Exhibit 10.1
SECOND AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
     THIS SECOND AMENDMENT to Loan and Security Agreement (this “Amendment”) is
entered into this 13th day of August 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 Limited Waiver of Defaults. Borrower has advised Bank that
Borrower has failed to comply with the Quick Ratio Financial Covenant set forth
in Section 6.9(a) of the Loan Agreement for each of the compliance periods
ending April 30, 2010, May 31, 2010 and June 30, 2010 (the “Existing Quick Ratio
Defaults”). Bank and Borrower agree that the Existing Quick Ratio Defaults are
hereby waived. It is understood by the parties hereto, however, that such waiver
does not constitute a waiver of any other provision or term of the Loan
Agreement or any related document, nor a waiver of this covenant as of any other
date, nor an agreement to waive in the future this covenant or any other
provision or term of the Loan Agreement or any related document.

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          2.2 Addition of Streamline Provision. Section 2.1.1(b) of the Loan
Agreement is hereby amended in its entirety to read as follows:

  (b)   Streamline Period.

  (i)   Streamline Period Definition. A “Streamline Period” is the period during
which: (A) the principal amount of all outstanding Obligations is less than
$2,000,000 (the “Maximum Outstandings Requirement”) and (B) no Default or Event
of Default has occurred and is continuing (clauses (A) and (B) above are,
collectively, referred to herein as the “Streamline Requirements”).     (ii)  
Streamline Period Provisions. During a Streamline Period, the following
provisions shall apply:

  (A)   Changes to Reporting Requirements. Delivery to Bank of transaction
reports, schedules and assignments of Accounts, and schedules of collections
shall be provided as set forth in Section 6.2(a) below.     (B)   Proceeds of
Accounts to be Deposited in Operating Account. During a Streamline Period, the
payments on, and proceeds of, Accounts will be deposited into Borrower’s
operating account without first being applied to the Obligations as provided for
in Section 6.3(c) hereof.     (C)   Standard Terms and Conditions Apply. Upon
the earliest to occur of (I) a breach of the Maximum Outstandings Requirement or
(II) the occurrence of a Default or Event of Default under the Loan Documents,
all of the respective terms and conditions of this Agreement that have been
modified by this Section

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      2.1.1(b) will immediately revert to the respective standard terms and
conditions as provided for in this Agreement (without giving effect to this
Section 2.1.1(b)), which standard terms will immediately go back into effect
without any further action on the part of Bank or Borrower and such standard
terms and conditions will remain in effect until the Maturity Date.

          2.3 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
$2,000, 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, for any month in which a Streamline Period is in effect for
the entire month, the Collateral Monitoring Fee for such month will be $1,000;
and

          2.4 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) weekly and at
the time of each request for an Advance; provided, however, if a Streamline
Period is in effect, then monthly (within fifteen (15) days after the end of
each month) and at the time of each request for an Advance;

          2.5 Modification Regarding Collection of Accounts. Section 6.3(c) of
the Loan Agreement is hereby amended in its entirety to read as follows:

  (c)   Collection of Accounts. Until payment in full in cash of all Advances
and all other Obligations relating to the Revolving Line (other than inchoate
indemnity obligations) and Bank’s obligations to make Advances and any other
Credit Extensions relating to the Revolving Line have terminated (provided that
Borrower’s obligation under this sentence shall not end at a time when any Event
of Default exists), Borrower shall be a party to a three party agreement (the
“Lockbox Agreement”) with

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      Bank and a lockbox provider (the “Lockbox Provider”). The Lockbox
Agreement and Lockbox Provider shall be acceptable to Bank. Borrower shall use
the lockbox address as the payment address on all invoices issued by Borrower
and shall direct all its Account Debtors to remit their payments to the lockbox
address. The Lockbox Agreement shall provide that the Lockbox Provider shall
remit all collections received in the lockbox to Bank. Upon Bank’s receipt of
such collections, Bank shall apply the same as follows:

  (i)   If a Streamline Period is in effect, Bank shall deposit such proceeds
into the operating account of Borrower at Bank that is designated by Borrower;
and     (ii)   If a Streamline Period is not in effect, Bank shall apply such
proceeds to the outstanding Advances, and if all outstanding Advances have been
paid in full, Bank shall deposit the remainder into the operating account of
Borrower at Bank that is designated by Borrower; and     (iii)   If a Default or
Event of Default has occurred and is continuing, without limiting Bank’s other
rights and remedies, Bank shall have the right to apply such proceeds pursuant
to the terms of Section 9.4 hereof.

      It is understood and agreed by Borrower that this Section does not impose
any affirmative duty on Bank to do any act other than transfer or apply funds as
required by this Section. Without limitation on the foregoing, whether or not an
Event of Default has occurred and is continuing, Borrower shall hold all
payments on, and proceeds of, Accounts that Borrower receives, in trust for
Bank, and Borrower shall immediately deliver all such payments and proceeds to
Bank in their original form, duly endorsed, to be applied to the Obligations
pursuant to the terms of Sections 6.3(c) and 9.4 hereof.

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          2.6 Modification Regarding Quick Ratio Financial Covenant. Section 6.9
of the Loan Agreement is hereby amended in its entirety to read as follows:

  6.9   Financial Covenants.         Borrower shall maintain at all times, to be
tested as of the last day of each month (commencing with the month ending
July 31, 2010), unless otherwise noted, on a consolidated basis:

  (a)   Quick Ratio. A ratio of Quick Assets to Current Liabilities of at least
1.25 to 1.0.

          2.7 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 $10,000 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:  Chief Financial Officer    
 
                                BORROWER    
 
                                Comarco Wireless Technologies, Inc.    
 
                   
 
          By:   /s/ Winston Hickman
 
   
 
            Name: Winston Hickman    
 
            Title:   Chief Financial Officer    

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CONSENT TO AMENDMENT
AND REAFFIRMATION OF GUARANTY
     Each of the undersigned acknowledges that his consent to the foregoing
Second 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 August 13, 2010

          GUARANTOR   COMARCO, INC.
      By:   /s/ Winston Hickman         Name:   Winston Hickman        Title:  
Chief Financial Officer   

          GUARANTOR   COMARCO WIRELESS TECHNOLOGIES, INC.
      By:   /s/ Winston Hickman         Name:   Winston Hickman        Title:  
Chief Financial Officer     

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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
  Weekly and with each Advance request; provided, however, if a Streamline
Period is in effect, then Monthly within 15 days 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
  1.25 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:       
 
 
          AUTHORIZED SIGNER    
 
Name:                   
 
 
 
               
 
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: 1.25 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 1.25 to 1.0?

                     No, not in compliance                        Yes, in
compliance

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