Exhibit 10.1
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
     THIS FIRST AMENDMENT to Loan and Security Agreement (this “Amendment”) is
entered into this 9th day of February, 2010, by and between Silicon Valley Bank
(“Bank”) and Comarco, Inc., a California corporation and Comarco Wireless
Technologies, Inc., a Delaware corporation (jointly and severally, “Borrower”)
whose address is 25541 Commercentre Drive, Lake Forest, CA 92630.
Recitals
     A. Bank and Borrower have entered into that certain Loan and Security
Agreement dated as of February 12, 2009 (as the same may from time to time be
amended, modified, supplemented or restated, the “Loan Agreement”).
     B. Bank has extended credit to Borrower for the purposes permitted in the
Loan Agreement.
     C. Borrower has requested that Bank amend the Loan Agreement, as herein set
forth, and Bank has agreed to the same, but only to the extent, in accordance
with the terms, subject to the conditions and in reliance upon the
representations and warranties set forth herein.
Agreement
     Now, Therefore, in consideration of the foregoing recitals and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:
     1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meanings given to them in the Loan Agreement.
     2. Amendments to Loan Agreement. The Loan Agreement is amended as follows,
effective on the date hereof (except where a different effective date is
specified below):
          2.1 Modification Regarding Letters of Credit Sublimit. The clause in
Section 2.1.2(a) of the Loan Agreement that currently reads as follows:
(1) the total of the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserves shall not exceed $5,000,000; and
is hereby amended in its entirety and replaced with the following:

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(1) the total of the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserves shall not exceed $10,000,000; and
          2.2 Modification Regarding Foreign Exchange Sublimit. The sentence in
Section 2.1.3 of the Loan Agreement that currently reads as follows:
FX Forward Contracts shall have a Settlement Date of at least one (1) FX
Business Day after the contract date and shall be subject to a reserve of ten
percent (10%) of each outstanding FX Forward Contract in a maximum aggregate
amount equal to $5,000,000 (the “FX Reserve”).
is hereby amended in its entirety and replaced with the following:
FX Forward Contracts shall have a Settlement Date of at least one (1) FX
Business Day after the contract date and shall be subject to a reserve of ten
percent (10%) of each outstanding FX Forward Contract in a maximum aggregate
amount equal to $10,000,000 (the “FX Reserve”).
          2.3 Modification Regarding Cash Management Services Sublimit.
Section 2.1.4 of the Loan Agreement that currently reads as follows:
2.1.4 Cash Management Services Sublimit. Subject to the Overall Sublimit in
Section 2.1.5 below, Borrower may use up to $5,000,000 of the Revolving Line for
Bank’s cash management services which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in Bank’s various cash management services agreements (collectively, the “Cash
Management Services”), provided that, after giving effect to such utilization:
(1) the total of the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserves, plus the FX Reserve, plus amounts utilized for Cash Management
Services, shall not exceed $5,000,000; and (2) the total of the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), plus an amount equal to the Letter of Credit Reserves, plus the FX
Reserve, plus amounts utilized for Cash Management Services, and plus the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base. Any amounts

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Bank pays on behalf of Borrower for any Cash Management Services will be treated
as Advances under the Revolving Line and will accrue interest at the interest
rate applicable to Advances.
is hereby amended in its entirety and replaced with the following:
2.1.4 Cash Management Services Sublimit. Subject to the Overall Sublimit in
Section 2.1.5 below, Borrower may use up to $10,000,000 of the Revolving Line
for Bank’s cash management services which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in Bank’s various cash management services agreements (collectively, the “Cash
Management Services”), provided that, after giving effect to such utilization:
(1) the total of the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserves, plus the FX Reserve, plus amounts utilized for Cash Management
Services, shall not exceed $10,000,000; and (2) the total of the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), plus an amount equal to the Letter of Credit Reserves, plus the FX
Reserve, plus amounts utilized for Cash Management Services, and plus the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base. Any amounts Bank pays on behalf of Borrower
for any Cash Management Services will be treated as Advances under the Revolving
Line and will accrue interest at the interest rate applicable to Advances.
          2.4 Modification Regarding Overall Sublimit. The amount of the Overall
Sublimit, as set forth in Section 2.1.5 of the Loan Agreement, is hereby amended
from “$5,000,000” to “$10,000,000.”
          2.5 Modification Regarding Interest Rates. Section 2.3(a) of the Loan
Agreement is hereby amended in its entirety to read as follows:
(a) Interest Rate; Advances.
     (i) If, and only for so long as, Borrower’s Quick Ratio is greater than or
equal to 2.0 to 1.0, then, subject to Section 2.3(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a per

