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, 1997 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 92887-1299
- ------------------------------------------------------------- -------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (714) 282-3832
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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, 1997.
Common Stock,
$.10 Par Value 4,715,467 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, 1997 and January 31, 1997 1
Condensed Consolidated Statements of Income
Quarters Ended and Two Quarters Ended July 31, 1997
and July 31, 1996 2
Condensed Consolidated Statements of Cash Flows
Two Quarters Ended July 31, 1997 and July 31, 1996 3
Notes to Condensed Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
July 31, 1997 January 31, 1997
ASSETS (Unaudited) *
-------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,572,000 $ 12,711,000
Short-term investments 2,086,000 1,824,000
Accounts receivable, net 14,103,000 11,526,000
Inventory 4,619,000 3,042,000
Other current assets 2,242,000 2,257,000
----------------- ----------------
Total current assets 29,622,000 31,360,000
Long-term investments 2,700,000 1,859,000
Property and equipment, net 2,115,000 1,408,000
Software development costs, net 2,981,000 2,434,000
Intangible assets, net 2,698,000 1,842,000
Other assets 498,000 307,000
----------------- ----------------
TOTAL ASSETS $ 40,614,000 $ 39,210,000
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 934,000 $ 217,000
Deferred revenue 2,338,000 2,678,000
Accrued liabilities 8,322,000 8,036,000
----------------- ----------------
Total current liabilities 11,594,000 10,931,000
Deferred income taxes 1,155,000 1,302,000
Stockholders' equity:
Common stock, $.10 par value,
33,705,000 shares authorized,
4,715,832 and 4,777,959 shares
outstanding at July 31, 1997 and
January 31, 1997, respectively 472,000 478,000
Capital contributed in excess
of par value 2,920,000 4,450,000
Retained earnings 24,473,000 22,049,000
----------------- ----------------
Total stockholders' equity 27,865,000 26,977,000
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,614,000 $ 39,210,000
================= ================
See accompanying notes to the condensed consolidated financial statements.
*The condensed consolidated balance sheet as of January 31, 1997 has been
summarized from the Company's audited consolidated balance sheet as of that
date.
</TABLE>
<PAGE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
Quarter Ended Two Quarters Ended
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July 31, 1997 July 31, 1996 July 31, 1997 July 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenues $ 13,716,000 $ 11,517,000 $ 27,638,000 $ 23,469,000
Product sales 7,299,000 4,581,000 13,474,000 9,037,000
--------- --------- ---------- ---------
21,015,000 16,098,000 41,112,000 32,506,000
---------- ---------- ---------- ----------
Direct costs:
Contract costs 9,698,000 7,114,000 19,272,000 15,499,000
Cost of product sales 3,206,000 2,089,000 5,876,000 4,196,000
--------- --------- --------- ---------
12,904,000 9,203,000 25,148,000 19,695,000
Indirect costs 6,110,000 5,344,000 12,310,000 9,635,000
--------- --------- ---------- ---------
19,014,000 14,547,000 37,458,000 29,330,000
---------- ---------- ---------- ----------
Operating income 2,001,000 1,551,000 3,654,000 3,176,000
Net interest income 121,000 147,000 256,000 300,000
------- ------- ------- -------
Income before income taxes 2,122,000 1,698,000 3,910,000 3,476,000
Income taxes 807,000 610,000 1,486,000 1,286,000
----------------- ----------------- ----------------- ------------------
Net income $ 1,315,000 $ 1,088,000 $ 2,424,000 $ 2,190,000
================= ================= ================= ==================
Earnings per share*
Primary $ .24 $ .20 $ .45 $ .41
================= ================= ================= ==================
*Fully diluted earnings per share has not been presented as the effect is immaterial.
