COMARCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
June 30, 1999
To the Shareholders of COMARCO, Inc.:
The Annual Meeting of the Shareholders of COMARCO, Inc., a California
corporation (the "Company") will be held at the Marriott Laguna Cliffs, 25135
Park Lantern, Dana Point, California (phone 949-661-5000) on June 30, 1999 at
10:00 A.M. for the following purposes:
1. To elect five Directors;
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on May 14, 1999 are entitled to notice of and to vote at the Annual
Meeting.
The Board of Directors of the Company intends to present Don M. Bailey,
Gen. Wilbur L. Creech, Thomas A. Franza, Gerald D. Griffin, and Paul G. Yovovich
as nominees for election as Directors at the Annual Meeting.
Each shareholder is cordially invited to be present and to vote in person
at the meeting. TO ASSURE REPRESENTATION AT THE MEETING, HOWEVER, SHAREHOLDERS
ARE URGED TO SIGN AND RETURN THE PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
ENVELOPE. Shareholders who attend the meeting may still vote in person, even if
they have previously mailed a proxy, by notifying the Secretary of their
intention to do so.
BY ORDER OF THE BOARD OF DIRECTORS
EVELYN M. EVANS, Secretary
Santa Ana, California
May 20, 1999
<PAGE>
COMARCO, INC.
PROXY STATEMENT
For Annual Meeting of Shareholders
To Be Held
June 30, 1999
GENERAL INFORMATION
The Board of Directors of COMARCO, Inc., a California corporation,
"COMARCO" or the "Company" furnishes this Proxy Statement in connection with the
solicitation of proxies. It will be used at the Annual Meeting of Shareholders
(the "Annual Meeting") to be held on Wednesday June 30, 1999 at 10:00 A.M. at
the Marriott Laguna Cliffs, 25135 Park Lantern, Dana Point, California or any
adjournment thereof, for the purposes set forth in the accompanying notice of
meeting. This Proxy Statement and the accompanying form of proxy were first
mailed to shareholders on or about May 20, 1999.
A shareholder giving a proxy has the power to revoke it at any time before
it is exercised by (1) filing with the Secretary of the Company a notice of
revocation; (2) filing with the Secretary of the Company a duly executed proxy
bearing a later date; or (3) attending the Annual Meeting and expressing his
intention to vote the shares in person. In the absence of such revocation, all
shares represented by a properly executed proxy received in time for the Annual
Meeting will be voted as specified therein.
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy and the cost of soliciting proxies
will be borne by the Company. The Company may make arrangements with various
brokerage houses or other nominees to send proxy materials to the beneficial
owners of stock and may reimburse them for their reasonable expenses in
connection therewith.
VOTING RIGHTS
The only voting securities of the Company consist of Common Stock. Only
shareholders of record at the close of business on May 14, 1999 will be entitled
to vote at the Annual Meeting. As of said date there were outstanding 4,458,460
shares of Common Stock, which are entitled to one vote per share except that
each shareholder is entitled to cumulate his shares in the election of
Directors, provided that at least one shareholder has given notice, prior to the
voting, of his intention to do so. If cumulative voting is in effect, each
shareholder may give one candidate a number of votes equal to the number of
Directors to be elected multiplied by the number of shares held by him, or he
may distribute his votes on the same principle among as many candidates as he
thinks fit.
The five nominees receiving the greatest number of votes at the Annual Meeting
shall be elected Director. Shareholders may cumulate their votes for one or more
candidates in the manner and upon satisfaction of the conditions described
above. Abstentions shall have no effect on voting for the election of Directors.
With respect to shares of Common Stock held by brokers in street name for the
beneficial owners thereof, the election of Directors is a "routine" matter upon
which the brokers, as the holders of record, may vote these shares for which the
beneficial owners have not provided them specific instructions. If any other
matters are presented to the Annual Meeting, a majority of the shares of Common
Stock must vote upon the matter and the matter must be approved by a majority of
the shares of Common Stock represented and voting at the meeting. Abstentions
and broker non-votes will have the same effect as votes against such matters.
<PAGE>
Item 1 on Proxy Card
ELECTION OF DIRECTORS
Five Directors will be elected at the Annual Meeting. Each Director elected
at the Annual Meeting will hold office until the next annual meeting of
shareholders and until his successor is duly elected and qualified. It is
intended that the shares represented by the enclosed proxy will be voted, unless
otherwise instructed, for the election of the five nominees named below. While
the Company has no reason to believe that any of the nominees will be unable to
serve as Director, it is intended that if such an event should occur, such
shares will be voted for the remainder of the nominees and for such substitute
nominee or nominees as may be selected by the Board of Directors. Subject to the
foregoing, and unless a shareholder withholds authority to vote his shares (i)
for all of the nominees by so indicating on the enclosed proxy card or (ii) for
any one or more of the nominees by checking their names in the space provided on
such card, in which case his shares will not be voted for such nominee or
nominees, the proxies will have the discretion to cumulate votes as provided by
California law (see "VOTING RIGHTS") and to distribute such votes among all the
nominees (or, if authority to vote for any nominee or nominees has been
withheld) among the remaining nominees in whatever manner they deem appropriate.
