-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M6Tb65BEnI+N8yn/JbUX+JQcyysCjoE0K3bCQVW++ep6jBlTrsjFSsxSn/Lrre6t DTSSEHW5+NP+V5nWgTXStA== 0000730255-07-000011.txt : 20070517 0000730255-07-000011.hdr.sgml : 20070517 20070517161912 ACCESSION NUMBER: 0000730255-07-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20070303 FILED AS OF DATE: 20070517 DATE AS OF CHANGE: 20070517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CalAmp Corp. CENTRAL INDEX KEY: 0000730255 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 953647070 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12182 FILM NUMBER: 07861535 BUSINESS ADDRESS: STREET 1: 1401 N. RICE AVENUE CITY: OXNARD STATE: CA ZIP: 93030 BUSINESS PHONE: 8059879000 MAIL ADDRESS: STREET 1: 1401 N. RICE AVENUE CITY: OXNARD STATE: CA ZIP: 93030 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA AMPLIFIER INC DATE OF NAME CHANGE: 19920703 10-K 1 form_10k-07.txt FORM 10-K FOR THE YEAR ENDED MARCH 3, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2007 COMMISSION FILE NUMBER: 0-12182 ________________ CALAMP CORP. (Exact name of Registrant as specified in its Charter) Delaware 95-3647070 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1401 N. Rice Avenue Oxnard, California 93030 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-9000 ________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE None None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: $.01 par value Common Stock Nasdaq Global Select Market (Title of Class) (Name of each exchange on which registered) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (Check one): Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The aggregate market value of voting and non-voting common stock held by non- affiliates of the registrant as of August 31, 2006 was approximately $149,259,000. As of May 1, 2007, there were 23,626,466 shares of the Company's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on August 1, 2007 are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K. This Proxy Statement will be filed within 120 days after the end of the fiscal year covered by this report. PART I ITEM 1. BUSINESS THE COMPANY CalAmp Corp. ("CalAmp" or the "Company"), formerly known as California Amplifier, Inc., is a provider of wireless communications products that enable anytime/anywhere access to critical information, data and entertainment content. CalAmp is a leading supplier of direct broadcast satellite (DBS) outdoor customer premise equipment to the U.S. satellite television market. The Company also provides wireless data communication solutions for the telemetry and asset tracking markets, private wireless networks, public safety communications and critical infrastructure and process control applications. The Company's DBS reception products are sold primarily to the two U.S. DBS system operators, Echostar Communications Corporation and DirecTV Group Inc., for incorporation into complete subscription satellite television systems. The Company sells its other wireless access products directly to system operators as well as through distributors and system integrators. On May 26, 2006 the Company acquired privately held Dataradio Inc., a leading supplier of proprietary advanced mobile and fixed wireless data communication systems, products, and solutions for public safety, critical infrastructure and industrial control applications, for a cash payment of Canadian $60.1 million, or U.S. $54.3 million at the effective exchange rate. Dataradio has a diversified customer base with no single customer accounting for more than 10% of Dataradio's total revenue. Dataradio has approximately 175 employees in facilities located in Montreal, Minnesota and Georgia. The Dataradio acquisition expanded CalAmp's wireless data communications business while furthering the Company's strategic goals of diversifying its customer base and expanding its product offerings into higher-margin growth markets. Dataradio's results of operations are included in CalAmp's fiscal 2007 results of operations for the 40-week period from the date of acquisition through the end of fiscal 2007, during which Dataradio generated revenue of $22.8 million and gross profit of $11.6 million. In connection with the acquisition of Dataradio, the Company recorded a charge of $6,850,000 to write-off in-process research and development costs of the acquired business as part of the purchase price allocation. Also on May 26, 2006, the Company acquired the Mobile Resource Management (MRM) product line from privately held TechnoCom Corporation for $2.4 million in cash and an earn-out payment equal to revenues in excess of $3,100,000 during the 12-month period following the acquisition. This product line, which is used to help track fleets of cars and trucks, generated approximately $4 million in revenue in the 12-month period ended April 30, 2006. Sales of the MRM product line are included in CalAmp's fiscal 2007 results of operations for the 40-week period from the date of acquisition through the end of fiscal 2007, during which this product line contributed revenue of $4.3 million and gross profit of $1.6 million. In April 2005, the Company acquired the business and certain assets of Skybility, a privately held company located in Carlsbad, California, pursuant to an Asset Purchase Agreement dated April 18, 2005. Skybility is a developer and supplier of embedded cellular transceivers used in telemetry and asset tracking applications that operate on the Advanced Mobile Phone Service (AMPS) analog network using Global Positioning Satellite (GPS) technology. The Skybility business operates as the Machine-to-Machine ("M2M") product line of the Company's Products Division. The Company's acquisition of Vytek Corporation ("Vytek") in April 2004 gave rise to goodwill of approximately $72 million. In accordance with the applicable accounting rules, the goodwill of $72 million was apportioned between CalAmp's Solutions Division and Products Division because both divisions were expected to benefit from the acquisition. The apportionment analysis resulted in allocating $37 million of the goodwill to the Products Division and the remaining $35 million to the Solutions Division. As a result of the fiscal 2007 annual impairment test of the Solutions Division goodwill conducted as of April 30, 2006, the Company determined that there was an impairment of goodwill, and accordingly, an impairment charge was recorded during fiscal 2007 in the amount of $29,012,000. In addition, the Company recorded an $836,000 impairment charge related to the other intangible assets arising from the Vytek acquisition. The impairment charges reflect the declining revenues associated with the Solutions Division's information technology professional consulting business, due primarily to the inability of the Solutions Division to generate new recurring revenue streams to grow the business. The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal years 2007, 2006 and 2005 fell on March 3, 2007, February 25, 2006 and February 26, 2005, respectively. In these consolidated financial statements, the fiscal year end for all years is shown as February 28 for clarity of presentation. Fiscal 2007 consisted of 53 weeks, while fiscal years 2006 and 2005 each consisted of 52 weeks. RECENT DEVELOPMENTS In March 2007, subsequent to the end of fiscal 2007, the Company split the Products Division into two separate operating units: the Satellite Division and the Wireless DataCom Division. The Satellite Division consists of the Company's DBS business, and the Wireless DataCom Division consists of the remaining businesses of the Products Division, including Dataradio, MRM, M2M and CalAmp's legacy wireless businesses other than DBS. The Company plans to use these two new divisions, and the existing Solutions Division, as its reporting segments commencing with the fiscal 2008 first quarter ending May 31, 2007. In this Form 10-K and the accompanying consolidated financial statements, the Company has presented its operations using the Products Division and the Solutions Division, the two reporting segments that existed through fiscal 2007, which is consistent with how management evaluated operating performance. On March 16, 2007, the Company acquired Aircept, a vehicle tracking business, from AirIQ Inc., a Canadian company ("AirIQ"), for cash consideration of $19 million. The source of funds for the purchase price was the Company's cash on hand. Aircept's business involves the sale of Global Positioning Satellite (GPS) and cellular-based wireless asset tracking products and services to vehicle lenders that specialize in automobile financing for high credit risk individuals. Aircept, which has approximately 35 employees, will become part of the Company's new Wireless DataCom Division. Aircept had revenues of approximately $15 million and a gross profit margin of approximately 35% during calendar 2006. On April 4, 2007, the Company acquired the business and substantially all the assets of SmartLink Radio Networks, a privately-held company, for $8.1 million cash. The source of funds for the purchase price was the Company's cash on hand. Smartlink provides proprietary interoperable radio communications platforms and integration services for public safety and critical infrastructure needs. Based on a software defined switch, SmartLink's platform provides interoperability without the need to replace the installed base of land mobile radios. SmartLink generated unaudited revenues of approximately $2.9 million during the trailing 12 month period ended March 31, 2007. SmartLink is currently in the process of deploying its platform for several significant customers including Solano County, Calif., the U.S. Department of Justice in San Francisco and Grand Bahama Power Company. Depending on the size and scope of a deployment, a SmartLink system sale generates revenues in the range of one hundred thousand dollars to several million dollars. CalAmp will transition SmartLink's operations in Connecticut to its Dataradio facilities in Montreal, Canada and Atlanta, Georgia over the next several months. Smartlink will become part of the Company's new Wireless DataCom Division. As further described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Recent Developments", on May 16, 2007, the Company filed a lawsuit against one of its component suppliers related to the quality of materials used in one of the Company's DBS products that it has manufactured for about two and one- half years. The Company believes that this material quality issue resulted in field performance issues of certain DBS products shipped by the Company during calendar years 2004 to 2006. The Company is currently working with its affected DBS customer to mitigate the impact of these field performance failures and to identify and implement a corrective action. The Company believes that this matter will adversely affect its sales volume with this DBS customer for fiscal 2008 and possibly beyond. PRODUCTS DIVISION The Products Division develops, manufactures and sells devices and systems utilizing wireless technology that receive television programming transmitted from satellites and terrestrial transmission towers or that provide connectivity for access to critical information, data and entertainment content. The Products Division currently generates most of its revenue from the sale of DBS outdoor reception equipment, with such sales accounting for approximately 73%, 86% and 95% of total Products Division revenues in fiscal years 2007, 2006 and 2005, respectively. Revenue of the Company's Products Division amounted to $213.2 million, $196.9 million and $194.8 million in fiscal years 2007, 2006 and 2005, respectively. The Company believes that DBS reception equipment will continue to be a significant portion of its overall revenue for the foreseeable future. The Company's DBS reception products are installed at subscribers' premises to receive subscription television programming signals that are transmitted from orbiting satellites. These DBS reception products consist principally of reflector dish antennae, feedhorns, and electronics which receive, process and amplify satellite television signals for distribution over coaxial cable into the building. The dish antenna reflects the satellite microwave signal back to a focal point where a feedhorn collects the microwaves and transfers the signals into an integrated amplifier/downconverter that is referred to in the satellite industry as a Low Noise Block Downconverter with Feed ("LNBF"). The microwave amplifier boosts the signal for further processing. The downconverter reduces the signal from a microwave frequency into a lower intermediate frequency that is transmitted over coaxial cable and that a satellite television receiver can acquire, recognize and process to create a picture. Historically, the Company's DBS business has experienced some seasonality. The Company's third fiscal quarter ending November 30 tends to be the strongest sales period for this business because the DBS service providers typically are building up their inventory levels in advance of the year-end holiday season when acquisition of new subscribers is higher. The Company's fourth fiscal quarter ending February 28 tends to be the weakest sales period for this business because the DBS service providers typically are reducing their purchases to work down inventory levels following the year-end holiday season. Notwithstanding this, in some years these seasonal patterns may be overshadowed by the timing of new product introductions, the phase-out of older generation products, the service providers' reallocation of purchasing volume among several suppliers, or by other factors. The M2M product line of the Company's Products Division operates in the Machine-to-Machine industry that focuses on connecting machines to other machines, which can range from simple sensors to complex