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Two Quarters Ended
------------------
July 31, 1997 July 31, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,424,000 $ 2,190,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,275,000 1,182,000
Loss on disposal of property and equipment 9,000 6,000
Deferred income taxes (402,000) -
Provision for doubtful accounts receivable 20,000 18,000
Net purchases of trading securities (482,000) (530,000)
Increase in accounts receivable (2,597,000) (1,454,000)
Increase in inventory (1,016,000) (636,000)
Decrease (increase) in other current assets 270,000 (103,000)
Decrease (increase) in other assets (191,000) 37,000
Increase (decrease) in accounts payable 717,000 (263,000)
Decrease in deferred revenue (340,000) (14,000)
Increase (decrease) in accrued liabilities 286,000 (244,000)
------------------ -----------------
Net cash provided (used) by operating activities (27,000) 189,000
Cash flows from investing activities:
Purchases of investments (1,204,000) (1,250,000)
Proceeds from sales and maturities of investments 583,000 1,550,000
Purchases of property and equipment (969,000) (380,000)
Software development costs (1,266,000) (957,000)
Cost of acquisition of Cubic, net of cash acquired (1,720,000) -
------------------ -----------------
Net cash used in investing activities (4,576,000) (1,037,000)
Cash flows from financing activities:
Proceeds from issuance of common stock 219,000 380,000
Purchase of common stock (1,755,000) (37,000)
------------------ -----------------
Net cash provided (used) by financing activities (1,536,000) 343,000
------------------ ----------------
Net decrease in cash and cash equivalents $ (6,139,000) $ (505,000)
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the two quarters for:
Interest $ - $ -
Income taxes 1,268,000 1,427,000
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
COMARCO, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
July 31, 1997 and July 31,1996
(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, 1997 and
January 31, 1997, the results of its operations for the quarter ended
and two quarters ended July 31, 1997 and July 31, 1996, and its cash
flows for the two quarters ended July 31, 1997 and July 31, 1996. 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, 1997 are not necessarily indicative of the results to be obtained for
the full fiscal year.
2. Asset Acquisitions
The Condensed Consolidated Balance Sheet includes the callbox assets of
Cubic Communications, Inc., acquired by Comarco Wireless Technologies,
Inc., a subsidiary of the Company, in February 1997, and the Condensed
Consolidated Statement of Income includes Cubic callbox operations since
February 1, 1997. The acquisition has been accounted for using the
purchase method of accounting, and accordingly, the purchase price was
allocated to the acquired tangible and identifiable intangible assets
and assumed liabilities based on their respective fair values.
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. 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:
<TABLE>
Quarter Ended Two Quarters Ended
------------- ------------------
July 31, 1997 July 31, 1996 July 31, 1997 July 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 1,315,000 $ 1,088,000 $ 2,424,000 $ 2,190,000
less - net income
allocated to subsidiary
dilutive stock options
outstanding (92,000) (55,000) (156,000) (110,000)
---------- ----------- --------- ---------
Net income used in
calculation of primary
income per share $ 1,223,000 $ 1,033,000 $ 2,268,000 $ 2,080,000
============== =========== ============= ==============
Weighted average number
of common shares used in
calculation of primary
income per share 5,080,000 5,123,000 5,088,000 5,096,000
============ ========= ============= =========
Primary income per
common share $ .24 $ .20 $ .45 $ .41
=============== ============= ============= ==============
</TABLE>
4. New Accounting pronouncements
In February 1997, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share." SFAS No. 128 provides new methods for the
computation, presentation and disclosure of primary and fully-diluted
earnings per share, simplifying the calculations and making them more
comparable with international accounting standards. Pursuant to SFAS No.
128, the Company is required to adopt the provisions of this Statement in
the fourth quarter of Fiscal Year 1998, restating the current year
quarterly information and all prior periods presented. The Company has not
completed its analysis of the impact on the financial statements that will
be caused by the adoption of this Statement.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (SFAS No. 129), "Disclosure of Information about Capital
Structure." The Company is required to adopt the provisions of this
Statement for the year ending January 31, 1999. This Statement continues
the previous requirements to disclose certain information about an entity's
capital structure found in APB Opinions No. 10, "Omnibus Opinion-1966," No.
15, "Earnings per Share," and FASB Statement No. 47, "Disclosure of
Long-Term Obligations," for entities that were subject to the requirements
of those standards. As the Company has been subject to the requirements of
each of those standards, adoption of SFAS No. 129 will have no impact on
the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS No. 130), "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. The Company is
required to adopt the provisions of this Statement for the year ending
January 31, 1999. Earlier application is permitted; however, upon adoption
the Company will be required to reclassify previously reported annual and
interim financial statements. The Company believes that the disclosure
of comprehensive income in accordance with the provisions of SFAS No.
