period, to the Prime Rate,
plus the Applicable Percentage.
For purposes hereof, the "LIBOR Rate" shall mean the per annum rate of
interest, as determined by the Lender in its sole discretion, at which
deposits in United States Dollars in an amount approximately equal to
the amount for which the rate is to be fixed and with maturities
comparable to the interest period selected by the Borrower, to be the
averages of rates per annum for 11:00 a.m. (London, time), two (2)
Business Days prior to the first day of such LIBOR Rate Funding Period
for delivery on the first such day of such LIBOR Rate Funding Period,
in amounts comparable to the applicable LIBOR Rate Funding Segment, as
adjusted for Federal Reserve Board reserve requirements and similar
assessments, if any, imposed upon the Lender.
For purposes hereof, the "Additional LIBOR Rate Percentage" shall mean
the percentage applicable to this Note in accordance with the
following:
(i) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is less than or equal to 1.00 to 1.00, the Additional LIBOR
Rate Percentage shall be one and five eighths percent (1.625%);
(ii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is less than or equal to 1.50 to 1.00, but greater than 1.00
to 1.00, the Additional LIBOR Rate Percentage shall be one and seven
eighths of one percent (1.875%); and
(iii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is greater than 1.50 to 1.00, the Additional LIBOR Rate
Percentage shall be two and one eighths percent (2.125%).
The initial Additional LIBOR Rate Percentage shall be calculated based
on the Borrower's consolidated financial statements for the quarter
ending March 31, 1996. Thereafter, the applicable Additional LIBOR Rate
Percentage shall be calculated and adjusted quarterly, based on the
quarterly financial statements required to be submitted to the Lender
pursuant to paragraph 4 of Article VI of the Loan Agreement. Such
quarterly changes shall be effective commencing five (5) Business Days
after submission by the Borrower of the required financial statements;
it being understood, however, that in the event the quarterly financial
statements are not submitted when due, the Applicable LIBOR Rate
Percentage shall be two and one eighths percent (2.125%) until such
financial statements are submitted as required, at which time the
Applicable LIBOR Rate Percentage (for the balance of the quarterly
period) shall be determined as set forth above. It is expressly
understood, however, that once the additional LIBOR Rate Percentage is
determined in connection with any particular LIBOR Rate Funding
Segment, such Additional LIBOR Rate Percentage shall remain in effect
for the period for which the applicable LIBOR Rate election is made.
All interest payable under the terms of this Note shall be
calculated on the basis of a 360-day year and the actual number of days
elapsed.
2. Payments and Maturity. The unpaid Principal Sum, together
with interest thereon at the rate or rates provided above, shall be
payable as follows:
(a) Except as otherwise provided in this Note, this
Note shall be payable in successive monthly installments of accrued and
unpaid interest only, on the last day of each month commencing July 31,
1996, and on the last day of each month thereafter to maturity;
(b) Unless sooner paid, the unpaid Principal Sum,
together with all accrued and unpaid interest thereon shall be due and
payable in full on June 30, 1997.
The fact that the balance hereunder may be reduced to
zero from time to time pursuant to the Loan Agreement will not affect
the continuing validity of this Note or the Loan Agreement, and the
balance may be increased to the Principal Sum after any such reduction
to zero.
3. Default Interest. Upon the occurrence of an Event of
Default (as hereinafter defined), the unpaid Principal Sum shall bear
interest thereafter at a rate two percent (2%) per annum in excess of
the then highest current rate or rates of interest hereunder until such
Event of Default is cured.
4. Late Charges. If the Borrower shall fail to make any
payment under the terms of this Note within five (5) days after the
date such payment is due, the Borrower shall pay to the Lender on
demand a late charge equal to five percent (5%) of such payment.
5. Application and Place of Payments. All payments hereunder
shall be applied first to the payment of any late charges and costs of
collections then due hereunder, second to the payment of accrued and
unpaid interest then due hereunder, and the remainder, if any, shall be
applied to the unpaid Principal Sum. Notwithstanding the foregoing,
accrued and unpaid interest on amounts outstanding hereunder bearing
interest on a LIBOR Rate basis shall be due and payable on the last day
of the applicable LIBOR Rate Funding Period (as herein defined) and if
such LIBOR Rate Funding Period is longer than ninety (90) days, on the
ninetieth (90th) day of each LIBOR Rate Funding Period. All payments on
account of this Note shall be paid in lawful money of the United States
of America in immediately available funds on or before 11:00 a.m.
(Washington, D.C. time) at its principal office in McLean, Virginia or
at such other times and places as the Lender may at any time and from
time to time designate in writing to the Borrower.
6. Prepayment. The Borrower may prepay amounts accruing
interest based on the Prime Rate, in whole or in part, at any time
without notice to the Lender without premium or penalty. No prepayment
of any other amounts outstanding hereunder shall be permitted without
the prior written consent of the Lender.
7. Loan Agreement and Other Loan Documents. This Note is the
"Guidance Line of Credit Note" described in a Loan Agreement dated as
of September 26, 1994 by and among the Borrower, the guarantors named
therein and the Lender (as amended, modified, restated, substituted,
extended and renewed at any time and from time to time, the "Loan
Agreement"). The indebtedness evidenced by this Note is included within
the meaning of the term "Obligations" as defined in the Loan Agreement.
This Note amends and restates in its entirety that certain Amended and
Restated Guidance Line of Credit Note dated September 26, 1994 in the
maximum principal amount of $5,000,000 from the Borrower in favor of
the Lender. The term "Loan Documents" as used in this Note shall mean
collectively this Note, the Master Line of Credit Note, any Acquisition
Term Note, the Loan Agreement and any other instrument, agreement, or
document previously, simultaneously, or hereafter executed and
delivered by the Borrower, the Guarantors and/or any other person,
singularly or jointly with any other person, evidencing, securing,
guaranteeing, or in connection with the Principal Sum, this Note and/or
the Loan Agreement. All capitalized terms used herein and not otherwise
defined shall have the meanings given to such terms in the Loan
Agreement.
8. Events of Default. The occurrence of any one or more of
the following events shall constitute an event of default
(individually, an "Event of Default" and collectively, the "Events of
Default") under the terms of this Note:
(a) The failure of the Borrower to pay to the Lender
within five (5) days of when due any and all amounts payable by the
Borrower to the Lender under the terms of this Note; or
(b) The occurrence of an event of default (as defined
therein) under the terms and conditions of any of the other Loan
Documents, including, but not limited to the Loan Agreement.
9. Remedies. Upon the occurrence of an Event of Default, at
the option of the Lender, all amounts payable by the Borrower to the
Lender under the terms of this Note shall immediately become due and
payable by the Borrower to the Lender without notice to the Borrower,
or any other person, and the Lender shall have all of the rights,
powers, and remedies available under the terms of this Note, any of the
other Loan Documents and all applicable laws. The Borrower, the
Guarantors and all endorsers, guarantors, and other parties who may now
or in the future be primarily or secondarily liable for the payment of
the indebtedness evidenced by this Note hereby severally waive
presentment, protest and demand, notice of protest, notice of demand
and of dishonor and non-payment of this Note and expressly agree that
this Note or any payment hereunder may be extended from time to time
without in any way affecting the liability of the Borrower, and any
guarantors and endorsers.
10. Expenses. The Borrower promises to pay to the Lender on
demand by the Lender all costs and expenses incurred by the Lender in
connection with the collection and enforcement of this Note,
including, without limitation, reasonable attorneys' fees and expenses
and all court costs.
11. Notices. Any notice, request, or demand to or upon the
Borrower or the Lender shall be deemed to have been properly given or
made when delivered in accordance with the Loan Agreement.
12. Miscellaneous. Each right, power, and remedy of the
Lender as provided for in this Note or any of the other Loan
Documents, or now or hereafter existing under any applicable law or
otherwise shall be cumulative and concurrent and shall be in addition
to every other right, power, or remedy provided for in this Note or
any of the other Loan Documents or now or hereafter existing under any
applicable law, and the exercise or beginning of the exercise by the
Lender of any one or more of such rights, powers, or remedies shall
not preclude the simultaneous or later exercise by the Lender of any
or all such other rights, powers, or remedies. No failure or delay by
the Lender to insist upon the strict performance of any term,
condition, covenant, or agreement of this Note or any of the other
Loan Documents, or to exercise any right, power, or remedy consequent
upon a breach thereof, shall constitute a waiver of any such term,
condition, covenant, or agreement or of any such breach, or preclude
the Lender from exercising any such right, power, or remedy at a later
time or times. By accepting payment after the due date of any amount
payable under the terms of this Note, the Lender shall not be deemed
to waive the right either to require prompt payment when due of all
other amounts payable under the terms of this Note or to declare an
Event of Default for the failure to effect such prompt payment of any
such other amount. No course of dealing or conduct shall be effective
to amend, modify, waive, release, or change any provisions of this
Note.
13. Partial Invalidity. In the event any provision of this
Note (or any part of any provision) is held by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this
Note; but this Note shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had not been contained in
this Note, but only to the extent it is invalid, illegal, or
unenforceable.
14. Captions. The captions herein set forth are for
convenience only and shall not be deemed to define, limit, or describe
the scope or intent of this Note.
15. Applicable Law. The Borrower acknowledges and agrees
that this Note shall be governed by the laws of the Commonwealth of
Virginia, even though for the convenience and at the request of the
Borrower, this Note may be executed elsewhere.
16. Arbitration. Any controversy or claim between or among the
parties hereto including but not limited to those arising out of or
relating to this Agreement or any of the other Loan Documents ,
including any claim based on or arising from any alleged tort, shall be
determined by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state law), the
rules of practice and procedure for the arbitration of commercial
disputes of Judicial Arbitration and Mediation Services, Inc.
(J.A.M.S.) and the "special rules" set forth below. In the event of any
inconsistency, the special rules shall control. Judgment upon any
arbitration award may be entered in any court having jurisdiction. Any
party to this agreement may bring an action, including a summary or
expedited proceeding, to compel arbitration of any controversy or claim
to which this Agreement applies in any court having jurisdiction over
such action.
(a) Special Rules. The arbitration shall be conducted
in the city of the Borrower's domicile at time of this Agreement's
execution and administered by J.A.M.S. who will appoint an arbitrator;
if J.A.M.S. is unable or legally precluded from administering the
arbitration, then the American Arbitration Association will serve. All
arbitration hearings will be commenced within 90 days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of
cause, be permitted to extend the commencement of such hearing for up
to an additional 60 days.
(b) Reservation of Rights. Nothing in this Agreement
shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained
in this Note or (ii) be a waiver by the Lender of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent
state law; or (iii) limit the right of the Lender (a) to exercise self
help remedies such as (but not limited to) setoff, or (b) to foreclose
against any real or personal property collateral, or (c) to obtain from
a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver.
Lender may exercise such self help rights, foreclosure upon such
property, or obtain such provisional or ancillary remedies before,
during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. Neither the exercise of self help remedies
nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the
right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to
such remedies.
3. Governing Law, Etc. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia and shall
be deemed to be an instrument under seal pursuant to said law. The headings used
in this Agreement are for the convenience of the parties and shall not be used
to interpret or construe the provisions hereof.
4. Not A Novation. It is expressly understood and agreed that the
indebtedness evidenced by the First Replacement Guidance Line of Credit Note has
not been extinguished or discharged hereby. The Borrower and the Lender agree
that the execution of this Agreement is not intended and shall not cause or
result in a novation with regard to the First Replacement Guidance Line of
Credit Note.
5. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall constitute an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
WITNESS the signature and seal of the Borrower by its duly authorized
officer as of the day and year first above written.
WITNESS OR ATTEST: COMARCO, INC.
- ------------------------------ By:--------------------------(SEAL)
Name:
Title:
ASSET PURCHASE AGREEMENT
among
COMARCO, INC.,
COSOURCE SOLUTIONS, INC.