All the nominees are currently serving as Directors of the Company. The
term of office of each of the current Directors expires on the date of the
Annual Meeting. All the Directors, except Mr. Franza, were elected at the last
annual meeting. Adm. Wesley L. McDonald, elected last year, is retiring at the
end of his current term.
The table immediately below contains pertinent information concerning the
nominees and is followed by a brief biography of each nominee.
<TABLE>
Year First
Principal Elected Other
Name Age Occupation Director Directorships
---- --- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Don M. Bailey 53 Chairman, President and 1991 None
Chief Executive Officer
of the Company
Gen. Wilbur L. Creech 72 Executive Consultant 1985 Tech-Sym Corporation,
(Ret.) (1) (3) ESEA Corporation, and
GeoScience Corporation
Thomas A. Franza 56 Executive Vice President 1998 None
of the Company
Gerald D. Griffin 64 Executive Consultant 1986 None
(1) (2) (3)
Paul G. Yovovich 45 Private Investor 1995 3Com Corporation,
(1) (2) APAC TeleServices, Inc. and
Van Kampen Funds
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
Mr. Bailey has been President and Chief Executive Officer of the Company
since June 1990 and Chairman of the Board since 1998. Prior to that, since
November of 1988, he served as Senior Vice President of the Company and, since
January 1986, as Vice President, Corporate Development. He has been employed by
COMARCO since May 1980.
Since 1984, General Creech has been an executive consultant. General Creech
was Commander of the Tactical Air Command headquartered at Langley Air Force
Base, Virginia from 1978 until his retirement in November 1984.
Mr. Franza has served as Executive Vice President of the Company since
1995, and was appointed to the Board of Directors in September 1998. He is also
currently President of Comarco Wireless Technologies, Inc. and Comarco Wireless
International, Inc. From October 1992 until July 1995, he was senior Vice
President of the Company and before then, served as a Vice President from July
1990 until October 1992. Prior to that, Mr. Franza was the General Manager of
the Company's Advanced Technologies Division. He joined the Company in 1985.
Mr. Griffin was the non-executive Chairman of the Board of the Company from
1988 until July 1998. In addition, Mr. Griffin has been an executive consultant
since 1992. Previously he was Managing Director of the Houston Office of
Korn/Ferry International. From 1986 to 1988 he was President and Chief Executive
Officer of the Houston Chamber of Commerce. Between 1982 and 1986 he was
Director of NASA's Johnson Space Center in Houston, Texas.
Mr. Yovovich is a private investor. Mr. Yovovich served as President of
Advance Ross Corporation from 1993 to 1996. He served in a variety of executive
positions with Centel Corporation from 1982 through 1992, most recently as
President of its Central Telephone Company unit from 1990 through 1992.
BOARD ORGANIZATION AND COMMITTEE MEETINGS
During the fiscal year ended January 31, 1999, the Company's Board of Directors
met five times and various committees of the Board met a total of four times.
Each of the Company's Directors attended at least 75% of the total number of
meetings of the Board of Directors and meetings of the Committees on which he
served (during the periods within which he was a Director or Member of such
Committee) during the Company's last fiscal year.
Standing committees of the Board of Directors consist of the following:
The Audit Committee's primary purpose is to aid the Directors in undertaking and
fulfilling their responsibilities for financial reporting to the shareholders.
They also support and encourage efforts to improve the financial controls
exercised by management and to ensure their adequacy for purposes of public
reporting; and to review the engagement of the Company's independent auditors
and review with such accountants the scope and results of their annual audit of
the Company. The Audit Committee met twice during the last fiscal year in
conjunction with regular Board meetings.
The Compensation Committee reviews the compensation of officers and key
employees, and makes awards under the Company's 1982 and 1995 Employee Stock
Option Plans and the Stock Option Plan for the Company's subsidiary, Comarco
Wireless Technologies, Inc. The Compensation Committee met twice during the last
fiscal year.
The Nominating Committee's responsibilities include reviewing the qualifications
of candidates for Board membership, reviewing the status of Directors when his
principal position and/or primary affiliation changes. They also recommend to
the Board of Directors new candidates for election by shareholders at annual
meetings, recommend candidates to fill vacancies in directorships, and make
recommendations to the Board of Directors concerning selection, tenure,
retirement, and composition of the Board of Directors. Shareholders of COMARCO
may recommend persons to be nominated for election as directors of COMARCO at
the Meeting. Such recommendations must be submitted in writing to the secretary
of the Company and be received no later than 90 days before the date in the
current year, which corresponds, to the date on which the Meeting was held
during the immediate prior year. The Nominating Committee did not meet during
the year, but the entire Board approved the Board nominees.