machines and computer servers. The connectivity is achieved using wired and wireless networks, including, but not limited to, cellular wide area networks, wireless local area networks, satellite, ethernet, telephone, and the Internet. Control and monitoring of remote devices are typically the purpose of M2M applications. Controlling thermostats for demand-side energy management, monitoring fuel/liquid storage tanks, locating or tracking a car or other mobile asset, utility meter reading and control, and monitoring of an alarm panel are all examples of M2M applications. M2M applications typically increase efficiency and lower costs for their owners by providing critical data in real or near real time. By leveraging the Internet and cellular infrastructure, M2M applications can typically be monitored globally from anywhere an Internet connection can be made. With the continued growth in wireless network deployments, the Company believes that wireless M2M applications will be increasingly desired for their relative ease of deployment and geographic accessibility. CalAmp's M2M product line includes wireless modules compatible with cellular wide area networks that enable network connectivity for machines. CalAmp also provides design, system integration and manufacturing services for M2M products. Dataradio designs, manufactures and sells a broad range of wireless data products used in private wireless networks for both fixed and mobile applications. These products are sold to city and county governments for public safety applications such as 911 emergency response systems, and to utilities, oil and gas companies and transportation companies for critical infrastructure and industrial monitoring and control applications. Dataradio's products include wireless modems, base stations, network routers and supporting software. The TechnoCom MRM business designs and manufactures GPS-based tracking devices used by commercial and government fleets to remotely manage their assets. These devices communicate via public wireless networks and are distributed on an OEM basis to application service providers and system integrators offering mobile resource management solutions. In addition, the business offers a backend device management system to minimize support and service costs and also sophisticated unit firmware providing a greater range of vehicle information and communication capabilities. SOLUTIONS DIVISION The Company's Solutions Division provides software applications for urgent messaging and media content delivery. The urgent messaging software product, known as TelAlert, provides mission-critical communication applications for network monitoring, enterprise management, help desk, dispatch and call center systems. The media content delivery application is known as CalAmp Media Manager. The Solutions Division accounted for 4%, 9% and 11% of consolidated revenue in fiscal years 2007, 2006 and 2005, respectively. For additional information regarding the Company's sales by business segment and geographical area, see Note 13 to the accompanying consolidated financial statements. MANUFACTURING Electronic devices, components and made-to-order assemblies used in the Company's products are generally obtained from a number of suppliers, although certain components are obtained from sole source suppliers. Some devices or components are standard items while others are manufactured to the Company's specifications by its suppliers. The Company believes that most raw materials are available from alternative suppliers. However, any significant interruption in the delivery of such items could have an adverse effect on the Company's operations. Over the past several years, printed circuit board assembly has been outsourced to contract manufacturers in the Pacific Rim. The Company performs final assembly and test of most its satellite LNBF and other wireless access products at its facilities in Oxnard, California. Printed circuit assemblies are mounted in various aluminum and plastic housings, electronically tested, and subjected to additional environmental tests on a sampled basis prior to packaging and shipping. Satellite dish antennas are manufactured on a subcontract basis by metal fabrication companies in the U.S and China. In addition, some of the Company's satellite LNBF products are manufactured on a subcontract basis by companies in Taiwan and mainland China. A substantial portion of the Company's components, and substantially all printed circuit board assemblies and housings, are procured from foreign suppliers and contract manufacturers located primarily in mainland China, Taiwan, and other Pacific Rim countries. Any significant shift in U.S. trade policy toward these countries, or a significant downturn in the economic or financial condition of, or any political instability in, these countries, could cause disruption of the Company's supply chain or otherwise disrupt the Company's operations, which could adversely impact the Company's business. ISO 9001 INTERNATIONAL CERTIFICATION The Company became registered to ISO 9001:1994 in 1995, and upgraded its registration to ISO9001:2000 in 2003. ISO 9001:2000 is the widely recognized international standard for quality management in product design, manufacturing, quality assurance and marketing. The Company believes that ISO certification is important to its business because most of the Company's key customers expect their suppliers to have and maintain ISO certification. The registration assessment was performed by Underwriter's Laboratory, Inc. according to the ISO 9001:2000 International Standard. Continuous assessments to maintain certification are performed semi-annually, and the Company has maintained its certification through each audit evaluation, most recently in April 2007. In addition, the Company conducts internal audits of processes and procedures on a quarterly basis. The Company believes that the loss of its ISO certification could have a material adverse effect on its operations, and the Company can provide no assurance that it will be successful in continuing to maintain such certification. RESEARCH AND DEVELOPMENT Each of the markets the Company competes in is characterized by rapid technological change, evolving industry standards, and new product features to meet market requirements. During the last three years, the Company has focused its research and development resources primarily on satellite DBS products, M2M applications and public safety data communication systems. In addition, development resources were allocated to broaden existing product lines, reduce product costs and improve performance through product redesign efforts. Research and development expenses in fiscal years 2007, 2006 and 2005 were $15,015,000, $9,109,000 and $8,320,000, respectively. During this three year period the Company's research and development expenses have ranged between 3.8% and 6.8% of annual consolidated revenues. SALES AND MARKETING The Company's revenues were derived mainly from customers in the United States, which represented 94%, 95% and 97% of consolidated revenues in fiscal 2007, 2006 and 2005, respectively. The Products Division sells its satellite reception products primarily to the two DBS system operators in the U.S. for incorporation into complete subscription satellite television systems. Other wireless access products are sold directly to system operators as well as through distributors and system integrators. The sales and marketing functions for the Products Division are located primarily at the Company's corporate headquarters location in Oxnard, California. In addition, the Products Division has a small sales office in Europe. The M2M and MRM product lines of the Products Division have offices in Carlsbad, California. The sales and marketing functions for Dataradio are located in Montreal, Atlanta and Waseca, Minnesota. The sales and marketing functions for the Solutions Division are located in San Diego and Oakland. Sales to customers that accounted for 10% or more of consolidated annual sales in any one of the last three years, as a percent of consolidated sales, are as follows: Year ended February 28, ------------------------------ Customer Segment 2007 2006 2005 -------- --------- ------ ------ ------ Echostar Products 48.2% 55.5% 43.4% DirecTV Products 18.0% 13.7% 17.1% Echostar Communications Corporation owns and operates the DISH satellite television service in the U.S. DirecTV Group Inc. is the largest satellite television service provider in the U.S. The Company believes that the loss of either Echostar or DirecTV as a customer could have a material adverse effect on the Company's financial position and results of operations. COMPETITION The Company's markets are highly competitive. In addition, if the markets for the Company's products grow, the Company anticipates increased competition from new companies entering such markets, some of whom may have financial and technical resources substantially greater than those of the Company. The Company believes that competition in its markets is based primarily on performance, reputation, product reliability, technical support and price. The Company's continued success in these markets will depend in part upon its ability to continue to design and manufacture quality products at competitive prices. Products Division: The Company believes that its existing principal competitors for its DBS products business include Sharp, Wistron NeWeb Corporation, Winegard Company, Andrew Corporation, Microelectronics Technology, Inc., Funai and Pro Brand. Based on information announced quarterly by the U.S. DBS system operators as to the total number of subscribers and the subscriber turnover rate, the Company believes that it is a leading supplier of outdoor subscriber premise equipment to the U.S. DBS television industry. Because the Company's satellite products are not proprietary, it is possible that they may be duplicated by low-cost producers, resulting in price and margin pressures. The Company believes that the principal competitors for its non- DBS wireless products include Motorola, M/A-COM, IPMobilnet, MDS, Freewave, GenX, Sierra Wireless, Transystem Inc. and Niigata Seimitsu. Solutions Division: The Solutions Division's TelAlert urgent messaging software product competes against companies such as AlarmPoint Systems and MIR3, both of which are privately held companies. BACKLOG The Company's products are sold to customers that do not usually enter into long-term purchase agreements, and as a result, the Company's backlog at any date is not significant in relation to its annual sales. In addition, because of customer order modifications, cancellations, or orders requiring wire transfers or letters of credit from international customers, the Company's backlog as of any particular date may not be indicative of sales for any future period. INTELLECTUAL PROPERTY Products Division: In the Company's DBS business, the Company's timely application of its technology and its design, development and marketing capabilities have been of substantially greater importance to its business than patents or licenses. However, patents and licenses are of significant importance in most of the Product Division's other business operations. At February 28, 2007, the Products Division had 27 patents ranging from design features for downconverter and antenna products to its MultiCipher broadband scrambling system. Those that relate to its downconverter products do not give the Company any significant advantage since other manufacturers using different design approaches can offer similar microwave products in the marketplace. In addition to its awarded patents, the Products Division has one patent application pending. Solutions Division: The Solutions Division relies primarily on a combination of trademark, copyright, service mark, trade secret laws and contractual restrictions to establish and protect proprietary rights in the Solutions Division's products and services. Use by customers of the Solutions Division's software is governed by executed license agreements. The Solutions Division also enters into written agreements with each of its resellers for the distribution of its software. In addition, the Solutions Division seeks to avoid disclosure of trade secrets by requiring each of its employees and others with access to proprietary information to execute confidentiality agreements. The Solutions Division protects its software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. CalAmp(R) is a federally registered trademark of the Company. EMPLOYEES At February 28, 2007, the Company had approximately 440 employees and approximately 140 contracted production workers. None of the Company's employees are represented by a labor union. The contracted production workers are engaged through independent temporary labor agencies in California. EXECUTIVE OFFICERS The executive officers of the Company are as follows: NAME AGE POSITION - ------------------- --- -------------------------- Fred Sturm 49 Director, President and Chief Executive Officer Michael Burdiek 47 President, Wireless DataCom Division Patrick Hutchins 44 President, Satellite Division and Chief Operations Officer Garo Sarkissian 40 Vice President, Corporate Development Richard Vitelle 53 Vice President, Finance, Chief Financial Officer and Corporate Secretary FRED STURM was appointed Chief Executive Officer, President and Director in August 1997. Prior to joining the Company from 1990 to 1997, Mr. Sturm was President of Chloride Power Systems (USA), and Managing Director of Chloride Safety, Security, and Power Conversion (UK), both of which are part of Chloride Group, PLC (LSE: CHLD). From 1979 to 1990, he held a variety of general management positions with M/A-Com and TRW Electronics, which served RF and microwave markets. MICHAEL BURDIEK joined the Company as Executive Vice President in June 2006 and was appointed President