R.A.L. CONSULTING AND STAFFING SERVICES, INC.
and
ROBERT A. LOVINGOOD
Dated as of July 23, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF ASSETS.................................. 1
1.1 Purchase and Sale of Assets..................................... 1
1.2 Excluded Assets................................................. 2
1.3 Assumption of Liabilities....................................... 2
1.4 Consideration................................................... 4
1.5 Closing......................................................... 10
1.6 Deliveries at Closing........................................... 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF BUYER AND COMARCO.......... 11
2.1 Due Authorization and Execution................................. 11
2.2 Organization, Authority and Qualification....................... 11
2.3 Fees, Commissions and Expenses.................................. 11
2.4 Consents, Violations and Authorizations......................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.... 12
3.1 Due Authorization and Execution................................. 12
3.2 Organization, Authority and Qualification of Seller............. 12
3.3 Financial Information; Liabilities.............................. 13
3.4 Absence of Certain Changes...................................... 13
3.5 Litigation...................................................... 14
3.6 Consents, Violations and Authorizations......................... 14
3.7 Title to Assets; Condition...................................... 15
3.8 Compliance with Law; Permits.................................... 15
3.9 Intellectual Property........................................... 15
3.10 Fees, Commissions and Expenses.................................. 16
3.11 Contracts....................................................... 16
3.12 Employees....................................................... 16
3.13 Taxes........................................................... 17
3.14 Insurance....................................................... 17
3.15 Client and Supplier Relationships............................... 17
3.16 No Agreements to Sell........................................... 18
3.17 Related Party Transactions...................................... 18
3.18 Accounts Receivable............................................. 18
3.19 R.A.L. Leasing Consultants...................................... 18
3.20 Full Disclosure; Reliance....................................... 18
ARTICLE IV CONDUCT OF BUSINESS PENDING CLOSING.......................... 19
4.1 Ordinary Course................................................. 19
4.2 No Acquisitions or Dispositions or Sale of Stock................ 19
4.3 No Encumbrances................................................. 19
4.4 Waiver of Rights................................................ 19
4.5 Material Agreements............................................. 19
4.6 Employees....................................................... 20
4.7 Benefit Plans................................................... 20
4.8 Agreements...................................................... 20
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF BUYER........................ 20
5.1 Representations and Warranties of Seller and Shareholder........ 20
5.2 Absence of Litigation or Investigation.......................... 20
5.3 Requisite Approvals............................................. 20
5.4 Due Diligence................................................... 21
5.5 No Material Adverse Change...................................... 21
5.6 Employment and Noncompetition Agreements........................ 21
5.7 Resolution of Claims............................................ 21
5.8 Other Employees................................................. 21
5.9 Delivery of Documents........................................... 21
5.10 Additional Deliveries........................................... 21
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF SELLER...................... 21
6.1 Representations and Warranties of Comarco and Buyer............. 22
6.2 Absence of Litigation or Investigation.......................... 22
6.3 Delivery of Documents........................................... 22
ARTICLE VII SURVIVAL; INDEMNIFICATION................................... 22
7.1 Survival of Representations and Warranties and
Related Agreements.............................................. 22
7.2 General Indemnification......................................... 22
ARTICLE VIII ADDITIONAL COVENANTS OF THE PARTIES........................ 23
8.1 Access.......................................................... 23
8.2 Availability of Records to Seller............................... 23
8.3 Name Change..................................................... 23
8.4 Other Employees................................................. 24
8.5 Consents........................................................ 25
8.6 Taxes and Other Matters......................................... 25
8.7 Guaranty of Comarco............................................. 26
ARTICLE IX TERMINATION.................................................. 26
9.1 Termination..................................................... 26
ARTICLE X GENERAL PROVISIONS............................................ 27
10.1 Expenses........................................................ 27
10.2 Further Assurances.............................................. 27
10.3 Notices......................................................... 27
10.4 Successors...................................................... 28
10.5 Entire Agreement; Amendment..................................... 28
10.6 Waiver of Compliance............................................ 28
10.7 Gender; Number; Definition...................................... 28
10.8 Governing Law................................................... 29
10.9 Attorney's Fees and Costs....................................... 29
10.10 Counterparts.................................................... 29
10.11 Public Communications........................................... 29
10.12 No Third Party Beneficiaries.................................... 29
<PAGE>
EXHIBITS
EXHIBIT A Form of Employment Agreement
EXHIBIT B Form of Noncompetition and Confidentiality Agreement
EXHIBIT C Financial Information
SCHEDULES
Schedule 1.1(a) Tangible Assets and Book Values
Schedule 1.1(b) Receivables
Schedule 1.1(d) Intellectual Property
Schedule 1.1(f) Customer Deposits
Schedule 1.2 Notes Payable by Affiliates
Schedule 1.3 Liabilities
Schedule 1.3(a) Assumed Contracts
Schedule 1.3(b) Leases
Schedule 1.3(c) Other Assumed Liabilities
Schedule 3.4 Absence of Changes
Schedule 3.5 Litigation
Schedule 3.6 Consents
Schedule 3.7 Liens
Schedule 3.8 Permits
Schedule 3.11 Defaults on Contracts
Schedule 3.12 Benefit Plans; Employment Agreements
Schedule 3.14 Insurance
Schedule 3.17 Related Party Transactions
Schedule 8.4(a) Core Employees
Schedule 8.4(b) Leased Employees
Schedule 8.4(c) Temporary Employees
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is dated as of
July 23, 1996 and is entered into among COMARCO, INC., a California corporation
("Comarco"), CoSource Solutions, Inc., a California corporation ("Buyer"),
R.A.L. CONSULTING AND STAFFING SERVICES, INC., a California corporation
("Seller") and ROBERT A. LOVINGOOD, an individual ("Lovingood" or
"Shareholder").
WHEREAS, Seller is engaged in the provision of temporary
employment and consulting and staffing services and is headquartered in the
Victorville, California area (the "Business");
WHEREAS, Buyer and Comarco desire to acquire, and Seller desires
to sell, substantially all of the assets associated with the Business;
WHEREAS, as a condition to closing of the transactions
contemplated hereby, Buyer will require Shareholder to execute and deliver an
employment agreement and a noncompetition and confidentiality agreement; and
WHEREAS, Comarco will agree to guarantee all of the obligations
of Buyer hereunder;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and such other consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
PURCHASE AND SALE OF ASSETS
I.1 Purchase and Sale of Assets. Subject to the terms and conditions of this
Agreement, at the Closing, as defined below, Seller shall sell, transfer,
convey, assign and deliver to Buyer, free and clear of any and all liens,
pledges, claims, security interests, encumbrances, charges, restrictions or
liabilities of any kind (collectively, "Liens") and Buyer shall purchase,
acquire and accept from Seller all of Seller's right, title and interest in and
to the assets of Seller as of the Closing Date (collectively, the "Purchased
Assets") except the Excluded Assets (as defined below) including, but not
limited to, the following:
(a) All of the equipment, computer hardware and software,
fixed assets, supplies and furniture listed and described on Schedule 1.1(a)
("Tangible Assets");
(b) All accounts and notes receivable, excluding however,
notes payable from affiliates listed on Schedule 1.2 ("Receivables"), including
without limitation, the Receivables specifically identified on Schedule 1.1(b);
(c) All agreements, whether oral, written or in the form of
work orders or purchase orders, contracts, real or personal property leases and
licenses to which Seller is a party ("Contracts"), which Buyer has agreed to
assume pursuant to Section 1.3 hereof;
(d) All trade names, telephone numbers, intellectual
property and other intangible rights of whatever nature used in connection with
or pertaining to the Business (as more particularly defined in Section 3.9
hereof, the "Intellectual Property"), including without limitation (i) the names
"R.A.L. Consulting and Staffing Services" "Hi Desert Personnel," any derivations
thereof and any other trade or "DBA" names used in the Business, and (ii) any
rights to use the Intellectual Property of others, such as software license
agreements, all of such Intellectual Property being listed and described on
Schedule 1.1(d);
(e) All goodwill, customer lists, supplier lists, employee
lists, records or contacts, sales files, business development information,
databases, price lists and pricing schedules, sales literature, technical
literature, information and know-how relating to the Business, licenses to
conduct the Business (to the extent transferable), trade association or other
memberships (to the extent transferable), and any other books, drawings,
specifications, documents, instruments and records used by Seller to conduct the
Business (collectively, the "Other Assets"); and
(f) All rights in and to Customer deposits, all of such
customer deposits being listed and described on Schedule 1.1(f).
In addition, as a Condition to Closing the transactions
contemplated hereby, Buyer will require execution of the Employment Agreement
(defined below) and the Noncompetition and Confidentiality Agreement (defined
below).
I.2 Excluded Assets. Buyer shall not acquire any (a) cash; (b) bank accounts;
(c) proceeds, rights or liabilities associated with Seller's class action
lawsuit against the State Compensation Insurance Fund of California, Orange
County Superior Court No. 725063; (d) all rebates, reimbursements, dividends or
returns as a result of premiums or surcharges for Worker's Compensation
insurance coverage paid by Seller prior to the Closing Date; or (e) notes
payable to the Seller from affiliates listed and described on Schedule 1.2
(collectively, "Excluded Assets"). The Purchased Assets and Excluded Assets are
collectively referred to herein as "Assets".
I.3 Assumption of Liabilities. Buyer shall assume the accrued and unpaid
liabilities of Seller shown on the most recent balance sheet of Seller, and
incurred since the date thereof in the ordinary course of business consistent
with past practice, except for tax liabilities and notes payable to affiliates
of Seller, to the extent and only to the extent such liabilities are
specifically listed and described on Schedule 1.3 to be delivered to Buyer by
Seller two business days prior to the Closing. In addition, Buyer shall assume
the liabilities of Seller under the Contracts listed on Schedule 1.3(a) hereto,
the lease obligations listed on Schedule 1.3(b) hereto, any liabilities in
respect of the customer deposits shown on Schedule 1.1(f), and those liabilities
in respect of employees and other liabilities specifically listed and described
on Schedule 1.3(c) hereto (together, the "Assumed Liabilities"). Except for the
Assumed Liabilities listed on Schedules 1.3 and 1.3 (a), (b) and (c), Buyer and
Comarco expressly do not, and shall not, assume or be deemed to assume, under
this Agreement or otherwise by reason of the transactions contemplated hereby,
any of the liabilities, obligations or commitments of Seller or related in any
way to the operation of the Business prior to the Closing Date of any nature
whatsoever, whether presently outstanding or arising after the date hereof.
Without in any way limiting the foregoing, Buyer and Comarco expressly do not
and shall not assume any liability or obligation:
(a) for taxes of any kind, including taxes payable by reason
of the transactions contemplated hereby;
(b) for any interest, fines, penalties or refunds required
to be made as a result of any failure of Seller or the Business to comply (prior
to the date of the Closing) with any law, statute, regulation, ordinance or
order to which it was subject;
(c) for any refunds or adjustments to which customers of
Seller may be entitled in connection with the operation of the Business prior to
the Closing, other than with respect to customer deposits acquired by Buyer;
(d) unless otherwise listed on Schedule 1.3(c), arising out
of Seller's or its principals', agents', representatives', or employees'
negligence, or other misconduct, or out of litigation or other claims arising
from the conduct of the Business on or prior to the date of the Closing,
including without limitation all such claims identified on Schedule 3.5;
(e) for any fees payable to De Bellas & Co. or any other
broker or finder in connection with the transactions contemplated hereby;
(f) under any relevant laws, contracts or otherwise relating
to current or former employees of Seller or the Business and periods prior to
the Closing Date, or under any employee benefit plans, or as a result of the
operation, prior to or on the Closing Date, of any Benefit Plan (as that term is
defined in Section 3.12 below) maintained by Seller or the Business;
(g) relating to or arising out of Excluded Assets; or
(h) all liabilities to all employees (as that term is
broadly defined herein) arising out of or related to events occurring or actions
taken prior to the Closing Date.
I.4 Consideration. The consideration delivered at Closing for the sale,
assignment, transfer and delivery of the Purchased Assets, and the execution of
the Employment Agreement and Noncompetition and Confidentiality Agreement (the
"Purchase Price") shall be:
(a) the net book value of the Tangible Assets of Seller, as
of the Closing, the estimated value of which is shown on Schedule 1.1(a) for
each item thereon, plus the estimated net book value (net of reserves for
doubtful accounts) of the Receivables shown on Schedule 1.1(b), minus the
estimated book value of the Assumed Liabilities as shown on Schedule 1.1(f),
Schedule 1.3 and Schedule 1.3(c) (the total being the "Estimated Value").
Validation of book value shall be based on a review of Seller's financial
records by Buyer. Seller may assign its representatives to work with the Buyer
to obtain a valuation of the Purchased Assets and Assumed Liabilities;
(b) $400,000 (together with the sum of the items listed in
subsection (a), the "Cash Purchase Price"), payable as follows:
(i) $300,000 payable at Closing; and
(ii) $100,000 plus or minus the Adjustment Amount,
payable sixty days after Closing.
The Adjustment Amount is calculated as follows: No later
than sixty days after the Closing, Seller and Buyer shall agree on final
Schedules 1.1(a), 1.1(b), 1.1(f), 1.3 and Schedule 1.3(c), each schedule showing
the information required hereunder and the values thereof as of the Closing
Date. The Adjustment Amount, positive or negative, is the difference between the
Estimated Value used to calculate the Cash Purchase Price and the actual value
of the Tangible Assets plus Receivables, minus the Assumed Liabilities, as shown
on the final schedules.
(c) In addition, Buyer or Comarco shall pay Seller $1,200,000
plus or minus adjustments in three annual installments (the "Installment
Payments"). The amount due and payable (the "Payment Amount") with each
Installment Payment will be determined based upon reported earnings of Buyer
before interest and taxes adjusted as described in subsection (iv) hereof
("Adjusted EBIT"). Each Installment Payment will be due and payable on or before
ninety days after each period, described below (the "Payment Date"). The Payment
Amount for each Installment Payment will be calculated as set forth below:
(i) First Installment Payment. If Adjusted EBIT of the
Buyer, for the four fiscal quarters ending July 31, 1997 (the First Installment
Payment Period), is equal to or greater than $400,000, then Buyer or Comarco
will pay Seller $400,000 on or before the next Payment Date.
If Adjusted EBIT is equal to or less than $400,000, then the
Payment Amount for the first Installment Payment will be the lesser of $400,000
or the Adjusted EBIT. If the Payment Amount is less than $400,000, then the
difference between the Payment Amount and $400,000 shall be termed the First
Shortfall Amount.
(ii) Second Installment Payment. If Adjusted EBIT of Buyer,
for the four fiscal quarters ending July 31, 1998 (the Second Installment
Payment Period), is equal to or greater than $400,000 then, Buyer or Comarco
will pay Seller the greater of $400,000 or $400,000 plus any First Shortfall
Amount, but in any event, the Payment Amount will not be more than Adjusted EBIT
reported for the Second Installment Payment Period. If the Payment Amount is
less than $400,000 plus the First Shortfall Amount, then the unrecovered portion
is the Second Shortfall Amount.
If Adjusted EBIT is equal to or less than $400,000 then the
Payment Amount will be the lesser of $400,000 or the Adjusted EBIT reported for
the Second Installment Payment Period. If the Payment Amount is less than
$400,000, then the Second Shortfall Amount shall be the difference between the
Payment Amount and $400,000, plus the First Shortfall Amount, if any.