<PAGE>
DIRECTORS COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
Cash Compensation(1) (2) Security Grants
---------------------------------------------- --------------------------------------
Annual Meeting Consulting Fees/ Number of Number of Securities
Name Retainer Fees Fees Other Fees Shares Underlying Options/SARs(3)
- ---- ------------- ------- ---------------- --------- --------------------------
<S> <C> <C> <C> <C> <C>
Wilbur L. Creech $21,600 $16,000 $0 0 5,000 shares
Gerald D. Griffin $61,500 $6,900 $0 0 5,000 shares
Wesley L. McDonald $21,600 $13,550 $0 0 5,000 shares
Paul G. Yovovich $21,600 $16,050 $0 0 5,000 shares
</TABLE>
Notes:
(1) Each member of the Board other than Mr. Franza and Mr. Bailey (who also
serve as officers) received a daily Director's fee of $1,800 per meeting,
$900 per telephone meeting, and a monthly retainer of $1,800. Mr. Griffin
received a monthly payment of $7,500 in lieu of meeting fees and retainers
through July 1998 in his capacity as Chairman of the Board. Members of the
various committees received a $750 meeting fee, and the Committee Chairman
received an additional $750 per meeting. Each Director was reimbursed for
reasonable lodging and expenses incurred to attend Board and Committee
meetings.
(2) "Cash compensation" includes compensation deferred during the current year.
(3) Represents a stock option award made on 7/8/98 at an exercise price of
$20.63 per share, the then current market price of a share of the Company's
Common Stock.
OPTION GRANTS FOR FISCAL YEAR ENDED 1/31/99
<TABLE>
Percent of Total
Options Options Granted Exercise Expiration Potential Value(4)
Name Granted(1) to Directors Price(2) Date(3) @ 5% @10%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wilbur L. Creech 5,000 25% $20.63 7/14/08 $64,870 $164,395
Gerald D. Griffin 5,000 25% $20.63 7/14/08 $64,870 $164,395
Wesley L. McDonald 5,000 25% $20.63 7/14/08 $64,870 $164,395
Paul G. Yovovich 5,000 25% $20.63 7/14/08 $64,870 $164,395
</TABLE>
Notes:
(1) The options vest in equal annual increments of 25% over the four-year period
following their date of grant, July 8, 1998.
(2) Represents the fair market value of an underlying share of Common Stock on
the date of grant.
(3) All options terminate one year after termination of directorship.
(4) Represents the value of the shares of Common Stock issuable upon the
exercise of the options, assuming the stated rates of price appreciation
for ten years, compounded annually, with the aggregate exercise price
deducted from the final appreciated value. Such annual rates of
appreciation are for illustrative purposes only, are based on requirements
of the Securities and Exchange Commission, and do not reflect the Company's
estimate of future stock appreciation. No assurance can be given that such
rates of appreciation, or any appreciation, will be achieved.
OPTION EXERCISES FOR FISCAL YEAR ENDED 1/31/99
<TABLE>
Number of Unexercised Value of Unexercised(1)
Shares Acquired Value Options at Fiscal Year End Options at Fiscal Year End
Name on Exercise Realized Vested Unvested Vested Unvested
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wilbur L. Creech 0 0 15,500 12,500 $227,588 $81,988
Gerald D. Griffin 15,000 $318,300 35,500 12,500 $667,463 $81,988
Wesley L. McDonald 0 0 48,000 12,500 $942,425 $81,988
Paul G. Yovovich 0 0 3,750 11,250 $31,556 $66,519
</TABLE>
Notes:
(1) These values are calculated using the January 31, 1999 closing price of
Common Stock on the NASDAQ National Market of $23.875 per share, less the
exercise price of the options, multiplied by the number of shares to which
the options relate.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the
Rules issued thereunder, the Company's executive officers, Directors and persons
that own more than 10% of the Company's Common Stock are required to file with
the Securities and Exchange Commission reports of ownership and changes in
ownership of Common Stock. The Company believes that, during the fiscal year
ended January 31, 1999, its executive officers, Directors and persons that own
more than 10% of the Company's Common Stock complied with the Section 16(a)
reporting requirements on a timely basis.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Company's outstanding Common Stock as of February 1, 1999.
Except as otherwise noted, these persons, who are Directors, executive officers,
or persons known to the Company, are beneficial owners of more than five percent
of its outstanding Common Stock. The table also includes the stock ownership of
all Directors and executive officers of the Company as a group. Unless otherwise
indicated, the Company believes that each of the persons listed in the table
(subject to applicable community property laws) has the sole power to vote and
to dispose of the shares listed opposite their name.