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annum rate equal to one and one-half percentage points (1.50%) above the Prime
Rate, provided that the interest rate in effect on any day shall not be less
than 5.5% per annum, which interest shall be payable monthly;
     (ii) If Borrower’s Quick Ratio is less than 2.0 to 1.0, then, subject to
Section 2.3(b), the principal amount outstanding under the Revolving Line shall
accrue interest at a per annum rate equal to two and one-half percentage points
(2.50%) above the Prime Rate, provided that the interest rate in effect on any
day shall not be less than 5.5% per annum, which interest shall be payable
monthly.
     Once Borrower’s Quick Ratio drops below 2.0 to 1.0 and the interest rate
set forth in subclause (ii) goes into effect, such interest rate shall remain in
effect until such time as Borrower has achieved and maintained a Quick Ratio of
greater than or equal to 2.0 to 1.0 for three consecutive months and provided
Bank with written evidence thereof.
          2.6 Modification Regarding Collateral Monitoring Fee. Section 2.4(b)
of the Loan Agreement is hereby amended in its entirety to read as follows:
(b) Collateral Monitoring Fee. A monthly collateral monitoring fee of $1,000,
payable in arrears on the last day of each month (prorated for any partial month
at the beginning and upon termination of this Agreement); provided, however, in
any month in which Borrower’s Quick Ratio is greater than or equal to 2.0 to
1.0, the Collateral Monitoring Fee for such month will be $0.00; and
          2.7 Modification Regarding Transaction Reports. Section 6.2(a)(i) of
the Loan Agreement is hereby amended in its entirety to read as follows:

  (i)   a Transaction Report (and any schedules related thereto) monthly (within
fifteen (15) days after the end of each month) and at the time of each request
for an Advance; provided, however, whenever Borrower’s Quick Ratio is less than
2.0 to 1.0, then weekly and at the time of each request for an Advance (the
“Weekly Requirement”); provided, further, once the Weekly Requirement has gone
into effect, it will remain in effect until such time as Borrower has achieved
and maintained a Quick Ratio greater than or equal to 2.0 to 1.0 for three
consecutive months and each month thereafter;

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          2.8 Modification Regarding Monthly Financial Statements.
Section 6.2(a)(iii) of the Loan Agreement is hereby amended in its entirety to
read as follows:

  (iii)   as soon as available, and in any event within forty-five (45) days
after the end of each month, monthly unaudited financial statements;

          2.9 Modification Regarding Monthly Compliance Certificates.
Section 6.2(a)(iv) of the Loan Agreement is hereby amended in its entirety to
read as follows:

  (iv)   within forty-five (45) days after the end of each month a monthly
Compliance Certificate signed by a Responsible Officer, certifying that as of
the end of such month, Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants set forth in this Agreement and such other
information as Bank shall reasonably request, including, without limitation, a
statement that at the end of such month there were no held checks or, if there
were held checks, a listing of the same and the reason therefor;

          2.10 Modification Regarding Concentration Limits. Subclause (h) of the
definition of “Eligible Accounts” set forth in Section 13.1 of the Loan
Agreement is hereby amended in its entirety to read as follows:

  (h)   Accounts owing from an Account Debtor, including Affiliates, whose total
obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for
the amounts that exceed that percentage, unless Bank approves in writing;
provided, however, such percentage amount shall not apply to Accounts for which
Targus is the Account Debtor up to an aggregate amount for all such Accounts of
$6,000,000;

          2.11 Modification Regarding Maximum Dollar Amount. The definition of
“Maximum Dollar Amount” set forth in Section 13.1 of the Loan Agreement is
hereby amended in its entirety to read as follows:
“Maximum Dollar Amount” is $10,000,000.
          2.12 Modification Regarding Quick Assets. The definition of “Quick
Assets” set forth in Section 13.1 of the Loan Agreement is hereby amended in its
entirety to read as follows:

