SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(A) of the
Securities
Exchange Act of 1934 (Amendment
(Amendment No. )
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COMARCO, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be HeldJuly 21, 2011
To the Shareholders of Comarco, Inc.:
The 20112013 Annual Meeting of the Shareholders (the “Annual Meeting”) of Comarco, Inc., a California corporation (the “Company”, “we,” “us” or “our”), will be held on July 21, 2011August 22, 2013 at 3:10:00 p.m.a.m., local time, at the Company’s corporate offices, which are located at 25541 Commercentre Drive, Suite 250, Lake Forest, CA 92630, for the following purposes:
1. To approve an amendment to the Company’s Amended and Restated Bylaws to change the authorized number ofelect seven directors to no less than four and no more than seven;
2. To elect five directors;
3. To hold an advisory vote to approve the compensation of our named executive officers, as described in the Proxy Statement.
4. To hold an advisory vote on the frequency of future advisory votes to approve the compensation of our named executive officers.
5. To ratify the appointment by the Company’s Audit and Finance Committee of Squar, Milner, Peterson, Miranda & Williamson LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 31, 2012;2014; and
6. To transact such other business as may properly come before the meeting or any adjournment thereof.
The Board of Directors of the Company intends to present Michael R. Levin, Paul Borowiec, Wayne G. Cadwallader, Thomas W. Lanni, Richard T. LeBuhn, andMichael R. Levin, Michael H. Mulroy and Louis E. Silverman as nominees for election as directors at the annual meeting.
Only holders of record of the Company’s common stock at the close of business on May 31, 2011July 2, 2013 are entitled to notice of and to vote at the Annual Meeting.
Each shareholder is cordially invited to attend and vote in person at the Annual Meeting. TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, HOWEVER, SHAREHOLDERS ARE URGED TO COMPLETE, SIGNREAD THE PROXY STATEMENT AND RETURN THE ENCLOSEDSUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS PROMPTLYSOON AS POSSIBLE BY FOLLOWING THE INSTRUCTIONS IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS, WHICH WAS MAILED TO YOU ON OR ABOUT JULY 10, 2013, OR, IF YOU REQUEST PRINTED COPIES OF THE PROXY MATERIALS BY MAIL, YOU CAN ALSO VOTE BY MAIL OR BY TELEPHONE. Shareholders who attend the Annual Meeting may still vote in person, even if they have previously voted by proxy.
OUR BOARD OF DIRECTORS RECOMMENDS: A VOTE “FOR” EACH OF THE SEVEN DIRECTOR NOMINEES NAMED IN THE PROXY STATEMENT; A VOTE “FOR” PROPOSALS 2, 3 AND 5; AND A VOTE FOR “1 YEAR” WITH RESPECT TO PROPOSAL 4.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Alisha K. Charlton
Alisha K. Charlton, Secretary
Lake Forest, CaliforniaJune 10, 2011
July 5, 2013
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE2011
2013 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 21, 2011
This notice, as well as the accompanying Proxy Statement and our 2011the Company’s Annual Report to Shareholderson Form 10-K for the fiscal year ended January 31, 2013 will be available online on or about JuneJuly 10, 20112013 atwww.edocumentview.com/cmro. Information contained on our website other than these materials, is not part of the proxy soliciting material.
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GENERAL INFORMATION | 1 | |||
VOTING RIGHTS | 2 | |||
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PROPOSAL | 20 | |||
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PROPOSAL NO. 4 – ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS | 26 | |||
PROPOSAL NO. 5 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL | 27 | |||
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APPENDIX A – COMARCO, INC. 2011 EQUITY INCENTIVE PLAN, AS AMENDED | A-1 | |||
25541 Commercentre Drive, Suite 250
Lake Forest, CA 92630
(949) 599-7400
PROXY STATEMENT
For the Annual Meeting of Shareholders
To Be HeldJuly 21, 2011
August 22, 2013
GENERAL INFORMATION
The Board of Directors (the “Board”) of Comarco, Inc., a California corporation (the “Company”, “Comarco”, “we,” “us” or “Comarco”“our”), is soliciting proxies to be voted at the 20112013 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on July 21, 2011August 22, 2013 at 3:10:00 p.m.a.m., local time, at the Company’s corporate offices, which are located at 25541 Commercentre Drive, Suite 250, Lake Forest, CA 92630, or any postponement(s) or adjournment(s) thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Shareholders may obtain directions to the Annual Meeting by writing to the Company at its corporate offices or by calling (949) 599-7400. ThisUnder rules adopted by the Securities and Exchange Commission (“SEC”), we are providing our shareholders with the 2013 Annual Meeting proxy materials over the Internet, rather than sending printed copies of those materials through the mail. A Notice of Internet Availability of Proxy Statement, the accompanying form of proxy and our 2011 Annual Report to shareholders (the “Annual Report”Materials (“Notice”), are first is being mailed to all of our shareholders on or about JuneJuly 10, 2011.
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 an instrument in writing revoking the proxy, (2) filing with the Secretary of the Company a duly executed proxy bearing a later date, (3) voting again on the Internet or (3)by telephone (only your latest Internet or telephone proxy submitted prior to 1:00 a.m. Eastern Standard Time on Wednesday, August 22, 2013 will be counted) or (4) attending the Annual Meeting and voting 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. In the event that you return a signed proxy card on which no directions are specified, your shares will be voted “FOR” the amendment of the Company’s Amended and Restated Bylaws (the “Bylaws”), “FOR” each of the fiveseven director nominees, “FOR” the adoptionapproval of the Company’samendment to the 2011 Equity Incentive Plan, (the “2011 Plan”) and“FOR” the approval of the compensation of our named executive officers, “ONE YEAR” for the frequency of future advisory votes to approve the compensation of our named executive officers, “FOR” the ratification of the appointment of Squar, Milner, Peterson, Miranda & Williamson LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 31, 20122014 (“fiscal 2012”2014”), and in the discretion of the proxy holders as to any other matters that may properly come before the Annual Meeting or any postponement or adjournment of the Annual Meeting.thereof. If you sign and return the enclosed proxy, and if cumulative voting procedures are in effect (see “VOTING RIGHTS” below for additional information regarding such procedures), the proxyholders named in the accompanying proxy will have the right in their discretion to cumulate votes represented by the proxies that they hold, and to cast such cumulated votes among all or any of the nominees in such manner as they deem appropriate, provided that the proxyholders may not cast a vote from your shares for a nominee with regard to whom you withheld authority to vote.
The cost of preparing, assembling, printing and mailing this Proxy Statement, the accompanying form of proxy, and the Annual Report,Notice 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.
The Company’s officers, employees and directors may supplement the original solicitation of proxies personally or by telephone, facsimile, email, mail or other means of communication. We will pay no additional compensation to such persons for any of these activities. Additionally, the Company may engage a proxy solicitation firm to assist in the solicitation of proxies personally or by telephone, facsimile, email, mail or other means of communication, although it has no present plans to do so. If the Company engages a proxy solicitation firm to assist in the solicitation of proxies, the Company estimates that the fees paid to such firm would not exceed $5,000 plus out-of-pocket expenses.
If a shareholder shares an address with another shareholder, each shareholder may not receive a separate copy of our proxy materials, our Annual ReportNotice and most other mailings, unless we have received contrary
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This Proxy Statement, the accompanying notice of Annual Meeting and the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2013 (the “Annual Report”) are available online at www.edocumentview.com/cmro. Information contained on our website other than these materials, is not part of the proxy soliciting material.
Attendance at the Annual Meeting is limited to shareholders and holders of valid proxies. You may be asked to present a valid form of government-issued personal identification such as a driver’s license or passport. Cameras and other recording devices will not be permitted at the Annual Meeting. If your shares are held in street name and you would like to attend the Annual Meeting, you should ask the broker, bank, trust or other nominee which holds the shares to provide you with evidence of your share ownership, which will enable you to gain admission to the Annual Meeting.
VOTING RIGHTS
The Company’s only outstanding class of voting securities is its common stock. Only shareholders of record at the close of business on May 31, 2011July 2, 2013 will be entitled to vote at the Annual Meeting. At May 31, 2011,July 2, 2013, there were 7,343,86914,259,839 shares of common stock outstanding. The holders of record of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting, present in person or by proxy, will constitute a quorum for the transaction of business. Each share is entitled to one vote, except that each shareholder is entitled to cumulate his or her shares in the election of directors, provided that at least one shareholder has given notice at the Annual Meeting and prior to the voting of the shareholder’s intention to do so. If cumulative voting is in effect, each shareholder may cumulate votes for one or more candidates, provided that the name(s) of such candidate or candidates have been properly placed in nomination prior to the voting. To cumulate votes, a shareholder may vote for any one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by the shareholder, or alternatively, distribute any such votes among as many of the candidates as the shareholder deems appropriate. If cumulative voting procedures are invoked, the proxy holders indicated in the accompanying proxy will have the right in their discretion to cumulate votes represented by the proxies that they hold, and to cast such cumulated votes among all or any of the nominees in such manner as they deem appropriate, provided that the proxyholders may not cast a vote from your shares for a nominee with regard to whom you withheld authority to vote.
We encourage you to vote promptly. You may vote in one of the following ways:
By Mail. If you are a holder of record and are located in the U.S., you can vote by marking, dating and signing your proxy card and returning it by mail in the enclosed postage-paid envelope. If you are located outside the U.S., you should add the necessary postage to the enclosed envelope to assure delivery. In order to ensure that your vote is received on or prior to the date of the Annual Meeting, we recommend that your proxy card be returned to us by overnight mail.
By Telephone. If you are a holder of record and are located in the U.S. or Canada, you can vote your proxy by calling the toll-free telephone number on the proxy card. The telephone voting system has easy-to-follow instructions and allows you to confirm that the system has properly recorded your votes. If you vote by telephone, you do not need to return your proxy card.
By Internet. If you are a holder of record, you can vote your proxy byover the Internet. The enclosed proxy card indicates the website you may access for Internet voting. As with telephone voting, you will be able to confirm that the system has properly recorded your votes. You may incur costs such as Internet access charges if you vote by the Internet.
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Whether or not you attend the Annual Meeting, if your shares of common stock are held by a broker, bank or other nominee in “street name,” then you must obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct the broker to vote your shares.
If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, the organization may generally vote on your behalf on “routine” matters but cannot vote on “non-routine” matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization will inform the inspector of election that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.” The election of directors, adoptionthe approval of the 2011 Plan andcompensation of our named executive officers, the frequency of future advisory votes to approve the compensation of our named executive officers, as well as approval of an amendment to the Company BylawsCompany’s 2011 Equity Incentive Plan are not considered “routine” matters under applicable rules. Therefore, a broker or other nominee cannot vote your shares with respect to these matters without instructions from you on how to vote your shares. In order to minimize the number of broker non-votes, the Company urges you to provide voting instructions to the organization that holds your shares. The ratification of the appointment of Squar, Milner, Peterson, Miranda & Williamson LLP as the Company’s independent registered public accounting firm for fiscal 20122014 is considered a routine matter under the applicable rules and a broker or other nominee may generally vote your shares on this matter without instructions from you.
Abstentions and broker non-votes will be counted for purposes of determining the existence of a quorum at the Annual Meeting.
With respect to the election of directors, the fiveseven nominees receiving the greatest number of votes at the Annual Meeting shall be elected as directors. Abstentions and broker non-votes will have no effect on the election of any director.
An affirmative vote of the holders of a majority of shares of common stock present or represented by proxy at the Annual Meeting, will be required to approve the Amendment to the 2011 Equity Incentive Plan and the advisory vote to approve the compensation of our named executive officers. Abstentions and broker non-votes may affect the outcome these proposals because abstentions and broker non-votes are counted for purposes of determining the quorum and have the effect of a vote against these proposals.
With respect to the advisory vote on the frequency of future advisory votes to approve the compensation of our named executive officers, the voting frequency option that receives the highest number of votes cast by shares of common stock present or represented by proxy at the Annual Meeting will be deemed the frequency for the advisory vote on executive compensation that has been selected by shareholders.
An affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy at the Annual Meeting, and voting on the proposal, will be required to adopt the 2011 Plan and ratify the appointment of Squar, Milner, Peterson, Miranda & Williamson LLP as the Company’s independent registered public accounting firm.firm for fiscal 2014. Abstentions and broker non-votes will have no effect on the outcome of either proposal Broker non-votes will not be counted for any purpose in determining whether the proposal to adopt the 2011 Plan will be approved. However, because the ratification of the appointment of the independent registered public accounting firm is a routine matter, broker non-votes will not result for this proposal.outcome.
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Seven directors will be elected at the Annual Meeting. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated Michael R. Levin, Paul Borowiec, Wayne G. Cadwallader, Thomas W. Lanni, Richard T. LeBuhn, andMichael R. Levin, Michael H. Mulroy and Louis E. Silverman for election as directors. Jeffrey R. Hultman, a current director, has informed the Company that he is declining to stand for reelection to the Board.
Each nominee has consented to be named in the Proxy Statement as a nominee and has agreed to serve as a director if elected. Directors are elected at each annual meeting to hold office until the next annual meeting of shareholders andor until their successors are duly elected and qualified. Unless cumulative voting is in effect, it is intended that the shares represented by the enclosed proxy will be voted, unless otherwise instructed, for the election of the fiveseven nominees of the Board. While the Company has no reason to believe that any of the nominees will be unable to serve as a 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, 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. If cumulative voting is in effect for the election of directors, the proxy holders named on the Company’s proxy card will have the discretion to cumulate votes as provided by California law (see “VOTING RIGHTS” above)above for additional information) and to distribute such votes among all or any of the nominees in such manner as they deem appropriate,appropriate; provided that the proxyholders may not cast a vote from your shares for a nominee with regard to whom you withheld authority to vote.
All of the nominees except for Mr. Mulroy are currently serving as directors of the Company.Company and all were elected at the 2012 annual meeting. The term of office of each of the current directors expires on the date of the Annual Meeting. Mr. LeBuhn was elected at the 2010 annual meeting of shareholders. Messrs. Borowiec, Cadwallader and Levin were appointed to the Board on February 23, 2011, March 10, 2011 and March 15, 2011, respectively.
THE BOARD RECOMMENDS A VOTE “FOR” EACH OF THE BOARD’S NOMINEES.
The following table sets forth information concerning the nominees and is followed by a brief biography of each nominee.
| Year | ||||||||
| First | Other Public | |||||||
| Elected | Company | |||||||
Name | Age | Principal Position | Director | Directorships | ||||
| Michael R. Levin | 49 | Chairman of the Board | 2011 | None | ||||
| Paul Borowiec | 34 | Director | 2011 | None | ||||
| Wayne G. Cadwallader | 54 | Director | 2011 | None | ||||
| Richard T. LeBuhn | 46 | Director | 2008 | None | ||||
| Michael H. Mulroy | 45 | Director | N/A | None |
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Year First | Other Public | |||
Elected/Appointed | Company Directorships | |||
Name | Age | Principal Comarco Position | As Director | (Past Five Years) |
Paul Borowiec | 36 | Director | 2011 | None |
Wayne G. Cadwallader | 56 | Director | 2011 | Orbit International, Corp. |
Thomas W. Lanni | 60 | Director and President and Chief Executive Officer | 2011 | None |
Richard T. LeBuhn | 48 | Director | 2008 | None |
Michael R. Levin | 51 | Director | 2011 | None |
Michael H. Mulroy | 47 | Director | 2011 | None |
Louis E. Silverman | 54 | Chairman of the Board | 2012 | Questcor Pharmaceuticals, Inc. |
Paul Borowiecis an investor and an advisor on public companies’company investments. He has extensive experience in investment analysis and investment management, ranging from analyzing financial statements to investment manager selection. Mr. Borowiec’s analyst background covers a variety of industries with emphasis on the technology sector. Currently heHe currently serves as Vice President of Investments at Source Capital Group, a position he has held since June 2009. Mr. Borowiec is also the Managing Partner of Source Opportunity Fund LLC at Source Capital Group. Most recently Mr. Borowiec was an investment analyst for StoneWater Capital LLC, a position he held from May 2005 to June 2008, where he shared responsibilities in managing their domestic business. Prior to StoneWater Capital, Mr. Borowiec was a research analyst for Neuberger Berman. Prior to Neuberger Berman, Mr. Borowiec worked for American Skandia as a portfolio analyst in the investment management group. Mr. Borowiec holds a B.S. in International Business from Fairfield University.
Mr. Borowiec’s qualifications to serve on our Board of Directors include, among other skills and qualifications,amongst others, his extensive experience as an investor in public companies, including technology related companies and his extensive financial analyst background.
Wayne Cadwalladeris Managing Partner — Research for Elkhorn Partners LP, a long-time investor in Comarco.Comarco, that beneficially owns approximately 49% of our outstanding common stock as of the date of this proxy statement. An experienced securities analyst, Mr. Cadwallader has extensive knowledge of numerous industries including technology, insurance, retail, manufacturing, and real estate. Mr. Cadwallader also has substantial expertise in information technology gained through numerous management positions and in management consulting. Prior to joining Elkhorn Partners, Mr. Cadwallader worked for Hamblin Watsa Investment Counsel Ltd., from October 2000 to June 2010, a subsidiary of Fairfax Financial Ltd., where he was promoted from Associate Investment Analyst to Senior Investment Analyst. Mr. Cadwallader was part of the investment team at Hamblin Watsa Investment Counsel managing Fairfax Financials’ $22.0 billion in assets. In this capacity, his focus was primarily equity research and to some extent bond research with a focus on North America and to a lesser extent European stocks across a wide range of industries providing in depth analyses and recommendations.industries. He was also involved in a number of corporate debt restructurings. From 1998 to 2000, Mr. Cadwallader ran his own information technology consulting firm. The firm placed consultants with companies to develop application software and he personally managed numerous Y2K projects. From 1990 to January 1998, Mr. Cadwallader worked for CIBC,currently serves as a large Canadian bank. Mr. Cadwallader held positions as Managerdirector of Communications Services, Manager of Communications Software and Acting Director of Communications. Mr.Cadwallader began his career at Xerox holding various positions in information technology until 1990.