(iii) Third Installment Payment. If Adjusted EBIT of Buyer,
for the four fiscal quarters ending July 31, 1999 (the Third Installment Payment
Period), is equal to or greater than $400,000 then, Buyer or Comarco will pay
Seller the greater of $400,000 or $400,000 plus the Second Shortfall Amount, but
in any event, the Payment Amount will not be more than Adjusted EBIT reported
for the Third Installment Payment Period. If Adjusted EBIT is equal to or less
than $400,000, then the Payment Amount will be the lesser of $400,000 or the
Adjusted EBIT reported for this period.
(iv) Calculating Adjusted EBIT. EBIT is equal to operating
earnings of Buyer before interest and taxes, as determined in accordance with
generally accepted accounting principles ("GAAP"), consistently applied by
Comarco. EBIT will not reflect any expenses of Buyer related to the transaction
contemplated hereby or depreciation or amortization of intangible assets or
goodwill acquired by Buyer herein. Adjustments are then made to EBIT (Adjusted
EBIT) for purposes of calculating Installment Payments, calculated as follows:
(1) Calculating Adjustment to EBIT for Corporate Charges:
"Corporate Charges" are Charges assessed to Buyer by Comarco for administrative
services, corporate synergy and corporate resources. In accordance with GAAP as
applied by Comarco, Corporate Charges are accounted for as an operating expense
and deducted from Gross Revenue to calculate EBIT.
For purposes of this calculation, Corporate Charges will be the
lesser of actual Corporate Charges or a percentage of Buyer's Gross Revenue
(Adjusted Corporate Charges) in each Installment Period as follows: 1.5% in year
one, 1.75% in year two, and 2% in year three. Any Corporate Charges in excess of
these percentages will be added back in the calculation of Adjusted EBIT so that
the maximum deducted is the percentage.
(2) Calculating the Adjustment to EBIT for Losses Related to
Approved Expansion Activity: Any approved expenditures made by Buyer to expand
its geographic coverage or types of services offered may result in operating
losses. Profit center accounting, using Generally Accepted Accounting Principles
as consistently applied by Comarco, will be used to determine the amount of
operating losses, if any, related to an Approved Expansion Activity. These
losses, if incurred, will be added back to EBIT to calculate Adjusted EBIT.
An Approved Expansion Activity is determined as follows:
Lovingood is responsible for preparing a Business and Marketing Plan (the
"Business Plan"), as described in the Employment Agreement. In the Business
Plan, and in any subsequent update thereto (approved in writing by Comarco),
Lovingood is required to delineate any expenses and revenues he expects Buyer to
incur for the sole purpose of expanding Buyer's geographic coverage or expanding
the type of services offered by Buyer. The Business Plan proposing an expansion
activity must be reviewed with and approved by Comarco, in writing, before any
losses can be added back to Buyer's EBIT for the purpose of calculating Adjusted
EBIT.
(3) Example format for calculating Adjusted EBIT is as
follows:
(a) EBIT (GAAP) for any Installment Payment Period
(b) Plus actually-expensed Corporate Charges deducted to
calculate EBIT
(c) Less Adjusted Corporate Charges
(d) Plus any losses from an Approved Expansion Activity.
(v) Offset for Indemnity Claims.
(1) Any indemnification obligation of Seller arising under
Sections 7.2 or 8.4(c) of this Agreement may, at Buyer's or Comarco's option, be
offset against the Installment Payments due hereunder. Such offset shall not be
Buyer's or Comarco's sole recourse against Seller or Shareholder in respect to
Seller's obligations to indemnify Buyer or Comarco.
(2) For the purposes of this subsection 1.4(c)(v), Buyer and
Comarco shall make Installment Payments as scheduled unless (x) a claim for
which Comarco or Buyer would be entitled to indemnification is threatened or
asserted in writing against Comarco or Buyer by a third party (a "Third-Party
Claim") or (y) a claim for indemnification is otherwise asserted against Seller
by Buyer or Comarco in writing. With respect to a particular Third-Party Claim,
the amount which may be withheld from an Installment Payment shall be:
A. Where Seller undertakes the defense of the Third-Party
Claim, the amount withheld shall be up to One Hundred percent (100%) of the Loss
(as estimated by Buyer or Comarco in good faith) until such time as Seller's
indemnification obligation is finally determined or the Third-Party Claim is
withdrawn, released, compromised or otherwise disposed of so as to eliminate
Buyer's and Comarco's right to indemnification as to the Third-Party Claim.
B. Where Seller fails to undertake the defense of any such
Third-Party Claim, the amount withheld shall be up to One Hundred percent (100%)
of the Loss (as estimated by Buyer or Comarco in good faith) until such time as
Seller's indemnification obligation is finally determined or the Third-Party
Claim is withdrawn, released, compromised or otherwise disposed of so as to
eliminate Buyer's and Comarco's right to indemnification as to the Third-Party
Claim.
C. If a Third-Party Claim is not tendered to Seller for
defense and the amount of the intended withholding specified, within fifteen
(15) days of its assertion in writing, Buyer and Comarco shall not withhold from
the next Installment Payment, provided, however, that Buyer and Comarco may
offset against an Installment Payment if such tender occurs after such fifteen
(15) day period if Seller's ability to contest the Third-Party Claim is not
materially prejudiced thereby, provided, further, that Buyer or Comarco shall
not withhold if the Third Party Claim is not tendered to Seller within thirty
(30) days of its assertion in writing.
D. If Buyer or Comarco assert in writing that they are
entitled to indemnification hereunder without reference to a Third-Party Claim
due to a breach by Seller of any of Sections 3.1-3.20, 4.1-4.8, or 8.3.-8.6,
then One Hundred percent (100%) of the amount claimed by Buyer or Comarco may be
withheld from the next Installment Payment.
E. Buyer and Comarco shall remit to Seller any amount
withheld from an Installment Payment as an offset under this subsection
1.4(c)(v) which is not applied to Seller's indemnification obligation together
with interest at the annual rate of eight percent (8%) on the total amount
withheld from the date that the amount should have been paid as part of an
Installment Payment. Such repayment shall be made within five (5) days from the
expiration of Buyer's and Comarco's right to withhold the offset amount under
this paragraph.
F. Seller and Shareholder may, but shall not be obligated
to, in Seller and Shareholder's sole and complete discretion and at their own
cost and expense, post a bond in the amount to be withheld under paragraph A, B
or D above naming Comarco as sole payee thereunder. Upon the delivery of such
bond, Buyer and Comarco shall cease to withhold any offset and/or make the full
Installment Payment on the Payment Date.
(3) Upon tender of any claim to which Buyer and Comarco are
entitled to offset under paragraph A, B or D above, Seller and Shareholder shall
have full authority and discretion in the proceeding, settlement, compromise or
other disposition of the claim, provided only that any settlement or compromise
shall expressly identify Buyer and Comarco as a named party released from all
liability and notice thereof shall be given to Comarco as provided herein.
(vi) Modification of Installment Payments. Modifications to
Installment Payments shall not occur unless the procedure is described in this
Agreement. Buyer's and Comarco's obligations to make Installment Payments under
the terms of this agreement will be modified if Seller, Shareholder, or their
affiliates, successors and assigns (collectively referred to as Seller) violate
the Noncompetition and Confidentiality Agreement, or if Lovingood terminates his
employment with Buyer or Comarco prematurely. Premature termination would occur
under one of the termination clauses set out in section 5 of the Employment
Agreement.
(1) Modification for Violation of Non Compete Agreement. If
Seller or Lovingood is in breach in any respect of the Noncompetition and
Confidentiality Agreement, then in that event, no further Installment Payments
will be required of Buyer or Comarco as a measure of the detrimental impact on
the value of the Business. Seller and/or Lovingood mutually agree to pay back
any and all payments made by Buyer or Comarco to Seller or Lovingood during such
time as either of them was in breach of the Noncompetition and Confidentiality
Agreement, without the actual knowledge of the President of Comarco. Buyer or
Comarco will be entitled to recover these payments, at any time it becomes aware
of any such breach of the Noncompetition and Confidentiality Agreement, even if
Comarco does not become aware of the breach until after all payments required by
this Purchase Agreement have been made. The modification described in this
subparagraph shall not limit Buyer's or Comarco's damages in event of such a
breach or limit their rights to avail themselves of any other remedy, provided,
that a court may treat such modification as payment of all or a portion of any
damages awarded.
(2) Modification for Lovingood's Decision to Terminate.
Premature termination by Lovingood in accordance with subsection 5.1 of the
Employment Agreement would require Buyer or Comarco to continue Installment
Payments during the notice period. Buyer or Comarco would be obligated to make
one more installment payment after Employee leaves, provided there is no
violation of paragraph 1.4(vii)(1) above, before the payment is to be made. This
payment would be due and payable at the next normal Installment Payment Date.
The amount paid would be calculated in the normal fashion, i.e. based on
Adjusted EBIT for the year of termination, except that if Lovingood leaves prior
to the end of an Installment Payment Period, then a $100,000 deduction shall be
made in the next Installment Payment. No further Installment Payments would
thereafter be required of Buyer or Comarco.
(3) Modification for Comarco's Decision to Terminate Without
Cause. (Subsection 5.2 of Employment Agreement). In the event Lovingood is
terminated without cause, Installment Payments would continue unchanged until
the notice period expires. On the termination date, the remaining balance on the
$1,200,000 deferred purchase price of the Assets under Section 1.4(c) will
become due and payable in 12 equal monthly installments beginning one month
after the termination date and continuing in consecutive payments until fully
paid.
(4) Modification of Installment Payments for Termination
With Cause. (Subsection 5.3 of the Employment Agreement). In the event Lovingood
is terminated for cause, no further Installment Payments will be made as a
measure of the detrimental impact on the value of the Business.
(5) Modification of Installment Payments for Termination Due
to Poor Performance. (Subsection 5.4 of the Employment Agreement). In the event
Lovingood is terminated for poor performance, after the termination date
Installment Payments will be made on each remaining Payment Date in an amount
equal to 100% of the Installment Payment last made prior to termination.
(6) Modification of Installment Payments for Termination Due
to Death or Disability. (Subsection 5.5 of the Employment Agreement). In the
event Lovingood is terminated due to death or Disability (as defined in the
Employment Agreement), the remaining balance on the $1,200,000 deferred purchase
price of the Assets under Section 1.4(c) will be paid to Lovingood or his
designee in full by Buyer or Comarco. If Buyer obtains insurance for these
eventualities and the beneficiary is Lovingood or his designee, the benefits to
be received under the insurance policy will satisfy all or a portion of Buyer's
and Comarco's obligations under this subparagraph.
I.5 Closing. Unless this Agreement shall have been terminated and the purchase
of the Purchased Assets contemplated hereby shall have been abandoned by the
mutual agreement of the parties hereto, the closing (the "Closing") will be held
at the offices of Riordan & McKinzie in Los Angeles, California on August 1,
1996 or such other date as the parties hereto mutually agree to (the "Closing
Date") and the Closing shall be deemed to have occurred at 12:01 a.m. on such
date.
I.6 Deliveries at Closing.at Closing
(a) Seller Deliveries. At the Closing, Seller will deliver
to Buyer:
(i) assignments, bills of sale or other documents to transfer
title to the Purchased Assets;
(ii) the certificate described in Section 5.1 hereof;
(iii) the Employment Agreement;
(iv) the Noncompetition and Confidentiality Agreement; and
(v) such other documents, instruments or certificates as Buyer
may reasonably request.
(b) Buyer Deliveries. At the Closing, Buyer will deliver to
Seller:
(i) any assumption agreements necessary for Buyer to take title
to the Purchased Assets and assume the Assumed Liabilities;
(ii) the certificate described in Section 6.1 hereof;
(iii) the portion of the Cash Purchase Price payable at Closing in
immediately available funds;
(iv) the Employment Agreement;
(v) the Noncompetition and Confidentiality Agreement; and
(vi) such other documents, instruments or certificates as Seller
may reasonably request.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BUYER AND COMARCO
Buyer and Comarco represent and warrant to and agree with Seller
as follows:
II.1 Due Authorization and Execution. Buyer and Comarco have the necessary
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All necessary corporate action on the part of
Buyer and Comarco has been or will be taken by the date of the Closing in order
to authorize and approve the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement and all
documents executed in connection with this Agreement have been duly and validly
executed and delivered by Buyer and Comarco and, assuming due execution and
delivery by Seller and Shareholder of them, constitute valid and binding
obligations of Buyer and Comarco enforceable against them in accordance with
their terms, except to the extent that such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the general enforcement of creditors rights.
II.2 Organization, Authority and Qualification. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of California
and has all requisite corporate power and authority to enter into this Agreement
and to perform its obligations hereunder. Comarco is a corporation duly
incorporated, validly existing and in good standing under the laws of California
and has all requisite corporate power and authority to enter into this Agreement
and to perform its obligations hereunder.
II.3 Fees, Commissions and Expenses. Comarco is not obligated to pay any
brokerage commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement.
II.4 Consents, Violations and Authorizations.orizations
(a) Buyer is not a party to or bound by any deed of trust,
lease, contract, agreement, license, order, judgment or decree, which would
require the consent of another party to the execution of this Agreement, or the
consummation of the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby will (i) violate
any provision of the Articles of Incorporation or Bylaws of Buyer, (ii) conflict
with, or result (immediately or upon the giving of notice or the passage of time
or both) in any violation of or default under, any deed of trust, lease,
contract, agreement or license which Buyer, its properties or assets are parties
to or (iii) violate any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Buyer, its properties or assets, other than such
conflicts, violations or defaults which individually or in the aggregate would
not have a material adverse effect on Buyer and Comarco, taken as a whole, or on
the ability of Buyer to consummate the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
Seller and Shareholder jointly and severally represent and
warrant to Buyer and Comarco as follows:
III.1 Due Authorization and Execution. Seller has the necessary corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All necessary corporate action on the part of Seller,
including any shareholder approval, has been taken in order to authorize and
approve the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement and all documents executed in
connection with this Agreement have been duly and validly executed and delivered
by Seller and Shareholder and, assuming due execution and delivery by Buyer and
Comarco, where applicable, constitute valid and binding obligations of Seller
and Shareholder enforceable against them in accordance with their terms, except
to the extent that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the general
enforcement of creditor's rights.