of the Company's new Wireless DataCom Division on March 15, 2007. Prior to joining the Company, Mr. Burdiek was the President and CEO of Telenetics Corporation, a publicly held manufacturer of data communications products. From 2004 to 2005, he worked as an investment partner and advisor to various firms in the Private Equity sector. From 1987 to 2004, Mr. Burdiek held a variety of technical and general management positions with Comarco, Inc., a publicly held company, most recently as Senior Vice President and General Manager of Comarco's Wireless Test Systems unit. Mr. Burdiek began his career as a design engineer with Hughes Aircraft Company. PATRICK HUTCHINS joined the Company as Vice President, Operations in August 2001, and was appointed President of the Company's Products Division in April 2004. On March 15, 2007, in conjunction with a realignment of the Company's internal operating structure, Mr. Hutchins was appointed President of the Company's new Satellite Division and Chief Operations Officer. From March 1997 until joining the Company, Mr. Hutchins served in general management capacities with several units of Chloride Group PLC and Genlyte Thomas LLC, most recently serving as the President and General Manager of Chloride Systems, a division of Genlyte Thomas. GARO SARKISSIAN joined the Company as Vice President, Corporate Development in October 2005 and was appointed an executive officer in July 2006. Prior to joining the Company, from 2003 to 2005 he served as Principal and Vice President of Business Development for Global Technology Investments (GTI), a private equity firm. Prior to GTI, from 1999 to 2003, Mr. Sarkissian held senior management and entrepreneurial roles at California Eastern Laboratories, a private company developing and marketing radio frequency (RF), microwave and optical components. Mr. Sarkissian began his career as an RF engineer in 1988 and developed industry leading power products over a span of 10 years for M/A Com (Tyco) and NEC. RICHARD VITELLE joined the Company as Vice President, Finance, Chief Financial Officer and Corporate Secretary in July 2001. Prior to joining the Company, he served as Vice President of Finance and CFO of SMTEK International, Inc., a publicly held electronics manufacturing services provider, where he was employed for a total of 11 years. Earlier in his career Mr. Vitelle served as a senior manager with Price Waterhouse. The Company's executive officers are appointed by and serve at the discretion of the Board of Directors. AVAILABLE INFORMATION The Company's primary Internet address is www.calamp.com. The Company makes its Securities and Exchange Commission ("SEC") periodic reports (Forms 10-Q and Forms 10-K) and current reports (Forms 8-K), and amendments to these reports, available free of charge through its website as soon as reasonably practicable after they are filed electronically with the SEC. Materials the Company files with the SEC may be read and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Company that the Company files electronically with the SEC. ITEM 1A. RISK FACTORS The following list describes several risk factors which are unique to our Company: The Company is dependent on its significant customers, the loss of any of which could have a material adverse effect on the Company's future sales and its ability to sustain its growth. The Company's top two customers, Echostar and DirecTV, accounted for 48.2% and 18.0%, respectively, of the Company's total net sales for fiscal 2007. Echostar and DirecTV in the aggregate accounted for 69.2% of CalAmp's total net sales for fiscal 2006 and 60.5% of its total net sales for fiscal 2005. The loss of either Echostar or DirecTV as a customer, a deterioration in the overall business of either of them, or a decrease in the volume of sales by either of them, could result in decreased sales and could have a material adverse impact on CalAmp's ability to grow its DBS business. A substantial decrease or interruption in business from any of the Company's significant customers could result in write-offs or in the loss of future business and could have a material adverse effect on the Company's business, financial condition or results of operations. We do not currently have long-term contracts with customers and our customers may cease purchasing products at any time, which could significantly harm our revenues. We generally do not have long-term contracts with our customers. As a result, our agreements with our customers do not currently provide us with any assurance of future sales. These customers can cease purchasing products from us at any time without penalty, they are free to purchase products from our competitors, they may expose us to competitive price pressure on each order and they are not required to make minimum purchases. Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will continue to be accepted in the marketplace or capture increased market share. The market for DBS products and other wireless products is intensely competitive and characterized by rapid technological change, evolving standards, short product life cycles, and price erosion. We expect competition to intensify as our competitors expand their product offerings and new competitors enter the market. Given the highly competitive environment in which we operate, we cannot be sure that any competitive advantages currently enjoyed by our products will be sufficient to establish and sustain our products in the market. Any increase in price or other competition could result in erosion of our market share, to the extent we have obtained market share, and would have a negative impact on our financial condition and results of operations. We cannot provide assurance that we will have the financial resources, technical expertise or marketing and support capabilities to compete successfully. Information about the Company's competitors is included in Part I, Item 1 of this Annual Report on Form 10-K under the heading "COMPETITION". Multiple factors beyond the Company's control may cause fluctuations in our operating results and may cause our business to suffer. The revenues and results of our operations may fluctuate significantly, depending on a variety of factors, including the following: * our dependence on a few major customers in our satellite products business that currently account for a substantial majority of our overall sales; * the introduction of new products and services by competitors; and * seasonality in the equipment market for the U.S. DBS subscription television industry. We will not be able to control many of these factors. In addition, if our revenues in a particular period do not meet expectations, we may not be able to adjust our expenditures in that period, which could cause our business to suffer. Our business is subject to many factors that could cause the Company's quarterly or annual operating results to fluctuate and its stock price to be volatile. Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Some of the factors that could affect our quarterly or annual operating results include: * the timing and amount of, or cancellation or rescheduling of, orders for our products; * our ability to develop, introduce, ship and support new products and product enhancements and manage product transitions; * announcements, new product introductions and reductions in price of products offered by our competitors; * our ability to achieve cost reductions; * our ability to obtain sufficient supplies of sole or limited source components for our products; * our ability to achieve and maintain production volumes and quality levels for our products; * our ability to maintain the volume of products sold and the mix of distribution channels through which they are sold; * the loss of any one of our major customers or a significant reduction in orders from those customers; * increased competition, particularly from larger, better Capitalized competitors; * fluctuations in demand for our products and services; and * telecommunications and wireless market conditions specifically and economic conditions generally. Due in part to factors such as the timing of product release dates, purchase orders and product availability, significant volume shipments of products could occur at the end of a fiscal quarter. Failure to ship products by the end of a quarter may adversely affect operating results. In the future, our customers may delay delivery schedules or cancel their orders without notice. Due to these and other factors, our quarterly revenue, expenses and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as indications of future performance. Because some of our components, assemblies and electronics manufacturing services are purchased from sole source suppliers or require long lead times, our business is subject to unexpected interruptions, which could cause our operating results to suffer. Some of our key components are complex to manufacture and have long lead times. Also, our DBS dish antennas, LNBF housings, subassemblies and some of our electronic components are purchased from sole source vendors for which alternative sources are not readily available. In the event of a reduction or interruption of supply, or a degradation in quality, as many as six months could be required before we would begin receiving adequate supplies from alternative suppliers, if any. As a result, product shipments could be delayed and revenues and results of operations could suffer. Furthermore, if we receive a smaller allocation of component parts than is necessary to manufacture products in quantities sufficient to meet customer demand, customers could choose to purchase competing products and we could lose market share. If we do not meet product introduction deadlines, our business could be adversely affected. Our inability to develop new products or product features on a timely basis, or the failure of new products or product features to achieve market acceptance, could adversely affect our business. In the past, CalAmp has experienced design and manufacturing difficulties that have delayed the development, introduction or marketing of new products and enhancements and which caused them to incur unexpected expenses. In addition, some of our existing customers have conditioned their future purchases of our products on the addition of product features. In the past we have experienced delays in introducing new features. Furthermore, in order to compete in some markets, we will have to develop different versions of existing products that operate at different frequencies and comply with diverse, new or varying governmental regulations in each market. If demand for our products fluctuates rapidly and unpredictably, it may be difficult to manage the business efficiently which may result in reduced gross margins and profitability. Our cost structure will be based in part on our expectations for future demand. Many costs, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. Rapid and unpredictable shifts in demand for our products may make it difficult to plan production capacity and business operations efficiently. If demand is significantly below expectations, we may be unable to rapidly reduce these fixed costs, which can diminish gross margins and cause losses. A sudden downturn may also leave us with excess inventory, which may be rendered obsolete as products evolve during the downturn and demand shifts to newer products. Our ability to reduce costs and expenses may be further constrained because we must continue to invest in research and development to maintain our competitive position and to maintain service and support for our existing global customer base. Conversely, in the event of a sudden upturn, we may incur significant costs to rapidly expedite delivery of components, procure scarce components and outsource additional manufacturing processes. These costs could reduce our gross margins and overall profitability. Any of these results could adversely affect our business. Because we currently sell, and we intend to grow, the sales of certain of our products in countries other than the United States, we are subject to different regulatory schemes. We may not be able to develop products that work with the standards of different countries, which could result in our inability to sell our products, and, further, we may be subject to political, economic, and other conditions affecting such countries that could result in reduced sales of our products and which could adversely affect our business. If our sales are to grow in the longer term, we believe we must grow our international business. Many countries require communications equipment used in their country to comply with unique regulations, including safety regulations, radio frequency allocation schemes and standards. If we cannot develop products that work with different standards, we will be unable to sell our products in those locations. If compliance proves to be more expensive or time consuming than we anticipate, our business would be adversely affected. Some countries have not completed their radio frequency allocation process and therefore we do not know the standards with which we would be forced to comply. Furthermore, standards and regulatory requirements are subject to change. If we fail to anticipate or comply with these new standards, our business and results of operations will be adversely affected. Sales to customers outside the U.S. accounted for 6%, 5% and 3% of CalAmp's total sales for the fiscal years ended February 28, 2007, 2006 and 2005, respectively. Assuming that we continue to sell our products to such customers, we will be subject to the political, economic and other conditions affecting countries or jurisdictions other than the U.S., including Africa, the Middle East, Europe and Asia. Any interruption or curtailment of trade between the countries in which we operate and our present trading partners, change in exchange rates, significant shift in U.S. trade policy toward these countries, or significant downturn in the political, economic or financial condition of these countries, could cause demand for and sales of our products to decrease, or subject us to increased regulation including future import and export restrictions, any of which could adversely affect our business. Additionally, a substantial portion of our components and subassemblies are currently procured from foreign suppliers located primarily in Hong Kong, mainland China, Taiwan, and other Pacific Rim countries. Any significant shift in U.S. trade policy toward these countries or a significant downturn in the political, economic or financial condition of these countries could cause disruption of our supply chain or otherwise disrupt operations, which could adversely affect our business. We may not be able to adequately protect our intellectual property, and our competitors may be able to offer similar products and services that would harm our competitive position. Other than in our DBS products business, which currently does not depend upon patented technology, our ability to succeed in the wireless access business may depend, in large part, upon our intellectual property for some of our wireless products as well as software applications marketed by our Solutions Division. We currently rely primarily on patents, trademark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our intellectual property. These mechanisms provide us with only limited protection. We currently hold 27 patents and have 1 patent application pending. As part of our confidentiality procedures, we enter into non-disclosure agreements with all of our executive officers, managers and supervisory employees. Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization, or develop similar technology independently. Furthermore, effective protection of intellectual property rights is unavailable or limited in some foreign countries. The protection of our intellectual property rights may not provide us with any legal remedy should our competitors independently develop similar technology, duplicate our products and services, or design around any intellectual property rights we hold. We may be subject to infringement claims which may disrupt the conduct of our business and affect our profitability. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others, even though we take steps to assure that neither our employees nor our contractors knowingly incorporate unlicensed copyrights or trade secrets into our products. It is possible that third parties may claim that our products and services may infringe upon their trademark, patent, copyright, or trade secret rights. Any such claims, regardless of their merit, could be time consuming, expensive, cause delays in introducing new or improved products or services, require us to enter into royalty or licensing agreements or require us to stop using the challenged intellectual property. Successful infringement claims against us may materially disrupt the conduct of our business and affect profitability. We may engage in future acquisitions that have adverse consequences for our business. In April 2002 we completed the acquisition of the assets and business of Kaul-Tronics, Inc., in April 2004 we completed the acquisition of Vytek, and in April 2005 we acquired the Skybility business. In May 2006 we acquired Dataradio and the TechnoCom MRM product line, in March 2007 we acquired Aircept and in April 2007 we acquired Smartlink Radio Networks. We may make additional acquisitions of businesses, products or technologies in the future in order to complement our existing product offerings, augment our market coverage or enhance our technological capabilities. However, we cannot be sure that we will be able to locate suitable acquisition opportunities. The acquisitions that we have completed and that we may complete in the future could result in the following, any of which could seriously harm our results of operations or the price of our stock: (1) issuances of our equity securities that would dilute the percentage ownership of our current stockholders; (2) large one-time write-offs; (3) the incurrence of debt and contingent liabilities; (4) difficulties in the assimilation and integration of the acquired companies; (5) diversion of management's attention from other business concerns; (6) contractual disputes; (7) risks of entering geographic and business markets in which we have no or only limited prior experience; and (8) potential loss of key employees or customers of acquired organizations. Availability of radio frequencies may restrict the growth of the wireless communications industry and demand for our products. Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the United States and other countries throughout the world and limited spectrum space is allocated to wireless services. The growth of the wireless communications industry may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use. Industry growth has been and may continue to be affected by the availability of licenses required to use frequencies and related costs. Over the last several years, frequency spectrum has been reallocated for specific applications and the related frequency relocation costs have increased significantly. This significant reassignment of spectrum has slowed and may continue to slow the growth of the industry. Growth is slowed because some customers have funding constraints limiting their ability to purchase new technology to upgrade systems and the financial results for a number of businesses have been affected by the industry's rate of growth. Slowed industry growth may restrict the demand for our products. A failure to rapidly transition or to transition at all to newer digital technologies could adversely affect our business. Our success, in part, will be affected by the ability of our wireless businesses to continue their transition to newer digital technologies, and to successfully compete in these markets and gain market share. We face intense competition in these markets from both established companies and new entrants. Product life cycles can be short and new products are expensive to develop and bring to market. We will depend upon wireless networks owned and controlled by others, unproven business models and emerging wireless carrier models to deliver existing services and to grow. If we do not have continued access to sufficient capacity on reliable networks, we may be unable to deliver services and our sales could decrease. Our ability to grow and achieve profitability partly depends on our ability to buy sufficient capacity on the networks of wireless carriers and on the reliability and security of their systems. All of our services will be delivered using airtime purchased from third parties. We will depend on these companies to provide uninterrupted service free from errors or defects and would not be able to satisfy our customers' needs if they failed to provide the required capacity or needed level of service. In addition, our expenses would increase and profitability could be materially adversely affected if wireless carriers were to increase the prices of their services. Our existing agreements with the wireless carriers generally have one-year terms. Some of these wireless carriers are, or could become, our competitors, and if they compete with us, they may refuse to provide us with their services. Our software may contain defects or errors, and its sales could decrease if this injures our reputation or delays shipments of our software. Our current software products and platforms are complex and must meet the stringent technical requirements of customers. Therefore, we must develop services quickly to keep pace with the rapidly changing software and telecommunications markets. Software as complex as that which will be offered by us is likely to contain undetected errors or defects, especially when first introduced or when new versions are released. Some existing contracts related to software contain provisions that require us to repair or replace products that fail to work. To the extent that such products are repaired or replaced in the future, our expenses may increase, resulting in a decline in our gross margins. In addition, our software may not be free from errors or defects after delivery to customers has begun, which could result in the rejection of our software or services, damage to our reputation, lost revenue, diverted development resources and increased service and warranty costs. New laws and regulations that impact the industry could increase costs or reduce opportunities for us to earn revenue. Except as described below under "Governmental Regulation", we are not currently subject to direct regulation by the Federal Communications Commission or any other governmental agency, other than regulations applicable to Delaware corporations of similar size that are headquartered in California. However, in the future, we may become subject to regulation by the FCC or another regulatory agency. In addition, the wireless carriers that supply airtime and certain hardware suppliers are subject to regulation by the FCC and regulations that affect them could increase our costs or reduce our ability to continue selling and supporting our services. Governmental Regulation Dataradio's products are subject to certain mandatory regulatory approvals in the United States, Canada and other countries in which it operates. In the United States, the Federal Communications Commission ("FCC") regulates many aspects of communication devices including radiation electromagnetic energy, biological safety and rules for devices to be connected to the telephone network. In Canada, similar regulations are administered by Industry Canada. Although Dataradio has obtained necessary FCC and Industry Canada approvals for all products it currently sells, there can be no assurance that such approvals can be obtained for future products on a timely basis, or at all. In addition, such regulatory requirements may change or the Company may not in the future be able to obtain all necessary approvals from countries other than Canada or the United States in which it currently sells its products or in which it may sell its products in the future. The FCC and Industry Canada may be slow in adopting new regulations allowing private wireless networks to deliver higher data rates in licensed frequency bands for public safety applications. This could adversely affect demand for private networks as traditional private network users may opt for public network connections for all or part of their wireless communication needs. This could have a material adverse effect on the Company's business, results of operations and financial condition since Dataradio's products are used in private networks but not public networks. ITEM 1B. UNRESOLVED STAFF COMMENTS None ITEM 2. PROPERTIES The Company's principal facilities, all leased, are as follows: Square Location Footage Use - ---------------------- ------- --------------------------------- Oxnard, California 98,000 Corporate office, Products Division offices and manufacturing plant San Diego, California 22,000 Solutions Division offices Carlsbad, California 6,000 Products Division's M2M offices Oakland, California 5,000 Administrative and sales office Chaska, Minnesota 4,000 Product design facility Montreal, Quebec, Canada 24,000 Dataradio offices, product design and assembly operations Atlanta, Georgia 6,000 Dataradio sales and systems engineering offices Waseca, Minnesota 28,000 Dataradio offices and manufacturing plant Paris, France 150 Sales office ITEM 3. LEGAL PROCEEDINGS A lawsuit was filed against the Company on September 15, 2006 by CN Capital, the seller of the assets of Skybility which the Company acquired in April 2005. The lawsuit contends that the Company owes CN Capital approximately $1.6 million under the earn-out provision of the Skybility Asset Purchase Agreement dated April 18, 2005. On February 26, 2007, the Company filed a cross-complaint against CN Capital for breach of contract, negligent interference with prospective economic advantage, and contract rescission. The Company believes the lawsuit filed by CN Capital is without merit and intends to vigorously defend against this action. No loss accrual has been made in the accompanying consolidated financial statements for this matter. In addition to the foregoing matter, the Company from time to time is a party, either as plaintiff or defendant, to various legal proceedings and claims which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company's consolidated financial position or results of operations. In May 2001, the Securities and Exchange Commission ("SEC") commenced an investigation into the circumstances surrounding the misstatements in the Company's consolidated financial statements for its 2000 and 2001 fiscal years caused by its former controller. In April 2004, the SEC concluded its investigation and issued a cease and desist order directing the Company to not violate federal securities laws in the future. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 2007. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's Common Stock trades on The Nasdaq Global Select Market under the ticker symbol CAMP. The following table sets forth, for the last two years, the quarterly high and low sale prices for the Company's Common Stock as reported by Nasdaq: LOW HIGH Fiscal Year Ended February 28, 2007 1st Quarter $ 9.00 $13.90 2nd Quarter 5.44 9.89 3rd Quarter 6.01 8.00 4th Quarter 7.10 9.15 Fiscal Year Ended February 28, 2006 1st Quarter $ 5.23 $ 7.62 2nd Quarter 6.22 8.83 3rd Quarter 7.58 12.26 4th Quarter 9.29 12.59 At May 1, 2007 the Company had approximately 1,800 stockholders of record. The number of stockholders of record does not include the number of persons having beneficial ownership held in "street name" which are estimated to approximate 9,000. The Company has never paid a cash dividend and has no current plans to pay cash dividends on its Common Stock. The Company's bank credit agreement prohibits payment of dividends without the prior written consent of the bank. ITEM 6. SELECTED FINANCIAL DATA Year ended February 28, ----------------------------------------------- 2007 2006 2005 2004 2003 -------- -------- -------- -------- ------- (In thousands except per share amounts) OPERATING DATA Revenues $222,339 $217,493 $220,027 $128,616 $100,044 Cost of revenues 172,938 164,747 178,649 110,950 79,511 -------- -------- ------- ------- ------- Gross profit 49,401 52,746 41,378 17,666 20,533 -------- -------- ------- ------- ------- Operating expenses: Research and development 15,015 9,109 8,320 5,363 5,982 Selling 10,157 6,963 6,397 2,336 2,560 General and administrative 12,377 10,700 11,499 3,880 3,685 Intangible asset amortization 4,135 1,771 1,643 104 96 Write-off of acquired in- process research and development 6,850 310 471 - - Impairment loss 29,848 - - - - -------- -------- ------- ------- ------- Total operating expenses 78,382 28,853 28,330 11,683 12,323 -------- -------- ------- ------- ------- Operating income (loss) (28,981) 23,893 13,048 5,983 8,210 Other income (expense), net 574 536 (120) (243) (215) -------- -------- ------- ------- ------- Income (loss) before income taxes (28,407) 24,429 12,928 5,740 7,995 Income tax provision (2,781) (9,867) (4,852) (26) (2,835) -------- -------- ------- ------- ------- Net income (loss) $(31,188) $14,562 $ 8,076 $ 5,714 $ 5,160 ======= ======= ======= ====== ======= Earnings (loss) per share: Basic $ (1.34) $ 0.64 $ 0.38 $ 0.39 $ 0.35 Diluted $ (1.34) $ 0.62 $ 0.36 $ 0.37 $ 0.35 February 28, ---------------------------------------------- 2007 2006 2005 2004 2003 ------- ------- ------- ------- ------- (In thousands) BALANCE SHEET DATA Current assets $113,524 $ 99,236 $ 88,534 $67,365 $53,092 Current liabilities $ 38,637 $ 21,873 $ 29,662 $24,722 $18,405 Working capital $ 74,887 $ 77,368 $ 58,872 $42,643 $34,687 Current ratio 2.9 4.5 3.0 2.7 2.9 Total assets $229,703 $204,346 $196,755 $98,619 $89,597 Long-term debt $ 31,314 $ 5,511 $ 7,679 $ 7,690 $12,569 Stockholders' equity $151,251 $176,109 $158,288 $65,363 $58,623 Factors affecting the year-to-year comparability of the Selected Financial Data include business acquisitions, significant operating charges and adoption of new accounting standards, as follows: * In the first quarter of fiscal 2007, the Company acquired Dataradio Inc. and the TechnoCom MRM product line, and in the first quarter of fiscal 2005 the Company acquired Vytek, Inc., all as further described in Note 2 to the accompanying consolidated financial statements. * In the first quarter of fiscal 2007, the Company recorded charges of $6,850,000 for the write-off of in-process research and development costs in connection with the Dataradio acquisition and $29,848,000 for the impairment of goodwill and other intangible assets of the Solutions Division, as further described in Notes 2 and 5, respectively, to the accompanying consolidated financial statements. * At the beginning of fiscal 2007, the Company adopted the provisions of Financial Accounting Standards Board Statement No. 123R, "Share-Based Payments", as further described in Note 1 of the accompanying consolidated financial statements under the caption "Accounting for Stock Options". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview CalAmp is a provider of wireless communications products that enable anytime/anywhere access to critical information, data and entertainment content. The Company is a leading supplier of direct broadcast satellite (DBS) outdoor customer premise equipment to the U.S. satellite television market. The Company also provides wireless data communication solutions for the telemetry and asset tracking markets, private wireless networks, public safety communications and critical infrastructure and process control applications. The Company's DBS reception products are sold primarily to the two U.S. DBS system operators, Echostar Communications Corporation and DirecTV Group Inc., for incorporation into complete subscription satellite television systems. The Company sells its other wireless access products directly to system operators as well as through distributors and system integrators. On May 26, 2006 the Company acquired privately held Dataradio Inc., a leading supplier of proprietary advanced wireless data systems, products, and solutions for public safety, critical infrastructure and industrial control applications, for a cash payment of Canadian $60.1 million, or U.S. $54.3 million at the effective exchange rate. Dataradio has a diversified customer base with no single customer accounting for more than 10% of Dataradio's total revenue. Dataradio has approximately 175 employees in facilities located in Montreal, Minnesota and Georgia. The Dataradio acquisition expanded CalAmp's wireless data communications business while furthering the Company's strategic goals of diversifying its customer base and expanding its product offerings into higher-margin growth markets. Dataradio's results of operations are included in CalAmp's fiscal 2007 results of operations for the 40-week period from the date of acquisition through the end of fiscal 2007, during which Dataradio generated revenue of $22.8 million and gross profit of $11.6 million. In connection with the acquisition of Dataradio the Company recorded a charge of $6,850,000 to write-off in-process research and development costs of the acquired business as part of the purchase price allocation. Also on May 26, 2006, the Company acquired the mobile-resource management (MRM) product line from privately held TechnoCom Corporation for $2.4 million in cash and an earn-out payment equal to revenues in excess of $3,100,000 during the 12-month period following the acquisition. This product line is used to help track fleets of cars and trucks. Sales of the MRM product line are included in CalAmp's fiscal 2007 results of operations for the 40-week period from the date of acquisition through the end of fiscal 2007, during which this product line contributed revenue of $4.3 million and gross profit of $1.6 million. In April 2005, the Company acquired the business and certain assets of Skybility, a privately held company located in Carlsbad, California, pursuant to an Asset Purchase Agreement dated April 18, 2005. Skybility is a developer and supplier of embedded cellular transceivers used in telemetry and asset tracking applications that operate on the Advanced Mobile Phone Service (AMPS) analog network using Global Positioning Satellite (GPS) technology. The Skybility business operates as the Machine-to-Machine ("M2M") product line of the Company's Products Division. The Company's acquisition of Vytek Corporation ("Vytek") in April 2004 gave rise to goodwill of approximately $72 million. In accordance with the applicable accounting rules, the goodwill of $72 million was apportioned between CalAmp's Solutions Division and Products Division because both divisions were expected to benefit from the acquisition. The apportionment analysis resulted in allocating $37 million of the goodwill to the Products Division and the remaining $35 million to the Solutions Division. As a result of the fiscal 2007 annual impairment test of the Solutions Division goodwill conducted as of April 30, 2006, the Company determined that there was an impairment of goodwill, and accordingly, an impairment charge was recorded in fiscal 2007 in the amount of $29,012,000. In addition, the Company recorded an $836,000 impairment charge related to the other intangible assets arising from the Vytek acquisition. The impairment charges reflect the declining revenues associated with the Solutions Division's information technology professional consulting business, due primarily to the inability of the Solutions Division to generate new recurring revenue streams to grow the business. The Company's revenue consists principally of sales of satellite television outdoor reception equipment for the U.S. DBS industry, which accounted for 70%, 78% and 84% of consolidated revenue in fiscal years 2007, 2006 and 2005, respectively. The DBS system operators have approximately 29% share of the total subscription television market in the U.S. In calendar 2006, the size of the U.S. DBS market grew by 7% from 27.2 million subscribers to approximately 29.1 million subscribers at December 31, 2006. The demand for the Company's products has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, the following: * the timing, rescheduling or cancellation of orders from one of CalAmp's key customers in CalAmp's satellite products business and the Company's ability, as well as the ability of its customers, to manage inventory; * the rate of growth in the overall subscriber base in the U.S. DBS Market; * the economic and market conditions in the wireless communications markets; * CalAmp's ability to specify, develop or acquire, complete, introduce, market and transition to volume production new products and technologies in a timely manner; * the rate at which CalAmp's present and future customers and end-users adopt the Company's products and technologies in its target markets; and * the qualification, availability and pricing of competing products and technologies and the resulting effects on sales and pricing of the Company's products. For these and other reasons, the Company's net revenue in fiscal 2007 may not necessarily be indicative of future years' revenue amounts. From time to time, the Company's key customers significantly reduce their product orders, or may place significantly larger orders, either of which can cause the Company's quarterly revenues to fluctuate significantly. The Company expects these fluctuations to continue in the future. Significant opportunities for the Company include increasing the Company's market share for outdoor reception equipment in the U.S. DBS market and expanding its presence in wireless industry market segments for both fixed and mobile wireless applications. The Company's principal challenges include maintaining and improving Products Division gross margins and eliminating operating losses in the Solutions Division. Basis of Presentation The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal years 2007, 2006 and 2005 fell on March 3, 2007, February 25, 2006 and February 26, 2005, respectively. In these consolidated financial statements, the fiscal year end for all years is shown as February 28 for clarity of presentation. Fiscal 2007 consisted of 53 weeks, while fiscal years 2006 and 2005 each consisted of 52 weeks. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Areas where significant judgments are made include, but are not limited to: allowance for doubtful accounts, inventory valuation, product warranties, the deferred tax asset valuation allowance, and the valuation of long-lived assets and goodwill. Actual results could differ materially from these estimates. Allowance for Doubtful Accounts The Company establishes an allowance for estimated bad debts based upon a review and evaluation of specific customer accounts identified as known and expected collection problems, based on historical experience, or due to insolvency, disputes or other collection issues. As further described in Note 1 to the accompanying consolidated financial statements, the Company's customer base is quite concentrated, with two customers accounting for 66% of the Company's fiscal 2007 sales. Changes in either a key customer's financial position, or the economy as a whole, could cause actual write-offs to be materially different from the recorded allowance amount. Inventories The Company evaluates the carrying value of inventory on a quarterly basis to determine if the carrying value is recoverable at estimated selling prices. To the extent that estimated selling prices do not exceed the associated carrying values, inventory carrying amounts are written down. In addition, the Company generally treats inventory on hand or committed with suppliers, which is not expected to be sold within the next 12 months, as excess and thus appropriate write-downs of the inventory carrying amounts are established through a charge to cost of sales. Estimated usage in the next 12 months is based on firm demand represented by orders in backlog at the end of the quarter and management's estimate of sales beyond existing backlog, giving consideration to customers' forecasted demand, ordering patterns and product life cycles. Significant reductions in product pricing, or changes in technology and/or demand may necessitate additional write-downs of inventory carrying value in the future. Product Warranties The Company provides for the estimated cost of product warranties at the time revenue is recognized. While it engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company's warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from management's estimates, revisions to the estimated warranty liability would be required. Deferred Income Tax Valuation Allowance Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and for income tax purposes. A deferred income tax asset is recognized if realization of such asset is more likely than not, based upon the weight of available evidence that includes historical operating performance and the Company's forecast of future operating performance. The Company evaluates the realizability of its deferred income tax asset on a quarterly basis, and a valuation allowance is provided, as necessary, in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". During this evaluation, the Company reviews its forecasts of income in conjunction with the positive and negative evidence surrounding the realizability of its deferred income tax asset to determine if a valuation allowance is needed. At