130 will not impact the manner of presentation of its financial statements
as currently and previously reported.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 requires the Company to present
certain information about operating segments and related information,
including geographic and major customer data, in its annual financial
statements and in condensed financial statements for interim periods.
The Company is required to adopt the provisions of this Statement for the
year ending January 31, 1999. Earlier application is permitted; however,
upon adoption the Company will be required to restate previously reported
annual segment and related information in accordance with the provisions
of SFAS No. 131. The Company has not completed its analysis of the impact
on the financial statements that will be caused by the adoption of this
Statement.
5. Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
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 8, 11, 13, 14, 16,
18, 21, 23 and 24 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, 1997.
(a) Results of Operations
During the second quarter of Fiscal Year 1998 (year ending January
31, 1998), the Company recorded total revenues of $21.0 million,
up 30.4% from the revenues of $16.1 million for the comparable
period of the prior fiscal year. Revenues for the first two
quarters of Fiscal Year 1998 of $41.1 million are up 26.5% from
$32.5 million for the comparable period of the prior fiscal year.
Increased year-to-year revenues are primarily due to
o increased sales of the Company's wireless communications
products, including various field measurement and revenue
assurance systems to major cellular telephone carriers;
o acquisitions as of October 1, 1996 and February 5, 1997 of
cellular callbox product lines from GTE and Cubic
Communications, respectively; and
o acquisition as of August 1, 1996 of a commercial outsourced
staffing company.
Total direct costs of $12.9 million for the second quarter of
Fiscal Year 1998 are up $3.7 million, or 40.2%, from $9.2 million
for the second quarter of Fiscal Year 1997. Direct costs for the
first two quarters of Fiscal Year 1998 of $25.1 million are up
$5.4 million, or 27.4%, from $19.7 million for the comparable
period of the prior fiscal year. The increases are due to the
on-going costs contributed by the acquisitions of the commercial
outsourced staffing company and the cellular callbox product
lines, as well as costs to add additional wireless communications
products business capacity in a new, larger U.S. facility to
support future higher anticipated sales levels.
Total indirect costs of $6.1 million for the second quarter of
Fiscal Year 1998 are up $.8 million, or 15.1%, from $5.3 million
for the second quarter of Fiscal Year 1997. Indirect costs for the
first two quarters of Fiscal Year 1998 of $12.3 million are up
$2.7 million, or 28.1%, from $9.6 million for the comparable
period of the prior fiscal year. The increases are also related to
the commercial outsourced staffing and callbox product line
acquisitions, as well as increased costs from expansion in the
wireless communications products business, including the
establishment of two international sales offices.
Net interest income (interest income less interest expense) for
the second quarter of Fiscal Year 1998 amounted to $121,000, as
compared to $147,000 for the comparable period of the prior fiscal
year. Net interest income for the first two quarters of Fiscal
Year 1998 amounted to $256,000, as compared to $300,000 for the
comparable period of the prior fiscal year. The decreases are
principally due to a reduction in cash available to invest over
the current year's first two quarters, as a result of funding the
wireless communications products expansion and the Cubic callbox
product line acquisition, as well as cash used to re-purchase
Company common stock.
The Company's effective tax rate for the first two quarters of
Fiscal Year 1998 is 38% versus an effective tax rate of 37% 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.
Wireless Communications Products
Wireless communications products revenues increased 69.0% to $7.1
million for the second quarter of Fiscal Year 1998 from $4.2
million for the comparable period of the prior fiscal year.
Revenues increased 57.8% to $13.1 million for the two quarters
ended July 31, 1997 from $8.3 million for the comparable period of
the prior fiscal year. These increases are due to increased sales
of the Company's field measurement systems and revenue assurance
systems for major cellular telephone carriers and the acquisition
of the callbox product lines from GTE and Cubic Communications.