III.2 Organization, Authority and Qualification of Seller. Seller is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Seller has all requisite corporate power and
authority to own, operate and lease the assets and properties of the Business
and to carry on the Business as now conducted. Seller is duly qualified or
licensed to do business as a foreign corporation and in good standing in all
jurisdictions in which Seller's ownership of property or the conduct of the
Business requires such qualification.
III.3 Financial Information; Liabilities. Seller and Shareholder have signed as
a true and correct copy and delivered to Comarco a complete set of Financial
Statements (including a Balance Sheet and Income Statement), prepared in
accordance with Generally Accepted Accounting Principles ("GAAP"), consistently
applied (except that interim financial statements do not contain all of the
footnote disclosure required by GAAP), for the fiscal year ending December 31,
1995 and for the five-month period ending May 31, 1996. This Financial
Information will be attached hereto as Exhibit C. Seller and Shareholder
represent and warrant that this Financial Information presents fairly the
financial condition, results of operations and cash flows of the Business as of
the dates indicated thereon, and has been prepared in accordance with the books
and records of Seller. As of the date hereof and the Closing Date, except (a) as
reflected in the Financial Information or (b) as disclosed to Buyer in writing,
the Seller has no obligation or liability of any kind (whether fixed, accrued,
contingent, unmatured or otherwise), which in accordance with generally accepted
accounting principles consistently applied, should have been disclosed in the
Financial Information and were not. All liabilities shown on the Financial
Information or to be assumed by Buyer have been incurred in the ordinary course
of business consistent with past practices and not in breach of any
representation or warranty contained herein and do not result from, or arise out
of breach of contract, breach of warranty, tort, infringement, or violation of
law. Seller has maintained and will, until the date of the Closing, continue to
maintain complete and accurate customer lists, employee contact lists, sales
files, price lists, pricing schedules, databases, sales literature, and all
other books and records relating to the Business.
III.4 Absence of Certain Changes. Except as set forth on Schedule
3.4, since December 31, 1995 there has not been:
(a) any event that has resulted or could result in a
material adverse effect on the financial condition, results of operations,
properties, assets or prospects of Seller or the Business;
(b) sale, assignment or transfer of any of the material
assets of the Seller, other than in the ordinary course of business, consistent
with past practice;
(c) amendment, cancellation or termination of any Contract
(as defined in Section 3.14 hereof), license or other instrument material to
Seller, except in the ordinary course of business, or execution of any operating
or capital lease or lease for real property, or entry into any other material
agreement;
(d) failure to repay any material obligation of Seller;
(e) increase in the compensation payable or to become
payable to officers or employees (including any such increase pursuant to any
bonus, pension, profit sharing or other plan or commitment) or in any severance
or termination pay, except for increases in the ordinary course of business,
consistent with past practice or as required by law or any existing agreement
and except for cost of living adjustments and other increases consistent with
past practice; or
(f) granting of any bonus, incentive compensation, service
award or other like benefit to any officer, or granting of any bonus, incentive
compensation, service award or other like benefit to any employee except in the
ordinary course of business consistent with past practice.
Since such date, Seller has: (i) carried on the business in the
ordinary course and has not entered into any extraordinary contracts or
agreements or instituted or changed in any material respect its methods of
management or operation; and (ii) maintained all pricing for the services
provided in connection with the Business at normal levels and has increased and
decreased prices only in the usual and ordinary course and has not offered any
price reductions, discounts or rebates or agreed to provide services at less
than cost other than in the usual and ordinary course.
III.5 Litigation.Litigation
(a) Except as set forth on Schedule 3.5, there is no claim,
action, suit, proceeding or investigation pending or threatened against Seller,
Shareholder, or the Business, at law or in equity, before any federal, state,
municipal or other governmental authority or instrumentality; nor does Seller or
Shareholder know of any reasonably likely basis for any such action, suit,
proceeding or investigation, the result of which could adversely affect Seller,
the Business or the transactions contemplated hereby.
(b) There is no judgment, decree, injunction, or order of
any public body or governmental authority outstanding against Seller or the
Business.
III.6 Consents, Violations and Authorizations.orizations
(a) The consummation of the transactions contemplated by
this Agreement will not require the consent of another party, except as shown on
Schedule 3.6.
(b) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby will (i) violate
any provision of the Articles of Incorporation or Bylaws of Seller, (ii)
conflict with, or result (immediately or upon the giving of notice or the
passage of time or both) in any violation of or default under, any deed of
trust, lease, Contract, agreement or license which Seller, its properties or
assets or the Business are parties to or subject to or (iii) violate any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Seller, its properties or assets or the Business.
III.7 Title to Assets; Condition. Condition
(a) Seller owns and has and is able to convey good and
marketable title to, all of the Purchased Assets, except for those Purchased
Assets which are leased, as to which Seller holds such assets under valid leases
which may be assigned to and assumed by Buyer under their terms. All such
Purchased Assets are free and clear of any conditions or restrictions on
transfer or assignment (except for any applicable consents) and, except as shown
on Schedule 3.7, of any and all Liens.
(b) Upon consummation of the transactions contemplated by
this Agreement, Buyer will acquire good, valid and marketable title to the
Purchased Assets to be transferred to Buyer hereunder, except for those
Purchased Assets which are leased, which Buyer will hold under valid leases,
free and clear of any and all Liens. The Purchased Assets are all of the
operating assets of Seller, are adequate for the conduct of the Business, are in
good condition and working order, and fit for their intended use, and have been
subject only to ordinary wear and tear.
(c) Seller does not have any subsidiaries and does not own
an equity interest in any other business entity.
III.8 Compliance with Law; Permits. Seller has complied with all federal, state
or local laws, ordinances, regulations or orders, including without limitation
any applicable health, environmental, sanitation, occupation, equal employment
opportunity, labor relations or similar laws, ordinances, regulations or orders,
("Laws") and has not received any complaint from any governmental authority and,
to Seller's and the Shareholder's knowledge, none is threatened alleging that
Seller has violated any such Law. Seller has no liability under any Laws. Seller
owns, possesses and maintains in full force and effect all licenses, permits and
other authorizations required by law in connection with the operation of the
Business, and such permits are listed on Schedule 3.8.
III.9 Intellectual Property.l Property
Seller owns or has the right to use all trade names,
customer and contact lists and other trade rights in which the Seller has any
interest and are material to the conduct of the Business (collectively,
"Intellectual Property"). Schedule 1.1(d) contains an accurate and complete
description as of the date hereof of all Intellectual Property, used in whole or
in part in connection with the Business. Seller is, and at the Closing will be,
the sole and exclusive owner of, with the sole and exclusive right to use and to
transfer, and the capability to transfer the Intellectual Property listed in
Schedule 1.1(d), free and clear of any Liens. No person or entity has asserted
or, to the best knowledge of the Seller or the Shareholder, threatened to
assert, any claim or made any demand with respect to the right to the
Intellectual Property set forth in Schedule 1.1(d) or the right to use the same,
and no proceeding has been instituted, or is pending, or, to the best knowledge
of the Seller or the Shareholder, is threatened, which challenges the exclusive
right thereto of the Seller.
III.10 Fees, Commissions and Expenses. Except for fees payable to De Bellas &
Co., which are the sole obligation of Seller, Seller is not liable for or
obligated to pay any brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement.
III.11 Contracts. Seller has heretofore made available to Purchaser true and
complete copies of all Contracts, including all material amendments and
modifications with respect thereto, and all Contracts are listed on Schedule
1.3(a). Each Contract is in full force and effect; no waiver, indulgence or
postponement of Seller's or other party's obligations thereunder have been
granted; Seller is not in breach or default of its obligation under such
Contracts, and, except as set forth on Schedule 3.11, has not given notice of
nor is aware of any breach or default by any other party to a Contract. Each
Contract may be assigned to and assumed by Buyer.
III.12 Employees. Employees
(a) Except as set forth on Schedule 3.12, Seller is not
obligated under any employment contract or any plan for the benefit of
employees. Each such benefit plan complies in all respects with all applicable
laws and regulations, including, but not limited to, the health care
continuation obligations imposed by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). For this purpose, the term "Benefit Plan"
shall mean all employee benefit plans, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, and all other profit-sharing,
deferred compensation, bonus, stock option, stock purchase, stock bonus,
vacation pay, holiday pay, severance, dependent care assistance, excess benefit,
incentive, salary continuation, and other compensation arrangements. All costs
of administering the plans and contributions required to be made to each Benefit
Plan under ERISA, the Internal Revenue Code ("Code") or any other applicable law
have been timely made. All amounts properly accrued to date as liabilities of
the Seller under or with respect to each Benefit Plan (including administrative
expenses and incurred but not reported claims) for the current fiscal year of
the plan have been recorded on the books of the Seller. Seller is not and has
never been a party to any Multiemployer Plan or to any defined Benefit Plan, as
those terms are defined in ERISA. No Benefit Plan, Contract, license, order,
judgment or decree would prevent Buyer from (i) hiring on an at-will basis any
employee of Seller on the Closing Date or (ii) entering into the Employment
Agreement, in either event without cost to Buyer or Comarco other than salary,
taxes and benefits agreed upon by Buyer and an employee. Buyer and Comarco will
have no liability arising out of the termination of any employee or independent
contractor by Seller on or prior to the Closing Date, including without
limitation liability for benefits earned by any employee but unpaid, including
accrued vacation and sick time except to the extent such liabilities are Assumed
Liabilities. Buyer and Comarco will have no liability under laws requiring prior
notice of termination, such as the Federal Worker's Adjustment and Retraining
Notification ("WARN") Act. Buyer and Comarco will have no liability as a result
of the operation of any Benefit Plan on or prior to the Closing Date, including
liability for providing health care continuation coverage pursuant to Code
Section 4980B and/or COBRA with respect to individuals whose Qualifying Events
(as that term is defined in COBRA) occur on or before the Closing Date.
(b) Seller is not party to any collective bargaining
agreement.
(c) Seller has complied (to the extent applicable) with the
Americans With Disabilities Act, ERISA, COBRA, the Family and Medical Leave Act
of 1993, and all other applicable laws.
III.13 Taxes. All payroll, withholding, property, exercise, sales, use and
transfer taxes, or other tax of whatever nature ("Taxes") imposed by the United
States or by any state, municipality, subdivision or instrumentality of the
United States or by any other taxing authority that are due and payable by
Seller prior to the Closing have been paid in full, or will be so paid prior to
the Closing. There are no Liens for Taxes (other than for current Taxes not yet
due and payable) upon the Business or Assets.
III.14 Insurance. Schedule 3.14 contains a list of all policies of insurance
maintained by Seller (showing as to each policy or binder, the carrier, coverage
limits, expiration dates, annual premiums and a general description of the type
of coverage provided), which list is true, complete and accurate in all material
respects as of the date hereof. Seller is not in default with respect to its
obligations under any such policies.
III.15 Client and Supplier Relationships. Neither Seller nor Shareholder have
any information which might reasonably indicate that any of Seller's clients,
customers, employees, or suppliers intends to cease retaining or utilizing
Seller's services, or dealing with Seller in the manner in which such
transactions have previously occurred, nor has any information been brought to
the attention of Seller or Shareholder which might reasonably lead any of them
to believe that any client, customer, employee, or supplier intends to alter in
any significant respect the amount of such retention or utilization or the
extent of its dealings with Seller or would alter in any significant respect any
such retention, utilization or dealings in the event of the consummation of the
transactions contemplated hereby.
III.16 No Agreements to Sell. Except as contemplated by this Agreement, neither
Seller nor Shareholder has any legal obligation, absolute or contingent, to any
other person, firm or entity to sell capital stock, material Assets or Business
of Seller or to effect any merger, consolidation, liquidation, dissolution,
recapitalization or other business combination involving Seller or to enter into
any agreement with respect thereto.
III.17 Related Party Transactions. Except as disclosed on Schedule 3.17, Seller
has not engaged in any transactions with, nor made loans to or become indebted
to, Shareholder, any member of Shareholder's family, or any business or entity
controlled by Shareholder or his family, and each such transaction was on terms
no less favorable to Seller than would have been available from an unaffiliated
third party at the time such transactions were entered into.
III.18 Accounts Receivable. All Receivables are reflected properly in the books
and records of Seller and Schedule 1.1(b) shows Receivables as of July 12, 1996.
All Receivables since such date have accrued in the ordinary course of business.
All Receivables are valid accounts receivable, net of any applicable reserves
for doubtful accounts, which reserves provide a reasonable estimate of doubtful
accounts and were calculated in accordance with GAAP and consistent with past
practices. All Receivables that exist as of the Closing, net of any applicable
reserves for doubtful accounts, which reserves provide a reasonable estimate of
doubtful accounts and were calculated in accordance with GAAP and consistent
with past practices, will be collectible in full by Buyer within nine months
after the Closing at the aggregate recorded amounts thereof as reflected in the
books and records of Seller. There are no refunds, rebates, discounts or other
adjustments payable with respect to the Receivables.
III.19 R.A.L. Leasing Consultants. R.A.L. Leasing Consultants, Inc. ("Leasing")
is an inactive corporation as that term is used in the California Corporations
Code. All of the assets and business rights of Leasing have been transferred to
Seller and will be acquired by Buyer upon consummation of the transactions
contemplated hereby.