February 28, 2007, the Company had an aggregate deferred tax credit balance of $2,814,000. The current portion of this amount is a deferred tax asset of $4,637,000 and the noncurrent portion is a deferred tax liability of $7,451,000. The noncurrent portion of deferred income taxes is comprised primarily of (i) a deferred tax liability of $4,878,000 associated with acquired intangible assets of Dataradio and (ii) a deferred tax liability of $2,863,000 related to goodwill arising from certain acquisitions in prior years that is amortizable for income tax purposes but not for financial reporting purposes. Vytek, which was acquired by the Company in April 2004, has tax loss carryforwards and other tax assets that the Company believes will be utilizable to some extent in the future, subject to change of ownership limitations pursuant to Section 382 of the Internal Revenue Code and to the ability of the combined post-merger company to generate sufficient taxable income to utilize the benefits before the expiration of the applicable carryforward periods. At February 28, 2007, the Company has a deferred tax asset valuation allowance of $1,841,000 relating to the assets acquired in the Vytek purchase. If in the future a portion or all of the $1,841,000 valuation allowance is no longer deemed to be necessary, reductions of the valuation allowance will decrease the goodwill balance associated with the Solutions Division. Conversely, if in the future the Company were to change its realization probability assessment to less than 50%, the Company would provide an additional valuation allowance for all or a portion of the net deferred income tax asset, which would increase the income tax provision. The Company also has deferred tax assets for Canadian income tax purposes arising from the acquisition of Dataradio amounting to $3,375,000 at February 28, 2007, which relate primarily to research and development tax credits for Canadian federal and Quebec provincial income taxes. Of this total Canadian deferred tax assets amount, $2,196,000 existed at the time of the Dataradio acquisition in May 2006 and $1,179,000 arose subsequent to the acquisition. The Company has provided a 100% valuation allowance against these Canadian deferred tax assets at February 28, 2007. If in the future a portion or all of the $3,375,000 valuation allowance for the Canadian deferred tax assets is no longer deemed to be necessary, reductions of the valuation allowance up to $2,196,000 will decrease the goodwill balance associated with the Dataradio acquisition, and reductions of the valuation allowance in excess of $2,196,000 will reduce the income tax provision. Goodwill, Purchased Intangible Assets and Other Long-Lived Assets - Impairment Assessments The Company makes judgments about the recoverability of purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate that an other-than-temporary impairment in the remaining value of the assets recorded on the balance sheet may exist. The Company tests the impairment of goodwill annually or more frequently if indicators of impairment arise. Goodwill of the Products Division and Solutions Division is tested annually for impairment on December 31 and April 30, respectively. In order to estimate the fair value of long-lived assets, the Company typically makes various assumptions about the future prospects for the business that the asset relates to, considers market factors specific to that business and estimates future cash flows to be generated by that business. Based on these assumptions and estimates, the Company determines whether it needs to record an impairment charge to reduce the value of the asset stated on the balance sheet to reflect its estimated fair value. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy and its internal forecasts. Although management believes the assumptions and estimates that have been made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact the Company's reported financial results. More conservative assumptions of the anticipated future benefits from these businesses could result in impairment charges, which would decrease net income and result in lower asset values on the balance sheet. Conversely, less conservative assumptions could result in smaller or no impairment charges, higher net income and higher asset values. In fiscal 2007, the Company recorded impairment charges on goodwill and other intangible assets of the Solutions Division of $29,012,000 and $836,000, respectively, as further described in Note 5. At February 28, 2007, the Company had $90 million in goodwill and $18.6 million in net purchased intangible assets on its balance sheet. Revenue Recognition The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection of the sales price is probable. In cases where terms of sale include subjective customer acceptance criteria, revenue is deferred until the acceptance criteria are met. Critical judgments made by management related to revenue recognition include the determination of whether or not customer acceptance criteria are perfunctory or inconsequential. The determination of whether or not the customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognized. Critical judgments also include estimates of warranty reserves, which are established based on historical experience and knowledge of the product. The Company also undertakes projects that include the design, development and manufacture of public safety communication systems that are specially customized to customers' specifications or that involve fixed site construction. Sales under such contracts are recorded under the percentage- of-completion method in accordance with Statement of Position No. 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." Costs and estimated revenues are recorded as work is performed based on the percentage that incurred costs bear to estimated total costs utilizing the most recent estimates of costs. If the current contract estimate indicates a loss, provision is made for the total anticipated loss in the current period. Critical estimates made by management related to revenue recognition under the percentage-of-completion method include the estimation of costs at completion and the determination of the overall margin rate on the specific project. Recent Developments During fiscal 2007, the Company received notification from Echostar, its largest customer, that it was encountering field performance issues with a DBS product that the Company shipped during calendar years 2004 through 2006. After examining the various component parts used in the manufacture of these products, it was determined by the Company that the performance issues were the result of a deterioration of the laminate material used in the printed circuit boards of these products. During fiscal 2007, Echostar returned approximately 250,000 units to the Company for testing and possible rework, the majority of which were received by the Company during the fourth quarter of fiscal 2007. An additional 113,000 units have been returned by Echostar to the Company subsequent to fiscal 2007, and it is possible that additional units may be returned to the Company in the future. From the time the problem was isolated to the laminate material until March 2007, the Company worked with the supplier of the laminate material and with Echostar to identify a corrective action. Notwithstanding these efforts, on March 26, 2007 the laminate supplier filed a Complaint for Declaratory Relief in the State of Massachusetts in which it claimed that it is not responsible for the field performance issues of these DBS products. Also in March 2007, the Company learned that Echostar had awarded its orders for this DBS product for future requirements beginning in June 2007 to other suppliers. The Company believes that the field performance issues were the primary reason for the loss of this business. The Company has continued to work with Echostar to mitigate the impact of these performance issues and to identify and implement a corrective action plan. The Company believes that this matter will adversely affect its sales volume with Echostar for fiscal 2008. On May 16, 2007, the Company filed a lawsuit against the laminate supplier in the U.S. District Court for the Central District of California for negligence, strict product liability, intentional misrepresentation and negligent interference with prospective economic advantage, among other causes of action. The Company has established a warranty reserve as of February 28, 2007 that it believes is adequate to cover the resolution of these field performance issues with Echostar. However, if the ultimate resolution of this matter causes the reserve amount to be exceeded, it could have a material adverse effect on the Company's financial position and results of operations. Results of Operations, Fiscal Years 2005 Through 2007 The following table sets forth, for the periods indicated, the percentage of revenues represented by items included in the Company's consolidated statements of operations: Year Ended February 28, ---------------------------- 2007 2006 2005 ------ ------ ------ Revenues 100.0% 100.0% 100.0% Cost of revenues 77.8 75.7 81.2 ----- ----- ----- Gross profit 22.2 24.3 18.8 ----- ----- ----- Operating expenses: Research and development 6.7 4.2 3.8 Selling 4.5 3.2 2.9 General and administrative 5.6 4.9 5.2 Intangible asset amortization 1.9 0.8 0.8 Write-off of acquired in-process research and development 3.1 0.2 0.2 Impairment loss 13.4 - - ----- ----- ----- Operating income (loss) (13.0) 11.0 5.9 Other income (expense), net 0.2 0.2 - ----- ----- ----- Income (loss) before income taxes (12.8) 11.2 5.9 Income tax provision (1.2) (4.5) (2.2) ----- ----- ----- Net income (loss) (14.0%) 6.7% 3.7% ===== ===== ===== The Company's revenue, gross profit and operating income (loss) by business segment for the last three years are as follows: REVENUE BY SEGMENT Year Ended February 28, -------------------------------------------------------- 2007 2006 2005 --------------- --------------- --------------- Segment % of % of % of (Division) $000s Total $000s Total $000s Total ----------- ------- ----- ------- ----- ------- ----- Products $213,204 95.9% $196,908 90.5% $194,835 88.6% Solutions 9,135 4.1% 20,585 9.5% 25,192 11.4 ------- ----- ------- ----- ------- ----- Total $222,339 100.0% $217,493 100.0% $220,027 100.0% ======= ===== ======= ===== ======= ===== The Products Division generates a substantial portion of its revenue from the sale of outdoor reception equipment for use with subscription satellite television programming services. Such products accounted for approximately 73%, 86% and 95% of total Products Division revenues in fiscal years 2007, 2006 and 2005, respectively. GROSS PROFIT BY SEGMENT Year Ended February 28, -------------------------------------------------------- 2007 2006 2005 --------------- --------------- --------------- Segment % of % of % of (Division) $000s Total $000s Total $000s Total ----------- ------- ----- ------- ----- ------- ----- Products $ 45,537 92.2% $ 45,589 86.4% $35,765 86.4% Solutions 3,864 7.8% 7,157 13.6% 5,613 13.6 ------- ----- ------- ----- ------ ----- Total $ 49,401 100.0% $ 52,746 100.0% $41,378 100.0% ======= ===== ======= ===== ====== ===== OPERATING INCOME (LOSS) BY SEGMENT Year Ended February 28, -------------------------------------------------------- 2007 2006 2005 --------------- --------------- --------------- % of % of % of Segment Total Total Total (Division) $000s Revenue $000s Revenue $000s Revenue - ----------- ------- ----- ------- ----- ------- ----- Products $ 9,800 4.4% $ 31,361 14.4% $25,316 11.5% Solutions (32,928) (14.8%) (3,190) (1.5%) (8,051) (3.7%) Corporate expenses (5,853) (2.6%) (4,278) (1.9%) (4,217) (1.9%) ------- ----- ------- ----- ------ ----- Total $(28,981) (13.0%) $ 23,893 11.0% $13,048 5.9% ======= ===== ======= ===== ====== ===== The Products Division operating income in fiscal 2007 includes a charge of $6,850,000 to write-off in-process research and development costs associated with the Dataradio acquisition. The Solutions Division operating loss in fiscal 2007 includes the goodwill impairment charge of $29,012,000 and intangible assets impairment charge of $836,000 as discussed above. Fiscal Year 2007 compared to Fiscal Year 2006 As further discussed under the caption "Basis of Presentation" above, fiscal years 2007 and 2006 contained 53 weeks and 52 weeks, respectively, as a result of the Company's 52-53 week fiscal year method. The Company believes that the inclusion of the one additional week in fiscal 2007 does not materially affect the comparability of the operating results between these two periods. Revenue Products Division revenue increased $16,296,000, or 8.3%, to $213,204,000 in fiscal 2007 from $196,908,000 in fiscal 2006. The operations of Dataradio and the TechnoCom MRM product line that were acquired in May 2006 contributed revenues of $22,821,000 and $4,335,000, respectively, for the 40-week period from date of acquisition to the end of fiscal 2007, while revenue of the Products Division excluding the operating results of Dataradio and the TechnoCom (hereinafter referred to as the "Pre-existing Products Division") declined by $10,860,000 in fiscal 2007 compared to fiscal 2006. Revenues from the sale of DBS products of the Pre-existing Products Division declined by $15,376,000, or 9%, while sales of other wireless products and services increased by $4,516,000 year-over-year. The decline in DBS products revenue is attributable to a decrease in unit sales volume of approximately 16% from fiscal 2006 to fiscal 2007, partially offset by an increase in average selling prices per unit of approximately 6%. Revenue of the Solutions Division decreased $11,450,000, or 56%, to $9,135,000 in fiscal 2007 from $20,585,000 in fiscal 2006. The revenue decline is primarily the result of the loss of key customers in the Solutions