The Company has continued to broaden its product line with the
introduction of field measurement equipment, including products
supporting the GSM and CDMA air interfaces. Summary operating
results for Comarco Wireless Technologies, Inc., the Company's
wireless communications products subsidiary, are as follows:
<TABLE>
Two Quarters Ended Two Quarters Ended
July 31, 1997 July 31, 1996
------------- -------------
<S> <C> <C>
Revenues $13,076,000 $8,285,000
Cost of product sales 5,651,000 3,035,000
--------- ---------
Gross margin 7,425,000 5,250,000
Gross margin percentage 56.8% 63.4%
Indirect costs* 4,582,000 3,033,000
--------- ---------
Operating income $ 2,843,000 $2,217,000
========== ==========
</TABLE>
*Indirect costs include selling, general, and administrative
expenses as well as research and development expenses.
The decreased gross margin percentage is due to the increased
costs incurred to increase the capacity of the wireless
communications products business, which included additional
staffing, moving to a larger facility in California, and
associated costs to support future anticipated higher sales
levels. If the increased forecast sales levels materialize, the
Company would expect the Company's gross income percentage to move
back toward historical levels, though there can be no assurances
in that regard.
The increase in indirect costs of 51.1% for the first two quarters
of Fiscal Year 1998 over the comparable period of the prior fiscal
year is a result of costs incurred to establish two international
sales offices and an increase in research and development.
Selling, general and administrative expenses increased 48.0%
from the first two quarters of Fiscal Year 1997 to the first
two quarters of Fiscal Year 1998, while research and development
expenses increased 62.8% to $1,034,000 from the first two quarters
of Fiscal Year 1997 to the first two quarters of Fiscal Year 1998.
Operating income as a percentage of revenues is 24.3% for the
second quarter of Fiscal Year 1998, compared to 26.4% for the
comparable period of the prior fiscal year. Operating income as a
percentage of revenues is 21.7% for the first two quarters of
Fiscal Year 1998, compared to 26.8% for the comparable period of
the prior fiscal year. This decrease is primarily due to the
increased costs related to business expansion, as discussed above.
As part of its overall 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 $1,266,000 and $957,000, respectively, during
the first two quarters of Fiscal Years 1998 and 1997,
respectively. Corresponding amounts amortized were $644,000 and
$650,000, 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
$6.1 million for the second quarter of Fiscal Year 1998, up from
$4.3 million from the comparable prior period. For the twelve
month periods ended July 1997 and 1996, orders received were $36.5
million and $15.5 million, respectively. Included in the amount
for the twelve months ended July 31, 1997 is $10 million of
long-term maintenance service business associated with the
purchase of the GTE callbox product line. 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
orders at July 31, 1997 totalled $17.0 million, of which $7.9
million relates to long-term maintenance contracts. An additional
$1.9 million of deferred revenue has been recorded for anticipated
customer warranty obligations.
The Company has experienced fluctuations in wireless
communications products activity in each of the past four years,
with greater sales in the second half of its fiscal year and
lesser amounts in the first half. This trend may or may not
continue as the Company attempts to broaden its product offerings.
The nature of the wireless communications products business is
inherently unpredictable as the Company has not historically had
a significant amount of unfilled orders at the end of a period.
Therefore, the amount of orders, sales levels, and profits are
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; 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 a single or 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 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 increased 16.8%, from $11.9 million in the
second quarter of Fiscal Year 1997 to $13.9 million in the second
quarter of Fiscal Year 1998. Revenues from this business area
increased 15.7%, from $24.2 million for the first two quarters of
Fiscal Year 1997 to $28.0 million for the first two quarters of
Fiscal Year 1998. Revenues in this business area decreased from
74.5% of the Company's total revenues in the first two quarters of
Fiscal Year 1997 to 68.1% of the Company's total revenues in the
first two quarters of Fiscal Year 1998. The increase in
period-to-period revenue is due to the acquisition of the
commercial outsourced staffing company on August 1, 1996, which
contributed $5.0 million of revenue in the first two quarters of
Fiscal Year 1998, partially offset by a decrease in other
outsourced staffing revenue at some of the Company's locations
providing services to government agencies.
Sales to the U.S. Government as well as to government prime
contractors were 43% and 33% of the Company's total revenue during
the first two quarters of Fiscal Years 1997 and 1998,
respectively. In the course of the Company's business, its
government contracts are periodically opened for competition,
although none of the Company's government contracts are scheduled
to end in Fiscal Year 1998. The Company plans to aggressively
compete for all work opened for competition to the extent possible
and selectively pursue certain high value government procurements.