Mr. Cadwallader’s qualifications to serve on our Board of Directors include, among other skills and qualifications,amongst others, his extensive experience as an investor in public companies, including technology related companies, and his extensive financial analyst background.
Thomas Lanniwas appointed to the Board, and to serve as President and Chief Executive Officer of the Company, on August 15, 2011. Mr. Lanni joined the Company in 1994 as General Manager for the ChargeSource Division. In February 2004, he became Vice President and Chief Technology Officer. Mr. Lanni has more than 30 years experience with power systems technology. From 1992 to 1994, he was President of Power Conversion Technologies, Inc. (“PCTI”), a company that provides advanced power electronics solutions to military and commercial industrial customers. From 1987 to 1992, he was Vice President of Engineering at Bruno New York Industries, Inc., a military weaponry specialist firm. From 1982 to 1987, he was Engineering Group Leader at Aerospace Avionics, Inc., a company whose various manufacturing activities are carried out through its Aerospace, Specialty Engineering, Medical and Detection divisions.
Mr. Lanni’s qualifications to serve on our Board of Directors include, amongst others, his extensive experience and history with the Company, his management experience and his engineering background especially in the field of power systems.
Richard LeBuhnhas served since June 2006 as Senior Vice President atof Broadwood Capital, Inc., a private investment company that beneficially owns more than 5%approximately 21% of our outstanding common stock.stock as of the date of this proxy statement. Previously, Mr. LeBuhn was a Principal atof Broadfield Capital Management, LLC, ana private investment advisory services firm, from May 2005 to June 2006, and a Vice President atof Derchin Management, another management servicesa private investment firm, from July 2002 to May 2005. Earlier in his career, Mr. LeBuhn founded and was Managing Member of Triple Eight Capital, LLC, an investment analysis and financial advisory firm, was Managing Director of Craig Drill Capital, Inc., a private investment firm, and served as an operating business manager for Chubb and Son, Inc., the property and casualty insurance division of The Chubb Corporation. Mr. LeBuhn holds a B.A.graduated from St. Lawrence University and anwith a BA in Economics in 1988. He received a MBA in Finance with Distinction from Columbia University Graduate School of Business.
Mr. LeBuhn’s qualifications to serve on our Board of Directors include, among other skills and qualifications,amongst others, his extensive experience as an investor in public companies, including technology related companies, his extensive financial analyst background, his financial and management expertise, and his ability to provide advice on various matters, including matters pertaining to corporate governance.
Michael Levinwas appointed to the Board on March 15, 2011 and served as the Chairman of the Board from March 15, 2011 until July 28, 2012. Mr. Levin is an independent private investor and advisor with substantial expertise in corporate governance, business strategy, and corporate finance, and with significant experience working with U.S. public companies as a finance executive and independent management consultant. In addition to his private investment activities, he assists portfolio managers in turning around underperforming companies using shareholder activist strategies. Since 2006, Mr. Levin has served as a financial executive for several entrepreneurial ventures, including ventures in alternative energy and medical diagnostics. Previously, he served as a finance executive at Nicor, a natural gas utility, from 2003 to 2006. Mr. Levin was the Chief Risk and Credit Officer of CNH, a farm and construction equipment manufacturer, from 2002 to 2003. Prior to his work as a corporate finance executive, Mr. Levin enjoyed an 18 year career as a management consultant specializing in corporate finance and risk management at Towers Watson, Deloitte & Touche, Arthur Andersen, and BearingPoint. A native of Chicago, Mr. Levin holds a B.A. with General Honors in Economics and Public Policy and a M.A. in Economics and Quantitative Analysis, both from the University of Chicago.
Mr. Levin’s qualifications to serve on our Board of Directors include, amongst others, his extensive experience as an investor in public companies, including technology related companies, his extensive financial analyst background, his financial and management experience, and his ability to provide advice on various matters, including matters pertaining to business strategy, corporate finance and corporate governance.
Michael Mulroyhas served as Senior Vice President, Chief Financial Officer and General Counsel of Questcor Pharmaceuticals (NASDAQ:QCOR) since January 2011. From 2003 to 2011, Mr. Mulroy was employed by the law firm of Stradling Yocca Carlson & Rauth, where he served as a partner from 2004. At Stradling Yocca Carlson & Rauth Mr. Mulroy represented Questcor and other publicly-traded companies. From 1997 to 2003, Mr. Mulroy was an investment banker at Merrill Lynch and Citigroup. Mr. Mulroy earned his J.D. degree from the University of California, Los Angeles and his B.A. (Economics) from the University of Chicago.
Mr. Mulroy’s qualifications to serve on our Board of Directors include, among other skills and qualifications,amongst others, his extensive experience as an attorney and investment banker advising many companies in different industries at different points in their development, and his experience serving as the Chief Financial Officer and General Counselan executive officer of a publicly traded company.
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Louis Silvermanwas appointed to the Board and as the Chairman of the Board on July 28, 2012. Mr. Silverman served as the Chief Executive Officer of privately-held Marina Medical Billing Service Inc. based in Cerritos, CA, a company focused on providing revenue cycle management services to emergency room physicians nationally from September 2009 until June 2012. Prior to joining Marina Medical, Mr. Silverman was President and Chief Executive Officer of LifeComm, Inc., a Qualcomm Incorporated incubated wireless health services start-up from August 2008 until September 2009. Prior to Lifecomm, Mr. Silverman had a successful eight-year tenure as President and Chief Executive Officer of Quality Systems Inc., where he led the developer of medical and dental practice management software to 600% organic revenue growth and an increase in market value from $42 million to $1.2 billion. Previously, Mr. Silverman was the Chief Operations Officer of Corvel Corporation. He earned a Bachelor of Arts degree from Amherst College and a Masters in Business Administration from Harvard Graduate School of Business Administration. Mr. Silverman currently serves as a director of Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR).
Mr. Silverman’s qualifications to serve on our Board of Directors include, amongst others, his extensive financial analyst background, his financial andpublic company management experience and his ability to provide advice on various matters, including matters pertaining to corporate governance.
No nominee for director has any family relationship with any other nomineedirector or with any of the Company’s executive officers.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During the fiscal year ended January 31, 20112013 (“fiscal 2011”2013”), the Board met 17 times, 4 of which were meetings of the independent directors of the Board.18 times. Each of the Company’s directors, except for Mr. LeBuhn, attended at least 75 percent of (i) the total number of meetings of the Board and (ii) the total number of meetings of the committees on which he served, during the period for which he was a director or committee member during the Company’s last fiscal year. Mr. LeBuhn attended 72 percent of the total number of meetings of the Board during the period for which he was a director, due in part to recusing himself from certain meetings related to the Broadwood Partners L.P. (“Broadwood”) transactions described herein. The Board has a policy that each member of the Board should make every reasonable effort to attend each annual meetingAnnual Meeting of shareholders,Shareholders, and all fiveseven of the Company’s then current directors were in attendance at the 20102012 Annual Meeting of Shareholders.
The Board appointed Mr. Robert J. MajtelesSilverman as a director and Chairman of the Board in December 2008, a position he held until his resignation on January 10, 2011.July of 2012. In his capacity as Chairman of the Board, Mr. Majteles consultedSilverman consults regularly with the President and Chief Executive Officer and other members of management, wasis the principal liaison to the non-management directors, workedworks with the President and Chief Executive Officer in preparing the agenda for Board meetings and chairs the executive sessions of the Board. UponPrior to Mr. Majteles’ resignation fromSilverman joining the Board, Mr. Griffin was appointed Chairman of the Board. Mr. Griffin resignedMichael R. Levin served as a director and Chairman of the Board, on March 11, 2011 and Mr. Levin was appointed as a director and Chairman of the Board effective March 15, 2011.
Independence of Committee Members
The standing committees of the Board described below are each comprised of independent directors as defined by Rule 5605(a)(2) of the NASDAQ Listing Rules. However,While none of the Company’s securities are listed for trading on the NASDAQ stock market.
Board Leadership Structure and Role in Risk Oversight
There are currently fiveseven members of the Board all of whom areBoard: one management director and six independent non-management directors. The Board has three standing committees: Auditthe audit committee (the “Audit Committee”), the compensation committee (the “Compensation Committee”), the nominating and Finance, Compensation, and Nominatingcorporate governance committee (the “Nominating and Corporate Governance.Governance Committee”). The Board also has a special finance committee (the “Special Finance Committee”), which was formed in January 2013. All of the standing Board committees are comprised solely of independent, non-management directors. The committee chairs set the agendas for their respective committees and report to the full Board on their work.
The Board has, as with prior years, chosen to separate the positions of principal executive officer and Chairman of the Board of Directors.Board. The Board of Directors believes that it is in the best interests of the Company’s shareholders to separate the two positions because combining both positions in the same individual may concentrate too much power in the hands of a single executive. Having an independent Chairman of the Board may helpalso better facilitate communications and relations between the Board and the Company’s officers.
The role of Chairman was held by Mr. Majteles,Silverman, an independent, non-management director, for mostthe second half of fiscal 2011.2013. Mr. MajtelesSilverman was electedappointed Chairman due to his extensive public and private company leadership skills and experience. Prior to Mr. GriffinSilverman’s appointment, Mr. Levin was appointed Chairman of the Board on January 10, 2011 following Mr. Majteles’ resignation and Mr. Levin was appointed as a director and Chairman of the Board effective March 15, 2011.
The entire Board has an active role, as a whole and also at the committee level, in risk oversight of the Company. The Board regularly receives, reviews and discusses information regarding risks related to the Company’s results of operations, business, strategy, financial position and liquidity. Each of the Board’s committees also reviews the risks related to thatsuch Committee’s areas of responsibility and reports to the Board regarding such matters. The Audit and Finance Committee serves as the Board’s representative for the oversight of
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Audit and Finance Committee
The Audit and Finance Committee monitors the quality and integrity of the Company’s financial statements, internal controls, risk management and legal and regulatory compliance. In addition, the Audit and Finance Committee oversees the accounting and financial reporting processes and the audits of the Company’s financial statements, including monitoring the independence, qualifications and performance of the Company’s independent registered public accounting firm. In this capacity, the Audit and Finance CommitteeCommittee: (i) determines the compensation of, evaluates and, when appropriate, replaces the Company’s independent registered public accounting firm,firm; (ii) pre-approves all audit and permitted non-audit servicesservices; and (iii) reviews the scope and results of each fiscal year’s outside audit. The fiscal 20112013 members of the Audit and Finance Committee were Messrs. Griffin,Levin, who chaired the committee, HultmanBorowiec, and Majteles.Mulroy. The Board determined that the members of the Audit and Finance Committee during fiscal 20112013 were independent as defined under Rule 10A-3(b) promulgated by the Securities and Exchange Commission (the “SEC”) and that Mr. Hultman wasMulroy is an “audit committee financial expert” for purposes of the rules and regulations of the SEC. Additionally, the Board determined that each of Messrs. Griffin, HultmanLevin, Borowiec and MajtelesMulroy understood fundamental financial statements, including a balance sheet, income statement and cash flow statement, and met the other requirements for audit committee members prescribed by the NASDAQ Listing Rules. While none of the Company’s securities are listed for trading on the NASDAQ stock market and the company is therefore not required to meet the NASDAQ Listing Rules, the Board has elected to do so. The Audit and Finance Committee met fivefour times during fiscal 2011.
Compensation Committee
The Compensation Committee assists the Board by discharging the Board’s responsibilities with respect to the compensation and benefits of the Company’s executive officers and directors. In this regard, the Compensation Committee evaluates and administers the Company’s compensation policies and programs. The Compensation Committee reviews and approves corporate goals and objectives relevant to the compensation of the CEO, evaluates the CEO’s performance and sets the CEO’s compensation level based on this evaluation. For other Company executives, the Compensation Committee reviews and approves corporate goals and objectives, evaluates, in consultation with the CEO as the Compensation Committee deems appropriate or necessary, executive performance and sets compensation levels. In addition to executive compensation, the Compensation Committee reviews and assists the Board in establishing compensation policies for directors and committees of the Board. The Compensation Committee also administers the Company’s incentive and equity-based compensation plans. TheDuring fiscal 2011 members of2013, the Compensation Committee werewas composed of Messrs. Hultman,Cadwallader, who chairs the committee, GriffinBorowiec and LeBuhn.
In accordance with its charter, the Compensation Committee has the sole authority, as it deems appropriate, to retain and/or replace as needed any compensation and benefits consultants and other outside experts or advisors as the Compensation Committee believes to be necessary, desirable or appropriate. The Compensation Committee did not use the services of any outside experts or advisors during fiscal 2011.2013. The Compensation Committee met eightfour times during fiscal 2011.
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The Nominating and Corporate Governance Committee assists the Board in identifying, evaluating and recommending candidates for election to the Board and its Committees, including reviewing and evaluating the size, structure and composition of the Board and its Committees. The Nominating and Corporate Governance Committee’s corporate governance responsibilities include providing oversight for evaluating the Board and management, and developing, recommending and reassessing the Company’s corporate governance guidelines and overall corporate governance of the Company. TheDuring fiscal 2011 members of2013, the Nominating and Corporate Governance Committee, werewas composed of Messrs. Majteles,LeBuhn, who chaired the committee, GriffinBorowiec and LeBuhn.Cadwallader. The Nominating and Corporate Governance Committee met twicetwo times during fiscal 2011.
Special Finance Committee
The Special Finance Committee was formed in January 31, 2011,2013 and was comprised of one management director, Mr. Lanni, and two non-management directors, Mr. Borowiec and Mr. Levin, who chairs the compositioncommittee. The purpose of the NominatingSpecial Finance Committee was to negotiate and Corporate Governancedetermine whether or not to approve (i) any debt or equity financing transaction with Elkhorn Partners Limited Partnership (“Elkhorn”), and (ii) any agreements that might be entered into with or any legal actions that might be taken against Broadwood. The Special Finance Committee changed such thatdid not meet during the current membersperiod the committee existed in fiscal 2013. In fiscal 2014, subsequent to completing the Elkhorn transactions described herein, Mr. Cadwallader joined the committee and the purpose of the committee are Messrs. Cadwallader, LeBuhnwas expanded to include and Borowiec. Mr. LeBuhn is currentlyaddress the Chairmancontinuing financing requirements of the Nominating and Corporate Governance Committee.Company.
Committee Charters
The Board has adopted written charters for the Audit and Finance Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, settingwhich set forth the roles and responsibilities of each committee. Each of the charters is available on the Company’s website at www.comarco.com. Information provided on the Company’s website, however, does not form a part of this Proxy Statement.
CORPORATE GOVERNANCE
Director Independence
The Board has determined that, except for Mr. Inman,Lanni, each individual who served as a member of the Board during fiscal 20112013 was an “independent director” within the meaning of Rule 5605(a)(2) of the NASDAQ Listing Rules. Mr. InmanLanni was not considered independent as he was employed by the Company as its President and Chief Executive Officer during fiscal 2011.2013. Each of the Company’s current directors and director nominees(excluding Mr. Lanni) are or will be independent directors within the meaning of Rule 5605(a)(2) of the NASDAQ Listing Rules. However,While none of the Company’s securities are listed for trading on the NASDAQ stock market.
Executive Sessions of Independent Directors
It is the policy of the Board that the Company’s independent directors meet separately without management directors at least twice each year, before or after regularly scheduled Board meetings, to discuss such matters as the independent directors consider appropriate. Messrs. Majteles and Griffin, former ChairmenEither Mr. Silverman or Mr. Levin, the Chairman of the Board at the time, presided at these meetings. During fiscal 2011,2013, the Company’s independent directors met separately in executive session fivefour times.
Shareholder and Interested Party Communications with the Board of Directors
Shareholders who desire to communicate with the Board or any director regarding any matter pertinent to the Company’s business or affairs may do so by writing to the Comarco Board of Directors, Comarco, Inc., 25541 Commercentre Drive, Suite 250, Lake Forest, CA 92630, marked to the attention of an individual director’s name or to the Chairman of the Board.
The Company also has established a Compliance Hotline“Compliance Hotline” as a means of receiving and directing concerns from employees and any other persons relating to complaints regarding any accounting, internal audit controls or auditing matters. Confidential, anonymous reports of accounting and audit concerns may be made 24 hours a day, seven days a week. Communications may be confidential or anonymous, and may be communicated by calling the Compliance Hotline at: (800) 850-4727.
In addition, anyone who has a concern about the conduct of the Company or any of its officers or employees, or about the Company’s accounting, internal controls, disclosure controls and procedures, auditing,
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Shareholder Recommendations of Director Candidates
The Nominating and Corporate Governance Committee considers candidates for nomination to serve as directordirectors proposed by any shareholder of the Company. Any shareholder recommendation is forwarded to the Chairman of the Nominating and Corporate Governance Committee.
A shareholder must provide the following supporting information to recommend a candidate for nomination: name, age,name; age; business and residence addresses,addresses; principal occupation or employment,employment; the number of shares of the Company’s common stock held by the candidate,candidate; a resume of his or her business and educational background,background; the information that would be required under SEC rules in a proxy statement soliciting proxies for the election of such nominee as a directordirector; and a signed consent of the candidate to serve as a director, if nominated and elected. The Nominating and Corporate Governance Committee, after reviewing this information, will determine whether the candidate meets the qualifications for committee-recommended candidates, including the objectives for the composition of the Board as a whole. The Nominating and Corporate Governance Committee does not evaluate any candidate for nomination as director any differently because the candidate was recommended by a shareholder.