III.20 Full Disclosure; Reliance. No representation or warranty by Seller and
Shareholder in this Article III or in any other Article of this Agreement or any
schedule, exhibit, certificate or other document furnished or to be furnished by
Seller or Shareholder to Buyer pursuant to this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements made herein or therein not
misleading.
ARTICLE IV
CONDUCT OF BUSINESS PENDING CLOSING
From the date of this Agreement until the Closing, Seller and
Shareholder covenant that, except as otherwise consented to in writing by Buyer,
they shall either satisfy or cause to be satisfied the following:
IV.1 Ordinary Course. Seller shall (a) carry on the Business in the ordinary
course in substantially the same manner as heretofore conducted, (b) not
institute or use any unusual or novel methods of management or operation that
vary materially from those used by Seller with respect to the Business as of the
date hereof, (c) maintain all pricing for all services at normal levels, (d)
increase or decrease prices for all services only in the usual and ordinary
course, (e) not offer price reductions, discounts or rebates on services or
provide services at less than cost other than in the usual or ordinary course,
and (f) preserve intact the present business organization and personnel of the
Business and preserve the present goodwill and advantageous relationships of
Seller with respect to the Business.
IV.2 No Acquisitions or Dispositions or Sale of Stock. Seller shall not sell,
lease or otherwise dispose of any Assets, or acquire any material Assets, other
than in the usual or ordinary course. Neither Shareholder nor Seller shall
solicit or initiate offers or proposals from, or negotiate or enter into
discussion with, any other person or entity relating to sale, mortgage of or
other encumbrance upon any of the capital stock of Seller or any Assets or any
of the Business, or to any other form of business combination involving Seller,
nor shall Shareholder or Seller disclose to any person or entity (other than
Buyer or Comarco, or advisors' to Seller or Buyer or Comarco), confidential
information relating to Seller, the Business or the Assets. Any unsolicited
offer to purchase capital stock or Assets of Seller received by Seller or
Shareholder shall be promptly disclosed to Buyer and Comarco. If Seller or the
Shareholder breach this covenant, Buyer and Comarco may terminate this Agreement
and Seller shall pay Comarco $100,000 as a termination fee to compensate Comarco
in part for the expenses it has incurred in connection with the transactions
contemplated hereunder.
IV.3 No Encumbrances. Seller shall not create, assume or incur any Lien on any
of the Assets other than in the usual or ordinary course.
IV.4 Waiver of Rights. Seller shall not amend, terminate or waive any right of
substantial value arising out of or otherwise relating to the Business.
IV.5 Material Agreements. Seller shall not enter into any lease for equipment or
real property or any other agreement requiring a payment by Seller that is
material to the Business, or agree to any material amendment, modification or
termination of any Contract, material agreement or lease.
IV.6 Employees. Seller shall not enter into or amend or modify any employment
agreement, nor materially increase the annual level of compensation of any
employee, nor increase at all the annual level of compensation of any person
whose compensation from Seller in Seller's last preceding fiscal year exceeded
$30,000, nor materially alter the Business' obligation to any employee, nor
grant any unusual or extraordinary bonuses, benefits or other forms of direct or
indirect compensation to any employee, (except in amounts consistent with past
practices or existing agreements or formulas, which practices, agreements or
formulas have prior to the date of grant been made available to Comarco in
writing) or to any officer, director or consultant.
IV.7 Benefit Plans. Seller shall not establish, increase, amend, terminate or
otherwise modify any plan for the benefit of employees, and shall make all
required contributions to benefit plans to and including the Closing Date.
IV.8 Agreements. Seller shall not commit or agree, whether in writing or
otherwise, to take any action prohibited by this Article IV.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are subject to the
fulfillment or satisfaction at or prior to the Closing of each of the following
conditions (any one or more of which may be waived by Buyer but only in
writing):
V.1 Representations and Warranties of Seller and Shareholder. All
representations and warranties of Seller and Shareholder contained in this
Agreement shall be true and correct as of the date made and shall be true and
correct in all material respects as of the Closing with the same effect as
though such representations and warranties were made at and as of the Closing;
Seller and Shareholder shall have performed and satisfied in all material
respects all covenants, conditions and agreements required or contemplated by
this Agreement to be performed prior to the Closing; and at the Closing, there
shall be delivered to Buyer a certificate to such effect signed by an authorized
officer of Seller and by Shareholder.
V.2 Absence of Litigation or Investigation. No litigation shall be pending or
threatened which could reasonably be expected to impair the ability of the
parties to consummate the transactions contemplated hereby.
V.3 Requisite Approvals. All consents of third parties required to transfer the
Purchased Assets shall have been obtained. Each lessor under a real property
lease to be assigned hereunder shall in addition have delivered an estoppel
certificate in a form approved in advance by Buyer. All permits or
authorizations as may be required by any regulatory authority having
jurisdiction over the parties, the subject matter hereof or actions herein
proposed to be taken shall have been obtained, and the Board of Directors and
the shareholders of Seller shall have approved the transactions contemplated
hereby.
V.4 Due Diligence. Comarco and Buyer shall have to their satisfaction completed
any and all due diligence investigations to be conducted in accordance with
Section 8.2 hereof.
V.5 No Material Adverse Change. As of the Closing, there shall not have occurred
any material adverse change which would impair the ability of Seller to conduct
the Business.
V.6 Employment and Noncompetition Agreements. Shareholder shall have entered
into an Employment Agreement with Buyer in substantially the form attached
hereto as Exhibit A, at the salary and with the benefits set forth in such
Exhibit A and into a Noncompetition and Confidentiality Agreement in the form
attached hereto as Exhibit B.
V.7 Resolution of Claims. Seller shall endeavor to resolve and settle all claims
against the Business, pending or threatened, prior to Closing. Comarco may elect
to cause Buyer to assume liability for any such claim by agreeing to have such
claim listed on an updated Schedule 1.3(c) to be delivered at Closing.
V.8 Other Employees. Seller shall have complied with the Covenants set forth in
Section 8.4 hereof.
V.9 Delivery of Documents. The documents described in Section 1.6(a) hereof
shall have been delivered to Buyer.
V.10 Additional Deliveries. Buyer shall have received such other duly and
validly executed documents and instruments in connection with the closing of the
transactions contemplated hereby as are reasonably requested by it.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the
fulfillment or satisfaction at or prior to the Closing of each of the following
conditions (any one or more of which may be waived by Seller, but only in
writing):
VI.1 Representations and Warranties of Comarco and Buyer. All representations
and warranties of Buyer and Comarco contained in this Agreement shall be true
and correct as of the date made and shall be true and correct in all material
respects as of the Closing with the same effect as though such representations
and warranties were made at and as of the Closing; Buyer and Comarco shall have
performed and satisfied in all material respects all covenants, conditions and
agreements required or contemplated by this Agreement to be performed and
satisfied by them at or prior to the Closing; and at the Closing, Buyer and
Comarco shall deliver to Seller a certificate to such effect signed by an
authorized officer of each of Buyer and Comarco.
VI.2 Absence of Litigation or Investigation. No litigation shall be pending or
threatened which could reasonably be expected to impair the ability of the
parties to consummate the transactions contemplated hereby.
VI.3 Delivery of Documents. The documents described in Section 1.6(b) hereof
shall have been delivered to Seller.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
VII.1 Survival of Representations and Warranties and Related Agreements. The
representations and warranties contained in Articles II and III of this
Agreement shall survive the Closing hereunder until the date that is four years
from the Closing Date and shall continue in effect to such date notwithstanding
any investigation by or on behalf of Buyer or Seller after the Closing;
provided, however, that the representations and warranties of the Seller and
Shareholder set forth at Sections 3.7 (Title to Assets), 3.8 (Compliance with
Law), 3.12 (Employees) and 3.13 (Taxes) shall survive the Closing and continue
in effect until the expiration of statute of limitations periods under
applicable law.
VII.2 General Indemnification.nification
(a) Seller and Shareholder, jointly and severally, agree to
indemnify and hold harmless Comarco and Buyer, their officers, directors,
employees and any of their affiliates against any and all liabilities, damages,
losses, costs or expenses whatsoever, including reasonable fees of counsel and
expenses of investigation ("Losses" and individually "Loss") arising out of or
resulting from: (i) any breach of any representation, warranty or covenant made
by Seller or Shareholder under this Agreement; (ii) the violation or
non-performance of any covenant or obligation to be performed by Seller or
Shareholder under this Agreement; (iii) any of the liabilities or obligations
not assumed by Buyer as set forth in Section 1.3 hereof; (iv) any Losses related
to or arising out of the Excluded Assets; (v) the conduct of the Business prior
to the date of the Closing; or (vi) any unpaid Taxes arising out of the conduct
of the Business or the operation of the Assets prior to the Closing, and any
interest or penalties thereon.
(b) Buyer and Comarco, jointly and severally, agree to
indemnify and hold harmless Seller, Shareholder or any of their affiliates
against any and all liabilities, damages, losses, costs or expenses whatsoever,
including reasonable fees of counsel ("Losses" and individually a "Loss")
suffered or incurred after the Closing by Seller, arising out of or resulting
from: (i) any breach of any representation, warranty or covenant made by Buyer
or Comarco under this Agreement or (ii) the violation or non-performance of any
covenant or obligation to be performed by the Buyer or Comarco under this
Agreement.
ARTICLE VIII
ADDITIONAL COVENANTS OF THE PARTIES
VIII.1 Access. Seller and Shareholder agree that Comarco, and its designated
representatives, attorneys and auditors or agents, shall have reasonable access
to the books of account, financial and corporate records, contracts, tax
returns, properties and other assets of Seller relating to the Business and to
make copies of such corporate records, reports and other documents as they may
request at any reasonable time during regular business hours prior to the
Closing, and Seller and Shareholder agree to use their best efforts to cooperate
with such persons in conducting such examination. Seller will cause its
officers, employees and accountants, as the case may be, to furnish such
additional financial and operating data and other information as Comarco may
from time to time reasonably request. All benefit plans of Comarco available to
those employees of Seller who are employed by Buyer will be made available to
Seller.
VIII.2 Availability of Records to Seller. Buyer shall make available to Seller
such documents, books, records or information relating to the Business prior to
the Closing as Seller may reasonably require after the Closing in connection
with any tax determination, defense of any claim against Seller relating to the
conduct of the Business prior to the Closing or governmental investigation of
Seller. Buyer agrees not to destroy any files or records which are subject to
this Section 8.2 without giving reasonable notice to Seller, and within fifteen
(15) business days of receipt of such notice, Buyer may cause to be delivered to
Seller the records intended to be destroyed, at Seller's expense.
VIII.3 Name Change. Seller agrees that after the Closing Date, it shall not use
or employ in any manner the name "R.A.L. Consulting and Staffing Services", any
other of Seller's trade names or "DBA's", or any derivations thereof, and Seller
will take and cause to be taken all necessary action by its board of directors,
shareholders and any other persons in order to make a change in its name on or
before the Closing Date. Buyer commits to use the name "Hi Desert Personnel
Services" in its operations after the Closing Date to the extent Lovingood deems
it advisable after consultation with Buyer's board of directors.
VIII.4 Other Employees. Employees
(a) Seller shall, no later than the date required by law,
give notice to each employee of Seller listed on Schedule 8.4(a) ("Core
Employees"), Schedule 8.4(b) ("Leased Employees"), and Schedule 8.4(c)
("Temporary Employees") hereto (collectively, the persons listed on Schedules
8.4(a), (b) and (c) constitute the "Employees"), which schedules have been
mutually agreed upon by Buyer and Seller, that such Employee's employment
relationship with Seller will cease immediately prior to the Closing. Concurrent
with the notice ceasing employment, Buyer agrees to offer employment with Buyer
to each Employee, which employment shall commence immediately following the
Closing. Each Employee shall be offered employment only on an at will basis and
will therefore be subject to discharge by Buyer at any time. Each Core Employee
who accepts employment with Buyer shall receive a reasonable (within industry
norms) salary, in no event less than the amount listed on Schedule 8.4(a) and
approved by Comarco prior to Closing, and the commission and sales incentive
programs utilized by Seller for applicable Core Employees will be continued in
similar fashion by Buyer, provided that this provision shall not impair Buyer's
discretion to alter salaries or benefits of its employees. Each Core Employee
shall receive all benefits available to employees of similar rank in the employ
of Comarco. Core Employees shall receive credit for time served as an employee
of Seller when such benefits are calculated under Comarco's plans. Leased
Employees will be provided benefits in accordance with the applicable Contract
under which they have been placed. Temporary Employees will only receive those
benefits required by law.
(b) Seller shall be liable for any costs (including benefits
accrued but unpaid or severance benefits, if payable, and liabilities under the
WARN Act, if any,) arising from the termination of any Employee of Seller, and
all payments to Employees required upon severance shall be made prior to the
Closing. Seller shall in addition be responsible for all costs associated with
employment and with the operation of the Business through and including the day
preceding the Closing Date, including without limitation F.I.C.A. tax liability,
workers' compensation premiums and claims made, and employer contributions to
any benefit plan, except to the extent such costs are Assumed Liabilities.
(c) Seller hereby acknowledges the existence of the WARN Act
(29 U.S.C.A. section 2101-2106 inclusive). In order to assure that all employees
are provided the notice to which they may be entitled under the provisions of
WARN or of any applicable state or local laws, Seller agrees that it shall
provide any requisite notice to all employees of the Business of any plant
closing or mass layoff resulting from actions taken by Seller prior to the
Closing Date, however, under the terms of Section 8.4(a) hereof, no such plant
closing or mass layoff is contemplated by this Agreement. Seller shall pay any
and all fines, penalties, back pay, benefits and attorneys' fees determined to
be owing due to any failure of Seller to comply with any applicable laws,
including, without limitation, by failing to provide the required notice to any
affected employee of Seller and agrees to indemnify and hold harmless Buyer from
any such failure on the part of Seller to comply with such applicable laws,
including the costs of providing health care continuation coverage pursuant to
Code Section 4980B and/or COBRA.