<TABLE>
Name and Address Office, Number of Shares Percent
of Beneficial Owner If Any Beneficially Owned Of Class Notes
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Don M. Bailey Chairman of the Board,
President and 204,745 4.6% (1)
Chief Executive Officer
Gen. Wilbur L. Creech (Ret.) Director 18,500 * (2)
Gerald D. Griffin Director 38,000 * (3)
Adm. Wesley L. McDonald (Ret.) Director 49,000 1.1% (4)
Paul G. Yovovich Director 10,250 * (5)
Thomas A. Franza Executive Vice President 39,821 * (6)
Richard C. Loomis Sr. Vice President 12,625 * (7)
Robert A. Lovingood Vice President 9,000 * (8)
Thomas P. Baird Vice President, 34,016 * (9)
Chief Financial Officer
Evelyn M. Evans Vice President, Secretary 35,418 * (10)
John C. Hillis Sr. Vice President 29,133 * (11)
Directors and Executive Officers 480,508 10.8% (12)
As a Group (11 persons)
COMARCO, Inc. 189,130 4.2% (13)
Employee Savings and Retirement
Trust
Parsow Partnership, Ltd. 289,900 6.3% (14)
222 Skyline Drive
Elkhorn, NE 68022
T. Rowe Price Associates 408,000 9.2% (15)
100 East Pratt Street
Baltimore, MD 21202
Wanger Asset Management, L.P. 912,800 20.6% (16)
227 West Monroe St., Ste 3000
Chicago, Illinois 60606
Storie Partners, L.P. 489,300 11.0% (17)
One Bush Street
Suite 1350
San Francisco, CA 94104
</TABLE>
* Indicates less than one percent
(1) Includes 183,000 shares, which Mr. Bailey has the right to acquire within 60
days after February 1, 1999, by stock option exercise.
(2) Includes 15,500 shares, which General Creech has a right to acquire within
60 days after February 1, 1999, by stock option exercise.
(3) Includes 35,500 shares, which Mr. Griffin has the right to acquire within
60 days after February 1, 1999, by stock option exercise.
(4) Includes 48,000 shares, which Admiral McDonald has the right to acquire
within 60 days after February 1, 1999, by stock option exercise.
(5) Includes 3,750 shares that Mr. Yovovich has the right to acquire within 60
days after February 1, 1999 by stock option exercise.
(6) Includes 36,750 shares that Mr. Franza has the right to acquire within 60
days after February 1, 1999, by stock option exercise. Does not include
options to acquire shares in the Company's subsidiary Comarco Wireless
Technologies, Inc. See section entitled "Stock Options".
(7) Includes 11,625 shares that Mr. Loomis has the right to acquire within 60
days after February 1, 1999, by stock option exercise.
(8) Includes 9,000 shares that Mr. Lovingood has the right to acquire within 60
days after February 1, 1999 by stock option exercise.
(9) Includes 33,000 shares that Mr. Baird has the right to acquire within 60
days after February 1, 1999, by stock option exercise.
(10) Includes 34,500 shares that Ms. Evans has the right to acquire within 60
days after February 1, 1999, by stock option exercise.
(11) Includes 29,000 shares that Mr. Hillis has the right to acquire within 60
days after February 1, 1999, by stock option exercise.
(12) Includes an aggregate of 439,625 shares held by all current executive
officers and Directors that are subject to options exercisable within 60
days after February 1, 1999.
(13) Represents shares held in the Employee Savings and Retirement Trust, of
which the Company is the administrator. Under the beneficial ownership
rules promulgated by the Securities and Exchange Commission, the Company
could be deemed to be a beneficial owner of such shares. All such shares
are allocated to the accounts of Plan participants and are subject to and
voted in accordance with the direction of the participants. The assets of
the trust are under the trusteeship of Smith Barney Corporate Trust
Company. The number of shares listed is as of February 1, 1999.
(14) Taken from personal communication with Alan Parsow on March 17, 1999. Alan
Parsow is the sole general partner of Parsow Partnership, Ltd.
(15) Taken from Schedule 13G filed with the Securities and Exchange Commission
on February 12, 1999. These securities are owned by various individual and
institutional investors for which T. Rowe Price Associates, Inc. and T.
Rowe Price Small Cap Value Fund, Inc. ("Price Associates") serve as
investment adviser with power to direct investments and/or sole power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact beneficial owner of such securities.
(16) Taken from Schedule 13G filed with the Securities and Exchange Commission
on February 24, 1999 on behalf of Wanger Asset Management, L.P. WAM is an
investment adviser registered under section 203 of the Investment Advisers
Act of 1940. WAM LTD is the general partner of the investment adviser.
Wanger is the principal stockholder of the general partner. Included are
COMARCO shares held in Acorn Fund, a series of Acorn Investment Trust, for
which WAM is deemed to be a beneficial owner.
(17) Taken from Schedule 13D Amendment No. 3 filed with the Securities and
Exchange Commission on behalf of Storie Partners, L.P. ("Storie") on
December 21, 1998. The management of Storie is vested exclusively in its
general partner, Storie Advisors, Inc. Richard E. Dirickson, Jr. and Steven
A. Ledger make investment decisions for Storie, and either may be deemed to
have shared voting and dispositive powers.
EXECUTIVE COMPENSATION
The Company's executive compensation structure consists of salaries, cash
incentive awards and stock option awards. This structure is administered by a
committee of the Board of Directors (the "Compensation Committee") consisting
solely of non-employee Directors. The Company's CEO recommends compensation
levels for the Company's officers, except for himself, to the Compensation
Committee. The Committee adjusts these recommendations and approves final
compensation levels for these officers. In addition the Committee sets the
compensation level for the CEO. Incentive compensation is based upon
pre-established quantitative goals, typically earnings, profitability, asset
utilization, and new business bookings as well as qualitative goals, such as
customer satisfaction.