Evaluation of Director Candidates
The Nominating and Corporate Governance Committee encourages the selection of directors who will contribute to the Company’s overall corporate goals of technology leadership, effective execution, high customer satisfaction, superior employee working environment and creation and preservation of shareholder value. At a minimum, candidates recommended by the Nominating and Corporate Governance Committee must possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the Company’s shareholders.
The Board will solicit recommendations for nominees from persons that the Board believes are likely to be familiar with qualified candidates. These persons may include members of the Board, shareholders of the Company and management of the Company. The Board may also engage a professional search firm to assist in identifying qualified candidates. If a search firm is engaged, the Board shall set its fees and scope of engagement.
Comarco’s Corporate Governance Guidelines set forth criteria which the Nominating and Corporate Governance Committee apply when evaluating the suitability of individual candidates for election or re-election to the Board. These criteria include, among other things,amongst others, the candidate’s integrity, business acumen, experience, judgment, commitment, diligence, conflicts of interest and ability to act in the interests of all shareholders. Additionally, the Nominating and Corporate Governance Committee considers the backgrounds and qualifications of the directors, as a group, to provide a diversity of background, experience, knowledge and abilitiesability to assist the Board in fulfilling its duties. When determining whether to recommend a director for re-election, the Nominating and Corporate Governance Committee takes into account the director’s past attendance at, and participation in, meetings of the Board and its committees and contributions to their activities.
Code of Ethics
The Audit and Finance Committee has adopted a Code of Ethics for Senior Financial Officers to promote and provide for honest and ethical conduct by the Company’s Senior Financial Officers, as well as for full, fair, accurate and timely financial management and reporting. The Company’s Senior Financial Officers include the Chief Executive Officer Chief Financial Officer,and the Chief Accounting Officer or Controller, and Treasurer.Officer. The
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Transactions with Related Persons
Elkhorn Partners Transactions Summary
On February 11, 2013, the Company and Elkhorn entered into a Secured Loan Agreement (the “Elkhorn Loan Agreement”) and a Stock Purchase Agreement (the “Elkhorn SPA”), and certain related agreements, which are described below (collectively, the “Elkhorn Agreements”). As shown in the beneficial ownership table in this proxy statement under the heading “Security Ownership of Certain Beneficial Owners and Management”, Elkhorn is a significant shareholder of the Company. In addition, Wayne Cadwallader, Managing Partner – Research for Elkhorn Partners L.P. is (and was at the time of the transactions described below) one of our board members.
Pursuant to the Elkhorn Agreements, Elkhorn made a $1.5 million senior secured loan to the Company with a maturity date of November 30, 2014 and purchased a total of 6,250,000 shares of the Company’s common stock at a cash purchase price of $0.16 per share, generating an additional $1.0 million of cash for the Company. The average of the closing prices of the Company’s common stock in the over-the-counter market for the five trading days immediately preceding February 11, 2013 was $0.14 per share and, for the 29 trading days that began on January 2, 2013 and ended on February 8, 2013, was $0.158 per share. On February 11, 2013, the Company used approximately $2.1 million of the proceeds of $2.5 million from the Elkhorn Loan and the sale of the shares to Elkhorn to pay the entire principal amount of and all accrued interest on the Broadwood Loan (described below).
Secured Loan Agreement with Elkhorn Partners
The Elkhorn Loan, which is evidenced by a promissory note (the “Elkhorn Note”), issued by the Company to Elkhorn, bears interest at 7% for the first 12 months of the Elkhorn Loan, increasing to 8.5% thereafter and continuing until the Elkhorn Loan is paid in full. The Elkhorn Loan matures on November 30, 2014 (the “Maturity Date”); however, the Company has the right, at its option, to prepay the Elkhorn Loan, in whole or in part, without penalty or premium.
The Elkhorn Loan Agreement provides that if and to the extent the Company does not pay the Elkhorn Loan in full by its Maturity Date, then, Elkhorn will have the right, at its option (but not the obligation), to convert the then unpaid balance of the Elkhorn Loan, in whole or in part, into shares of Company common stock at a conversion price of $0.25 per share. That conversion price is subject to possible adjustment on (i) certain sales of Company common stock at a price lower than $0.25 per share, (ii) stock splits of, stock dividends on and any reclassification of the Company’s outstanding shares, and (iii) certain mergers or reorganizations of the Company, as provided in Article III of the Elkhorn Loan Agreement.
The Elkhorn Loan Agreement contains customary representations and warranties of and affirmative and negative covenants on the part of the Company and its wholly owned subsidiary, Comarco Wireless Technologies, Inc. (“CWT”). The Agreement also provides that the Elkhorn Loan, together with accrued interest, will become immediately due and payable upon the occurrence of an Event of Default, which is defined in the Elkhorn Loan Agreement to include each of the following, among others: (i) a failure of the Company to pay the principal of or accrued interest on the Elkhorn Loan which continues unremedied for three calendar days (except that such grace period shall not apply to amounts due at the Maturity Date of the Loan), (ii) the Company or CWT commits a breach of any of their other material obligations under the Elkhorn Loan Agreement or under any of the related debt related agreements and the breach which remains uncured for a period ranging from 15 days to 30 days (depending on the nature of the breach) following receipt of notice of the breach from Elkhorn; (iii) any of the representations or warranties of the Company or CWT contained in the Elkhorn Loan Agreement prove to have been untrue or incorrect in any material respect, (iv) the Company or CWT fails to pay indebtedness in the amount of $200,000 or more owed to any other creditor, as defined in the Elkhorn Loan Agreement, (v) one or more judgments are entered against the Company or CWT in an aggregate amount of $200,000 or more, which are not satisfied, discharged, stayed or bonded against within the succeeding 30 days, and (vi) the filing by the Company of a voluntary petition in bankruptcy or the Company’s failure to obtain the dismissal, within 60 days, of an involuntary petition filed against it in bankruptcy, or a receiver or liquidator is appointed over, or an attachment is issued against a substantial part of the assets of the Company or CWT, which in either case remains undismissed for the succeeding 30 days.
Upon the occurrence and during the continuance of an Event of Default, interest on the Elkhorn Loan will accrue at the lesser of (i) 15% per annum or (ii) the highest rate permitted by applicable law.
Elkhorn Stock Purchase Agreement
Concurrently with the Company’s entry into the Elkhorn Loan Agreement, the Company and Elkhorn entered into the Elkhorn SPA. Pursuant to that Agreement, the Company has sold 6,250,000 shares of its common stock to Elkhorn at a price of $0.16 per share, resulting in an aggregate purchase price of $1.0 million. As noted above, that purchase price compares to an average per share closing price for Comarco’s shares of $0.14 during the five trading days immediately preceding the sale of the shares to Elkhorn, and an average per share closing price of $0.158 for the 29 trading days that that began on January 1, 2013 and ended on February 8, 2013.
The purchase price of $0.16 per share paid by Elkhorn for those shares was determined by arms-length negotiations between Elkhorn and the members of a special committee of the Company’s Board of Directors, comprised of three of the directors who have no affiliation with Elkhorn and no financial interest, other than their interests solely as shareholders of the Company, in either the loan or share transactions with Elkhorn. That per share purchase price was determined based on a number of factors, including the Company’s inability, notwithstanding its best efforts, to raise additional capital from other prospective institutional investors during the six month term of the Broadwood Loan and the recent trading prices of the Company’s shares in the over-the-counter market, which averaged $0.14 per share during the five trading days immediately preceding the sale of the shares to Elkhorn, and $0.158 per share over the 29 trading days that that began on January 2, 2013 and ended on February 8, 2013.
Broadwood Senior Secured Six Month Term Loan Agreement
The Company entered into a Senior Secured Six Month Term Loan Agreement dated July 27, 2012 (the “Broadwood Loan Agreement”) with Broadwood, a partnership managed by Broadwood Capital, Inc., the general partner of Broadwood. As shown in the beneficial ownership table, Broadwood is a significant shareholder of the Company. In addition, Richard LeBuhn, Senior Vice President of Broadwood Capital, Inc. (the general partner of Broadwood), is (and was at the time of the transactions described below) one of our board members.
Pursuant to that Agreement, Broadwood made a $2,000,000 senior secured six month loan (the “Broadwood Loan”) to the Company and to CWT, as co-borrower. The Broadwood Loan bore interest at 5% per annum, ranked senior in right of payment to all other indebtedness of the Company and was due and payable in full on January 28, 2013. The Company originally intended to repay the Broadwood Loan and accrued interest from the $3.0 million in proceeds that was expected to be received from Broadwood in the fourth quarter of fiscal 2013, pursuant to the Stock Purchase Agreement (“Broadwood SPA”) discussed below.
On January 28, 2013, the maturity date of the Broadwood Loan, the Company was informed by Broadwood, that it was Broadwood’s position that one or more of the conditions precedent to its obligation to purchase the Company’s shares pursuant to the Broadwood SPA had not been satisfied and, as a result, Broadwood would not consummate that purchase and, therefore, the Company would have to repay the Broadwood Loan in cash. Subsequent to the fiscal year-ended January 31, 2013, the Company repaid the amounts outstanding under the Broadwood Loan Agreement in full from the Elkhorn proceeds discussed above.
Broadwood Stock Purchase Agreement and Stock Purchase Warrants
Concurrently with the execution of the Broadwood Loan Agreement, the Company and Broadwood entered into the Broadwood SPA. That agreement provided for the purchase by Broadwood of up to 3,000,000 shares of the Company’s common stock (the “Shares”), at a price of $1.00 per Share, subject to the following conditions: (i) during the six month term of the Broadwood Loan, the Company would use its best commercial efforts to raise at least $3.0 million from the sale of additional equity securities to other investors, which could include other shareholders of the Company, and (ii) the Company remained in compliance with its covenants under the Broadwood Loan Agreement. The Broadwood SPA provided that if, at any time between July 27, 2012 and July 27, 2013, the Company sells any shares of its common stock (or sells or issues securities that are convertible or exercisable into shares of common stock) at a price less than $1.00 per share, the Company will be required to issue outright to Broadwood, without additional consideration from it, a number of additional Shares (the “Make-Whole Shares”) sufficient to reduce the per share price paid by Broadwood for the total number of the Shares and Make-Whole Shares issued under the Broadwood SPA to that lower price.
As consideration for the Broadwood Loan and Broadwood’s entry into the Broadwood SPA, on July 27, 2012 the Company issued stock purchase warrants (the “Warrants”) to Broadwood entitling it to purchase up to a total of 1,704,546 shares of the Company’s common stock (the “Warrant Shares”), at a price of $1.00 per Warrant Share, at any time through July 2020.
On July 27, 2012, the Company also entered into a Warrant Commitment Letter, which provided that if the Company raised less than $3.0 million from sales of equity securities to other investors during the six month term of the Broadwood Loan, then Broadwood will receive an additional Warrant (the “Additional Warrant”) entitling it to purchase, also at a price of $1.00 per share, an amount of shares of the Company’s common stock to be determined based on a formula in the Warrant Commitment Letter, with such amount not to exceed 1,000,000 additional shares (the amount of such additional shares, “Additional Warrant Shares”). The exercise price is to be adjusted if the Company completes subsequent financings at less than the current exercise price as described below.
The Warrants, including the Additional Warrant, provide that if the Company sells shares of its common stock (or any securities that are convertible or exercisable into shares of Company common stock) at a price less than $1.00 per share, then, subject to certain exceptions (including grants of stock incentives and sales of shares to officers, employees or directors under the Company’s equity incentive plans and issuances of shares in business acquisitions), the exercise price of the Warrants, including the Additional Warrant, then outstanding will be reduced to that lower price and the number of Warrant Shares purchasable by Broadwood on exercise of the Warrants and the Additional Warrant will be proportionately increased.
The Warrants and the Additional Warrant (collectively, the “Broadwood Warrants”) also grant to Broadwood the right to require the Company (i) to register the Warrant Shares under the Securities Act of 1933, as amended (the “Securities Act”) for possible resale and (ii) to include the Warrant Shares in any registration statement that the Company may file to register, under the Securities Act, the sale of Company shares for cash.
As noted above, the Company was informed by Broadwood on January 28, 2013, that it was Broadwood’s position that one or more of the conditions precedent to its obligation to purchase the Company’s shares pursuant to the Broadwood SPA had not been satisfied and, as a result, Broadwood would not consummate that purchase.
The Company’s position is that, contrary to Broadwood’s assertions, all of the conditions under the Broadwood SPA had been satisfied, and Broadwood’s refusal to purchase 3,000,000 shares of Company common stock, at the price of $1.00 per share, constituted a material breach by Broadwood of its obligations under the Broadwood SPA. As a result, as of the date of filing this report, the Company has not issued any Additional Warrant Shares to Broadwood and each party has reserved its rights under and with respect to the Broadwood SPA and the Broadwood Warrants.
Related party relationships
Chad Giacopelli, the son-in-law of Mr. Lanni, our Chief Executive Officer, is currently employed by the Company as our IT Network Technician. Our Chief Executive Officer does not directly supervise Mr. Giacopelli nor is he involved in the determination of Mr. Giacopelli's compensation.
Policy on Related Person Transactions
Our Board of Directors has adopted a written policy and procedures for the review of any transaction, arrangement or relationship in which the Company was or is to be a participant and one of our executive officers, directors, director nominees or a 5 percent shareholder (or any member of the immediate family of any of the foregoing), or any entity in which persons listed above, either individually or in the aggregate, have a greater than 10 percent ownership interest, each of whom we refer to as a “related person,” has or will have a direct or indirect material interest. We refer to these transactions as “related person transactions.” The policy is administered by the Audit and Finance Committee.
The policy calls for any proposed related person transaction to be reviewed and approved by our Audit and Finance Committee. Whenever practicable, the Committee will review, and, in its discretion, may approve the related person transaction in advance, but the policy also permits the Committee to consider and ratify transactions that have already occurred, when necessary. Any related person transactions that are ongoing in nature will be reviewed annually. The Committee will review and consider such information regarding the related person transaction as it deems appropriate under the circumstances. The policy also requires Committee review and approval of (1) any charitable contribution to an organization in which a related person serves as a director or trustee or is actively engaged in fund-raising and (2) any proposed transaction in which a related person may participate that involves a corporate opportunity of potential value to the Company. The policy provides that certainde minimistransactions do not create a material direct or indirect interest on behalf of related parties and, therefore, are not covered under the policy.
The Audit and Finance Committee may approve a related person transaction only if the Committee determines that, under all of the circumstances, the transaction is in the best interest of the Company and its shareholders. If the Audit and Finance Committee determines not to approve or ratify a related person transaction, the transaction shall not be entered into or continued, as the case may be. No member of the Committee will participate in any review or determination with respect to a related person transaction if the Committee member or any of his or her immediate family members is the related person.
During fiscal 2013, the Board of Directors established the Special Finance Committee, comprised solely of directors determined by the Board to be disinterested from Elkhorn and Broadwood, and delegated to that committee the authority to negotiate, consider and determine whether or not to approve (i) any debt or equity financing transactions with Elkhorn and (ii) any agreements that might be entered into with or any legal actions that might be taken against Broadwood. For these purposes, a director would be deemed to be disinterested if he has no relationships with Elkhorn or Broadwood and has no financial interest (other than as a shareholder of Comarco) in any transactions that might be entered into or consummated with Elkhorn or in any agreements that might be negotiated with or actions that might be taken against Broadwood.
Since February 1, 2009,2011, except as described above under transactions with related parties, the Company has not been a party to, and has no plans to be a party to, any transaction or series of transactions in which the amount involved exceeded or will exceed $120,000 and in which any related person had or will have a direct or indirect material interest.
Non-Employee Director Compensation
The annual cash retainer payable in fiscal 2013 to our non-employee directors was $33,000 per year through December 2010 and, effective January 1, 2011, was changed to $16,500$7,800 per year. Additional annual retainers for the Chairman of the Board, Audit Committee Chairman, Compensation Committee Chairman and Nominating and Governance Chairman were $12,000, $6,000, $5,000$2,400, $1,200 and $5,000, respectively through December 2010. Effective January 1, 2011 the$1,200, respectively. The additional annual retainersretainer for the Chairman of the Board Audit Committeewas $14,400 from January 1, 2012 through July 31, 2012. Upon the appointment of Mr. Silverman as Chairman Compensation Committeeof the Board, effective July 28, 2012, the Chairman of the Board’s annual retainer increased to $148,200. The Chairman of the Board’s retainer increased because the Board terminated the former interim Chief Executive Officer and Nominatingappointed Mr. Lanni as the Chief Executive Officer, and Governancethe Board felt that greater oversight was needed during the transition. Effective May 1, 2013, the additional retainer paid to the Chairman wereof the Board was reduced to $6,000, $3,000, $2,500 and $2,500, respectively.$76,200. These cash retainers arewere paid monthly.monthly through December 2012 and were paid quarterly, in arrears, beginning on January 1, 2013. Non-employee directors who serve on, but do not chair, a committee of the Board are not paid any separate annual retainers for service on such committee. No separate meeting fees are paid for attendance at any Board or committee meetings. From time to time we may grant equity-based compensation to our non-employee directors, but we do not have any formal policy under which we do so.such grants are made.