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“Quick Assets” is, on any date, Borrower’s consolidated unrestricted cash and
Cash Equivalents maintained with Bank and Bank Affiliates, Accounts, and
investments with Bank and Bank Affiliates with maturities of fewer than
12 months determined according to GAAP.
          2.13 Modification Regarding Revolving Line Maturity Date. The
definition of “Revolving Line Maturity Date” set forth in Section 13.1 of the
Loan Agreement is hereby amended in its entirety to read as follows:
“Revolving Line Maturity Date” is February 10, 2011.
          2.14 Modification Regarding Compliance Certificate. The form of
Compliance Certificate (attached as Exhibit B to the Loan Agreement) is hereby
replaced with the form of Compliance Certificate attached hereto.
     3. Limitation of Amendments.
          3.1 The amendments set forth in Section 2, above, are effective for
the purposes set forth herein and shall be limited precisely as written and
shall not be deemed to (a) be a consent to any amendment, waiver or modification
of any other term or condition of any Loan Document, or (b) otherwise prejudice
any right or remedy which Bank may now have or may have in the future under or
in connection with any Loan Document.
          3.2 This Amendment shall be construed in connection with and as part
of the Loan Documents and all terms, conditions, representations, warranties,
covenants and agreements set forth in the Loan Documents, except as herein
amended, are hereby ratified and confirmed and shall remain in full force and
effect.
     4. Representations and Warranties. To induce Bank to enter into this
Amendment, Borrower hereby represents and warrants to Bank as follows:
          4.1 Immediately after giving effect to this Amendment (a) the
representations and warranties contained in the Loan Documents are true,
accurate and complete in all material respects as of the date hereof (except to
the extent such representations and warranties relate to an earlier date, in
which case they are true and correct as of such date), and (b) no Event of
Default has occurred and is continuing;
          4.2 Borrower has the power and authority to execute and deliver this
Amendment and to perform its obligations under the Loan Agreement, as amended by
this Amendment;
          4.3 The organizational documents of Borrower delivered to Bank on the
Effective Date remain true, accurate and complete and have not been amended,
supplemented or restated and are and continue to be in full force and effect;

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          4.4 The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, have been duly authorized;
          4.5 The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, do not and will not contravene (a) any law or regulation
binding on or affecting Borrower, (b) any contractual restriction with a Person
binding on Borrower, (c) any order, judgment or decree of any court or other
governmental or public body or authority, or subdivision thereof, binding on
Borrower, or (d) the organizational documents of Borrower;
          4.6 The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, do not require any order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by any governmental or public body or authority, or subdivision
thereof, binding on either Borrower, except as already has been obtained or
made; and
          4.7 This Amendment has been duly executed and delivered by Borrower
and is the binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors’ rights.
     5. Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
     6. Effectiveness. This Amendment shall be deemed effective upon (a) the due
execution and delivery to Bank of this Amendment by each party hereto,
(b) Borrower’s payment of an amendment fee in an amount equal to $50,000 and
(c) Bank’s receipt of the Consent to Amendment and Reaffirmation of Guaranty
attached hereto, duly executed and delivered by each Guarantor (unless Bank, in
its sole discretion at any time waives in writing the receipt of any such
Consent).
[Signature page follows.]

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     In Witness Whereof, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.

                      BANK       BORROWER    
 
                    Silicon Valley Bank       Comarco, Inc.    
 
                   
By:
  /s/ Brett Maver       By:   /s/ Winston Hickman    
Name:
 
 
Brett Maver       Name:  
 
Winston Hickman    
Title:
  Relationship Manager       Title:   Vice President & CFO    
 
                                BORROWER    
 
                   
 
          Comarco   Wireless Technologies, Inc.    
 
                   
 
          By:   /s/ Winston Hickman    
 
          Name:  
 
Winston Hickman    
 
          Title:   Vice President & CFO    

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CONSENT TO AMENDMENT
AND REAFFIRMATION OF GUARANTY
     Each of the undersigned acknowledges that his consent to the foregoing
First Amendment to Loan and Security Agreement dated as of even date herewith
(the “Amendment”) is not required, but the undersigned nevertheless does hereby
consent to the terms and conditions of the Amendment and agrees that the
Guaranty of the undersigned relating to the Obligations of Borrower shall
continue in full force and effect, shall be valid and enforceable and shall not
be impaired or otherwise affected by the execution of the Amendment or any other
document or instrument delivered in connection herewith.
     Each of the undersigned represents and warrants that, after giving effect
to the Amendment, all representations and warranties of the undersigned
contained in the Guaranty are true, accurate and complete as if made the date
hereof.
Dated as of February ___, 2010

                  GUARANTOR   COMARCO, INC.    
 