The information on compensation set forth below is furnished for the fiscal year
ended January 31, 1999 for the Chief Executive Officer and the four most highly
compensated executive officers whose cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation Long Term Compensation
----------------------------------------------- -----------------------------------------------------
Name and Other Restricted Long Term
Principal Fiscal Annual Stock Options Incentive All Other
Position Year Salary ($)(1) Bonus ($)Compensation(2) Number Options # Payouts ($)Compensation ($)(2)
- -------- ---- ---------- --------------------- ------ --------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don M. Bailey 1999 275,000 245,000 0 0 15,000 0 4,800
President & CEO 1998 260,000 265,000 0 0 25,000 0 4,800
1997 240,000 275,000 0 0 25,000 0 4,500
Thomas P. Franza 1999 230,000 225,000 0 0 13,000 0 8,000
Executive 1998 215,000 265,000 0 0 15,000 0 4,800
Vice President 1997 200,000 265,000 0 0 20,000 0 4,500
Richard C. Loomis 1999 135,000 15,000 0 0 2,500 0 4,800
Sr. Vice President 1998 130,000 45,000 0 0 3,000 0 4,758
1997 125,000 33,000 0 0 0 0 4,500
Thomas P. Baird 1999 150,000 50,000 0 0 4,000 0 4,460
Vice President & 1998 130,000 50,000 0 0 4,000 0 4,800
Chief Financial 1997 125,000 50,000 0 0 5,000 0 4,500
Officer
John C. Hillis 1999 150,000 15,000 0 0 2,500 0 4,800
Vice President 1998 116,500 15,000 0 0 6,000 0 4,800
1997 112,500 20,000 0 0 10,000 0 4,500
</TABLE>
Notes:
(1) "Salary" includes compensation deferred during the current year.
(2) "Other Annual Compensation" amounts were below reporting thresholds. "All
Other Compensation" consists of Company contributions to the Company's 401K
plan.
(3) Each of the named executives has an agreement with the Company providing
that, if they are terminated or constructively terminated following a
change in control of the Company, then they are entitled to one times their
cash compensation (base salary plus incentive compensation of the planned
level for that year or the amount paid in the year before the change of
control, whichever is greater), except for Mr. Bailey who is entitled to
two times his annual cash compensation.
STOCK OPTIONS
The following tables set forth for each person named in the executive
compensation table above, information concerning (i) options granted by the
Company during the fiscal year ended January 31, 1999 and (ii) options exercised
during such period.
OPTION GRANTS FOR FISCAL YEAR ENDED 1/31/99
<TABLE>
Percent of Total
Options Options Granted Exercise Expiration Potential Value(4)
Name Granted(1) to Employees Price(2) Date(3) @ 5% @10%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Don M. Bailey 7,000 15% $21.69 3/5/08 $95,485 $241,947
8,000 17% $20.38 7/14/08 $102,535 $259,837
Thomas A. Franza 7,000 15% $21.69 3/5/08 $95,485 $241,947
6,000 13% $20.38 7/14/08 $76,901 $194,878
Richard C. Loomis 2,500 5% $20.38 7/14/08 $32,042 $81,201
Thomas P. Baird 4,000 9% $21.69 3/5/08 $54,562 $138,269
John C. Hillis 2,500 5% $20.38 7/14/08 $32,042 $81,201
</TABLE>
Notes:
(1) The options vest in equal annual increments of 25% over the four-year
period following their date of grant.
(2) Represents the fair market value of an underlying share of Common Stock on
the date of grant.
(3) All options terminate ninety days after termination of employment.
(4) Represents the value of shares of Common Stock issuable upon the exercise
of the option, assuming the stated rates of price appreciation for ten
years, compounded annually, with the aggregate exercise price deducted from
the final appreciated value. Such annual rates of appreciation are for
illustrative purposes only, are based on requirements of the Securities and
Exchange Commission, and do not reflect the Company's estimate of future
stock appreciation. No assurance can be given that such rates of
appreciation, or any appreciation, will be achieved.
OPTION EXERCISES FOR FISCAL YEAR ENDED 1/31/99
<TABLE>
Shares Acquired Value Number of Unexercised Value of Unexercised(2)
Name on Exercise Realized(1) Vested Unvested Vested Unvested
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Don M. Bailey 0 0 162,500 52,500 $2,923,475 $375,313
Thomas A. Franza(3) 0 0 23,750 36,750 $278,231 $239,894
Richard C. Loomis 0 0 8,375 7,250 $129,556 $61,206
Thomas P. Baird 0 0 28,500 10,750 $532,625 $70,369
John C. Hillis 0 0 22,500 14,500 $330,853 $122,425
</TABLE>
Notes:
(1) Market value on the date of exercise, net of the exercise price.
(2) These values are calculated using the January 31, 1999 closing price of
Common Stock on the Nasdaq National Market of $23.875 per share, less the
exercise price of the options, multiplied by the number of shares to which
the options relate.