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The following table details the cash retainers and fees, as well as equity compensation in the form of stock awards earned by our non-employee directors during fiscal 2011:
| Fees Earned or | Stock | |||||||||||
| Paid in Cash | Awards(1) | Total | ||||||||||
| Name | ($) | ($) | ($) | |||||||||
Gerald D. Griffin(2) | $ | 38,083 | $ | 47,000 | $ | 85,083 | ||||||
| Jeffrey R. Hultman | $ | 36,417 | $ | 47,000 | $ | 83,417 | ||||||
| Richard T. LeBuhn | $ | 31,625 | $ | 47,000 | $ | 78,625 | ||||||
Robert J. Majteles(3) | $ | 45,833 | $ | 47,000 | $ | 92,833 | ||||||
Name | Fees Earned or | Option Awards(1) | Total | |||||||||
Paul Borowiec | $ | 7,800 | $ | 7,600 | $ | 15,400 | ||||||
Wayne G. Cadwallader | $ | 9,000 | $ | 8,550 | $ | 17,550 | ||||||
Richard T. LeBuhn | $ | 9,000 | $ | 8,550 | $ | 17,550 | ||||||
Michael R. Levin | $ | 17,400 | $ | 8,550 | $ | 25,950 | ||||||
Michael H. Mulroy | $ | 7,800 | $ | 7,600 | $ | 15,400 | ||||||
Louis E. Silverman | $ | 79,677 | $ | 42,500 | $ | 122,177 | ||||||
(1) | This column represents the grant date fair value of | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial ownership of the Company’s common stock as of May 31, 2011July 2, 2013 by:
| • | each member of the Board; | ||
• | each of the Company’s current executive officers named in the “Summary Compensation Table” included in the “Executive Compensation” section of this Proxy Statement (collectively, the | ||
| • | all of the Company’s directors and executive officers as a group; and | ||
| • | each person or entity known to the Company that beneficially owns more than 5 percent of the Company’s common stock. |
Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below, the address of each beneficial owner is c/o Comarco, Inc., 25541 Commercentre Drive, Suite 250, Lake Forest, California, 92630. Unless otherwise indicated below, 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 the shareholder’s name.
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The percentages of common stock beneficially owned are based on 7,343,86914,259,839 shares of the Company’s common stock outstanding at May 31, 2011.
| Number of | ||||||||
| Shares | ||||||||
| Beneficially | Percent of | |||||||
Name and Address of Beneficial Owner | Owned | Class | ||||||
| Paul Borowiec | 247,959 | (1) | 3.4 | % | ||||
| Wayne G. Cadwallader | — | * | ||||||
| Winston E. Hickman | 30,000 | (2) | * | |||||
| Jeffrey R. Hultman | 75,825 | (2) | 1.0 | % | ||||
| Samuel M. Inman, III | 120,000 | (2) | 1.5 | % | ||||
| Thomas W. Lanni | 70,000 | (2) | * | |||||
| Richard T. LeBuhn | 39,325 | (2) | * | |||||
| Michael R. Levin | 11,000 | * | ||||||
| Michael H. Mulroy | — | * | ||||||
| All Directors, Director Nominees and Executive Officers as a group (12 persons) | 718,075 | (2) | 9.2 | % | ||||
| T. Rowe Price Associates, Inc. T. Rowe Price Small-Cap Value Fund, Inc. 100 East Pratt Street Baltimore, MD 21202 | 674,223 | (3) | 9.2 | % | ||||
| Dimensional Fund Advisors LP Palisades West, Building One 6300 Bee Cave Road Austin, TX 78476 | 468,455 | (4) | 6.4 | % | ||||
Broadwood Partners, L.P. Broadwood Capital, Inc. Neal Bradsher 724 Fifth Avenue, 9th Floor New York, New York 10019 | 1,564,136 | (5) | 21.3 | % | ||||
| Elkhorn Partners Limited Partnership 222 Skyline Drive Elkhorn, NE 68022 | 690,722 | (6) | 9.4 | % | ||||
Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class | ||||||
Paul Borowiec | 387,520 | (1) | 2.7 | % | ||||
Wayne G. Cadwallader(6) | 97,500 | (6) | 0* | |||||
Alisha K. Charlton | 75,925 | (2) | 0* | |||||
Thomas W. Lanni | 280,470 | (2), (6) | 1.9 | % | ||||
Richard T. LeBuhn | 140,475 | (2), (6) | 1.0 | % | ||||
Michael R. Levin | 54,099 | 0* | ||||||
Donald L. McKeefery | 166,141 | (2) | 1.2 | % | ||||
Michael H. Mulroy | 30,000 | 0* | ||||||
Louis E. Silverman | 250,000 | (2) | 1.8 | % | ||||
All Directors, Director Nominees and Executive Officers as a group (9 persons) | 1,232,130 | (2) | 10.0 | % | ||||
T. Rowe Price Associates, Inc. T. Rowe Price Small-Cap Value Fund, Inc. 100 East Pratt Street Baltimore, MD 21202 | 674,623 | (3) | 4.7 | % | ||||
Broadwood Partners, L.P. Broadwood Capital, Inc. Neal Bradsher 724 Fifth Avenue, 9thFloor New York, New York 10019 | 3,268,682 | (4) | 20.5 | % | ||||
Elkhorn Partners Limited Partnership 222 Skyline Drive Elkhorn, NE 68022 | 6,939,872 | (5) | 48.7 | % | ||||
* | ||
Indicates less than 1 percent of the outstanding shares of common stock. |
(1) | Mr. Borowiec holds an indirect beneficial ownership in 352,520 of these shares and has a pecuniary interest in |
(2) | Includes shares which the person has the right to acquire within 60 days of |
(3) | Based on a Schedule 13G (Amendment |
(4) | Includes an aggregate of 1,704,546 shares that may be acquired through the exercise of common stock purchase warrants, which Broadwood Partners L.P. has the right to exercise within 60 days of May 31, 2013. Based on a Schedule |
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(5) | Based on a Schedule 13D (Amendment |
(6) | Each of Messrs. Cadwallader, Lanni and LeBuhn entered into a Stock Purchase Agreement with the Company during the first quarter of fiscal 2014 and each purchased 62,500 shares at a purchase price of $0.16 per share. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules issued thereunder, the Company’s executive officers, directors and persons that own more than 10 percent of the Company’s common stock are required to file with the SEC reports of ownership and changes in ownership of common stock and furnish the Company copies of all such reports. During fiscal 2013, one Form 4 for each of Messrs. Lanni and McKeefery and Ms. Charlton was not filed timely to report the forfeiture of shares in satisfaction of applicable withholding taxes on the vesting of previously awarded restricted shares. The Form 4 for Mr. McKeefery and Ms. Charlton covered two transactions reported untimely and the Form 4 for Mr. Lanni covered three transactions reported untimely and each Form 4 was filed in fiscal 2014.
Other than the instances noted above, the Company believes that during fiscal 2011,2013, its executive officers, directors and persons that owned more than 10 percent of the Company’s common stock complied with the Section 16(a) reporting requirements on a timely basis, based on the reports received by the Company or written certifications received by the Company from its executive officers and directors.
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth information as of May 31, 2011July 2, 2013 concerning the executive officers of the Company (other than Mr. Lanni, whose biographical information appears in the disclosure under the Election of Directors section above) and its principal subsidiary, Comarco Wireless Technologies, Inc.
Name | Age | Position | ||||
Alisha K. Charlton | 43 | Vice President, Chief Accounting Officer andCorporate Secretary | ||||
Donald L. | 51 | |||||
Vice President and Chief | ||||||
Frederik TorstenssonAlisha Charltonhas over 20 years of experience in accounting and finance. Ms. Charlton joined the Company as Vice President of SalesAssistant Controller in October 2000, became Corporate Controller in May 2003 and Marketing in July 2003. On April 5, 2011 Mr. Torstensson was also appointed interim President and Chief Executive Officer. Mr. Torstensson has more than 15 years of experience in international sales and marketing, product management, and executive management. From August 2002 to July 2003, he was Vice President of International Sales and Marketing at Kyocera Wireless. From 1999 to August 2003, he was General Manager for North America and Executive Vice President of Sales and Marketing for OZ Communication, a mobile applications development company. Prior to this position, from 1996 to 1999, he was the Director of Business Development with Ericsson.
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There are no family relationships among any of the Company’s executive officers and directors.
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The following table sets forth the total compensation earned by each of the three Named Executive Officersnamed executive officers of the Company for fiscal 20112013 and 2010.2012. The amounts shown include compensation for services in all capacities that were provided to the Company including any amounts which may have been deferred.
| Non-Equity | ||||||||||||||||||||||||
| Option | Incentive Plan | All Other | ||||||||||||||||||||||
| Name and | Salary | Awards | Compensation(1) | Compensation(2) | Total | |||||||||||||||||||
| Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
Samuel M. Inman, III(3) | 2011 | $ | 390,000 | $ | — | $ | 85,375 | $ | 54,447 | $ | 529,822 | |||||||||||||
| President & Chief Executive Officer | 2010 | $ | 480,000 | $ | — | $ | — | $ | 38,341 | $ | 518,341 | |||||||||||||
Winston E. Hickman(4) | 2011 | $ | 285,000 | $ | — | $ | 52,500 | $ | 53,264 | $ | 390,764 | |||||||||||||
| Vice President & Chief Financial Officer | 2010 | $ | 360,000 | $ | — | $ | — | $ | 38,120 | $ | 398,120 | |||||||||||||
| Thomas W. Lanni | 2011 | $ | 208,760 | $ | — | $ | 31,500 | $ | 45,692 | $ | 285,952 | |||||||||||||
| Vice President & Chief Technology Officer Comarco Wireless Technologies, Inc. | 2010 | $ | 235,000 | $ | — | $ | — | $ | 36,121 | $ | 271,121 | |||||||||||||
Summary Compensation Table
Equity | Vacation | All Other | |||||||||||||||||||
Name and | Salary | Awards(1) | Payouts | Compensation(2) | Total | ||||||||||||||||
Principal Position | Year | ($) | ($) | ($) | ($) | ($) | |||||||||||||||
Thomas W. Lanni | 2013 | $ | 230,006 | $ | 12,800 | $ | 8,416 | $ | 46,861 | $ | 298,083 | ||||||||||
President & Chief Executive Officer. | 2012 | $ | 222,510 | $ | 13,200 | $ | 11,058 | $ | 50,909 | $ | 297,677 | ||||||||||
Alisha K. Charlton | 2013 | $ | 176,613 | $ | 6,400 | $ | — | $ | 10,555 | $ | 193,568 | ||||||||||
Vice President & Chief Accounting Officer | 2012 | $ | 176,613 | $ | 7,800 | $ | 5,944 | $ | 47,654 | $ | 238,011 | ||||||||||
Donald L, McKeefery | 2013 | $ | 185,016 | $ | 6,400 | $ | 10,674 | $ | 36,476 | $ | 238,566 | ||||||||||
Vice President & Chief Operating Officer. | 2012 | $ | 180,014 | $ | 7,800 | $ | 8,895 | $ | 55,312 | $ | 252,021 | ||||||||||
(1) | ||
This column represents |
(2) | The amounts reported above under the heading “All Other Compensation” consist of the following: |
| All Other Compensation ($) | ||||||||||||||||||||||||||||
| Tax | ||||||||||||||||||||||||||||
| Auto | Insurance | Medical | Gross- | 401(k) | ||||||||||||||||||||||||
| Name | Year | Allowance | Premiums | Expenses | Ups | Contributions | Total | |||||||||||||||||||||
| Samuel M. Inman, III | 2011 | $ | 8,000 | $ | 38,947 | $ | 5,000 | $ | 2,500 | $ | — | $ | 54,447 | |||||||||||||||
| 2010 | $ | — | $ | 30,841 | $ | 5,000 | $ | 2,500 | $ | — | $ | 38,341 | ||||||||||||||||
| Winston E. Hickman | 2011 | $ | 6,000 | $ | 27,514 | $ | 5,000 | $ | 2,500 | $ | 12,250 | $ | 53,264 | |||||||||||||||
| 2010 | $ | — | $ | 21,892 | $ | 2,768 | $ | 1,210 | $ | 12,250 | $ | 38,120 | ||||||||||||||||
| Thomas W. Lanni | 2011 | $ | — | $ | 38,192 | $ | 5,000 | $ | 2,500 | $ | — | $ | 45,692 | |||||||||||||||
| 2010 | $ | — | $ | 29,876 | $ | 3,862 | $ | 1,931 | $ | 452 | $ | 36,121 | ||||||||||||||||
All Other Compensation ($) | ||||||||||||||||||||||
Name | Year | Insurance Premiums | Medical Expenses(3) | Tax | 401(k) Contributions | Total | ||||||||||||||||
Thomas W. Lanni | 2013 | $ | 46,861 | $ | — | $ | — | $ | — | $ | 46,861 | |||||||||||
2012 | $ | 43,409 | $ | 5,000 | $ | 2,500 | $ | — | $ | 50,909 | ||||||||||||
Alisha K. Charlton | 2013 | $ | 1,724 | $ | — | $ | — | $ | 8,831 | $ | 10,555 | |||||||||||
2012 | $ | 38,866 | $ | — | $ | — | $ | 8,788 | $ | 47,654 | ||||||||||||
Donald. L. McKeefery | 2013 | $ | 34,519 | $ | — | $ | — | $ | 1,957 | $ | 36,476 | |||||||||||
2012 | $ | 41,736 | $ | 5,000 | $ | 2,500 | $ | 6,076 | $ | 55,312 | ||||||||||||
(3) | This column represents cash payments made to our |
(4) | This column represents cash payments made to reimburse our |
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The following tabletables sets forth certain information with respect to outstanding grants of plan-based awards to the Named Executive Officers.
| Option Awards | ||||||||||||||||
| Number of Securities Underlying | ||||||||||||||||
| Unexercised Options | Option | |||||||||||||||
| Exercisable | Unexercisable | Exercise Price | Option Expiration | |||||||||||||
Name | (#) | (#) | ($) | Date | ||||||||||||
Samuel M. Inman, III(1) | 15,000 | — | $ | 6.19 | 7/16/2017 | |||||||||||
| 105,000 | 245,000 | $ | 1.09 | 11/11/2018 | ||||||||||||
Winston E. Hickman(1) | 30,000 | 70,000 | (2) | $ | 1.09 | 11/11/2018 | ||||||||||
| Thomas W. Lanni | 10,000 | — | $ | 11.600 | 11/28/2011 | |||||||||||
| 10,000 | — | $ | 9.890 | 2/3/2014 | ||||||||||||
| 20,000 | — | $ | 10.430 | 6/19/2016 | ||||||||||||
| 30,000 | 70,000 | (2) | $ | 1.09 | 11/11/2018 | |||||||||||
Option Awards | |||||||||||||
Number of Securities Underlying Unexercised Options | Option | ||||||||||||
Name | Exercisable (#) | Unexercisable (#) | Exercise Price ($) | Option Expiration Date | |||||||||
Thomas W. Lanni | 10,000 | — | $ | 9.89 | 02/03/2014 | ||||||||
| 20,000 | — | $ | 10.43 | 6/19/2016 | |||||||||
| 60,000 | 40,000 | (1) | $ | 1.09 | 11/11/2018 | ||||||||
Alisha K. Charlton | 5,000 | — | $ | 8.08 | 9/09/2013 | ||||||||
| 10,000 | — | $ | 8.38 | 02/04/2015 | |||||||||
| 11,100 | 7,400 | (1) | $ | 1.20 | 12/15/2018 | ||||||||
Donald L. McKeefery | 11,000 | — | $ | 8.64 | 12/6/2015 | ||||||||
| 10,000 | — | $ | 10.43 | 6/19/2016 | |||||||||
| 60,000 | 40,000 | (1) | $ | 1.09 | 11/11/2018 | ||||||||
(1) | ||
|
Restricted Stock Unit Awards | |||||||||
Number of Securities Underlying Restricted Stock Units | |||||||||
Name | (#) Granted | Stock Price at Date of Issue | Vesting Date | ||||||
Thomas W. Lanni | 80,000 | $ | 0.16 | 01/31/2013 | |||||
Alisha K. Charlton | 40,000 | $ | 0.16 | 01/31/2013 | |||||
Donald L. McKeefery | 40,000 | $ | 0.16 | 01/31/2013 | |||||
Potential Payments Upon Change of Control
The Company and each of the AmendedMr. Lanni, Mr. McKeefery and RestatedMs. Charlton are parties to Severance Compensation Agreement dated as of June 11, 2007, between the Company and Mr. Lanni,Agreements, which provide that, if, within 24 months following a “Change in Control” (as defined in the agreement)such agreements), Mr. Lannihe or she is terminated by us other than for “Cause” (as defined in the agreement)such agreements) or ceases to be employed by us for reasons other than because of death, disability, retirement or Cause, or Mr. Lannihe or she terminates his or her employment with us for “Good Reason” (as defined in the agreement)such agreements), then he or she is entitled to receive a lump sum cash payment equal to the sum of his or her annual base salary plus his or her annual incentive compensation bonus that would be payable assuming 100 percent satisfaction of all performance goals thereunder. Assuming,
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Although the Company entered into an Executive Employment Agreement (the “Inman Agreement”) with Mr. Inmancontemplated sale of shares of common stock and an Executive Employment Agreement (the “Hickman Agreement”) with Mr. Hickman.
Additionally, as a result of the terminationsCompany’s sale of Messrs. Inmanthe 6,250,000 shares of common stock to Elkhorn, subsequent to our 2013 fiscal year end, discussed under the heading “Transactions with Related Persons” above, Elkhorn’s beneficial ownership of the Company has increased from approximately 9% to approximately 49% of the Company’s outstanding voting stock, making Elkhorn the Company’s largest shareholder and Hickmanresulting in a change of control for purposes of the severance compensation agreements. Each of the executives who are parties to those agreements has waived their rights pursuant to their respective Executive Employment Agreements have been terminated.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of January 31, 2013 with Mr. Lanni on June 11, 2007. The Company has not entered into a separate employment agreement with Mr. Lanni.