(d) If any Leased Employee of Seller is employed under a
Contract, such Contract shall be assigned to Buyer pursuant to Sections 1.1(c)
and 1.3(a), assuming receipt of all necessary consents to such assignments.
VIII.5 Consents. Comarco, Buyer, Seller and Shareholder will use their best
efforts to obtain all necessary consents and approvals of all other parties
(including without limitation, consents required under any Contracts) necessary
or advisable in connection with the transactions contemplated by this Agreement.
In connection therewith, and in connection with their negotiations for consents,
Seller and Shareholder may not offer or consent to any modification or amendment
of a Contract without Buyer's prior written consent. Buyer shall have the right
to approve the form of consent and the transmittal letter soliciting consents.
Seller shall keep Buyer advised of its progress in soliciting consents, and
shall obtain written consent to any modification of the agreed-upon form of
third party consent.
VIII.6 Taxes and Other Matters.er Matters
(a) As soon as practicable following the Closing, but in no
event later than thirty (30) days after the close of Seller's tax year, Buyer
shall deliver to Seller such information and data as Seller may reasonably
request, including such information required by Seller's customary tax and
accounting questionnaires, in order to enable Seller to complete and file all
federal, state and local returns, schedules, and other documents that may be
required to be filed by it and to otherwise enable Seller to satisfy its
internal accounting, tax and other requirements with respect to the Assets and
the operations of the Business.
(b) Payroll withholding and tax reporting with respect to
the employees of Seller listed on Schedules 8.4 will be terminated as of the
date immediately preceding the Closing Date and Seller will pay over to federal,
state and local governments, in accordance with applicable law, all amounts
withheld on or prior to the Closing Date, including all amounts withheld with
respect to payment of the cash value of employee benefits earned but previously
unpaid. Seller also agrees to issue, with respect to the Business, by the date
prescribed by IRS Regulations, Forms W-2 for wages paid through the Closing
Date. Buyer shall be responsible for all payroll responsibilities resulting from
operations on and after the Closing Date.
VIII.7 Guaranty of Comarco. Comarco hereby guarantees all obligations of Buyer
hereunder, to the same extent as Buyer is obligated herein.
ARTICLE IX
TERMINATION
IX.1 Termination. This Agreement may be terminated and the asset purchase
contemplated herein may be abandoned at any time prior to the Closing:
(a) by the mutual consent of Buyer, Comarco and Seller and
Shareholder;
(b) by Buyer if there is a breach of any of the
representations and warranties of Seller or Shareholder or if the Seller or
Shareholder fails to perform any of its covenants or agreements contained
herein, which breaches or failures, as the case may be, are, in the aggregate,
material in the context of the transactions contemplated by this Agreement;
provided that in any event the failure of the Shareholder to execute and deliver
an Employment Agreement or a Noncompetition and Confidentiality Agreement is
hereby deemed material;
(c) by Buyer if the Due Diligence investigation under
Section 8.2 hereof is not completed to its satisfaction;
(d) by Seller if there is a breach of any of the
representations and warranties of Buyer or Comarco, or if Buyer or Comarco fails
to perform any of its covenants or agreements contained herein, which breaches
or failures, as the case may be, are, in the aggregate, material in the context
of the transactions contemplated by this Agreement; and
(e) by either Buyer or Seller, if on or before September 1,
1996, the transactions contemplated by this Agreement shall not have been
consummated; provided that neither party may terminate under this Section 9.1 if
the failure has been caused by that party's material breach of this Agreement.
In the event of such termination and abandonment, no party
hereto (or any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement except as provided in Sections
4.2 and 10.1 hereof and except that nothing herein will relieve any party from
liability for any breach of this Agreement prior to such termination or
abandonment.
ARTICLE X
GENERAL PROVISIONS
X.1 Expenses. Expenses
(a) Except as otherwise provided in this Agreement, all
expenses incurred pursuant to this Agreement and the transactions contemplated
hereby shall be paid by the party incurring the expense.
(b) With respect to the consummation of the transactions
contemplated hereby, all recordation, transfer and documentary taxes and fees,
and any excise, sales, or use taxes, shall be paid for by Buyer or Comarco.
X.2 Further Assurances. Each party hereto agrees to use such party's best
efforts to cause the conditions to such party's obligations herein set forth to
be satisfied at or prior to the Closing insofar as such matters are within its
control. Each of the parties agrees to execute and deliver any and all further
agreements, documents or instruments necessary to effectuate this Agreement and
the transactions referred to herein or contemplated hereby or reasonably
requested by any other party to perfect or evidence its rights hereunder. All
parties will use their best efforts to effect an orderly transfer of good and
marketable title to the Purchased Assets being transferred hereunder (including
in the collection or reduction to possession of any of such Purchased Assets)
and to complete all other transactions contemplated by this Agreement as
promptly as practicable.
X.3 Notices. Any notices hereunder shall be deemed sufficiently given by one
party to another only if in writing and if and when delivered or tendered by
personal delivery or as of three (3) business days after deposit in the United
States mail in a sealed envelope, registered or certified, with postage prepaid,
twenty-four (24) hours after deposit with an overnight courier, or three (3)
hours after confirmation of delivery by facsimile, addressed as follows:
If to
Buyer or Comarco, Inc.
Comarco, to: 22800 Savi Ranch Parkway
Suite 214
Yorba Linda, CA 92887
Attention: President
If to
Seller or Robert A. Lovingood
Shareholder, to: c/o James A. Baxter, Esq.
14285 Armagosa Road, Suite 200
Victorville, CA 92392
Fax: (619) 955-2711
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this Section
10.4. A notice not given as provided above shall, if it is in writing, be deemed
given if and when actually received by the party to whom it is given.
X.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of each of the parties hereto and their successors and assigns. Except
as expressly provided herein, this Agreement shall not inure to the benefit of
any persons or entities not a party hereto. This Agreement is not assignable,
except with the consent of all other parties hereto, except that Buyer may
assign any of its rights hereunder to Comarco or another subsidiary of Comarco.
X.5 Entire Agreement; Amendment. This Agreement, together with the exhibits and
schedules hereto (which are all incorporated herein by this reference),
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection herewith, including without limitation the Letter of
Intent dated June 7, 1996. This Agreement may not be amended, modified or
supplemented except by written agreement of the parties hereto.
X.6 Waiver of Compliance. The failure by any party hereto to comply with any
obligation, covenant, agreement or condition contained herein may be expressly
waived in writing by the party or parties hereto adversely affected by such
failure, but such waiver or failure to insist upon strict compliance shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
X.7 Gender; Number; Definition. Except where the context otherwise requires,
words used in the masculine gender include the feminine and neuter; the singular
number includes the plural, and the plural the singular; "and" and "or" means
"and/or"; and the word "person" includes a corporation or other entity or
association as well as a natural person. Where the term "employee" is used
herein in reference to Seller's employees and the Business, the term encompasses
all employees on, or where the context requires, formerly on, Seller's payroll,
whether full-time, part-time, leased, placed temporarily, or placed in any other
arrangement while being paid by Seller.
X.8 Governing Law. This Agreement shall be construed and enforced in accordance
with, and governed by, the laws of the State of California.
X.9 Attorney's Fees and Costs. If any legal action is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party shall be entitled to recover its reasonable
attorneys' fees and other costs incurred in such proceeding, in addition to any
other relief to which it may be entitled.
X.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
X.11 Public Communications. Each of Comarco and Seller hereby agrees not to make
any press release or other public communication with respect to the proposed
transaction without the prior written consent of the other party, or except as
may be required by law (in which case the disclosing Party shall give the other
Party sufficient advance notice of such disclosure and shall use its best
efforts, in cooperation with such instructions as may be reasonably given by the
other party, to limit the disclosure).
X.12 No Third Party Beneficiaries. This Agreement is solely for the benefit of
the parties hereto and no provision of this Agreement shall be deemed to confer
any remedy, claim or right upon any third party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
COMARCO, INC.
By: ----------------------------------------
Name:
Title:
COSOURCE SOLUTIONS, INC.
By: ----------------------------------------
Name:
Title:
R.A.L. CONSULTING AND STAFFING SERVICES, INC.
By: ----------------------------------------
Name:
Title:
ROBERT A. LOVINGOOD
109032.8
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the date of the last
signature affixed hereto, by and between Comarco, Inc., a California corporation
("Comarco"), CoSource Solutions, Inc., a California corporation and a subsidiary
of Comarco ("Buyer"), and Robert A. Lovingood ("Lovingood" or "Employee").
R E C I T A L S:
A. Pursuant to the Asset Purchase Agreement dated July 23, 1996 ("Asset
Purchase Agreement"), by and between Comarco, Buyer and R.A.L. Consulting and
Staffing Services, Inc., a California corporation, ("Seller"), and Lovingood,
Buyer is acquiring substantially all of the operating assets of Seller (the
"Acquisition").
B. As part of Asset Purchase Agreement, Comarco and Buyer (collectively
the "Company") have agreed to offer Lovingood a position of employment with the
Company, the conditions of which are to be set forth in this Employment
Agreement.
A G R E E M E N T:
NOW THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, Comarco, Buyer, and Lovingood hereby agree as
follows:
1. Position of Employment. The Company will employ the Employee in the
position of President of Buyer and as Vice President of Comarco, and, in that
position, Employee will report to the President of Comarco, Don M. Bailey.
The terms and conditions of the Employee's employment shall,
to the extent not addressed or described in this Employment Agreement, be
governed by Comarco's Policies and Procedures Manual and existing practices. In
the event of a conflict between this Employment Agreement and the Policies and
Procedures Manual or existing practices, the terms of this Agreement shall
govern.
2. Term of Employment. Lovingood's employment with Comarco and Buyer
shall begin on August 1, 1996, and shall continue for a period of three (3)
years, after which time continued employment will be on an "at will" basis,
unless: (a) Lovingood's employment is terminated by either party in accordance
with the terms of Section 5 of this Employment Agreement; or (b) such term of
employment is extended or shortened by a subsequent agreement duly executed by
each of the parties to this Employment Agreement, in which case such employment
shall be subject to the terms and conditions contained in the subsequent written
agreement. Notwithstanding the foregoing, if Lovingood, by unwritten consent of
the parties, continues his employment with Comarco or Buyer beyond July 31,
1999, such employment shall, in the absence of any further written agreement, be
considered employment at-will and shall thus be terminable by either the Company
or Lovingood at any time, with or without cause, and with or without notice.
3. Compensation and Benefits.
3.1 Base Salary. Employee shall be paid a base salary of
$150,000 annually ("Base Salary"), subject to applicable federal, state, and
local withholding, such Base Salary to be paid to Employee in the same manner
and on the same payroll schedule in which all Comarco employees receive payment.
Any increases in Employee's Base Salary for years beyond the first year of
Employee's employment shall be in the sole discretion of Comarco management, and
nothing herein shall be deemed to require any such increase.
3.2 Incentive and Deferred Compensation. Employee shall be
eligible to participate in all incentive and deferred compensation programs
available to other executives or officers of Comarco, such participation to be
in the same form, under the same terms, and to the same extent that such
programs are made available to other such executives or officers. Nothing in
this Employment Agreement shall be deemed to require the payment of bonuses,
awards, or incentive compensation to Employee if such payment would not
otherwise be required under the terms of Comarco's incentive compensation
programs.
3.3 Employee Benefits. Employee shall be eligible to
participate in all employee benefit plans, policies, programs, or perquisites
(including those pertaining to automobiles) in which other Comarco executive or
officers participate, including the Comarco Stock Option program. The terms and
conditions of Employee's participation in Comarco's employee benefit plans,
policies, programs, or perquisites shall be governed by the terms of each such
plan, policy, or program, provided, however: (a) that Employee shall be deemed
to have fulfilled all service requirements or waiting periods prerequisite to
participation in any of Comarco's plans, policies, or programs, including,
without limitation, Comarco's 401(k) Plan; and (b) Employee shall receive, as of
August 1, 1996, an initial stock option grant under the Comarco, Inc. 1995
Employee Stock Option Plan for 15,000 shares of stock. Additional stock option
grants are made in the sole discretion of the Compensation Committee of
Comarco's Board of Directors, and nothing in this Employment Agreement shall be
deemed to require or prohibit the granting of any stock options beyond the
initial stock option grant described above in this subsection.
4. Duties and Performance. The Employee acknowledges and agrees that he
is being offered a position of employment by the Company with the understanding
that the Employee possesses a unique set of skills, abilities, and experiences
which will benefit the Company as it seeks to maintain and expand Buyer, and he
agrees that his continued employment with the Company, whether during the term
of this Employment Agreement or thereafter, is contingent upon his successful
performance of his duties in his position as President of Buyer and Vice
President of Comarco, or in such other position to which he may be assigned.
4.1 General Duties.
(a) The Employee shall render to the very best of Employee's
ability, on behalf of the Company, services to and on behalf of the Company, and
shall undertake diligently all duties assigned to him by the Company.
(b) The Employee shall devote his full time, energy and
skill to the performance of the services in which the Company is engaged, at
such time and place, as the Company may direct, and in strict accordance with
the ethical standards of the Company as set forth in Comarco's Standards of
Business Conduct Policy and in other written policies as may be disseminated by
Comarco from time to time.