Division's information technology professional consulting business which led to management's decision to exit this business at the end of first quarter of fiscal 2007. The information technology professional consulting business generated revenue of approximately $9 million in fiscal 2006. Revenue of the Solutions Division for fiscal 2007 is less than 5% of the Company's consolidated revenue. Gross Profit and Gross Margins Products Division gross profit decreased slightly in fiscal 2007 to $45,537,000 from $45,589,000 in fiscal 2006. This change is the net result of a decrease of $13.2 million in the gross profit of the Pre-existing Products Division from fiscal 2006 to fiscal 2007 and the gross profit contribution of Dataradio and the TechnoCom product line of $13.2 million for the 40-week period from the date of acquisition to the end of fiscal 2007. Gross profit of the Pre-existing Products Division declined in fiscal 2007 compared to fiscal 2006 because of the $10,860,000 decline in revenue and a shift in product mix toward lower margin end-of-life DBS products. In addition, freight costs for incoming materials of the Pre-existing Products Division was $4.4 million higher in fiscal 2007 compared to the fiscal 2006 because of the Company's decision to expedite materials in order to meet customer requirements in response to supply chain disruptions and demand volatility. Based on information currently available to the Company, management does not believe that this higher level of freight costs will exist in fiscal 2008. The Products Division gross margin in fiscal 2007 was 21.4% compared to 23.2% in fiscal 2006. In fiscal 2007, Dataradio and the TechnoCom product line generated an aggregate gross margin of 48.6% and the Pre-existing Products Division generated a gross margin of 17.4%. The decline in gross margin of the Pre-existing Products Division is primarily the result of higher freight costs and lower margins on final shipments of end-of-life DBS products. Solutions Division gross profit in fiscal 2007 decreased $3,293,000, or 46%, from fiscal 2006. The decline in gross profit is primarily attributable to the loss of key customers within the Solutions Division which led to management's decision to exit the professional consulting business in the first quarter of fiscal 2007. The Solutions Division gross margin was 42.3% and 34.8% in fiscal years 2007 and 2006, respectively. This increase is primarily due to a change in revenue mix favoring higher margin software products, and the elimination of the aforementioned lower margin business. See also Note 13 to the accompanying consolidated financial statements for additional operating data by business segment. Operating Expenses Consolidated research and development expense increased $5,906,000 from $9,109,000 in fiscal 2006 to $15,015,000 in fiscal 2007. R&D expense of Dataradio, which was acquired in the first quarter of fiscal 2007, accounted for substantially all of this increase. Consolidated selling expenses increased by $3,194,000 from $6,963,000 last year to $10,157,000 this year. This increase is primarily the result of Dataradio's fiscal 2007 selling expenses of $4.2 million and a reduction of $1.5 million in the selling expenses of the Solutions Division resulting from the aforementioned management actions. Consolidated general and administrative expenses ("G&A") increased $1,677,000 from $10,700,000 last year to $12,377,000 this year. This change is primarily attributable to stock-based compensation expense included in fiscal 2007 G&A of $1,571,000 and Dataradio's G&A of $1,337,000, partially offset by a reduction of the Solutions Division's G&A of $1,700,000. Amortization of intangibles increased from $1,771,000 in fiscal 2006 to $4,135,000 in fiscal 2007. The increase was primarily attributable to amortization expense on identifiable intangible assets from the acquisitions of Dataradio and the TechnoCom MRM product line. The in-process research and development ("IPR&D") write-off increased to $6,850,000 in fiscal 2007 from $310,000 last year. Last year's IPR&D write- off was related to the acquisition of Skybility and this year's IPR&D write- off was related to the acquisition of Dataradio. The impairment loss totaling $29,848,000 recorded in fiscal 2007 was the result of the annual goodwill impairment test for the Solutions Division, as discussed above in the "Overview" section. Operating Income (Loss) The fiscal 2007 operating loss was $28,981,000, compared to operating income of $23,893,000 in fiscal 2006. The fiscal 2007 operating loss is attributable to the $6,850,000 write-off of IPR&D associated with the Dataradio acquisition and the Solutions Division's goodwill and intangible assets impairment losses totaling $29,848,000, the exit of the professional consulting business within the Solutions segment, incremental operating expenses associated with the aforementioned fiscal 2007 acquisitions, and share-based compensation expense of $2,213,000 recorded in fiscal 2007 pursuant to FAS 123R. Non-Operating Income (Expense), Net Non-operating income in fiscal 2007 was $574,000, compared to $536,000 in fiscal 2006. This increase is primarily attributable to a gain of $689,000 realized on foreign currency hedging activities in connection with the acquisition of Dataradio, for which the purchase price was denominated in Canadian dollars. Interest income was $517,000 higher in fiscal 2007 than the prior year due to higher average cash balances and higher interest rates this year. These increases in non-operating income were partially offset by interest expense that was $1,534,000 higher in fiscal 2007 than the prior year due to the new bank borrowing described in Note 6 to the accompanying consolidated financial statements. Income Tax Provision The effective income tax rate was (9.8%) and 40.4% in fiscal years 2007 and 2006, respectively. Excluding the items that are not deductible in computing book-basis income tax expense (goodwill impairment loss of $29,012,000 and IPR&D write-off of $6,850,000), the effective income tax rate for fiscal 2007 was 37.3%. The decline in effective tax rate from 40.4% in fiscal 2006 to 37.3% in fiscal 2007 is primarily attributable to the recognition of research and development credits for state income taxes. Fiscal Year 2006 compared to Fiscal Year 2005 Revenue Products Division revenue increased $2,073,000, or 1%, to $196,908,000 in fiscal 2006 from $194,835,000 in fiscal 2005. Sales of wireless products, primarily radio modules to a legacy customer of Vytek, increased $9.1 million over fiscal 2005. Sales of M2M products, the product line acquired from Skybility in April 2005, contributed a revenue increase of $7.4 million in fiscal 2006. These increases were substantially offset by a decline in DBS product revenue of $14.4 million from fiscal 2005 to 2006. The decline in DBS revenue was attributable to a significant shift in product mix. There was a 55% decline in unit sales of older generation DBS products that have low average selling prices (less than $25 per unit) which represented an aggregate $39 million decline in DBS revenue, and a 44% increase in unit sales of higher complexity new generation products with higher average selling prices (more than $50 per unit) which represented an aggregate $17 million increase in DBS revenue. Increased sales of DBS products with medium average selling prices (between $25 and $50 per unit) and DBS mounting hardware products accounted for the remainder of the net change in year-over- year DBS revenue. Revenue of the Solutions Division decreased $4,607,000, or 18%, to $20,585,000 in fiscal 2006 from $25,192,000 in fiscal 2005. The revenue decrease is primarily the result of the Company's actions to eliminate lower margin business in fiscal 2006 in order to reduce operating losses in this division. Gross Profit and Gross Margins Products Division gross profit increased by $9,824,000, or 28%, in fiscal 2006 compared to fiscal 2005. The Products Division gross margin improved from 18.4% in fiscal 2005 to 23.2% in fiscal 2006. The gross profit and margin improvement were mainly due to increased sales of higher-margin products, primarily M2M products, radio modules and latest generation DBS products. Solutions Division gross profit increased $1,544,000, or 28%, and gross margin improved from 22.3% in fiscal 2005 to 34.8% in fiscal 2006. A revenue mix favoring higher margin software products resulted in significantly improved gross margin in fiscal 2006. Operating Expenses Consolidated research and development expense ("R&D") increased by $789,000 to $9,109,000 in fiscal 2006 from $8,320,000 in fiscal 2005. The Products Division increased its R&D spending by $1.9 million primarily in connection with product development costs relating to the M2M product line that was acquired in April 2005. The Solutions Division reduced its R&D spending by approximately $1 million. The Solutions Division's R&D spending is primarily in the development of software products. Consolidated selling expenses increased by $566,000 from $6,397,000 in fiscal 2005 to $6,963,000 in fiscal 2006, primarily attributable to the Products Division. The inclusion of M2M selling expenses in fiscal 2006 as a result of the acquisition of the Skybility business in April 2005 accounted for substantially all of this increase. Consolidated G&A decreased by $799,000 to $10,700,000 in fiscal 2006 from $11,499,000 in fiscal 2005. The decrease is attributable to a reduction of Solutions Division G&A of $1.8 million as a result of actions taken to improve the cost structure of this Division, partially offset by an increase in Products Division G&A of $1 million, mainly from higher payroll related expenses. Amortization expense of intangible assets was $1,771,000 in fiscal 2006 compared to $1,643,000 in fiscal 2005. The increase is attributable to amortization expense related to the intangible assets arising from the April 2005 acquisition of the M2M product line. The IPR&D write-off decreased by $161,000 to $310,000 in fiscal 2006 from $471,000 in fiscal 2005. The fiscal 2005 IPR&D write-off was related to the acquisition of Vytek, while the fiscal 2006 IPR&D write-off was related to the acquisition of the M2M product line. See also Note 2 to the accompanying consolidated financial statements for additional information on the M2M product line. Operating Income Operating income increased by $10,845,000 to $23,893,000 in fiscal 2006 from $13,048,000 in fiscal 2005. These results were driven by improved gross margins in both the Products and Solutions Divisions. The Products Division's higher gross profit, as discussed above under the headings "Revenue" and "Gross Profit and Gross Margins", partially offset by the Products Division's higher operating expenses, contributed to the increase in operating income. The Solutions Division also showed an improvement in its operating results in fiscal 2006, reducing its operating loss by about 60% compared to fiscal 2005, which is the result of this Division focusing its efforts on attracting higher margin business and changing its cost structure primarily through workforce reductions. Management is closely monitoring the performance of this business unit with the objective of achieving profitable results for the Solutions Division as soon as possible. Income Tax Provision The effective income tax rate was 40.4% and 37.5% in fiscal years 2006 and 2005, respectively. During fiscal year 2005, the deferred tax asset valuation allowance was reduced by $630,000 which had the effect of reducing income tax expense in fiscal 2005. In fiscal 2006, the deferred tax asset valuation allowance was reduced by $51,000. Because this valuation allowance relates to tax assets acquired in the Vytek purchase, this $51,000 was recorded as a reduction of goodwill and did not impact fiscal 2006 income tax expense. Liquidity and Capital Resources The Company's primary sources of liquidity are its cash and cash equivalents, which amounted to $37,537,000 at February 28, 2007, and its $10 million working capital line of credit with a bank. As discussed above under "Recent Developments", in March and April 2007 the Company used cash on hand in the aggregate amount of $27.1 million to consummate the acquisitions of Aircept and Smartlink Radio Networks. During fiscal year 2007, cash and cash equivalents decreased by $8,246,000. This net decrease consisted of cash used in investing activities of $53,111,000 (principally for the acquisition of Dataradio) and debt repayments of $11,421,000, partially offset by cash provided by operating activities of $16,723,000, proceeds of long-term debt of $38,000,000, proceeds from stock option exercises of $1,397,000 and other net activity of $166,000. Cash was used by an increase in operating working capital during fiscal 2007 in the aggregate amount of $1,006,000, comprised of an increase of $3,755,000 in accounts receivable, an increase of $2,059,000 in inventories, an increase of $2,689,000 in prepaid expenses and other assets and a decrease in accrued liabilities of $3,995,000, partially offset by increases in accounts payable and deferred revenue of $12,962,000 and $542,000, respectively. The Company believes that inflation and foreign currency exchange rates did not have a material effect on its operations in fiscal 2007. On May 26, 2006, the Company entered into a Credit Agreement (the "Credit Agreement") with Bank of Montreal, as administrative agent, and the other financial institutions that from time to time may become parties to the Credit Agreement. The credit facility is comprised of a term loan and a $10 million working capital line of credit. The Company initially borrowed $35 million under the term loan and $3 million under the line of credit. Borrowings are secured by substantially all of the assets of CalAmp Corp. and its domestic subsidiaries. Of the total proceeds of $38 million, $7 million was used to pay off