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Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options or Vesting of Restricted Stock Units | Weighted-Average Exercise Price of Outstanding Options and Grant Price of Outstanding Restricted Stock Units | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in the first column) | |||||||||
Equity compensation plans approved by security holders | 1,068,826 | $ | 1.11 | 455,224 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 1,068,826 | $ | 1.11 | 455,224 | ||||||||
The Company’s Compensation Committee and Board of Directors have reviewed the Company’s executive and employee compensation practices to analyze whether or not they create improper incentives that would result in a material risk to the Company. Based on this review and analysis, the Compensation Committee and the Board of Directors has determined that none of the Company’s compensation practices for its executive officers or employees is reasonably likely to have a material adverse effect on the Company.
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APPROVAL OF AMENDMENT TO 2011 EQUITY INCENTIVE PLAN
On May 9, 2011,June 17, 2013, the Board adopted a resolution, subject to shareholder approval, to adoptamend the Company’s 2011 Equity Incentive Plan (the “2011 Plan”) to allow forincrease the issuance of the Authorized Shares (as defined below) to the employees, consultants and directors of the Company. The Company is requesting that the shareholders approve the adoption of the 2011 Plan. The total number of new shares of common stock being made available for issuance under the 2011 Plan will represent approximately 10.2% of shares of common stock issuable thereunder by an additional 600,000 shares. The additional 600,000 shares contemplated by the proposed amendment represents approximately 4.2% of our outstanding common stock as of the record date. Additional shares may be issued under the 2011 Plan as discussed below.
The proposal to approve the adoption ofamendment to the 2011 Plan will require approval by the holders of a majority of the votes cast by the holders of the shares of the Company’s common stock voting in personpresent or represented by proxy at the Annual Meeting. Withholding authority to vote for approval of the 2011 Plan willAbstentions and broker non-votes have the effect of a vote against the approval ofproposal to approve the adoption ofamendment to the 2011 Plan. Similarly, abstentions will have the same effect as votes against the proposal.
A summary of the 2011 Plan, after giving effect to the proposed amendment, is set forth below. The discussion below is qualified in its entirety by reference to the 2011 Plan, as amended by the proposed amendment, a copy of which is attached asAppendix A to this Proxy Statement.
SUMMARY OF THE 2011 EQUITY INCENTIVE PLAN
Purpose. The 2011 Plan is intended to retain and reward highly qualified employees (including contract employees, consultants, and directors) and encourage their ownership of the Company’s common stock.
Administration. The Board has designated the Compensation Committee (the “Committee”) to administer the 2011 Plan. Subject to the provisions of the 2011 Plan, the Committee has discretion to determine the employee, consultant or director to receive an award, the form of award and any acceleration or extension of an award. Further, the Committee has complete authority to interpret the 2011 Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective award agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the 2011 Plan.
Eligibility. Awards may be granted to any employee of or consultant to one or more of the Company and its subsidiaries or to directors of the Company or of any board of directors of any subsidiary.
Shares Subject to the 2011 Plan. The shares issued or to be issued under the 2011 Plan are authorized but unissued shares of the Company’s common stock. The maximum number of shares of common stock which may be issued or made subject to awards under the 2011 Plan (collectively, the “Authorized Shares”) is the sum of: (i) sevenone million three hundred fifty thousand (750,000)(1,350,000) shares of common stock (including the additional 600,000 shares contemplated by the proposed amendment to the 2011 Plan), plus (ii) any of the shares of common stock that remain available for issuance and are not subject to awards granted under the Company’s 2005 Equity Incentive Plan, as amended (the “2005 Plan”), plus (iii) any of the shares of common stock that, as of the effective date of the 2011 Plan, are the subject of outstanding awards under the 2005 Plan, which again become available for grant under the 2011 Plan.
The 2011 Plan contains the following limitations on certain types of awards:
No more than 25% of the shares of common stock covered by the 2011 Plan may be covered by options or other awards issued to any one person in any one calendar year.
No “qualified performance-based award” (described below) may cover more than the Authorized Shares or their cash equivalent at the date of grant of the award.
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Nonstatutory Stock Options and Incentive Stock Options (together, “Stock Options”) are rights to purchase common stock of the Company. A Stock Option may be immediately exercisable or become exercisable in such installments, cumulative or non-cumulative, as the Committee may determine. A Stock Option may be exercised by the recipient giving written notice to the Company, specifying the number of shares with respect to which the Stock Option is then being exercised, and accompanied by payment of an amount equal to the exercise price of the shares to be purchased. The purchase price may be paid by cash, check, any other lawful means authorized by the Committee, or through and under the terms and conditions of any formal cashless exercise program authorized by the Company. | |||
21
Incentive Stock Options may be granted only to eligible employees of the Company or any parent or subsidiary corporation and must have an exercise price of not less than 100% of the fair market value of the Company’s common stock on the date of grant (110% for Incentive Stock Options granted to any 10% stockholder of the Company). In addition, the term of an Incentive Stock Option may not exceed 10 years (five years, if granted to any 10% stockholder). Nonstatutory Stock Options must have an exercise price of not less than 100% of the fair market value of the Company’s common stock on the date of grant and the term of any Nonstatutory Stock Option may not exceed 10 years. In the case of an Incentive Stock Option, the amount of the aggregate fair market value of common stock (determined at the time of grant) with respect to which Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all such plans of his or her employer corporation and its parent and subsidiary corporations) may not exceed $100,000.
Stock Appreciation Rights (“SARs”) are rights to receive (without payment to the Company) cash, property or other forms of payment, or any combination thereof, as determined by the Committee, based on the increase in the value of the number of shares of common stock specified in the SAR. The base price (above which any appreciation is measured) will in no event be less than the fair market value of the Company’s stock on the date of grant of the SAR or, if the SAR is granted in tandem with a Stock Option (that is, so that the recipient has the opportunity to exercise either the Stock Option or the SAR, but not both), the exercise price under the associated Stock Option.
Awards of Restricted Stock are grants or sales of common stock which are subject to a risk of forfeiture, such as a requirement of the continued performance of services for a stated term or the achievement of individual or Company performance goals. Except as otherwise provided in the 2011 Plan or the applicable award documentation for Restricted Stock, at all times prior to lapse of any forfeiture restrictions applicable to the award, the recipient shall have all of the rights of a stockholder of the Company, including the right to vote, and the right to receive any dividends with respect to, the shares of Restricted Stock. However, the Committee may determine at the time of the award, to permit or require the payment of cash dividends to be deferred, or reinvested in additional Restricted Stock to the extent shares are available for issuance under the 2011 Plan.
Awards of Restricted Stock Units and Performance Units are grants of rights to receive either shares of common stock (in the case of Restricted Stock Units) or the appreciation over a base value (as specified by the Committee) of a number of shares of common stock (in the case of Performance Stock Units) subject to satisfaction of service or performance requirements established by the Committee in connection with the award. Such awards may include the right to the equivalent of any dividends on the shares covered by the award, which amount may in the discretion of the Committee be deferred and paid if and when the award vests.
Qualified Performance-Based Awards are awards which include performance criteria intended to satisfy Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Section 162(m) of the Code limits the Company’s federal income tax deduction for compensation to certain specified senior executives to $1 million dollars, but excludes from that limit “performance-based compensation.” Qualified Performance-Based Awards may be in the form of Stock Options, Restricted Stock, Restricted Stock Units or Performance Units, but in each case will be subject to satisfaction of one of the following criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or affiliate, either individually, alternatively, or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee in the award: (i) cash flow (before or after dividends), (ii) earnings per share (including, without limitation, earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) shareholder return or total shareholder return, (vi) return on capital (including, without limitation, return on total capital or return on invested capital), (vii) return on investment, (viii) return on assets or net assets, (ix) market capitalization, (x) economic value added, (xi) debt leverage (debt to capital), (xii) revenue, (xiii) sales or net sales, (xiv) backlog, (xv) income, pre-tax income or net income, (xvi) operating income or pre-tax profit, (xvii) operating profit, net operating profit or economic profit, (xviii) gross margin, operating margin or profit margin, (xix) return on operating revenue or return on operating assets, (xx) cash from operations, (xxi) operating ratio, (xxii) operating revenue, (xxiii) market share improvement, (xxiv) general and administrative expenses, or (xxv) customer service.
Qualified Performance-Based Awards in the form of Stock Options must have an exercise price which is not less than 100% of the fair market value of the common stock on the date of grant. No payment or other amount will be available to a recipient of a Qualified Performance-Based Award except upon the Committee’s determination that particular goal or goals established by the Committee for the criteria (from among those specified above) selected by the Committee have been satisfied.
A Stock Grant is a grant of shares of common stock not subject to restrictions or other forfeiture conditions. Stock Grants may be awarded only in recognition of significant contributions to the success of the Company or its affiliates, in lieu of compensation otherwise already due, or in other limited circumstances which the Committee deems appropriate.
Effect of Termination of Employment or Association. Unless the Committee determines otherwise in connection with any particular award under the 2011 Plan, Stock Options and SARs will generally terminate one year following the recipient’s termination of employment or other association on account of disability (within the meaning of Section 22(e)(3) of the Code) or death and three (3) months following the recipient’s termination of employment or other association in other circumstances. The effect of termination on other awards will depend on the terms of those awards.
Transferability. In general, no award under the 2011 Plan may be transferred by the recipient and during the life of the recipient all rights under an award may be exercised only by the recipient or his or her legal representative. However, the Committee may approve the transfer, without consideration, of an award of a Nonstatutory Option or Restricted Stock to a family member; provided, however, any transferee shall be bound by and subject to all of the terms and conditions of the 2011 Plan and the award agreement relating to the transferred award and shall execute an agreement satisfactory to the Company evidencing such obligations.
Effect of Significant Corporate Event. In the event of any change in the outstanding shares of common stock through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other distribution with respect to such shares of common stock, an appropriate and proportionate adjustment will be made in (i) the maximum numbers and kinds of shares subject to the 2011 Plan, (ii) the numbers and kinds of shares or other securities subject to the then outstanding awards, (iii) the exercise or hurdle price for each share or other unit of any other securities
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Amendments to the 2011 Plan. The Committee may amend, alter or discontinue the 2011 Plan and, to the extent permitted by the 2011 Plan, the Committee may amend the terms of any award granted thereunder; provided, however, that the Company shall submit for shareholder approval any amendment (other than an amendment pursuant to the adjustment provisions of Section 8 of the 2011 Plan) required to be submitted for shareholder approval by NASDAQ or that otherwise would: (i) increase the maximum number of shares of common stock for which awards may be granted under the 2011 Plan, (ii) reduce the price at which Options may be granted below the fair market value of on the date of grant, (iii) reduce the option price of outstanding Options, (iv) extend the term of the 2011 Plan, (v) change the class of persons eligible to be participants in the 2011 Plan, or (vi) increase the limits the number of shares issuable under the 2011 Plan.
Summary of Federal Income Tax Consequences of the 2011 Plan.The following is a summary of certain United States Federal income tax consequences of participation in the 2011 Plan by U.S. taxpayers. The summary should not be relied upon as being complete. United States tax laws are complex and subject to change. Moreover, participation in the 2011 Plan may also have consequences under state and local tax laws, as well as foreign tax laws, which may vary from the United States Federal income tax consequences described below. For such reasons, we recommend that each 2011 Plan participant consult his or her personal tax advisor to determine the specific tax consequences applicable to him or her. We intend, and this summary assumes, that all awards granted under the 2011 Plan either will be exempt from or will comply with the requirements of Section 409A of the Code regarding nonqualified deferred compensation such that its income inclusion and tax penalty provisions will not apply to the participants. The 2011 Plan and any awards made under the 2011 Plan will be administered consistently with this intent. In any case, a participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a participant in connection with awards (including any taxes and penalties under Section 409A) and we will have no obligation to indemnify or otherwise hold a participant harmless from any such taxes or penalties.
• | Incentive Stock Options- | ||
A participant who is subject to the alternative minimum tax in the year of exercise of an Incentive Stock Option may, subject to certain limitations, claim, as a credit against the participant’s regular tax liability in future years, a portion of the amount of alternative minimum tax paid that is attributable to the exercise of the Incentive Stock Option. This credit is available in the first year following the year of exercise in which the participant has a regular tax liability. | |||
Gain realized by a participant upon a sale of stock issued on exercise of an Incentive Stock Option is taxable as long-term capital gain if the participant disposes of the shares more than two years |
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| after the date of grant of the option and more than one year after the date of exercise. If the participant disposes of the shares less than two years after the date of grant or less than one year after the date of exercise (any such disposition, a “disqualifying disposition”), the participant will recognize ordinary income in an amount equal to the difference between the option exercise price and the lower of the fair market value of the shares on the date of exercise or on the date of disposition of the shares. If the amount realized in a disqualifying disposition exceeds the fair market value of the shares on the date of exercise, the gain realized, in excess of the amount taxed as ordinary income as indicated above, will be taxed as capital gain. Any loss realized upon a disqualifying disposition will be treated as a capital loss. Capital gains and losses resulting from disqualifying dispositions will be treated as long-term or short-term depending upon whether the shares were held for more or less than the applicable statutory holding period (which is currently more than one year for long-term capital gains). We will generally be entitled to a tax deduction in an amount equal to the amount the participant must recognize as ordinary income, subject to the possible limitations on deductibility under Section 280G and Section 162(m) of the Code. | |||
Under the 2011 Plan, the Committee may permit a participant to pay the exercise price of an Incentive Stock Option by delivering shares of our common stock already owned by the participant. A participant should consult his or her personal tax advisor to determine the specific tax consequences applicable to him or her of using shares of our common stock to pay a portion of the exercise price. | |||
• | Nonqualified Stock Options- A participant who receives a Nonqualified Stock Option will not recognize taxable income upon the grant of the option. Generally, upon exercise of a Nonqualified Stock Option the participant will recognize ordinary income in an amount equal to the difference between the option exercise price and the fair market value of the shares on the date of exercise. We will generally be entitled to a tax deduction in an amount equal to the ordinary income recognized by the participant, subject to the possible limitations on deductibility under Section 280G and Section 162(m) of the Code. A participant’s tax basis for the stock (other than stock acquired by delivering shares of our common stock already owned by the participant) for purposes of determining gain or loss on the subsequent disposition of the shares generally will be the fair market value of the stock on the date of exercise of the Nonqualified Stock Option. | ||
Under the 2011 Plan, the Company may permit a participant to pay the exercise price of a Nonqualified Stock Option by delivering shares of our common stock already owned by the participant. A participant should consult his or her personal tax advisor to determine the specific tax consequences applicable to him or her of using shares of our common stock to pay a portion of the exercise price. | |||
• | Stock Appreciation Rights- A participant who receives a SAR will not recognize taxable income upon receipt of the right. However, the participant will recognize taxable income at the time the SAR is exercised or settled, in an amount equal to the fair market value of the shares to which the participant is entitled upon such exercise or settlement. We will generally be entitled to a tax deduction in an amount equal to the ordinary income recognized by the participant, subject to the possible limitations on deductibility under Section 280G and Section 162(m) of the Code. The participant’s basis in the shares will be equal to the amount of ordinary income recognized upon the receipt of such shares. | ||
• | Restricted Stock- If a grantee of Restricted Stock makes an election under Section 83(b) of the Code (a “Section 83(b) election”) within 30 days after the date of award of Restricted Stock, then the participant will recognize ordinary income as of the date of grant in an amount equal to the excess of the fair market value of such shares on the date of grant over the purchase price, if any, paid for such shares. |
If no Section 83(b) election is made in connection with the receipt of Restricted Stock and the Restricted Stock is subject to forfeiture, a taxable event will occur on each date the participant’s |
24
| ownership rights vest as to the number of shares that vest on that date, and the holding period for capital gain purposes will not commence until the date the shares vest. The participant will recognize ordinary income on each date shares vest in an amount equal to the excess of the fair market value of such shares on that date over the amount, if any, paid for such shares. We will generally be entitled to a tax deduction in an amount equal to the ordinary income recognized by the participant, subject to the possible limitations on deductibility under Section 280G and Section 162(m) of the Code. The participant’s basis in the shares will generally be equal to the purchase price, if any, increased by the amount of ordinary income recognized. | |||
• | Restricted Stock Units and Performance Stock Units —A participant who receives a Restricted Stock Unit or a Performance Stock Unit will not recognize taxable income upon receipt of the award. Generally, the participant will recognize ordinary income in the year in which the shares subject to that Restricted Stock Unit or Performance Stock Unit are actually issued to the participant in an amount equal to the excess of the fair market value of the shares on the date of issuance over the amount, if any, paid for such shares. We will generally be entitled to a tax deduction in an amount equal to the ordinary income recognized by the participant, subject to the possible limitations on deductibility under Section 280G and Section 162(m) of the Code. The participant’s basis in the shares will generally be equal to the purchase price, if any, increased by the amount of ordinary income recognized. | ||
• | Stock Grants- A participant will generally recognize ordinary income on receipt of any shares of common stock. | ||
• | Tax Withholding- For any participant who is an employee, any income recognized by such participant in connection with the exercise or settlement of Stock Options, SARs, Restricted Stock Units or Performance Stock Units, or the vesting of (or valid Section 83(b) election with respect to) Restricted Stock granted under the 2011 Plan will be subject to income tax withholding by us. Under the 2011 Plan, we have the power to withhold, or require a participant to remit to us, an amount sufficient to satisfy all Federal, state and local withholding tax requirements. We may withhold such amounts from the participant’s compensation. If such compensation is insufficient to cover the amounts to be withheld, the participant will be required to make a direct payment to us for the balance of the tax withholding obligation. To the extent permissible under applicable tax, securities and other laws, the Company may, in its sole discretion, permit a participant to satisfy an obligation to pay any tax to any governmental entity in respect of any award up to an amount determined on the basis of the highest marginal tax rate applicable to such participant, in whole or in part, by (1) directing us to apply shares of common stock to which the participant is entitled as a result of the exercise or settlement of a Stock Option, SAR, Restricted Stock Units or Performance Stock Units or as a result of the lapse of restrictions on Restricted Stock, or (2) delivering to us shares of common stock owned by the participant. | ||
• | Tax Deduction Limitations- Section 162(m) of the Code generally limits to $1.0 million the amount that a publicly-held corporation is allowed each year to deduct for the compensation paid to the corporation’s chief executive officer and each of the corporation’s four most highly compensated executive officers other than the chief executive officer. However, “performance-based” compensation is not subject to the $1.0 million deduction limit. In general, to qualify as performance-based compensation, the following requirements must be satisfied: (1) payments must be computed on the basis of an objective, performance-based compensation standard determined by a committee consisting solely of two or more “outside directors,” (2) the material terms under which the compensation is to be paid, including the business criteria upon which the performance goals are based, and a limit on the maximum amount which may be paid to any participant pursuant to any award with respect to any performance period, must be approved by the corporation’s stockholders, and (3) the |
25
| that all future Committee members will also satisfy that definition. Stock Options and SARs, the terms of which limit the amount of compensation that an employee may receive to an increase in the value of the underlying stock covered by the option or right after the date of grant, automatically satisfy the performance goal requirement described in item (1) above. |
Awards to Particular Persons or Groups.The future benefits or amounts that will be received under the 2011 Plan by or allocated to each of (i) the officers listed in the Summary Compensation Table, (ii) each of the nominees for election as a director, (iii) all directors of the Company who are not executive officers of the Company as a group, (iv) all present executive officers of the Company as a group, and (v) all employees of the Company, as a group, are not currently determinable.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE ADOPTIONAMENDMENT OF THE 2011 EQUITY INCENTIVE PLAN
26
PROPOSAL NO. 3
ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Pursuant to Section 14A of the Exchange Act, we are asking our shareholders to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers, commonly referred to as the “say-on-pay” vote. In accordance with the Exchange Act requirements, we are providing our shareholders with an opportunity to express their views on our named executive officers’ compensation. Although this advisory vote is nonbinding, our Board of Directors and Compensation Committee will review and consider the voting results when making future decisions regarding our named executive officer compensation and related executive compensation programs.