There can be no assurance that the Company will be selected and
awarded the work associated with any of its future 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 government
agencies will fund the portions of existing contracts that are
unfunded, or that the agencies will exercise any options.
Operating income (revenues less direct costs and indirect costs)
for outsourced staffing services is down 34.1% from $437,000 in
the second quarter of Fiscal Year 1997 to $288,000 in the second
quarter of Fiscal Year 1998. Operating income for outsourced
staffing services is down 15.4% from $959,000 in the first two
quarters of Fiscal Year 1997 to $811,000 in the first two quarters
of Fiscal Year 1998. Decreased operating income from several
government airport services contracts was partially offset by
increased operating income provided by the acquisition of the
commercial outsourced staffing company.
(b) Financial Condition
The Company signed a loan agreement with a bank effective
September 26, 1994, which was amended effective August 15, 1997.
The loan agreement consists of (1) an $8 million revolving credit
facility, which expires May 31, 1999, and (2) a $5 million
guidance line of credit, which expires May 31, 1998. 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 $13
million (includes highly liquid long-term investments with
maturities of 12 to 36 months) during the first two quarters of
Fiscal Year 1998. 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,
software product development costs, and the Company's stock
re-purchase program.
During the first two quarters of Fiscal Year 1998, the Company's
average days' sales in accounts receivable have increased,
primarily due to increased sales of wireless communications
products, which have a longer collection cycle than the Company's
outsourced staffing revenues.
Several additional key factors indicating the Company's financial
condition include:
<TABLE>
July 31, 1997 January 31, 1997
------------- ----------------
<S> <C> <C>
Current ratio 2.55 2.87
Working capital $ 18,018,000 $ 20,429,000
Book value per share $5.91 $5.65
</TABLE>
The decrease in the current ratio and amount of working capital
during the first two quarters of Fiscal Year 1998 is due to the
funding of the wireless communications products business
expansion, as well as funds used to re-purchase Company common
stock during the first two quarters of Fiscal Year 1998.
The Company has a significant commitment for capital expenditures
at July 31, 1997 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, $1,266,000 and $644,000,
respectively, in the first two quarters of Fiscal Year 1998.
The Company's Board of Directors has authorized a stock
re-purchase program of up to 1,500,000 shares. As of July 31,
1997, the Company has re-purchased and retired approximately
928,000 shares. The average price paid per share re-purchased
under the program was $6.48.
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:
10.26 Third Amendment to Loan Agreement dated August 15, 1997
between the Company and NationsBank of Virginia, N.A.
10.27 Third Amended and Restated Master Line of Credit Note dated
August 15, 1997 between the Company and NationsBank of Virginia,
N.A.
10.28 Third Amended and Restated Guidance Line of Credit Note
dated August 15, 1997 between the Company and NationsBank of
Virginia, N.A.
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 15, 1997
THOMAS P. BAIRD
--------------------------------------------------
Thomas P. Baird
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
THIRD AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Agreement") made this 15th
day of August, 1997 by and among (i) COMARCO, INC., a California corporation
(the "Borrower"), (ii) COMARCO WIRELESS TECHNOLOGIES, INC., a Delaware
corporation, INTERNATIONAL BUSINESS SERVICES, INC., a District of Columbia
corporation, DECISIONS AND DESIGNS, INC., a Virginia corporation and LCTI, INC.,
a Maryland corporation (collectively, the "Original Guarantors" and each an
"Original Guarantor"), (iii) COMARCO SYSTEMS, INC. ("Comarco Systems"), a
California corporation, COMARCO STAFFING, INC. (formerly known as CoSource
Solutions, Inc.) ("CSI"), a California corporation, MANUFACTURING TRAINING
TECHNOLOGY CENTER, INC. ("MTTCI"), a California corporation and COMARCO WIRELESS
INTERNATIONAL, INC. ("CWI"), a Delaware corporation (Comarco Systems, CSI, MTTCI
and CWI, 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 Borrower, the Original Guarantors and the Lender have entered
into that certain Loan Agreement dated September 26, 1994, as amended by that
certain First Amendment to Loan Agreement dated September 26, 1995, by and among
the Borrower, the Original Guarantors and the Lender, as further amended by that
certain Second Amendment to Loan Agreement dated August 30, 1996 by and among
the Borrower, the Original Guarantors, MTTCI, CSI and the Lender (as thereafter
amended from time to time, is hereafter called the "Loan Agreement").