(c) The Employee shall faithfully and industriously assume
and perform with skill, care, diligence and attention all responsibilities and
duties connected with his employment on behalf of the Company.
(d) The Employee shall have no authority to enter into any
contracts binding upon the Company, or to deliberately create any obligations on
the part of the Company, except as may be specifically authorized by the
President or Board of Directors of Comarco.
4.2 Specific Duties.
(a) Profitability of Buyer. The Employee's primary duty as
President of Buyer is to take any and all necessary legal action, and to exert
any and all reasonable effort, to ensure that Buyer generates a level of profit
similar to the level of profit experienced by Seller in the years just prior to
the asset purchase by Comarco.
(b) Expansion of Buyer. It is the intention of Comarco to
expand and grow the operations of Buyer, either by direct expansion of Buyer or
through acquisition of other entities engaged in similar business. To effectuate
this result, Comarco will commit reasonable resources and support, and the
Employee is expected to provide leadership in this expansion and is specifically
charged with the responsibility of developing a business and marketing plan for
Buyer. This plan should define measurable and reasonable goals for sales,
expenses for expansion, profits, and other qualitative goals to be achieved by
Buyer. The plan should be reviewed and approved by the President of Comarco.
Employee is charged with the responsibility for keeping this plan up to date by
changing it when Employee concludes such changes are necessary. Whenever the
plan is changed, the revised plan must be reviewed and agreed to in writing by
the President of Comarco.
(c) Other Specific Duties. The President of Comarco shall
meet with the Employee from time to time and shall, jointly with the Employee,
define written goals for Employee to achieve (in addition to goals set forth in
the business and marketing plan described in 4.2(b) above), and Employee shall
exercise every reasonable effort to achieve these additional goals.
5. Termination of Employment. Employee's employment with the Company
may be terminated, prior to the expiration of the term of this Employment
Agreement, in accordance with any of the following provisions:
5.1 Termination by Employee. The Employee may terminate his
employment at any time during the course of this agreement by giving 12 months'
notice in writing to the President of Comarco. During the notice period,
Employee must fulfill all his duties and responsibilities set forth above and
use his best efforts to train and support his replacement, if any. Failure to
comply with this requirement may result in Termination for Cause described
below, but otherwise Employee's salary and benefits will remain unchanged during
the notification period.
5.2 Termination by the Company Without Cause. Comarco may
terminate Employee's employment at any time during the course of this agreement
by giving 12 months' notice in writing to the Employee. During the notice
period, Employee must fulfill all his duties and responsibilities set forth
above and use his best efforts to train and support his replacement, if any.
Failure of Employee to comply with this requirement may result in Termination
for Cause described below, but otherwise Employee's salary and benefits will
remain unchanged during the notification period.
5.3 Termination by the Company For Cause. The Company may, at
any time and without notice, terminate the Employee for "cause". Termination by
the Company of the Employee for "cause" shall include but not be limited to
termination based on any of the following grounds: (a) breach of any of the
terms of the Noncompetition Agreement; (b) fraud, misappropriation, embezzlement
or acts of similar dishonesty; (c) conviction of a felony involving moral
turpitude; (d) illegal use of drugs or excessive use of alcohol in the
workplace; (e) intentional and willful misconduct that may subject the Company
to criminal or civil liability; (f) breach of the Employee's duty of loyalty,
including the diversion or usurpation of corporate opportunities properly
belonging to the Company; (g) willful disregard of Company policies and
procedures; and (h) insubordination or deliberate refusal to follow the
instructions of the President of Comarco.
5.4 Termination for Poor Performance. If Employee is unable to
generate "Adjusted EBIT", as that term is defined in Paragraph 1.4 et seq. of
the Asset Purchase Agreement, equal to or greater than $250,000 between August
1, 1996 and July 31, 1997, this would constitute a default under this Agreement,
serious enough to terminate the Employee, if not cured. In addition, at the end
of each fiscal quarter thereafter, until the end of the agreement, the preceding
12 months of Adjusted EBIT must be equal to or greater than $250,000, or a
default for insufficient profits would occur. If a default occurs under this
provision, Company would give Employee written notice and an opportunity to
cure. The default could be cured by generating Adjusted EBIT equal to $70,000 or
greater for the next full three month operating period. If the default is not
cured, this would constitute grounds for termination. In no case is this Section
intended to increase, nor may it be construed as increasing, the obligations of
Lovingood under Paragraph 1.4 of the Asset Purchase Agreement.
5.5 Termination By Death or Disability. The Employee's
employment and rights to compensation under this Employment Agreement shall
terminate if the Employee is unable to perform the duties of his position due to
death or disability (as defined later in this section), and the Employee's
heirs, beneficiaries, successors, or assigns shall not be entitled to any of the
compensation or benefits to which Employee is entitled under this Employment
Agreement, except: (a) to the extent specifically provided in this Employment
Agreement or in the Asset Purchase Agreement; (b) to the extent required by law;
or (c) to the extent that such benefit plans or policies under which Employee is
covered provide a benefit to the Employee's heirs, beneficiaries, successors, or
assigns.
Termination of the Employee's employment with the Company pursuant to
any of the above subsections shall in no way affect, impair, or modify the
Employee's obligations under the Noncompetition Agreement, except as may be
specifically stated therein. In particular, the Employee expressly acknowledges
that the restrictions on competition set forth in Section 3 of the
Noncompetition Agreement arise out of and are in consideration for the Company's
purchase of the Seller and the goodwill associated with the Seller and are not
contingent upon Employee's continued employment with the Company.
For the purpose of this section, Disability is defined as you (1) being
unable to perform the substantial and material duties of Your Regular
Occupation; (2) not performing any work for the Business; and (3) being under
the regular care of a physician appropriate for your injury or sickness.
6. Changes In Employment Position or Compensation. During the course of
this Agreement the Company reserves the right to change the reporting
relationship between Employee and Comarco where in Comarco's sole discretion,
this change would provide a strategic advantage to Buyer and Comarco. The
Employee will be notified of any such change in writing, and such notice shall
specifically identify the name and title of the person to whom the Employee will
report, and will provide the effective date of the change in reporting
relationship. In the event of default under Section 5.4 and failure of Employee
to cure the default, Comarco may, at its own discretion, elect to adjust
Employee's compensation rather than Terminate for Cause, however, such changes
in compensation must be approved in writing by both the Company and Employee.
7. Confidentiality. To the fullest extent permitted by applicable law,
the terms of the Confidentiality provision of the Noncompetition Agreement
executed by the Employee are incorporated by reference into this Employment
Agreement and are made a part hereto as if they appeared in this Employment
Agreement itself.
8. Installment Payments Relating to Sale. Nothing in this Employment
Agreement shall be deemed to supersede or modify the parties' agreement
regarding the Installment Payments to be paid to the Employee for the purchase
of Seller as set forth specifically in Section 1.4 of the Asset Purchase
Agreement.
9. Expenses. The Company shall pay or reimburse Employee for any
expenses reasonably incurred by him in furtherance of his duties hereunder,
including expenses for entertainment, travel, meals and hotel accommodations,
upon submission by him of vouchers or receipts maintained and provided to the
Company in compliance with such rules and policies relating thereto as the
Company may from time to time adopt.
10. General Provisions.
10.1 Notices. All notices and other communications required or
permitted by this Agreement to be delivered by Comarco or Lovingood to the other
party shall be delivered in writing to the address shown below, either
personally, by facsimile transmission or by registered, certified or express
mail, return receipt requested, postage prepaid, to the address for such party
specified below or to such other address as the party may from time to time
advise the other party, and shall be deemed given and received as of actual
personal delivery, on the first business day after the date of delivery shown on
any such facsimile transmission or upon the date or actual receipt shown on any
return receipt if registered, certified or express mail is used, as the case may
be.
Comarco Comarco, Inc.
or Buyer: 22800 Savi Ranch Parkway, Suite 214
Yorba Linda, CA 92887
Attention: Don M. Bailey
Lovingood: Robert A. Lovingood
c/o James A. Baxter, Esq.
14285 Amargosa Road, Suite 200
Victorville, CA 92392
10.2 Amendments and Termination; Entire Agreement. This
Agreement may not be amended or terminated except by a writing executed by all
of the parties hereto. This Agreement constitutes the entire agreement of
Comarco, Buyer and Lovingood relating to the subject matter hereof and
supersedes all prior oral and written understandings and agreements relating to
such subject matter.
10.3 Employee Acknowledgement of Due Diligence. As part of
Employee's pre-employment due diligence effort, Employee has been given the
opportunity to review all documentation regarding all plans, programs, policies,
and perquisites affecting Employee, including, without limitation, the Comarco,
Inc. Policies and Procedures Manual, the Comarco, Inc. Incentive Compensation
Plan, the Comarco, Inc. Deferred Compensation Program, the Comarco, Inc. 1995
Employee Stock Option Plan, Comarco's Standards of Business Conduct Policy, and
plan documents or summary plan descriptions of all other Comarco benefit plans.
Employee has been given the opportunity to review this material and to ask
questions or to seek advice from advisors of his own choosing where he has
deemed it necessary.
10.4 Successors and Assigns. The rights and obligations of the
parties hereunder are not assignable to another person without prior written
consent; provided, however, that Comarco may assign its rights and obligations
hereunder (a) to Buyer or another wholly-owned subsidiary without obtaining
Lovingood's consent or (b) to any other Person taking title to all of the
goodwill acquired from Seller by Buyer.
10.5 Calculation of Time. Whenever in this Employment
Agreement a period of time is stated in a number of days, it shall be deemed to
mean calendar days starting with the first day after the event or delivery of
notice and ending at the end of the last day of the applicable time period.
However, when any period of time so stated would end upon a Saturday, Sunday or
legal holiday, such period shall be deemed to end upon the next day following
that is not a Saturday, Sunday or legal holiday.
10.6 Further Assurances. Each party shall each perform any
further acts and execute and deliver any further documents as the other party
may reasonably request in order to carry out the purposes and provisions of this
Agreement.
10.7 Severability; Provisions Subject to Applicable Law. All
provisions of this Agreement shall be applicable only to the extent that they do
not violate any applicable law, and are intended to be limited to the extent
necessary so that they will not render this Agreement invalid, illegal or
unenforceable under any applicable law. If any provision of this Agreement or
any application thereof shall be held to be invalid, illegal or unenforceable,
the validity, legality and enforceability of other provisions of this Agreement
or of any other application of such provision shall in no way be affected
thereby.
10.8 Waiver of Rights. Neither Comarco, Buyer, nor Lovingood
shall be deemed to have waived any right or remedy that it or he had under this
Employment Agreement unless this Agreement expressly provides a period of time
within which such right or remedy must be exercised and such period has expired
or unless such party has expressly waived the same in writing. The waiver by
Comarco, Buyer, or Lovingood of a right or remedy hereunder shall not be deemed
to be a waiver of any other right or remedy or of any subsequent right or remedy
of the same kind.
10.9 Definitions; Headings; and Number. A term defined in any
part of this Employment Agreement shall have the defined meaning wherever such
term is used herein. The headings contained in this Agreement are for reference
purposes only and shall not affect in any manner the meaning or interpretation
of this Employment Agreement. Where appropriate to the context of this
Agreement, use of the singular shall be deemed also to refer to the plural, and
use of the plural to the singular.
10.10 Counterparts. This Agreement may be executed in
counterparts, and by each of Comarco, Buyer, and Lovingood on separate
counterparts, each of which shall be deemed an original but both of which taken
together shall constitute but one and the same instrument.
10.11 Expenses Incurred in Preparing This Agreement. Each
party shall bear such party's own costs and expenses incurred in connection with
the negotiation and preparation of this Agreement.
<PAGE>
10.12 Governing Laws. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
California.
IN WITNESS WHEREOF, Comarco, Buyer and Lovingood have executed and
delivered this Agreement as of the date first above written.
COMARCO, INC.
By: ---------------------------------
Name: Don M. Bailey
Title: President and CEO
BUYER: CoSource Solutions, Inc.
By: ---------------------------------
Name: Don M. Bailey
Title: Chairman and CEO
---------------------------------
ROBERT A. LOVINGOOD
NONCOMPETITION AGREEMENT
This Noncompetition and Confidentiality Agreement (this "Agreement") is
entered into as of July 31, 1996, by and between Comarco, Inc., a California
corporation ("Comarco"), CoSource Solutions, Inc., a California corporation
("Buyer") and Robert A. Lovingood ("Lovingood").
R E C I T A L S:
A. Pursuant to that certain Asset Purchase Agreement dated as of July
23, 1996 (the "Asset Purchase Agreement") by and among Comarco, Buyer, R.A.L.
Consulting and Staffing Services, Inc. ("Seller") and Lovingood, Buyer is
acquiring substantially all of the operating assets of Seller (the
"Acquisition").
B. In order for Buyer to realize the goodwill acquired from Seller in
the Acquisition, Lovingood, the sole shareholder of Seller, has agreed to enter
into this Noncompetition and Confidentiality Agreement with Buyer and Comarco.