               
 
      By:        
 
      Name:  
 
   
 
      Title:  
 
   
 
               
 
                GUARANTOR   COMARCO WIRELESS
TECHNOLOGIES, INC.    
 
               
 
      By:        
 
      Name:  
 
   
 
      Title:  
 
   
 
         
 
   

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COMPLIANCE CERTIFICATE

         
TO:
  SILICON VALLEY BANK   Date:                                         
FROM:
  COMARCO, INC AND COMARCO WIRELESS TECHNOLOGIES, INC.    

     The undersigned authorized officer of Comarco, Inc. and Comarco Wireless
Technologies, Inc. (jointly and severally, the “Borrower”) certifies that under
the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the “Agreement”), (1) Borrower is in complete compliance for the period
ending                      with all required covenants except as noted below,
(2) there are no Events of Default, (3) all representations and warranties in
the Agreement are true and correct in all material respects on this date except
as noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date,
(4) Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower [or any of its
Subsidiaries] relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies that
these are prepared in accordance with GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges that no borrowings may be requested at any time or date
of determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.

          Reporting Covenant   Required   Complies
Monthly financial statements with
Compliance Certificate
  Monthly within 45 days   Yes No
 
       
A/R, A/P Agings and Reconciliations
  Monthly within 15 days   Yes No
 
       
10-Q, 10-K and 8-K
  Within 5 days after filing with SEC   Yes No
 
       
Projections
  Within 30 days prior to start of FY   Yes No
 
       
Foreign Credit Insurance Policies
  Upon finalization of terms and upon completion of any updates or changes   Yes
No
 
       
Transaction Reports
  Monthly within 15 days and with each Advance request; provided, however, if QR
is less than 2.0 to 1.0, then Weekly and with each Advance request.   Yes No

The following intellectual property was registered after the Effective Date (if
no registrations, state “None”)

                          Financial Covenant   Required   Actual   Complies
Maintain on a Monthly Basis:
                       
Minimum Quick Ratio
    1.50 to 1.0                           to 1.0   Yes No

                  Performance Pricing               Applies
Quick Ratio > 2.0 to 1.0
  Prime + 1.5%   Yes No
Quick Ratio < 2.0 to 1.0
  Prime + 2.5%   Yes No

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     The following financial covenant analysis and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.
     The following are the exceptions with respect to the certification above:
(If no exceptions exist, state “No exceptions to note.”)
 
 
 
 

                  COMARCO, INC.   BANK USE ONLY

By:       Received by:      
 
                Name:       authorized signer  
 
               
Title:
      Date:          
 
               
 
                COMARCO WIRELESS TECHNOLOGIES, INC.   Verified:            
authorized signer  
By:
      Date:        
 
               
Name:
               
 
                Title:       Compliance Status:     Yes   No
 
               

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Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall govern.
Dated:                                         
Quick Ratio (Section 6.9(a))
Required:           1.50 to 1.0
Actual:

         
A. Aggregate value of the unrestricted cash and cash equivalents of Borrower and
its Subsidiaries maintained at Bank and Bank’s Affiliates
  $    
 
     
 
       
B. Aggregate value of the Accounts of Borrower and its Subsidiaries
  $    
 
     
 
       
C. Aggregate value of the Investments with maturities of fewer than 12 months of
Borrower and it Subsidiaries maintained at Bank and Bank’s Affiliates
  $    
 
     
 
       
D. Quick Assets (the sum of lines A through C)
  $    
 
     
 
       
E. Aggregate value of Obligations to Bank
  $    
 
     
 
       
F. Aggregate value of liabilities that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all
Indebtedness, and not otherwise reflected in line E above that matures within
one (1) year
  $    
 
     
 
       
G. Current Liabilities (the sum of lines E and F)
  $    
 
     
 
       
H. Quick Ratio (line D divided by line G)
       
 
     

Is line H equal to or greater than 2.0 to 1.0?

                           No, not in compliance                        Yes, in
compliance

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