B. The parties hereto desire to add Comarco Systems and CWI as
guarantors 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.
C. All capitalized terms used herein and not otherwise defined shall
have the meanings given to such terms in the Loan 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 Third Amended and Restated Master Line of Credit Note of even date
herewith (the "Third Replacement Master Line of Credit Note") in the form of
Exhibit B-1 attached hereto. The Third Replacement Master Line of Credit Note
amends and restates in its entirety that certain Amended and Restated Master
Line of Credit Note dated August 30, 1996 (the "Second 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 a
novation with regard to the Second Replacement Master Line of Credit Note. The
Third Replacement Master Line of Credit Note shall not operate as a novation of
any of the sums due or owing under the Second Master Line of Credit Note or
nullify, discharge, or release any sums due or owing under the Second Master
Line of Credit Note 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 Third Amended and Restated Guidance Line of Credit Note of
even date herewith (the "Third Replacement Guidance Line of Credit Note") in the
form of Exhibit C attached hereto. The Third Replacement Guidance Line of Credit
Note amends and restates in its entirety that certain Second Amended and
Restated Guidance Line of Credit Note dated August 30, 1996 (the "Second
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 Second Replacement Guidance
Line of Credit Note. The Third Replacement Guidance Line of Credit Note shall
not operate as a novation of any of the sums due or owing under the Second
Guidance Line of Credit Note or nullify, discharge, or release any sums due or
owing under the Guidance Line of Credit Note or the continuing contractual
relationship of the parties hereto in accordance with the provisions of this
Agreement.
4. Assumption of Obligations. Comarco Systems and CWI, jointly and
severally, covenant, promise and agree 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, Comarco Systems and CWI. 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 Comarco Systems and CWI.
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 Third 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 Third 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 in the form of Exhibit D
attached hereto and incorporated herein by reference, issued and delivered by
Comarco Systems and CWI in favor of the Lender;
(d) A Security Agreement in the form of Exhibit E attached
hereto and incorporated herein by reference, from Comarco Systems and CWI 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
Comarco Systems and CWI 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 Comarco Systems and
CWI covering:
(i) true and complete copies of Comarco Systems' and
CWI's corporate charter, bylaws, and all amendments thereto;
(ii) true and complete copies of the resolutions of
Comarco Systems' and CWI's Boards 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 Comarco Systems and CWI authorized to sign this Agreement and the
other Loan Documents to which Comarco Systems and CWI 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 Third Replacement Master Line of Credit Note and the Third Replacement
Guidance Line of Credit Note in substitution for and not satisfaction of, the
Second Replacement Master Line of Credit Note and the Second Replacement
Guidance Line of Credit Note, and the Third Replacement Master Note and the
Third 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 Third Replacement Master Line of Credit Note
and the Third 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.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered under seal by their duly authorized representative 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 corporation
organized under the laws of the State of Delaware
__________________________ By:_________________________________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: INTERNATIONAL BUSINESS SERVICES, INC., a corporation
organized under the laws of the District of Columbia
__________________________ By:_________________________________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: DECISIONS AND DESIGNS, INC., a corporation organized
under the laws of the Commonwealth of Virginia
__________________________ By:_________________________________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: LCTI, INC., a corporation 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:
<PAGE>
WITNESS OR ATTEST: COMARCO SYSTEMS, INC., a corporation organized under
the laws of the State of California
__________________________ By:_________________________________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: COMARCO STAFFING, INC., a corporation organized
under the laws of the State of California
__________________________ By:_________________________________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: COMARCO WIRELESS INTERNATIONAL, INC., a corporation
organized under the laws of the State of Delaware
__________________________ By:_________________________________________(SEAL)
Name:
Title:
THE LENDER:
----------
WITNESS: NATIONSBANK, N.A.