(3) Mr. Franza has been granted options to purchase a total of 95,000 shares of
common stock of one of the Company's subsidiaries under its stock option
plan. Of the 95,000 options, 86,250 are vested and 8,750 are unvested. As
of May 1, 1999, the subsidiary had 3,000,000 shares of common stock
outstanding. Based on valuation as of January, 31,1999, the shares
underlying the vested options are valued at $2,231,363, and those
underlying the unvested options are valued at $195,588.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
To: The Board of Directors
As members of the Compensation Committee, it is our duty to establish the salary
and incentive compensation of the President and Chief Executive Officer and to
review, to revise as appropriate, and to approve the Chief Executive Officer's
recommendations for the salaries and incentive compensation of the Company's
executive officers. Since 1985, the Committee, composed exclusively of Directors
who are not employees of the Company, has received a comprehensive written and
oral corporate performance report from the Company's Chief Executive Officer.
This report presents corporate performance against predetermined quantitative
and qualitative performance objectives. The report summarizes the results for
each of the Company's operations and provides an explanation for each
compensation recommendation made by the Chief Executive Officer. The Committee,
after appropriate inquiry and modification, approves compensation
recommendations and establishes appropriate compensation for the Chief Executive
Officer.
Performance objectives and incentive goals are established at the outset of each
fiscal year, together with salary levels. Incentive awards are made after the
close of each fiscal year. Incentive compensation is based on quantitative
performance factors as well as a number of qualitative factors related to
long-term performance. For fiscal year 1999, quantitative factors were
considered by the Committee to be more important than qualitative factors in
establishing compensation levels.
The Committee adheres to the following philosophy regarding compensation of the
Company's executive officers:
o to provide competitive total pay opportunities in order to attract, retain,
and motivate high quality executive talent critical to the Company's
success;
o to pay for performance through a compensation mix that emphasizes
competitive cash incentives and merit-based salary increases and
de-emphasizes entitlements and perquisites;
o to create a mutuality of interest between executives and shareholders
through a stock option program; and
o to focus the executive's attention on overall corporate objectives as well
as the executive's specific operational objectives.
The key elements of the Company's executive compensation program are base
salary, annual incentive compensation, and stock options. The Committee's
policies with respect to each of these elements, including the basis for the
compensation paid and awarded to Mr. Bailey, the Company's President and CEO,
are described below. While the elements of compensation are considered
separately, the Committee takes into account the total compensation package
afforded by the Company to the individual.
Base Salaries
Base salaries for executive officers are initially determined by evaluating
responsibilities of the position held and the experience of the individual and
by comparing the salaries paid to persons holding similar positions at other
companies. Each year, the Company uses data compiled from a nationwide
compensation survey of small to medium size private and publicly traded
companies. Comparisons are made based on like-sized companies and those in
similar industries. The Committee uses this information to assist in
establishing base salaries. In general, base salaries and total compensation are
targeted to be consistent with these data.
Annual salary adjustments are determined by evaluating the performance of the
Company and of each executive officer and reviewing base salaries for comparable
positions contained in the survey data mentioned above. In addition, the
Committee takes into account any new responsibilities that such officer may have
assumed. The Committee, where appropriate, also considers non-financial
performance measures in such areas as any increase in market share, customer
service, working capital management, employee relations, and leadership
development.
Concerning Mr. Bailey, the Company's President and CEO, the Committee took into
account a comparison of base salaries of chief executive officers of the other
companies contained in the national salary survey mentioned above. They also
considered the Company's success in meeting several financial goals, including
return on capital employed and earnings per share; the performance of the
Company's stock; and the assessment of Mr. Bailey's individual performance,
including his development of long-term strategies for the continued growth of
shareholder value. Consistent with these criteria, Mr. Bailey received a salary
of $275,000 in the fiscal year ended January 31, 1999.
Incentive Compensation
The Company's officers and other key employees are eligible for annual cash
incentive compensation, based upon individual and corporate performance goals
that are established at the beginning of each fiscal year. Primarily the
financial results and new business development achieved by the Company for such
fiscal year measure corporate performance.
The Committee takes into account a number of criteria in determining Mr.
Bailey's annual incentive compensation; the most important of which are
financial indicators such as net income, earnings per share and stock price.
Goals for determining Mr. Bailey's annual incentive compensation are set at the
beginning of each fiscal year. The Committee determined to award Mr. Bailey
annual incentive compensation of $245,000 for the last fiscal year, $20,000 less
than the previous fiscal year. The average price of the Company's Common Stock
increased approximately 6% during the last fiscal year from its average price
during the prior fiscal year. The Company's earnings per share increased 27%
during fiscal year 1999.
Stock Options
Stock options are designed to align the interests of executives with those of
the shareholders. The sizes of the option awards are entirely at the discretion
of the Committee. The Committee takes into account the total compensation
offered to its executives when considering the number of options awarded each
year.