We encourage shareholders to read the “Executive Compensation” section in this Proxy Statement, including the compensation tables and the related narrative disclosure, which describes the structure and amounts of the compensation of our named executive officers in fiscal year 2013. The compensation of our named executive officers is designed to enable us to attract and retain talented and experienced executives to lead us successfully in a competitive environment. The Compensation Committee and our Board of Directors believe that our executive compensation strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our named executive officers to dedicate themselves fully to value creation for our shareholders.
Accordingly, we ask our shareholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the shareholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the compensation tables and any other related disclosure in this Proxy Statement.”
THE BOARD RECOMMENDS A VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
PROPOSAL NO. 4
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Pursuant to Section 14A of the Exchange Act, we are asking our shareholders to vote, on a nonbinding, advisory basis, on the frequency of future advisory votes to approve the compensation of our named executive officers as reflected in Proposal 3 above. Shareholders may indicate whether they prefer that we conduct future advisory votes to approve the compensation of our named executive officers every one, two or three years. Shareholders also may abstain from casting a vote on this proposal.
The Board of Directors has determined that holding an advisory vote to approve the compensation of our named executive officers every year is the most appropriate policy at this time, and recommends that future advisory votes to approve the compensation of our named executive officers occur every year. Our Board of Directors recognizes the importance of receiving regular input from our shareholders on important issues such as our compensation programs.
Shareholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years, or abstain. The voting frequency option that receives the highest number of votes cast by shareholders will be deemed the frequency for the advisory vote on executive compensation that has been selected by shareholders. Although this advisory vote on the frequency of future advisory votes to approve the compensation of our named executive officers is nonbinding, the Board of Directors and the Compensation Committee will carefully review and consider the voting results when determining the frequency of future advisory votes to approve the compensation of our named executive officers.
THE BOARD RECOMMENDS A VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS EVERY YEAR
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR FISCAL 2012
The Audit Committee has appointed Squar, Milner, Peterson, Miranda & Williamson LLP (“Squar Milner”) as the Company’s independent registered public accounting firm for the fiscal year ending January 31, 20122014 (“fiscal 2012”2014”), and has requested the Board to submit this appointment for ratification by our shareholders at the Annual Meeting. The Audit Committee of the Board of Directors unanimously approved the engagement of Squar Milner.
A representative of Squar Milner Peterson, Miranda & Williamson LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions from shareholders.
In the event that the shareholders do not ratify the appointment of Squar Milner Peterson, Miranda & Williamson LLP as the Company’s independent registered public accounting firm for fiscal 2012,2014, the appointment will be reconsidered by the Audit Committee. Even if the appointment is ratified by the shareholders, the Audit Committee in its discretion may dismiss Squar Milner, Peterson, Miranda & Williamson LLP as the Company’s independent registered public accounting firm, and appoint a different independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its shareholders.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF
SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2012.
Audit Fees
The aggregate fees incurred and paidpayable to BDO USA, LLPSquar Milner for professional services rendered in connection with the audit and quarterly reviews of the Company’s consolidated financial statements during fiscal 20112013 and fiscal 20102012 were approximately $164,000 and $175,000, respectively.
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During fiscal 2013 we paid Squar Milner approximately $3,000 in connection with our S-8 filing. No similar expenses were incurred during fiscal 2012.
Tax Fees
In fiscal 20112013 and 2010, we engaged Squar, Milner, Peterson, Miranda & Williamson LLP to assist us with Sarbanes-Oxley internal control testing and incurred fees during these years of approximately $52,000 and $56,000, respectively.
All Other Fees
We paid Squar Milner Peterson, Miranda & Williamson LLPapproximately $11,000 each year for the audit of our Savings and Retirement Plan in fiscal 2011.
Pre-Approval Policies and Procedures
It is the Company’s policy that all audit and non-audit services to be performed by the Company’s independent registered public accounting firm be approved in advance by the Audit Committee. All of the services provided in fiscal 20112013 and 20102012 were pre-approved.
AUDIT AND FINANCE COMMITTEE REPORT
Notwithstanding anything to the contrary contained in any of our previous or futurefilings under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended, that might incorporate this Proxy Statementor future filings with the SEC by reference, in whole or in part, the Audit and Finance Committee Report set forth below shall not be deemed to be “solicitingmaterial” or “filed” with the SEC, nor shall such information be incorporatedby reference into any such filing.filing except to the extent that the Company specifically incorporates it by reference.
The Board has determined that each member of the Audit and Finance Committee of the Board (the “Audit Committee”) is an “independent director,” as defined under the NASDAQ Listing Rules and Rule 10A-3(b) of the Exchange Act. The Board has determined that Mr. Levin is an “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K. In accordance with the written charter of the Audit and Finance Committee adopted by the Board, the Audit and Finance Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company.
It is not the duty or responsibility of the Audit and Finance Committee to conduct auditing or accounting reviews or procedures. In performing their oversight responsibility, members of the Audit and Finance Committee rely, without independent verification, on the information provided to them, and on the representations made by, management and the independent accountants. Accordingly, the Audit and Finance Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit and Finance Committee’s considerations and discussions do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards or that the financial statements are presented in accordance with generally accepted accounting principles.
Management is responsible for (a)for: (i) the preparation, presentation and integrity of the Company’s financial statements; (b)(ii) accounting and financial reporting principles; and (c)(iii) the Company’s internal control over financial reporting and disclosure controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations.
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1. The Audit and Finance Committee has reviewed and discussed the audited financial statements relating to the fiscal year ended January 31, 20112013 with BDO USA, LLP;
2. The Audit and Finance Committee has discussed with BDO USA, LLP,Squar Milner the Company’s independent registered public accounting firm, the matters required by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
3. The Audit and Finance Committee has received written disclosures and a letter from BDO USA, LLP,Squar Milner required by the applicable rules of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with BDO USA, LLPSquar Milner their independence.
4. Based on the review and discussions referred to above, the Audit and Finance Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011.
The foregoing report is provided by the undersigned members of the Audit and Finance Committee.
THE AUDIT COMMITTEE
Michael R. Levin, Chairman
Paul Borowiec, Member
Michael H. Mulroy, Member
29
2014
ANNUAL MEETING
The Bylaws set forth certain procedures for shareholder nominations of directors and shareholder proposals for other business to be conducted at an annual meeting of shareholders, which are referred to herein as the Nomination Procedures and Proposal Procedures, respectively.
Nominations for Directors at the 20122014 Annual Meeting
No person will be eligible for election as a director unless nominated in accordance with the provisions of the Nomination Procedures. Nominations of persons for election to the Board shall be made only at a meeting of shareholders and only (a) by or at the direction of the Board or any duly authorized committee thereof or (b) by any shareholder of the Company who is a holder of record on the record date for such meeting and complies with the Nomination Procedures.
Nominations by shareholders must be made in writing to the Secretary of the Company and must comply with all of the applicable requirements contained in the Bylaws (as the same may be amended and/or restated from time to time). Under the Nomination Procedures currently in effect, to be timely, such notice must be received not less than 45 days nor more than 75 days prior to the one-year anniversary of the date on which the Company first mailed its proxy materials for the immediately preceding year’s annual meetingAnnual Meeting of shareholders;Shareholders; provided, however, that if the annual meetingAnnual Meeting is convened more than 30 days before, or delayed by more than 30 days after, the one-year anniversary of the immediately preceding year’s annual meetingAnnual Meeting of shareholders,Shareholders, notice by the shareholder, to be timely, must be received by the Corporate Secretary at the above address not later than the close of business on the later of (i) the 90th day before such annual meeting or (ii) the 10th day following the day on which the date of such meeting is first publicly announced. Therefore, in order to be timely for the 2012 annual meeting,2014 Annual Meeting of Shareholders, a shareholder’s notice must be delivered to or mailed and received at our principal executive offices not earlier than March 24, 2012April 26, 2014 and not later than April 23, 2012,May 26, 2014, assuming that the 2012 annual meeting2014 Annual Meeting of Shareholders is held within 30 days of July 21, 2012.August 22, 2014. If you would like to submit a nomination please direct your request in writing to: Comarco, Inc., Attn: Corporate Secretary, 25541 Commercentre Drive, Suite 250, Lake Forest, CA 92630.
Shareholder Proposals for the 20122014 Annual Meeting
Under the terms of the Proposal Procedures, to be properly brought at an annual meeting, business must be (a)brought (i) by or at the direction of the Board or (b)(ii) by any shareholder who is a holder of record on the record date of such meeting and who complies with the Proposal Procedures.
If you would like the Company to consider including a proposal in the Company’s proxy materials relating to the annual meeting2014 Annual Meeting of shareholders to be held in 2012,Shareholders, your written proposal must be received no later than February 8, 2012. If such proposal is in compliance with all of the requirements of Rule 14a-8 under the Exchange Act, weAct. Proper proposals will include itbe included in the proxy statement and set it forth on the form of proxy issued for such annual meetingAnnual Meeting of shareholders.Shareholders. You should direct any such shareholder proposals to: Comarco, Inc., Attn: Corporate Secretary, 25541 Commercentre Drive, Suite 250, Lake Forest, CA 92630.
Shareholder proposals must be made in writing and must comply with all of the applicable requirements contained in Bylaws (as the same may be amended and/or restated from time to time). In order to comply with the Proposal Procedures currently in effect, to be timely, such notice must be received not less than 45 days nor more than 75 days prior to the one-year anniversary of the date on which the Company first mailed its proxy materials for the immediately preceding year’s annual meetingAnnual Meeting of shareholders;Shareholders; provided, however, that if the annual meetingAnnual Meeting of Shareholders is convened more than 30 days before or delayed by more than 30 days after the one-year anniversary of the immediately preceding year’s annual meetingAnnual Meeting of shareholders,Shareholders, notice by the shareholder, to be timely, must be received by the Corporate Secretary at the above address not later than the close of business on the later of (i) the 90th day before such annual meeting or (ii) the 10th day following the day on which the date of such meeting is first publicly announced. Therefore, in order to be timely for the 2012 annual meeting,2013 Annual Meeting of Shareholders, a shareholder’s notice must be delivered to or mailed and received at our principal executive offices not earlier than March 24, 2012April 26, 2014 and not later than April 23, 2012,May 26, 2014, assuming that the 2011 annual meeting2014 Annual Meeting of Shareholders is held within 30 days of July 21, 2011.August 22, 2014. If you would like to submit a nominationproposal, or would like a copy of the requirements for nominations by shareholdersshareholder proposals contained in
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The Board of the Company does not know of any matter to be acted upon at the meeting other than the mattersthose described above.herein. If other matters properly come before the meeting, the holders of the proxies will vote on such matters in accordance with their judgment.
ANNUAL REPORT
The Company’s 20112013 Annual Report to Shareholderson Form 10-K is enclosed with this Proxy Statement.
Upon request and without charge, the Company will send you a copy of our Annual Report on Form 10-K for the fiscal year ended January 31, 2011,2013, including the financial statements and the financial statement schedules required to be filed with the SEC pursuant to Rule 13a-1 of the Securities Exchange Act.Act of 1934, as amended. You may also obtainrequest copies of exhibits to the Form 10-K, but the Company will charge a reasonable fee to shareholders requesting such exhibits. You should direct your request in writing to: Comarco, Inc., Attn: Corporate Secretary, 25541 Commercentre Drive, Suite 250, Lake Forest, CA 92630.
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
/s/ Alisha K. Charlton
Alisha K. Charlton, Secretary
Lake Forest, CaliforniaJune 10, 2011
July 5, 2013
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COMARCO, INC.comarco, inc.
2011 EQUITY INCENTIVE PLAN, AS AMENDED
1. | Purpose | A-3 | |||
2. | Definitions | A-3 | |||
3. | |||||
A-6 | |||||
Stock Subject to the Plan | A-6 | ||||
Administration; Limitation on Liability | A-6 | ||||
Authorization of Grants | A-7 | ||||
Specific Terms of Awards | A-8 | ||||
Adjustment Provisions | A-12 | ||||
Change of Control | A-13 | ||||
Settlement of Awards | A-14 | ||||
Reservation of Stock | A-15 | ||||
Limitation of Rights in Stock; No Special Service Rights | A-15 | ||||
Unfunded Status of Plan | A-16 | ||||
Nonexclusivity of the Plan | A-16 | ||||
Effective Date, Termination and Amendment of the Plan | A-16 | ||||
Notices and Other Communications | A-16 | ||||
Governing Law | A-17 |
2011 Equity Incentive Plan,
1. Purpose
This Plan is intended to encourage ownership of Stock by employees, consultants and directors of the Company and its Affiliates and to provide additional incentive for them to promote the success of the Company’s business. The Plan is intended to be an incentive stock option plan within the meaning of Section 422 of the Code, but not all Awards are required to be Incentive Options.
2. Definitions
As used in this Plan, the following terms shall have the following meanings:
2.1 2005 Plan means the Company’s 2005 Equity2005Equity Incentive Plan, as amended.
2.2Accelerate,Accelerated, andAcceleration, means: (a) when used with respect to an Option or Stock Appreciation Right, that as of the time of reference the Option or Stock Appreciation Right will become exercisable with respect to some or all of the shares of Stock for which it was not then otherwise exercisable by its terms; (b) when used with respect to Restricted Stock or Restricted Stock Units, that the Risk of Forfeiture otherwise applicable to the Stock or Units shall expire with respect to some or all of the shares of Restricted Stock or Units then still otherwise subject to the Risk of Forfeiture; and (c) when used with respect to Performance Units, that the applicable Performance Goals shall be deemed to have been met as to some or all of the Units.
2.3Acquisition means a merger or consolidation of the Company with or into another person or the sale, transfer, or other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions. For purposes of this paragraph, “substantially all” shall mean the assets of the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to the applicable transaction(s).
2.4Affiliate means any corporation, partnership, limited liability company, business trust, or other entity controlling, controlled by or under common control with the Company.
2.5Award means any grant or sale pursuant to the Plan of Options, Stock Appreciation Rights, Performance Units, Restricted Stock, Restricted Stock Units, or Stock Grants.
2.6AwardAgreement means an agreement between the Company and the recipient of an Award, setting forth the terms and conditions of the Award.
2.7Board means the Company’s Board of Directors.
2.8Change of Control means the occurrence of any of the following after the date of the approval of the Plan by the Board:
(a) an Acquisition, unless, in the case of a merger or consolidation of the Company, securities possessing more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities immediately prior to that transaction, or
(b) any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to time) directly or indirectly acquires, including but not limited to by means of a merger or consolidation, beneficial ownership (determined pursuant to
A-1
(c) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of such appointment or election..
2.9Code means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto, and any regulations issued from time to time thereunder.
2.10Committee means any committee of the Board delegated responsibility by the Board for the administration of the Plan, as provided in Section 5 of the Plan. For any period during which no such committee is in existence “Committee” shall mean the Board and all authority and responsibility assigned to the Committee under the Plan shall be exercised, if at all, by the Board.
2.11Company means Comarco, Inc., a corporation organized under the laws of the State of California.
2.12Covered Employee means an employee who is a “covered employee” within the meaning of Section 162(m) of the Code.
2.13GrantDate means the date as of which an Option is granted, as determined under Section 7.1(a).
2.14IncentiveOption means an Option which by its terms is to be treated as an “incentive stock option” within the meaning of Section 422 of the Code.
2.15MarketValue means a value established by the Committee on the basis of actual transactions on or about the Grant Date or other relevant date in stock on any established securities market on which the Stock is then readily tradable, or in the absence of such transactions, the value of a share of stock on the relevant date as determined by the Committee in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested and affected parties.