________________________ By:_________________________________________(SEAL)
Elaine T. Eaton
Vice President
THIRD AMENDED AND RESTATED MASTER LINE OF CREDIT NOTE
------------------------------------------------------
THIS THIRD AMENDED AND RESTATED MASTER LINE OF CREDIT NOTE (this
"Agreement") is entered into as of this 15th day of August 1997, 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, as 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"), and as further amended and restated in
its entirety pursuant to the provisions of that certain Second Amended and
Restated Master Line of Credit Note dated August 30, 1996 from the Borrower in
favor of the Lender in the maximum principal amount of $8,000,000 (the "Second
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, as
amended by that certain First Amendment to Loan Agreement dated September 26,
1995 by and among the Borrower, the Guarantors named therein and the Lender, and
as further amended by that certain Second Amendment to Loan Agreement dated
August 30, 1996, 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
"Loan Agreement"). All capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the 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 Second 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 1.50 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 greater than 1.50 to 1.00, but less than or equal
to 2.00 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 2.00 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
April 30, 1997. 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(a) of Article VI of the Loan Agreement. Such quarterly
changes shall be effective commencing five (5) Banking 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) Banking Days prior to the date of on
which the LIBOR Rate is to begin, and shall specify (1) the banking 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)
Banking 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 1.50 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 greater than 1.50 to 1.00, but less than or equal to 2.00
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 2.00 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 April 30, 1997. 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(a) of Article VI of the Loan Agreement.
Such quarterly changes shall be effective commencing five (5) Banking
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,
1997, 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 May 31, 1999.
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 and Comarco Wireless
Technologies, Inc., International Business Services, Inc., Decisions
and Designs, Inc., LCTI, Inc. (the "Original Guarantors") and the
Lender, as amended by that certain First Amendment to Loan Agreement
dated September 26, 1995, by and among the Borrower, the Original
Guarantors and the Lender, as further amended by that certain Second
Amendment to Loan Agreement dated August 30, 1996, by and among the
Borrower, the Original Guarantors, Manufacturing Training Technology,
Center, Inc. ("MTTCI"), Comarco Staffing, Inc. (formerly known as
CoSource Solutions, Inc.) ("CSI") and the Lender, and as further
amended by that certain Third Amendment to Loan Agreement dated of even
date herewith by and among the Borrower, the Original Guarantors,
MTTCI, CSI, Comarco Systems, Inc., Comarco Wireless International, Inc.
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 Security Agreement. This
Note amends and restates in its entirety that certain Second Amended
and Restated Master Line of Credit Note dated August 30, 1996 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 Third Amended and Restated 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 Second 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 Second Replacement Master Line of Credit
Note.
WITNESS the signature and seal of the Borrower by its duly auathorized
officer as of the day and year first above written.
WITNESS OR ATTEST: COMARCO, INC.
______________________________ By:_____________________________(SEAL)
Name:
Title:
THIRD AMENDED AND RESTATED GUIDANCE LINE OF CREDIT NOTE
-------------------------------------------------------
THIS THIRD AMENDED AND RESTATED GUIDANCE LINE OF CREDIT NOTE (this
"Agreement") is entered into as of this 15th day of August, 1997, 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, as
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"), and as
further amended and restated in its entirety pursuant to the provisions of that
certain Second Amended and Restated Guidance Line of Credit Note dated August
30, 1996 from the Borrower in favor of the Lender in the maximum principal
amount of $5,000,000 (the "Second 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, as
amended by that certain First Amendment to Loan Agreement dated September 26,
1995 by and among the Borrower, the guarantors named therein and the Lender, and
as further amended by that certain Second Amendment to Loan Agreement dated
August 30, 1996 by and among the Borrower, the guarantors named therein and the
Lender (the Loan Agreement as amended from time to time is hereafter called the
"Loan Agreement"). All capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Loan Agreement.
C. The Borrower has requested that the Lender extend the maturity date
of the Guidance Line of Credit and otherwise modify certain terms and provisions
thereof 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 Second 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 1.50 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 greater than 1.50 to 1.00, but less than or equal
to 2.00 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 2.00 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
April 30, 1997. 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(a) of Article VI of the Loan Agreement. Such quarterly
changes shall be effective commencing five (5) Banking 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) Banking Days prior to the date of on
which the LIBOR Rate is to begin, and shall specify (1) the banking 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)
Banking 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 1.50 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 greater than 1.50 to 1.00, but less than or equal to 2.00
to 1.00, the Additional LIBOR Rate Percentage shall be one and seven
eighths percent (1.875%); and
(iii) If the Borrower's ratio of Total Liabilities to Tangible
Net Worth is greater than 2.00 to 1.00, the Additional LIBOR Rate
Percentage shall be two and one eighth percent (2.125%).