Stock option awards to officers and employees were made in the last fiscal year
based upon the criteria described above. The awards to the CEO and the other
four most highly compensated executive officers are shown in the preceding
section entitled "Stock Options". The number of options awarded in fiscal year
1999 were reduced substantially for the executive officers, including the CEO,
because of the relatively high percentage of options outstanding compared to the
number of shares outstanding.
The Compensation Committee continuously reviews the Company's executive
compensation policies and plans to determine if revisions may be necessary due
to Section 162 of the Internal Revenue Code of 1986 which limits the
deductibility of compensation paid to certain executives to $1 million. It is
the current policy of the Compensation Committee to preserve, to the extent
reasonably possible, the Company's ability to obtain a corporate tax deduction
for compensation paid to executive officers of the Company to the extent
consistent with the best interests of the Company and its shareholders.
Submitted by the Committee:
General Wilbur L. Creech, Chairman
Gerald D. Griffin
Paul G. Yovovich
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following Directors served on the Company's Compensation Committee for the
awards and decisions discussed above.
Gen. Wilbur L. Creech, Chairman
Gerald D. Griffin
Paul G. Yovovich
None of the members of the Compensation Committee served as an officer or
employee of the Company or its subsidiaries during the last fiscal year, except
for Mr. Griffin, who served as the Company's non-employee Chairman of the Board
through July 1998.
The Company did not engage in any transactions that required disclosure under
Item 404 of the Securities and Exchange Commission's Regulation S-K during the
last fiscal year.
There were no compensation committee interlocks with other companies within the
meaning of the Securities and Exchange Commission's rules during the last fiscal
year.
PERFORMANCE COMPARISON
The following graphical presentation provides an indication of total shareholder
returns for Comarco as compared to the Russell 2000 Composite Stock Index and a
peer group of companies (the "Peer Group"). The presentation assumes $100
invested on January 31, 1994 in Comarco Common Stock, the Russell 2000 Composite
Stock Index, and the Common Stock of the Peer Group. The Peer Group consists of
ten companies of similar size (in terms of assets and revenue) and business
focus as Comarco. While none of the selected peers offer a fully comparable
range of products and services to Comarco, they are recognized as providers of
high technology electronic, computer, and communications systems engineering
services and products to US government and commercial markets. The returns of
each company within the Peer Group have been averaged assuming an equal dollar
investment in each company at the beginning of the time period or at the initial
public offering. Dividends paid by those peer companies that pay dividends are
assumed to be reinvested at the end of the ex-dividend month without any
transaction cost. The members of the Peer Group are as follows: Analysis &
Technology, Inc. (AATI), CACI International, Inc. (CACI), Dynamics Research Corp
(DRCO), ECC International Corp (ECC), Halifax Corp (HX), Nichols Research Corp
(NRES), National Technical Systems, Inc. (NTSC), VSE Corp (VSEC), LCC
International Inc. (LCCI) and Salient 3 Communications (STCIA).
As shown on the following graph, an investment of $100 in Comarco Common Stock
on January 31, 1994 would have grown in value to $490 as of January 31, 1999.
For the five-year period ending January 31, 1999, the total cumulative return
for holders of Comarco Common Stock amounted to 390%, or the equivalent of 37.4%
per year compounded annually. By comparison, $100 invested in the Peer Group
composite would have grown in value to $158 as of January 31, 1999, assuming the
reinvestment of dividends from those companies, which paid dividends. For the
five-year period ending January 31, 1999, the total cumulative return for the
Peer Group composite was 58%, or the equivalent of 9.6% per year compounded
annually. The returns of Comarco exceeded the comparable return of the Russell
2000 Composite Stock Index.
The accompanying graph depicts the relative performance of COMARCO in relation
to the Peer Group and to the Russell 2000 Stock Index for the periods indicated.
[graph omitted: Comparison of Cumulative Total Return]
<TABLE>
1/31/94 1/31/95 1/31/96 1/31/97 1/31/98 1/31/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
COMARCO $100 $179 $323 $379 $459 $490
Peer Group $100 $102 $130 $178 $181 $158
Russell 2000 Index $100 $94 $122 $145 $172 $172
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth pertinent information concerning the persons
who are the current executive officers (who are not Directors) of the Company.
Name Age Capacity
---- --- --------
Thomas P. Baird 45 Vice President, Chief Financial Officer
and Assistant Secretary
Evelyn M. Evans 43 Vice President and Secretary
John C. Hillis 53 Sr. Vice President
Richard C. Loomis 50 Sr. Vice President
Robert A. Lovingood 41 Vice President
Mr. Baird has served as Chief Financial Officer of the Company since
September 1992, and Vice President and Controller of the Company since November
1988. He became Assistant Secretary in 1996. He currently holds various
executive positions at a number of the Company's subsidiaries. From December
1987 to November 1988 he served as Vice President, Treasurer and Assistant
Secretary of International Business Services, Inc., a wholly owned subsidiary of
the Company. From September to December 1987 he served as Assistant to the
Company's Chief Financial Officer. Prior to joining the Company, he was a
Division Controller for Western Gear Corporation from November 1985 to September
1987. Prior to that time, he served in various financial and accounting
positions at Becor Western, Inc.