2.16NonstatutoryOption means any Option that is not an Incentive Option.
2.17Option means an option to purchase shares of Stock.
2.18Optionee means a Participant to whom an Option shall have been granted under the Plan.
2.19Participant means any holder of an outstanding Award under the Plan.
2.20Performance Criteria means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria used to establish Performance Goals are limited to: (i) cash flow (before or after dividends), (ii) earnings per share (including, without limitation, earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) shareholderstockholder return or total shareholderstockholder return, (vi) return on capital (including, without limitation, return on total capital or return on invested capital), (vii) return on investment, (viii) return on assets or net assets, (ix) market capitalization, (x) economic value added, (xi) debt leverage (debt to capital), (xii) revenue, (xiii) sales or net sales, (xiv) backlog, (xv) income, pre-tax income or net income, (xvi) operating income or pre-tax profit, (xvii) operating profit, net operating profit or economic profit, (xviii) gross margin, operating margin or profit margin, (xix) return on operating revenue or return on operating assets, (xx) cash
A-2
2.21Performance Goals means, for a Performance Period, the written goal or goals established by the Committee for the Performance Period based upon the Performance Criteria. The Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, subsidiary, or an individual, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Affiliate, either individually, alternatively or in any combination, and measured either quarterly, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee. The Committee will, in the manner and within the time prescribed by Section 162(m) of the Code in the case of Qualified Performance-Based Awards, objectively define the manner of calculating the Performance Goal or Goals it selects to use for such Performance Period for such Participant. To the extent consistent with Section 162(m) of the Code, the Committee may appropriately adjust any evaluation of performance against a Performance Goal to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation, claims, judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs and (v) any extraordinary, unusual, non-recurring or non-comparable items (A) as described in Accounting Principles Board Opinion No. 30, (B) as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report to shareholdersstockholders for the applicable year, or (C) publicly announced by the Company in a press release or conference call relating to the Company’s results of operations or financial condition for a completed quarterly or annual fiscal period.
2.22Performance Period means the one or more periods of time, which may be of varying and overlapping durations, selected by the Committee, over which the attainment of one or more Performance Goals will be measured for purposes of determining a Participant’s right to, and the payment of, a Performance Unit.
2.23Performance Unit means a right granted to a Participant under Section 7.5, to receive cash, Stock or other Awards, the payment of which is contingent on achieving Performance Goals established by the Committee.
2.24Plan means this 2011 Equity Incentive Plan of the Company, as amended from time to time, and including any attachments or addenda hereto.
2.25Qualified Performance-Based Awards means Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
2.26Restricted Stock means a grant or sale of shares of Stock to a Participant subject to a Risk of Forfeiture.
2.27Restricted Stock Units means rights to receive shares of Stock at the close of a Restriction Period, subject to a Risk of Forfeiture.
2.28Restriction Period means the period of time, established by the Committee in connection with an Award of Restricted Stock or Restricted Stock Units, during which the shares of Restricted Stock are subject to a Risk of Forfeiture described in the applicable Award Agreement.
2.29Risk of Forfeiture means a limitation on the right of the Participant to retain Restricted Stock or Restricted Stock Units, including a right in the Company to reacquire shares of Restricted Stock at less than their then Market Value, arising because of the occurrence or non-occurrence of specified events or conditions.
2.30Stock means common stock of the Company, and such other securities as may be substituted for Stock pursuant to Section 8.
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2.32Stock Grant means the grant of shares of Stock not subject to restrictions or other forfeiture conditions.
2.33TenPercentOwner means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f), respectively, of the Code). Whether a person is a Ten Percent Owner shall be determined with respect to an Option based on the facts existing immediately prior to the Grant Date of the Option.
3. Term of the Plan
Unless the Plan shall have been earlier terminated by the Board, Awards may be granted under this Plan at any time in the period commencing on[•], July 21, 2011 and ending immediately prior to[•], July 21, 2021. Awards granted pursuant to the Plan within that period shall not expire solely by reason of the termination of the Plan. Awards of Options granted prior to shareholderstockholder approval of the Plan may not be exercised prior to the receipt of such approval.
4. Stock Subject to the Plan
At no time shall the number of shares of Stock issued pursuant to or subject to outstanding Awards granted under the Plan (including pursuant to Incentive Options), nor the number of shares of Stock issued pursuant to Incentive Options, exceed the sum of:of (i) sevenone million three hundred and fifty thousand (750,000)(1,350,000) shares of Stock, plus (ii) shares that remain available for issuance and are not subject to awards granted under the 2005 Plan, plus (iii) any of the shares of Stock that, as of the effective date of this Plan, are the subject of outstanding awards under the 2005 Plan, which again become available for grant under this Section 4;subject, however, to the provisions of Section 8 of the Plan. For purposes of applying the foregoing limitation, if any Option or Stock Appreciation Right granted under this Plan or the 2005 Plan expires, terminates, or is cancelled for any reason without having been exercised in full, or if any other Award is forfeited by the recipient or repurchased at less than its Market Value, the shares not purchased by the Optionee or which are forfeited by the recipient or repurchased shall again be available for Awards to be granted under thisthe Plan. In addition, settlement of any Award shall not count against the foregoing limitations except to the extent settled in the form of Stock. If this Plan is approved by the affirmative vote of the holders of a majority of the shares of Stock voting on the proposal to approve this Plan, the authority to grant awards under the 2005 Plan shall terminate such that no additional awards or grants may be made under the 2005 Plan.
5. Administration; Limitation on Liability
5.1Administration. The Plan shall be administered by the Committee;provided,,however, that at any time and on any one or more occasions the Board may itself exercise any of the powers and responsibilities assigned the Committee under the Plan and when so acting shall have the benefit of all of the provisions of the Plan pertaining to the Committee’s exercise of its authorities hereunder. Subjecthereunder.Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make or to select the manner of making all determinations with respect to each Award to be granted by the Company under the Plan including the employee, consultant or director to receive the Award and the form of Award. In making such determinations, the Committee may take into account the nature of the services rendered by the respective employees, consultants, and directors, their present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective Award Agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee’s determinations made in good faith on matters referred to in the Plan shall be final, binding and conclusive on all persons having or claiming any interest under the Plan or an Award made pursuant hereto.
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6.1EligibilityEligibility.. The Committee may grant from time to time and at any time prior to the termination of the Plan one or more Awards, either alone or in combination with any other Awards, to
(a) any employee of or consultant to one or more of the Company and its Affiliates (including any such employee or consultant who is also a member of the Board or any board of directors (or similar governing authority) of any Affiliate), and
(b) any non-employee member of the Board or of any board of directors (or similar governing authority) of any Affiliate.
However, only employees of the Company, and of any parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f), respectively, of the Code, shall be eligible for the grant of an Incentive Option. Further, in no event shall the number of shares of Stock covered by Options or other Awards granted to any one person in any one calendar year exceed 25% of the aggregate number of shares of Stock subject to the Plan.
6.2General Terms of Awards. Each grant of an Award shall be subject to all applicable terms and conditions of the Plan (including but not limited to any specific terms and conditions applicable to that type of Award set out in the following Section), and such other terms and conditions, not inconsistent with the terms of the Plan, as the Committee may prescribe. No prospective Participant shall have any rights with respect to an Award, unless and until such Participant has executed an agreement evidencing the Award, delivered a fully executed copy thereof to the Company, and otherwise complied with the applicable terms and conditions of such Award.
6.3Effect of Termination of Employment, EtcEtc.. Unless the Committee shall provide otherwise with respect to any Award, if the Participant’s employment or other association with the Company and its Affiliates ends for any reason, including because of the Participant’s employer ceasing to be an Affiliate, (a) any outstanding Award of the Participant, other than an Option or Stock Appreciation Right, shall be forfeited or otherwise subject to return to or repurchase by the Company on the terms specified in the applicable Award Agreement and (b) any outstanding Option or Stock Appreciation Right of the Participant shall cease to be exercisable in any respect not later than whichever of the following may apply:
(1) one year following the termination of Optionee’s employment or other association with the Company and its Affiliates on account of disability (within the meaning of Section 22(e)(3) of the Code);
(2) one year following the Optionee’s death, in the event the Optionee dies while still employed or associated with the Company or its Affiliate or within three (3) months following his or her termination of employment or association; and
(3) unless (1) or (2) applies or becomes applicable, three (3) months (twelve (12) months in the case of nonemployee directors) following his or her termination of employment or association with the Company and its Affiliates for any other reason, including because of the Optionee’s employer ceasing to be an Affiliate.
For the period an Option or Stock Appreciation Right remains exercisable following any termination of employment or association with the Company and its Affiliates, such Option or Stock Appreciation Right shall be
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6.4Non-Transferability of Awards. Except as otherwise provided in this Section 6.4, Awards shall not be transferable, and no Award or interest therein may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All of a Participant’s rights in any Award may be exercised during the life of the Participant only by the Participant or the Participant’s legal representative. However, the Committee may, at or after the grant of an Award of a Nonstatutory Option, or shares of Restricted Stock, provide that such Award may be transferred by the recipient to a family member;provided,,however, that any such transfer is without payment of any consideration whatsoever and that no transfer shall be valid unless first approved by the Committee, acting in its sole discretion;provided,,further,, that such transferee shall be bound by and subject to all of the terms and conditions of this Plan and the Award Agreement relating to the transferred Award and shall execute an agreement satisfactory to the Company evidencing such obligations.obligations.. For this purpose, “family member” means any child, stepchild, grandchild, parent, stepparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee’s household (other than a tenant or employee), a trust in which the foregoing persons have more than fifty percent (50%) of the beneficial interests, a foundation in which the foregoing persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent (50%) of the voting interests.
7.1Options.
(a) Date of Grant. The granting of an Option shall take place at the time specified in the Award Agreement. Only if expressly so provided in the applicable Award Agreement shall the Grant Date be the date on which the Award Agreement shall have been duly executed and delivered by the Company and the Optionee.
(b) Exercise Price. The price at which shares of Stock may be acquired under each Option shall be not less than 100% of the Market Value of Stock on the Grant Date, or not less than 110% of the Market Value of Stock on the Grant Date in the case of any Incentive Option granted to an Optionee that is a Ten Percent Owner.
(c) Option Period. No Option may be exercised on or after the tenth anniversary of the Grant Date, or on or after the fifth anniversary of the Grant Date in the case of any Incentive Option granted to an Optionee that is a Ten Percent Owner.
(d) Exercisability. An Option may be immediately exercisable or become exercisable in such installments, cumulative or non-cumulative, as the Committee may determine. In the case of an Option not otherwise immediately exercisable in full, the Committee may Accelerate such Option in whole or in part at any time;provided,,however,, that in the case of an Incentive Option, any such Acceleration of the Option would not cause the Option to fail to comply with the provisions of Section 422 of the Code or the Optionee consents to the Acceleration.
(e) Method of Exercise. An Option may be exercised by the Optionee giving written notice, in the manner provided in Section 16, specifying the number of shares with respect to which the Option is then being exercised. The notice shall be accompanied by payment in an amount equal to the exercise price of the shares to be purchased in the form of (i) cash or check payable to the order of the Company or (ii) any other lawful means authorized by the Committee (including exercise for the net number of shares available or delivery to the Company of shares of Stock having a Market Value equal to the exercise price of the shares to be purchased). As long as the Stock is traded on an established market, if authorized by the Committee, payment of
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(f) Limit on Incentive Option Characterization. An Incentive Option shall be considered to be an Incentive Option only to the extent that the number of shares of Stock for which the Option first becomes exercisable in a calendar year do not have an aggregate Market Value (as of the date of the grant of the Option) in excess of the “current limit”. The current limit for any Optionee for any calendar year shall be $100,000minusthe aggregate Market Value at the date of grant of the number of shares of Stock available for purchase for the first time in the same year under each other Incentive Option previously granted to the Optionee under the Plan, and under each other incentive stock option previously granted to the Optionee under any other incentive stock option plan of the Company and its Affiliates, after December 31, 1986. Any shares of Stock which would cause the foregoing limit to be violated shall be deemed to have been granted under a separate Nonstatutory Option, otherwise identical in its terms to those of the Incentive Option.
(g) Notification of Disposition. Each person exercising any Incentive Option granted under the Plan shall be deemed to have covenanted with the Company to report to the Company any disposition of such shares prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code and, if and to the extent that the realization of income in such a disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, to remit to the Company an amount in cash sufficient to satisfy those requirements.
7.2Stock Appreciation Rights.
(a) Tandem or Stand-Alone. Stock Appreciation Rights may be granted in tandem with an Option (at or, in the case of a Nonstatutory Option, after, the award of the Option), or alone and unrelated to an Option. Stock Appreciation Rights in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem Stock Appreciation Rights are exercised.
(b) ExercisePrice. Stock Appreciation Rights shall have an exercise price of not less than the Market Value of the Stock on the date of award, or in the case of Stock Appreciation Rights in tandem with Options, the exercise price of the related Option.
(c) OtherTerms. Except as the Committee may deem inappropriate or inapplicable in the circumstances, Stock Appreciation Rights shall be subject to terms and conditions substantially similar to those applicable to a Nonstatutory Option. In addition, a Stock Appreciation Right related to an Option which can only be exercised during limited periods following a Change of Control may entitle the Participant to receive an amount based upon the highest price paid or offered for Stock in any transaction relating to the Change of Control or paid during the thirty (30) day period immediately preceding the occurrence of the Change of Control in any transaction reported in the stock market in which the Stock is normally traded.
7.3Restricted Stock.
(a) Purchase Price. Shares of Restricted Stock shall be issued under the Plan for such consideration, in cash, other property or services, or any combination thereof, as is determined by the Committee.
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The transferability of this certificate and the shares represented by this certificate are subject to the terms and conditions of Comarco, Inc. 2011 Equity Incentive Plan and an Award Agreement entered into by the registered owner and Comarco, Inc. Copies of such Plan and Agreement are on file in the offices of Comarco, Inc.
(c) Escrow of Shares. The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award.
(d) Restrictions and Restriction Period. During the Restriction Period applicable to shares of Restricted Stock, such shares shall be subject to limitations on transferability and a Risk of Forfeiture arising on the basis of such conditions related to the performance of services, Company or Affiliate performance or otherwise as the Committee may determine and provide for in the applicable Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or the Restriction Period shortened, at any time by the Committee on such basis as it deems appropriate.
(e) Rights Pending Lapse of Risk of Forfeiture or Forfeiture of Award. Except as otherwise provided in the Plan or the applicable Award Agreement, at all times prior to lapse of any Risk of Forfeiture applicable to, or forfeiture of, an Award of Restricted Stock, the Participant shall have all of the rights of a shareholder of the Company, including the right to vote, and the right to receive any dividends with respect to, the shares of Restricted Stock. The Committee, as determined at the time of Award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional Restricted Stock to the extent shares are available under Section 4.
(f) Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock, to the extent that the Company certificates itsis shares of Stock at such time, the certificates for such shares shall be delivered to the Participant promptly if not theretofore so delivered.
7.4Restricted Stock Units.
(a) Character. Each Restricted Stock Unit shall entitle the recipient to a share of Stock at a close of such Restriction Period as the Committee may establish and subject to a Risk of Forfeiture arising on the basis of such conditions relating to the performance of services, Company or Affiliate performance or otherwise as the Committee may determine and provide for in the applicable Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or the Restriction Period shortened, at any time by the Committee on such basis as it deems appropriate.
(b) Form and Timing of Payment. Payment of earned Restricted Stock Units shall be made in a single lump sum following the close of the applicable Restriction Period. At the discretion of the Committee, Participants may be entitled to receive payments equivalent to any dividends declared with respect to Stock referenced in grants of Restricted Stock Units but only following the close of the applicable Restriction Period and then only if the underlying Stock shall have been earned. Unless the Committee shall provide otherwise, any such dividend equivalents shall be paid, if at all, without interest or other earnings.
7.5Performance Units.
(a) Character. Each Performance Unit shall entitle the recipient to the value of a specified number of shares of Stock, over the initial value for such number of shares, if any, established by the
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(b) Earning of Performance Units. The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met within the applicable Performance Period, will determine the number and value of Performance Units that will be paid out to the Participant. After the applicable Performance Period has ended, the holder of Performance Units shall be entitled to receive payout on the number and value of Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved.
(c) Form and Timing of Payment. Payment of earned Performance Units shall be made in a single lump sum following the close of the applicable Performance Period. At the discretion of the Committee, Participants may be entitled to receive any dividends declared with respect to Stock which have been earned in connection with grants of Performance Units which have been earned, but not yet distributed to Participants. The Committee may permit or, if it so provides at grant require, a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Stock that would otherwise be due to such Participant by virtue of the satisfaction of any requirements or goals with respect to Performance Units. If any such deferral election is required or permitted, the Committee shall establish rules and procedures for such payment deferrals.
7.6Stock Grants. Stock Grants shall be awarded solely in recognition of significant contributions to the success of the Company or its Affiliates, in lieu of compensation otherwise already due and in such other limited circumstances as the Committee deems appropriate. Stock Grants shall be made without forfeiture conditions of any kind.
7.7Qualified Performance-Based Awards.
(a) Purpose. The purpose of this Section 7.7 is to provide the Committee the ability to qualify Awards as “performance-based compensation” under Section 162(m) of the Code. If the Committee, in its discretion, decides to grant an Award as a Qualified Performance-Based Award, the provisions of this Section 7.7 will control over any contrary provision contained in the Plan. In the course of granting any Award, the Committee may specifically designate the Award as intended to qualify as a Qualified Performance-Based Award. However, no Award shall be considered to have failed to qualify as a Qualified Performance-Based Award solely because the Award is not expressly designated as a Qualified Performance-Based Award, if the Award otherwise satisfies the provisions of this Section 7.7 and the requirements of Section 162(m) of the Code and the regulations promulgated thereunder applicable to “performance-based compensation.”