The initial Additional LIBOR Rate Percentage shall be calculated based
on the Borrower's consolidated financial statements for the quarter
ending April 30, 1997. 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(a) of Article VI of the Loan Agreement.
Such quarterly changes shall be effective commencing five (5) Banking
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,
1997, 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 May 31, 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
"Guidance Line of Credit Note" described in a Loan Agreement dated as
of September 26, 1994 by and among the Borrower and Comarco Wireless
Technologies, Inc., International Business Services, Inc., Decisions
and Designs, Inc., LCTI, Inc. (the "Original Guarantors") and the
Lender, as amended by that certain First Amendment to Loan Agreement
dated September 26, 1995, by and among the Borrower, the Original
Guarantors and the Lender, as further amended by that certain Second
Amendment to Loan Agreement dated August 30, 1996, by and among the
Borrower, the Original Guarantors, Manufacturing Training Technology
Center, Inc. ("MTTCI"), Comarco Staffing, Inc. (formerly known as
CoSource Solutions, Inc.) ("CSI") and the Lender, and as further
amended by that certain Third Amendment to Loan Agreement dated of even
date herewith by and among the Borrower, the Original Guarantors,
MTTCI, CSI, Comarco Systems, Inc., Comarco Wireless International, Inc.
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 Security Agreement. This
Note amends and restates in its entirety that certain Second Amended
and Restated Guidance Line of Credit Note dated August 30, 1996 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 Third Amended and Restated 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 Second 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 Second Replacement Guidance Line of
Credit Note.
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:
<TABLE>
Exhibit ll
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
Two Quarters Ended
----------------------------------------
July 31, 1997 July 31, 1996
<S> <C> <C>
PRIMARY
Net income $ 2,424,000 $ 2,190,000
Less - net income allocated to subsidiary
dilutive stock options outstanding (156,000) (110,000)
------------------ -----------------
Net income used in calculation of primary
income per share $ 2,268,000 $ 2,080,000
================ ===============
Weighted average number of common shares
outstanding during the period 4,773,000 4,736,000
Add - common equivalent shares (determined using the
"treasury stock" method)
representing shares issuable upon
exercise of stock options 315,000 360,000
----------------- ----------------
Weighted average number of shares used in
calculation of primary income per share 5,088,000 5,096,000
================= ================
Primary income per common share $ .45 $ .41
================ ===============
Two Quarters Ended
----------------------------------------
July 31, 1997 July 31, 1996
FULLY DILUTED
Net income used in calculation of primary
income per share $ 2,268,000 $ 2,080,000
================ ===============
Weighted average number of common shares
outstanding during the period 4,773,000 4,736,000
Add - common equivalent shares (determined using the
"treasury stock" method)
representing shares issuable upon
exercise of stock options 335,000 365,000
------- -------
Weighted average number of shares used in
calculation of fully diluted income per share 5,108,000 5,101,000
================= ================
Fully diluted income per common share $ .44 $ .41
================ ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 6,572
<SECURITIES> 4,786
<RECEIVABLES> 14,103
<ALLOWANCES> 0
<INVENTORY> 4,619
<CURRENT-ASSETS> 29,622
<PP&E> 2,115
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,614
<CURRENT-LIABILITIES> 11,594
<BONDS> 0
0
0
<COMMON> 472
<OTHER-SE> 27,393
<TOTAL-LIABILITY-AND-EQUITY> 40,614
<SALES> 13,474
<TOTAL-REVENUES> 41,112
<CGS> 5,876
<TOTAL-COSTS> 37,458
<OTHER-EXPENSES> 12,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (256)
<INCOME-PRETAX> 3,910
<INCOME-TAX> 1,486
<INCOME-CONTINUING> 2,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,424
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
<FN>
NOTE: RECEIVABLES AND PP&E VALUES REPORTED REPRESENT NET AMOUNTS.
</FN>
</TABLE>