Ms. Evans joined the Company in January 1986 in the field of contracts
administration. Subsequently, she designed budget models for the Company in her
capacity as Manager of Plans and Analysis. Ms. Evans was promoted to Vice
President in March 1989 and became Secretary of the Company in May 1996. She
currently is a key member of the management team in Comarco Staffing. Prior to
joining the Company, Ms. Evans served for six years as an officer in the United
States Army..
Mr. Hillis has served as Sr. Vice President of the Company since December
1994. He is also currently the President and Chief Executive Officer of Comarco
Systems, Inc. as well as President of International Business Services, Inc. and
LCTI, Inc., each a subsidiary of the Company. Mr. Hillis became a Vice President
in August 1991 and served in such position until December 1994. Before then, he
was the Manager of Engineering Services Business Development and a Vice
President of International Business Services, Inc. He joined the Company in
1986.
Mr. Loomis has been a Sr. Vice President of the Company since October 1992.
He is also President of the Company's subsidiary Comarco Services Inc. From
November 1989 until October 1992, he served as a Vice President of the Company.
Since joining the Company in April 1986, he has held various management
positions with the Company including Project Manager and Division Manager at the
Facilities Management Division.
Mr. Lovingood has been a Vice President of the Company since August 1996.
He is also President of Comarco Staffing, Inc. From October 1989 until joining
the Company, Mr. Lovingood was President and sole owner of RAL Consulting
Services, Inc. He then incorporated RAL Leasing Consultants, Inc. in June 1991.
SELECTION OF AUDITORS
KPMG LLP has been selected as the Company's independent certified public
accountants for the fiscal year ending January 31, 2000. Representatives of KPMG
LLP are expected to be present at the Annual Meeting and will have an
opportunity to make a statement if they so desire and to respond to appropriate
questions from shareholders.
PROPOSALS FOR SUBMISSION AT NEXT ANNUAL MEETING
If a shareholder desires to submit a proposal at the Company's 2000 Annual
Meeting, such proposal must be received in writing by the Company at its
corporate office no later than January 21, 2000. The proposal must also comply
with applicable regulations in order to be included in the Proxy Statement for
that meeting. If a stockholder notifies the Company in writing prior to April 5,
2000, that he or she intends to present a proposal at the Company's 2000 Annual
Meeting, the proxyholders designated by the Board of Directors may exercise
their discretionary voting authority with regard to the stockholder's proposal
only if the Company's proxy statement discloses the nature of the shareholder's
proposal and the proxyholder's intentions with respect to the proposal. If the
stockholder does not notify the Company by such date, the proxyholders may
exercise their discretionary voting authority with respect to the proposal
without such discussion in the proxy statement.
OTHER MATTERS
The Board of Directors of the Company does not know of any matter to be
acted upon at the meeting other than the matters described above. If other
matters properly come before the meeting, the holders of the proxies will vote
on such matters in accordance with their judgment.
The Company's 1999 Annual Report to Shareholders is enclosed with this
Proxy Statement.
IN ORDER TO AVOID ADDED EXPENSE OR ADDITIONAL SOLICITATION OF PROXIES, YOU
ARE URGED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED.
By ORDER OF THE BOARD OF DIRECTORS
Evelyn M. Evans, Secretary
May 20, 1999
<PAGE>
PROXY COMARCO, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS CALLED FOR JUNE 30, 1999
The undersigned shareholder(s) of COMARCO, Inc. a California corporation,
having received the Notice of Annual Meeting of Shareholders and Proxy Statement
dated May 14, 1999, hereby appoints Don M. Bailey and Evelyn M. Evans as
Proxies, each with the power to appoint a substitute, and hereby authorizes them
to represent the undersigned at the Annual Meeting of Shareholders of COMARCO,
Inc. to be held on June 30, 1999 at 10:00 AM at the Dana Point Marriott and at
any adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote thereat on all matters set forth below, as
described in the accompanying Proxy Statement:
1.ELECTION OF DIRECTORS: [] FOR all nominees listed below [] WITHHELD AUTHORITY
to vote for
all nominees
(INSTRUCTION: To withhold authority to vote for an individual nominee, mark the
box next to the nominee's name below. Names not marked will receive a vote FOR)
[] Wilbur L. Creech [] Thomas A. Franza [] Paul G. Yovovich
[] Gerald D. Griffin [] Don M. Bailey
IMPORTANT - PLEASE SIGN ON THE OTHER SIDE
<PAGE>
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
In the event the Directors are to be elected by cumulative voting, the
Proxies will have the discretion to cumulate votes and to distribute such votes
among all nominees (or if authority to vote for any nominee or nominees has been
withheld, among the remaining nominees, if any) in whatever manner they deem
appropriate.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL OF THE DIRECTORS NOMINATED BY THE BOARD.
Dated: -----------------------------------, 1999
------------------------------------------------
(Signature)
------------------------------------------------
(Signature)
(Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator
trustee or guardian, please set forth your full title. If signer is a
corporation, please sign the full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING
PREPAID ENVELOPE.