(b) Authority. All grants of Awards intended to qualify as Qualified Performance-Based Awards and determination of terms applicable thereto shall be made by the Committee or, if not all of the members thereof qualify as “outside directors” within the meaning of applicable Internal Revenue Service regulations under Section 162 of the Code, a subcommittee of the Committee consisting of such of the members of the Committee as do so qualify. Any action by such a subcommittee shall be considered the action of the Committee for purposes of the Plan.
(c) Applicability. This Section 7.7 will apply only to those Covered Employees, or to those persons who the Committee determines are reasonably likely to become Covered Employees in the period covered by an Award, selected by the Committee to receive Qualified Performance-Based Awards. The Committee may, in its discretion, grant Awards to Covered Employees that do not satisfy the requirements of this Section 7.7.
(d) Discretion of Committee with Respect to Qualified Performance-Based Awards. Options may be granted as Qualified Performance-Based Awards in accordance with Section 7.1.7.1 intended to qualify as a Qualified Performance-Based Award. With regard to other Awards intended to qualify as Qualified Performance-Based Awards, such as Restricted Stock, Restricted Stock Units, or Performance Units, the Committee will have full discretion to select the length of any applicable Restriction Period or Performance Period, the kind and/or level of the applicable Performance Goal, and whether the Performance Goal is to apply to the Company, an Affiliate or any division or business unit or to the individual. Any Performance Goal or Goals applicable to Qualified Performance-Based Awards shall be objective, shall be
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(e) Payment of Qualified Performance-Based Awards. A Participant will be eligible to receive payment under a Qualified Performance-Based Award which is subject to achievement of a Performance Goal or Goals only if the applicable Performance Goal or Goals period are achieved within the applicable Performance Period, as determined by the Committee. In determining the actual size of an individual Qualified Performance-Based Award, the Committee may reduce or eliminate the amount of the Qualified Performance-Based Award earned for the Performance Period, if in its sole and absolute discretion, such reduction or elimination is appropriate.
(f) Maximum Award Payable. The maximum Qualified Performance-Based Award payment to any one Participant under the Plan for a Performance Period is the number of shares of Stock set forth in Section 4 above, or if the Qualified Performance-Based Award is paid in cash, that number of shares multiplied by the Market Value of the Stock as of the date the Qualified Performance-Based Award is granted.
(g) Limitation on Adjustments for Certain Events. No adjustment of any Qualified Performance-Based Award pursuant to Section 8 shall be made except on such basis, if any, as will not cause such Award to provide other than “performance-based compensation” within the meaning of Section 162(m) of the Code.
7.8Awards to Participants Outside the United States. The Committee may modify the terms of any Award under the Plan granted to a Participant who is, at the time of grant or during the term of the Award, resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that the Award shall conform to laws, regulations, and customs of the country in which the Participant is then resident or primarily employed, or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of such an Award to a Participant who is resident or primarily employed in the United States. The Committee may establish supplements to, or amendments, restatements, or alternative versions of the Plan for the purpose of granting and administrating any such modified Award. No such modification, supplement, amendment, restatement or alternative version may increase the share limit of Section 4.
7.9Compliance with Section 409A of the Code.This Plan is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that an Award or the payment, settlement or deferral thereof is subject to Section 409A of the Code, the Award shall be granted, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. Any provision of this Plan that would cause the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code. A Participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant in connection with awards (including any taxes and penalties under Section 409A) and we will have no obligation to indemnify or otherwise hold a Participant harmless from any such taxes or penalties.
8. Adjustment Provisions
8.1Adjustment for Corporate Actions. All of the share numbers set forth in the Plan reflect the capital structure of the Company as of the date of the Board’s initial adoption of the Plan. Subject to Section 8.2, if subsequent to that date the outstanding shares of Stock (or any other securities covered by the Plan by reason of the prior application of this Section) are increased, decreased, or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to
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8.2Treatment in Acquisitions. Unless otherwise determined by the Committee and expressly set forth in an Award Agreement, in the event of an Acquisition in which outstanding Awards are not Accelerated in full pursuant to Section 9, any then outstanding Awards shall nevertheless Accelerate to the extent not assumed or replaced by the successor or acquiring entity or parent thereof by comparable Awards referencing shares of the capital stock of the successor or acquiring entity or parent thereof, and thereafter (or after a reasonable period following the Acquisition, as determined by the Committee) terminate. As to any one or more outstanding Awards, however, the Committee may also, either in advance of an Acquisition or at the time thereof and upon such terms as it may deem appropriate, provide for the Acceleration of such outstanding Awards or in lieu thereof provide for the termination of the Award in exchange for a cash payment in an amount equal to the difference between the Market Value of the shares of Stock covered by the Award and the aggregate exercise price (if any) of the Award. Each outstanding Award that is assumed in connection with an Acquisition, or is otherwise to continue in effect subsequent to the Acquisition, will be appropriately adjusted, immediately after the Acquisition, as to the number and class of securities and other relevant terms in accordance with Section 8.1.
8.3Dissolution or Liquidation. Upon dissolution or liquidation of the Company, other than as part of an Acquisition or similar transaction, each outstanding Option and Stock Appreciation Right shall terminate, but the Optionee or Stock Appreciation Right holder (if at the time in the employ of or otherwiseother associated with the Company or any of its Affiliates) shall have the right, immediately prior to the dissolution or liquidation, to exercise the Option or Stock Appreciation Right to the extent exercisable on the date of dissolution or liquidation.
8.4Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. In the event of any corporate action not specifically covered by the preceding Sections, including but not limited to an extraordinary cash distribution on Stock, a corporate separation or other reorganization or liquidation, the Committee may make such adjustment of outstanding Awards and their terms, if any, as it, in its sole discretion, may deem equitable and appropriate in the circumstances.
8.5Related Matters. Any adjustment in Awards made pursuant to this Section 8 shall be determined and made, if at all, by the Committee and shall include any correlative modification of terms, including of Option exercise prices, rates of vesting or exercisability, Risks of Forfeiture, applicable repurchase prices for Restricted Stock, and Performance Goals and other financial objectives which the Committee may deem necessary or appropriate so as to ensure the rights of the Participants in their respective Awards are not substantially diminished nor enlarged as a result of the adjustment and corporate action other than as expressly contemplated in this Section 8. No fraction of a share shall be purchasable or deliverable upon exercise, but in the event any adjustment hereunder of the number of shares covered by an Award shall cause such number to include a fraction of a share, such number of shares shall be adjusted to the nearest smaller whole number of shares. No adjustment of an Option exercise price per share pursuant to this Section 8 shall result in an exercise price which is less than the par value of the Stock.
9. Change of Control
Except as otherwise provided below, upon the occurrence of a Change of Control:
(a) any and all Options and Stock Appreciation Rights not already exercisable in full shall continue to vest and become exercisable after the Change of Control in accordance with the terms of the Plan and the applicable Award Agreement;provided, however, that such Options and Stock Appreciation Rights
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(b) any Restricted Stock and Restricted Stock Units still subject to a Risk of Forfeiture at the date of the Change of Control which Risk is not based on achievement of Performance Goals shall continue to vest after the Change of Control in accordance with the terms of the Plan and the applicable Award Agreement;provided, however, that such Restricted Stock and Restricted Stock Units shall Accelerate in full upon any termination of the Participant’s employment or other association with the Company and its Affiliates (or any successor thereto) by the Company or its Affiliate (or any successor), other than for cause, within one year following the Change of Control; and
(c) all outstanding Awards of Restricted Stock and Restricted Stock Units conditioned on the achievement of Performance Goals and the target payout opportunities attainable under outstanding Performance Units shall be deemed to have been satisfied as of the effective date of the Change of Control as to a pro rata number of shares based on the assumed achievement of all relevant Performance Goals and the length of time within the Performance Period which has elapsed prior to the Change of Control and the balance forfeited. All such Awards of Performance Units, Restricted Stock Units shall be paid to the extent earned to Participants in accordance with their terms within thirty (30) days following the effective date of the Change of Control.
None of the foregoing shall apply, however, (i) in the case of a Qualified Performance-Based Award specifically designated as such by the Committee at the time of grant (except to the extent allowed by Section 162(m) of the Code), (ii) in the case of any Award pursuant to an Award Agreement requiring other or additional terms upon a Change of Control (or similar event), or (iii) if specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges.
10.1In General. Options and Restricted Stock shall be settled in accordance with their terms. All other Awards may be settled in cash, Stock, or other Awards, or a combination thereof, as determined by the Committee at or after grant and subject to any contrary Award Agreement. The Committee may not require settlement of any Award in Stock pursuant to the immediately preceding sentence to the extent issuance of such Stock would be prohibited or unreasonably delayed by reason of any other provision of the Plan.
10.2Violation of Law. Notwithstanding any other provision of the Plan or the relevant Award Agreement, if, at any time, in the reasonable opinion of the Company, the issuance of shares of Stock covered by an Award may constitute a violation of law, then the Company may delay such issuance and the delivery of a certificate for such shares until (i) approval shall have been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule, or regulation and (ii) in the case where such issuance would constitute a violation of a law administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been satisfied:
(a) the shares are at the time of the issue of such shares effectively registered under the Securities Act of 1933; or
(b) the Company shall have determined, on such basis as it deems appropriate (including an opinion of counsel in form and substance satisfactory to the Company) that the sale, transfer, assignment, pledge, encumbrance or other disposition of such shares or such beneficial interest, as the case may be, does not require registration under the Securities Act of 1933, as amended or any applicable State securities laws.
The Company shall make all reasonable efforts to bring about the occurrence of said events.
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10.4Investment Representations. The Company shall be under no obligation to issue any shares covered by any Award unless the shares to be issued pursuant to Awards granted under the Plan have been effectively registered under the Securities Act of 1933, as amended, or the Participant shall have made such written representations to the Company (upon which the Company believes it may reasonably rely) as the Company may deem necessary or appropriate for purposes of confirming that the issuance of such shares will be exempt from the registration requirements of that Act and any applicable state securities laws and otherwise in compliance with all applicable laws, rules and regulations, including but not limited to the representation that the Participant is acquiring the shares for his or her own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution of any such shares.
10.5Registration. If the Company shall deem it necessary or desirable to register under the Securities Act of 1933, as amended or other applicable statutes any shares of Stock issued or to be issued pursuant to Awards granted under the Plan, or to qualify any such shares of Stock for exemption from the Securities Act of 1933, as amended or other applicable statutes, then the Company shall take such action at its own expense. The Company may require from each recipient of an Award, or each holder of shares of Stock acquired pursuant to the Plan, such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for that purpose and may require reasonable indemnity to the Company and its officers and directors from that holder against all losses, claims, damage and liabilities arising from use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. In addition, the Company may require of any such person that he or she agree that, without the prior written consent of the Company or the managing underwriter in any public offering of shares of Stock, he or she will not sell, make any short sale of, loan, grant any option for the purchase of, pledge or otherwise encumber, or otherwise dispose of, any shares of Stock during the 180 day period commencing on the effective date of the registration statement relating to the underwritten public offering of securities. Without limiting the generality of the foregoing provisions of this Section 10.5, if in connection with any underwritten public offering of securities of the Company the managing underwriter of such offering requires that the Company’sCompany's directors and officers enter into a lock-up agreement containing provisions that are more restrictive than the provisions set forth in the preceding sentence, then (a) each holder of shares of Stock acquired pursuant to the Plan (regardless of whether such person has complied or complies with the provisions of clause (b) below) shall be bound by, and shall be deemed to have agreed to, the same lock-up terms as those to which the Company’sCompany's directors and officers are required to adhere; and (b) at the request of the Company or such managing underwriter, each such person shall execute and deliver a lock-up agreement in form and substance equivalent to that which is required to be executed by the Company’sCompany's directors and officers.
10.6Placement of Legends; Stop Orders; etc. Each share of Stock to be issued pursuant to Awards granted under the Plan may bear a reference to the investment representation made in accordance with Section 10.4 in addition to any other applicable restriction under the Plan and the terms of the Award and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares of Stock. All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
10.7Tax Withholding. Whenever shares of Stock are issued or to be issued pursuant to Awards granted under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy federal, state, local or other withholding tax requirements if, when, and to the extent required by law (whether so required to secure for the Company an otherwise available tax deduction or otherwise) prior to the issuance of any such shares. The obligations of the Company under the Plan shall be conditional on satisfaction of all such withholding obligations and the Company shall, to the extent permitted by law, have the right
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11. Reservation of Stock
The Company shall at all times during the term of the Plan and any outstanding Awards granted hereunder reserve or otherwise keep available such number of shares of Stock as will be sufficient to satisfy the requirements of the Plan (if then in effect) and the Awards and shall pay all fees and expenses necessarily incurred by the Company in connection therewith.
12. Limitation of Rights in Stock; No Special Service Rights
A Participant shall not be deemed for any purpose to be a shareholderstockholder of the Company with respect to any of the shares of Stock subject to an Award, unless and until a certificate shall have been issued therefor and delivered to the Participant or his agent. Any Stock to be issued pursuant to Awards granted under the Plan shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the Articles of Incorporation and the By-laws of the Company. Nothing contained in the Plan or in any Award Agreement shall confer upon any recipient of an Award any right with respect to the continuation of his or her employment or other association with the Company (or any Affiliate), or interfere in any way with the right of the Company (or any Affiliate), subject to the terms of any separate employment or consulting agreement or provision of law or corporate charter, certificate or articles, or by-laws, to the contrary, at any time to terminate such employment or consulting agreement or to increase or decrease, or otherwise adjust, the other terms and conditions of the recipient’s employment or other association with the Company and its Affiliates.
The Plan is intended to constitute an “unfunded” plan for incentive compensation, and the Plan is not intended to constitute a plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments with respect to Options, Stock Appreciation Rights and other Awards hereunder,provided,,however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.
14. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the Plan to the shareholders of the Company shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options and restricted stock other than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
15. Effective Date, Termination and Amendment of the Plan
15.1Effective Date. This Plan was approved by the Board on May 9, 2011 and shall become effective immediately following approval of the Plan by the affirmative vote of the holders of a majority of the shares of Stock that are entitled to vote and are voted on the proposal to approve this Plan. Such approval by the shareholders was obtained and, accordingly, the Plan became effective on [•],July 21, 2011.
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15.3Amendment.
(a) The Committee may amend, alter or discontinue the Plan and, to the extent permitted by this Plan, the Committee may amend the terms of any Award theretofore granted;provided, however, that the Company shall submit for shareholder approval any amendment (other than an amendment pursuant to the adjustment provisions of Section 8) required to be submitted for shareholder approval by NASDAQ or that otherwise would: (i) increase the maximum number of shares of Stock for which Awards may be granted under this Plan, (ii) reduce the price at which Options may be granted below the price provided for in Section 7.1(b), (iii) reduce the option price of outstanding Options, (iv) extend the term of this Plan, (v) change the class of persons eligible to be Participants, or (vi) increase the limits in Section 4.
(b) No amendment or modification of the Plan by the Board, or of an outstanding Award by the Committee, shall impair the rights of the recipient of any Award outstanding on the date of such amendment or modification or such Award, as the case may be, without the Participant’s consent;provided,however, that no such consent shall be required if (i) the Board or Committee, as the case may be, determines in its sole discretion and prior to the date of any Change of Control that such amendment or alteration either is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation, including, without limitation, the provisions of Section 409A of the Code or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or (ii) the Board or Committee, as the case may be, determines in its sole discretion that such amendment or alteration is not reasonably likely to significantly diminish the benefits provided under the Award, or that any such diminution has been adequately compensated.
16. Notices and Other Communications
Any notice, demand, request or other communication hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by first class registered, certified or overnight mail, postage prepaid, or telecopied with a confirmation copy by regular, certified or overnight mail, addressed or telecopied, as the case may be, (i) if to the recipient of an Award, at his or her residence address last filed with the Company and (ii) if to the Company, at its principal place of business, addressed to the attention of its Treasurer, or to such other address or telecopier number, as the case may be, as the addressee may have designated by notice to the addressor. All such notices, requests, demands and other communications shall be deemed to have been received: (i) in the case of personal delivery, on the date of such delivery; (ii) in the case of mailing, when received by the addressee; and (iii) in the case of facsimile transmission, when confirmed by facsimile machine report.
The Plan and all Award Agreements and actions taken thereunder shall be governed, interpreted and enforced in accordance with the laws of the State of California without regard to the conflict of laws principles thereof.
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AMENDMENT TO
COMARCO, INC.
2011 EQUITY INCENTIVE PLAN
ThisAMENDMENT TO THE COMARCO, INC. 2011 EQUITY INCENTIVE PLAN(the “Amendment”) is made as of ________________, 2013 (the “Amendment Effective Date”) and amends that certain 2011 Equity Incentive Plan, as amended (the “Plan”), of Comarco, Inc., a California corporation (the “Corporation”). This Amendment was adopted by the Board of Directors of the Corporation on June 17, 2013 in accordance with Section 15 of the Plan and approved by the shareholders of the Corporation on ___________, 2013.
As of the Amendment Effective Date, the Plan is hereby amended as follows:
1. Section 4 of the Plan be, and it hereby is, amended to increase the number of shares of common stock which may be issued or made subject to awards under the 2011 Plan under provision (i) by 600,000 by replacing the number “750,000” with the number “1,350,000”.
2. Except as expressly provided in this Amendment, all of the terms and conditions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF,the Corporation has adopted this Amendment as of the first date written above.
COMARCO, INC. | |||
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