C. On the date hereof, Lovingood has entered into an employment
agreement with Buyer and Comarco (the "Employment Agreement"), whereby he will
serve as a Vice-President of Comarco and as President of Buyer.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the purchase of
substantially all of Seller's operating assets, and the mutual promises herein
contained, Comarco, Buyer and Lovingood hereby agree as follows:
1. Confidentiality. Lovingood shall at no time, either during his
employment with Buyer or Comarco or following the termination of his employment
for any reason, use or disclose to any person, directly or indirectly, any
confidential or proprietary or non-public information concerning the business,
affairs, services, trade secrets, customers or employees of Comarco or Buyer
(including, without limitation, the identities, location or other information
concerning past, present or potential customers of Comarco or Buyer); provided,
however, that the foregoing obligation of Lovingood shall not apply to the
extent that (a) Lovingood is, in the written opinion of legal counsel, required
to disclose any of the foregoing pursuant to the provisions of applicable law,
(b) such use or disclosure is required in the performance of Lovingood's duties
as an employee of Comarco and/or Buyer, or (c) any such information or material
becomes generally known and available to the public otherwise than by reason of
a disclosure or communication of such information or material by Lovingood. Such
information includes, without limitation, confidential or proprietary
information relating to Comarco's and Buyer's business operations, internal
structure, financial affairs, programs, software, systems, procedures, manuals,
internal reports, lists of clients and prospective clients, lists of temporary
employees, sales and marketing methods, as well as the amount, nature and type
of services, equipment and methods used and preferred by clients of Buyer and
Comarco and the fees paid by such clients. Lovingood and Comarco agree that, for
purposes of this Section 1, references to Comarco include its subsidiaries and
other affiliated entities.
2. Return of Records. During his employment, it is likely that
Lovingood will have access to certain proprietary records of Comarco or Buyer,
including, without limitation, client lists, lists of temporary employees,
contracts, agreements, financial books, instruments and documents, policy and
procedure manuals, memoranda, data, reports, programs, software, tapes,
rolodexes, telephone and address books, letters, research, listings, programming
and other instruments and documents relating to the clients, services or
business of Comarco or Buyer. All proprietary records of Comarco or Buyer remain
the property of Comarco or Buyer. Upon the termination of his employment,
Lovingood shall return to Buyer and Comarco all such proprietary records that
are in his possession or control, and Lovingood shall not make or retain copies
of any such proprietary records.
3. Noncompetition and Nonsolicitation Covenants.
3.1. Covenant Not to Compete.
(a) For a period of five years from the date of the
consummation of the Acquisition (the "Closing"), Lovingood shall not directly or
indirectly carry on or participate in any business similar to or in competition
with the Business at any place within the Covenant Area as long as the Business
is carried on by Comarco (or any subsidiary or affiliate of Comarco or any
person, corporation, partnership, trust or other organization or entity deriving
title from Comarco to the goodwill of the Business, all of whom together with
Comarco are sometimes collectively called the "Protected Entities"). "Business"
means the provision of temporary employment, consulting and staffing services of
the type and nature currently conducted by Seller.
(b) Covenant Area. The parties agree that due to the fact
that Comarco intends to enter the temporary employment business throughout all
of the United States and the fact that such services can be performed throughout
the United States, in order for this Agreement to be meaningful it must restrict
Lovingood from competing with the Business in certain enumerated territories
within the United States. Therefore, the parties agree for the purposes of this
Agreement, "Covenant Area" means the following:
i) The counties in the State of California and in other
states of the United States where the Business is currently operated as
identified on Schedule A, together with any additional counties that may be
covered under clause (iii) below from time-to-time;
ii) Any County or similar jurisdiction in any state of the
United States, where, to the knowledge of Lovingood at the time of termination,
a Protected Entity carries on the Business; and
iii) Any County or similar jurisdiction in any other state
of the United States, where, to the knowledge of Lovingood at the time of
termination, a Protected Entity intends to enter the Business within six months
after the date on which Lovingood's employment with any and all Protected
Entities terminates. On or about the date of termination of his employment,
Buyer or Comarco will give written notice (based on information contained in
existing written documents) to Lovingood of those locations where a Protected
Entity intends to enter the Business in the following six months and Lovingood's
receipt of such notice shall be deemed to give him knowledge of all matters
therein.
3.2. Prohibited Activities. In the foregoing covenants, the term
"directly or indirectly carry on or participate in a business similar to or in
competition with the Business" shall include Lovingood, directly or indirectly,
doing any of the following listed acts:
(a) Whether or not for compensation, directly or indirectly
engaging in any such business, or any part thereof, in the Covenant Area or
assisting any other Person (defined below) in such Person's conduct of the
Business, or any part thereof, in the Covenant Area, whether as a director,
officer, employee, consultant, adviser, independent contractor or otherwise; or
(b) Holding legal or beneficial interest in any Person that
is engaged in any such business, or any part thereof, in the Covenant Area,
whether such interest is as an owner, investor, partner, creditor, joint
venturer or otherwise; provided, however, that Lovingood may acquire and own up
to five percent (5%) of the outstanding securities of any corporation which is a
publicly traded reporting corporation under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); or
(c) As agent or principal carrying on or engaging in any
activities or negotiations with respect to the acquisition or the disposition of
any such business; or
(d) Giving advice to any other Person, firm or association
engaging in any such business; provided, however, that Comarco consents to
Lovingood's participation in an advisory role with a management services
organization whose purpose is providing third party workers' compensation claims
processing. Comarco has given this consent based upon Lovingood's representation
that such activity would not compete with Buyer's or Comarco's Business nor
detract from his obligations under this Agreement or the Employment Agreement;
or
(e) Lending or allowing his name or reputation to be used in
any such business; or
(f) Allowing his skill, knowledge or experience to be used
in any such business.
3.3. Nonsolicitation. Inasmuch as an employee and officer of
Buyer and Comarco Lovingood will have access to the proprietary information and
trade secrets of Buyer and Comarco, and his use of such information would
constitute a breach of Lovingood's duty not to use such information in a manner
that is inimical to the interests of Buyer and Comarco, for a period of two
years after the termination for any reason of Lovingood's employment with Buyer
or Comarco (or any other subsidiary of Comarco), Lovingood shall not solicit,
divert or attempt to divert from Comarco or its Affiliates any business
constituting, any customer of, or any Employee of the Business then conducted by
Comarco, Buyer or their Affiliates or any former Employee having been employed
by the Buyer or Comarco within the previous year.
3.4. Remedies. Lovingood acknowledges that damages would be an
inadequate remedy for his breach of any of the provisions of this Section 3, and
that his breach of any of such provisions will result in immeasurable and
irreparable harm to the Protected Entities. Therefore, in addition to any other
remedy to which a Protected Entity may be entitled by reason of Lovingood's
breach of any such provision, the Protected Entity shall be entitled to
temporary, preliminary and permanent injunctive and equitable relief. Without
limiting the generality of the foregoing, Lovingood agrees that a showing by a
Protected Entity of any breach of any provision of this Section 3 shall
constitute, for the purposes of all determinations of the issue of injunctive
relief, conclusive proof of all of the elements necessary to entitle the
Protected Entity to temporary, preliminary and permanent injunctive relief.
3.5. Other Definitions. For the purpose of this Agreement:
(a) "Affiliate" means any Person, or division or other part
thereof, Controlled by or under common Control with Comarco or any affiliate of
Comarco;
(b) "Person" means any corporation, partnership, joint
venture, trust, sole proprietorship, limited liability company, unincorporated
business association, natural person and any other entity that may be treated as
a person under applicable law; and
(c) "Control" has the meaning assigned that term in Rule
12b-2 under Exchange Act.
(d) "Employee" means an individual on the payroll of an
entity, whether full-time, part-time, leased, placed temporarily, or placed in
any other arrangement while being paid by Seller.
4. General Provisions.
4.1. Notices. All notices and other communications required or
permitted by this Agreement to be delivered by Comarco or Lovingood to the other
party shall be delivered in writing to the address shown below, either
personally, by facsimile transmission or by registered, certified or express
mail, return receipt requested, postage prepaid, to the address for such party
specified below or to such other address as the party may from time to time
advise the other party, and shall be deemed given and received as of actual
personal delivery, on the first business day after the date of delivery shown on
any such facsimile transmission or upon the date of actual receipt shown on any
return receipt if registered, certified or express mail is used, as the case may
be.
Comarco Comarco, Inc.
or Buyer: 22800 Savi Ranch Parkway
Suite 214
Yorba Linda, CA 92687
Attention: Don M. Bailey
Lovingood: Robert A. Lovingood
c/o James A. Baxter, Esq.
14285 Armagosa Road, Suite 200
Victorville, CA 92392
Fax: (619) 955-2711
4.2. Amendments and Termination; Entire Agreement. This
Agreement may not be amended or terminated except by a writing executed by all
of the parties hereto. This Agreement constitutes the entire agreement of
Comarco, Buyer and Lovingood relating to the subject matter hereof and
supersedes all prior oral and written understandings and agreements relating to
such subject matter.
4.3. Successors and Assigns. This Agreement shall be binding
upon, and shall benefit, Comarco, Buyer and Lovingood and their respective
heirs, estates, personal representatives, executors and permitted successors and
assigns. Notwithstanding the foregoing, the rights and obligations of the
parties hereunder are not assignable to another person without prior written
consent except to the extent provided herein upon Lovingood's death or
Disability; provided, however, that Comarco may assign its rights and
obligations hereunder (a) to Buyer or another wholly-owned subsidiary without
obtaining Lovingood's consent or (b) to any other Person taking title to all of
the goodwill acquired from Seller by Buyer.
4.4. Calculation of Time. Whenever in this Agreement a period
of time is stated in a number of days, it shall be deemed to mean calendar days
starting with the first day after the event or delivery of notice and ending at
the end of the last day of the applicable time period. However, when any period
of time so stated would end upon a Saturday, Sunday or legal holiday, such
period shall be deemed to end upon the next day following that is not a
Saturday, Sunday or legal holiday.
4.5. Further Assurances. Each party shall each perform any
further acts and execute and deliver any further documents as the other party
may reasonably request in order to carry out the purposes and provisions of this
Agreement.
4.6. Provisions Subject to Applicable Law. All provisions of
this Agreement shall be applicable only to the extent that they do not violate
any applicable law, and are intended to be limited to the extent necessary so
that they will not render this Agreement invalid, illegal or unenforceable under
any applicable law. If any provision of this Agreement or any application
thereof shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of other provisions of this Agreement or of any
other application of such provision shall in no way be affected thereby.
4.7. Waiver of Rights. Neither Comarco nor Lovingood shall be
deemed to have waived any right or remedy that it or he has under this Agreement
unless this Agreement expressly provides a period of time within which such
right or remedy must be exercised and such period has expired or unless such
party has expressly waived the same in writing. The waiver by Comarco or
Lovingood of a right or remedy hereunder shall not be deemed to be a waiver of
any other right or remedy or of any subsequent right or remedy of the same kind.
4.8. Definitions; Headings; Gender and Number. A term defined
in any part of this Agreement shall have the defined meaning wherever such term
is used herein. The headings contained in this Agreement are for reference
purposes only and shall not affect in any manner the meaning or interpretation
of this Agreement. Where appropriate to the context of this Agreement, use of
the singular shall be deemed also to refer to the plural, and use of the plural
to the singular. The terms "he, his, him or himself" shall be interpreted as
referring to persons of both male and female gender.
4.9. Counterparts. This Agreement may be executed in
counterparts, and by each of Comarco, Buyer and Lovingood on separate
counterparts, each of which shall be deemed an original but both of which taken
together shall constitute but one and the same instrument.
4.10. Expenses Incurred in Preparing This Agreement. Each
party shall bear such party's own costs and expenses incurred in connection with
the negotiation and preparation of this Agreement.
4.11. Governing Laws. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the jurisdiction
where enforcement is sought by any of the parties of the covenants contained
herein, without regard to choice of law principles.
IN WITNESS WHEREOF, Comarco, Buyer and Lovingood have executed and
delivered this Agreement as of the date first above written.
COMARCO, INC.
By: ---------------------------
Name:
Title:
COSOURCE SOLUTIONS, INC.
By: --------------------------
Name:
Title:
ROBERT A. LOVINGOOD
---------------------------
Exhibit ll
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
------------ Two Quarters Ended ------------
July 31, 1996 July 30, 1995
<S> <C> <C>
PRIMARY
Net income $ 2,190,000 $ 1,676,000
Less - net income allocated to subsidiary
dilutive stock options outstanding (110,000) (31,000)
------------------ -----------------
Net income used in calculation of primary
income per share $ 2,080,000 $ 1,645,000
================ ===============
Weighted average number of common shares
outstanding during the period 4,736,000 4,608,000
Add - common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon
exercise of stock options 360,000 341,000
----------------- ----------------
Weighted average number of shares used in
calculation of primary income per share 5,096,000 4,949,000
================= ================
Primary income per common share $ .41 $ .33
================= ================
----------- Two Quarters Ended ------------
July 31, 1996 July 30, 1995
FULLY DILUTED
Net income used in calculation of primary
income per share $ 2,080,000 $ 1,645,000
================= ================
Weighted average number of common shares
outstanding during the period 4,736,000 4,608,000
Add - common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon
exercise of stock options 365,000 341,000
------- -------
Weighted average number of shares used in
calculation of fully diluted income per share 5,101,000 4,949,000
================= ================
Fully diluted income per common share $ .41 $ .33
================= ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 11,296
<SECURITIES> 3,728
<RECEIVABLES> 8,771
<ALLOWANCES> 0
<INVENTORY> 1,997
<CURRENT-ASSETS> 24,816
<PP&E> 1,285
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,001
<CURRENT-LIABILITIES> 7,157
<BONDS> 0
0
0
<COMMON> 480
<OTHER-SE> 23,791
<TOTAL-LIABILITY-AND-EQUITY> 32,001
<SALES> 9,037
<TOTAL-REVENUES> 32,506
<CGS> 4,196
<TOTAL-COSTS> 29,330
<OTHER-EXPENSES> 9,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (300)
<INCOME-PRETAX> 3,476
<INCOME-TAX> 1,286
<INCOME-CONTINUING> 2,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,190
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<FN>
NOTE: RECEIVABLES AND PP&E VALUES REPORTED REPRESENT NET AMOUNTS.
</FN>
</TABLE>