the Company's existing loans with US Bank and the remaining $31 million, plus cash on hand of approximately $23 million, was used to fund the purchase price for the Dataradio acquisition as described in Note 2 of the consolidated financial statements. In the fiscal 2007 third quarter, the Company made a principal repayment of $750,000 on the term loan and repaid in full the $3,000,000 principal balance of the line of credit. At February 28, 2007, $2,375,000 of the line of credit was reserved for outstanding irrevocable stand-by letters of credit, and $7,625,000 was available to borrow. The term loan principal is payable in quarterly installments on the last day of March, June, September and December in each year commencing on March 31, 2007 with a final payment of $8,563,000 on May 26, 2011. The maturity date of the line of credit is also May 26, 2011. Scheduled principal payments by fiscal year are as follows: Fiscal Year Term Loan ----------- --------- 2008 $ 2,936,000 2009 4,893,000 2010 6,850,000 2011 8,807,000 2012 10,764,000 ---------- $34,250,000 =========== At the Company's option, borrowings under the Credit Agreement bear interest at bank's prime rate ("Prime Based Loans") plus a margin ranging from 0% to 0.25% (the "Prime Rate Margin") or LIBOR ("LIBOR Based Loans") plus a margin ranging from 0.75% to 1.25% (the "LIBOR Margin"). The Prime Rate Margin and the LIBOR Margin vary depending on the Company's ratio of debt to earnings before interest, taxes, depreciation, amortization and other noncash charges (the "Leverage Ratio"). Interest is payable on the last day of the calendar quarter for Prime Based Loans and at the end of the fixed rate LIBOR period (ranging from 1 to 12 months) in the case of LIBOR Based Loans. The Credit Agreement contains certain financial covenants and ratios that the Company is required to maintain, including a fixed charge coverage ratio of not less than 1.50, a leverage ratio of not more than 2.75, and minimum net worth of at least $141,394,000. At February 28, 2007, the Company was in compliance with all such covenants. The Credit Agreement includes customary affirmative and negative covenants including, without limitation, negative covenants regarding additional indebtedness, investments, maintenance of the business, liens, guaranties, transfers and sales of assets, and the payment of dividends and other restricted payments. The Credit Agreement also contains certain events of default, including the failure to make timely payments under the Credit Agreement or other material indebtedness and the failure to adhere to certain covenants, that would permit the bank to accelerate borrowings under the Credit Agreement in the event that a default were to occur and not be cured within applicable grace periods. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Contractual Obligations Following is a summary of the Company's contractual cash obligations as of February 28, 2007 (in thousands): Payments Due by Period ------------------------------- Contractual 1 year 2-3 4-5 More than Obligations or less years years 5 years Total - --------------- ------ ------- ------ ------- ------- Debt $ 2,936 $11,743 $19,571 - $34,250 Capital leases 9 - - - 9 Operating leases 2,420 3,863 1,908 23 8,214 Purchase obligations 38,397 35 39 - 38,471 ------- ------- ------ ------- ------- Total contractual cash obligations $43,762 $15,641 $21,518 23 $80,944 ======= ======= ======= ======= ======= Purchase obligations consist of obligations under non-cancelable purchase orders, primarily for inventory purchases of raw materials, components and subassemblies. The Company believes that its cash on hand, its cash generated from operations and the amount available under its working capital line of credit, are collectively sufficient to support operations, fund capital equipment requirements and discharge contractual cash obligations for at least the next 12 months. New Authoritative Pronouncements See Note 1 of the accompanying consolidated financial statements for a description of new authoritative accounting pronouncements either recently adopted or which had not yet been adopted by the Company as of the end of fiscal 2007 Forward Looking Statements Forward looking statements in this Form 10-K which include, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions, projections and other information regarding future performance, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "may", "will", "could", "plans", "intends", "seeks", "believes", "anticipates", "expects", "estimates", "judgment", "goal", and variations of these words and similar expressions, are intended to identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance and are subject to certain risks and uncertainties, including, without limitation, product demand, market growth, new competition, competitive pricing and continued pricing declines in the DBS market, supplier constraints, manufacturing yields, the ability to manage cost increases in inventory materials including raw steel, timing and market acceptance of new product introductions, the Company's ability to harness new technologies in a competitively advantageous manner, the Company's success at integrating its acquired businesses, and other risks and uncertainties that are set forth under the caption "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K. Such risks and uncertainties could cause actual results to differ materially from historical results or those anticipated. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is interest rate risk. At February 28, 2007, the Company's term debt and credit facility with its bank are subject to variable interest rates. The Company monitors its debt and interest bearing cash equivalents levels to mitigate the risk of interest rate fluctuations. A fluctuation of one percent in interest rates related to the Company's outstanding variable rate debt would not have a material impact on the Company's consolidated statement of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of CalAmp Corp. is responsible for establishing and maintaining adequate internal control over financial reporting. CalAmp Corp. management has assessed the effectiveness of the Company's internal control over financial reporting as of February 28, 2007. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -Integrated Framework. Based on its assessment, management of CalAmp Corp. believes that, as of February 28, 2007, the Company's internal control over financial reporting is effective based on those criteria. CalAmp Corp. acquired Dataradio Inc. on May 26, 2006, and as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission, management excluded from its assessment of the effectiveness of CalAmp Corp.'s internal control over financial reporting as of February 28, 2007, Dataradio Inc.'s internal control over financial reporting associated with total assets of $56,396,000 and total revenues of $22,821,000 included in the consolidated financial statements of CalAmp Corp. and subsidiaries as of and for the year ended February 28, 2007. KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K for the fiscal year ended February 28, 2007, has issued an attestation report on management's assessment of the Company's internal control over financial reporting. /s/ Richard K. Vitelle VP Finance, Chief Financial ______________________ Officer and Treasurer Richard Vitelle (principal accounting officer) /s/ Fred M. Sturm President, Chief Executive ______________________ Officer and Director Fred M. Sturm (principal executive officer) Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders CalAmp Corp: We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that CalAmp Corp. maintained effective internal control over financial reporting as of February 28, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CalAmp Corp.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that CalAmp Corp. maintained effective internal control over financial reporting as of February 28, 2007, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, CalAmp Corp. maintained, in all material respects, effective internal control over financial reporting as of February 28, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CalAmp Corp. acquired Dataradio Inc. on May 26, 2006, and management excluded from its assessment of the effectiveness of CalAmp Corp.'s internal control over financial reporting as of February 28, 2007, Dataradio Inc.'s internal control over financial reporting associated with total assets of $56,396,000 and total revenues of $22,821,000 included in the consolidated financial statements of CalAmp Corp. and subsidiaries as of and for the year ended February 28, 2007. Our audit of internal control over financial reporting of CalAmp Corp. also excluded an evaluation of the internal control over financial reporting of Dataradio Inc. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CalAmp Corp. and subsidiaries as of February 28, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended February 28, 2007, and our report dated May 17, 2007 expressed an unqualified opinion on those consolidated financial statements. (signed) KPMG LLP Los Angeles, California May 17, 2007 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders CalAmp Corp.: We have audited the accompanying consolidated balance sheets of CalAmp Corp. and subsidiaries as of February 28, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended February 28, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CalAmp Corp. and subsidiaries as of February 28, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended February 28, 2007, in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective March 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment." We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CalAmp Corp.'s internal control over financial reporting as of February 28, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 17, 2007 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting. (signed) KPMG LLP Los Angeles, California May 17, 2007 CALAMP CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE) February 28, --------------------- 2007 2006 -------- -------- Assets Current assets: Cash and cash equivalents $ 37,537 $ 45,783 Accounts receivable, less allowance for doubtful accounts of $347 and $203 at February 28, 2007 and 2006, respectively 38,439 28,630 Inventories 25,729 18,279 Deferred income tax assets 4,637 4,042 Prepaid expenses and other current assets 7,182 2,502 -------- -------- Total current assets 113,524 99,236 -------- -------- Property, equipment and improvements, net of accumulated depreciation and amortization 6,308 5,438 Deferred income tax assets, less current portion - 2,344 Goodwill 90,001 91,386 Other intangible assets, net 18,643 5,304 Other assets 1,227 638 -------- -------- $229,703 $204,346 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 2,944 $ 2,168 Accounts payable 26,186 12,011 Accrued payroll and employee benefits 3,478 3,608 Other current liabilities 4,094 2,763 Deferred revenue 1,935 1,323 -------- -------- Total current liabilities 38,637 21,873 -------- -------- Long-term debt, less current portion 31,314 5,511 Deferred income tax liabilities 7,451 - Other non-current liabilities 1,050 853 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 3,000 shares authorized; no shares issued or outstanding - - Common Stock, $.01 par value; 40,000 shares authorized; 23,595 and 23,204 shares issued and outstanding at February 28, 2007 and 2006, respectively 236 232 Additional paid-in capital 139,175 135,022 Less common stock held in escrow - (2,532) Retained earnings 13,000 44,188 Accumulated other comprehensive loss (1,160) (801) -------- -------- Total stockholders' equity 151,251 176,109 -------- -------- $229,703 $204,346 ======== ======== See accompanying notes to consolidated financial statements. CALAMP CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year ended February 28, ----------------------------- 2007 2006 2005 -------- -------- ------- Revenues: Product sales $214,446 $201,271 $200,098 Service revenues 7,893 16,222 19,929 -------- -------- -------- Total revenues 222,339 217,493 220,027 -------- -------- -------- Cost of revenues: Cost of product sales 166,612 152,333 163,154 Cost of service revenues 6,326 12,414 15,495 -------- -------- -------- Total cost of revenues 172,938 164,747 178,649 -------- -------- -------- Gross profit 49,401 52,746 41,378 -------- -------- -------- Operating expenses: Research and development 15,015 9,109 8,320 Selling 10,157 6,963 6,397 General and administrative 12,377 10,700 11,499 Intangible asset amortization 4,135 1,771 1,643 Write-off of acquired in-process research and development 6,850 310 471 Impairment loss 29,848 - - -------- -------- -------- Total operating expenses 78,382 28,853 28,330 -------- -------- -------- Operating income (loss) (28,981) 23,893 13,048 Non-operating income (expense): Interest income (expense), net (460) 557 (185) Other income (expense), net 1,034 (21) 65 -------- -------- -------- Total non-operating income (expense) 574 536 (120) -------- -------- -------- Income (loss) before income taxes (28,407) 24,429 12,928 Income tax provision (2,781) (9,867) (4,852) -------- -------- -------- Net income (loss) $(31,188) $ 14,562 $ 8,076 ======== ======== ======== Earnings (loss) per share: Basic $ (1.34) $ 0.64 $ 0.38 Diluted $ (1.34) $ 0.62 $ 0.36 Shares used in computing basic and diluted earnings (loss) per share: Basic 23,353 22,605 21,460 Diluted 23,353 23,415 22,193 See accompanying notes to consolidated financial statements. CALAMP CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) Accum- ulated Common Other Total Common Stock Additional Stock Compre- Stock- -------------- Paid-in Held in Retained hensive holders' Shares Amount Capital Escrow Earnings Loss Equity ------ ------ ------ -------- -------- ------ ------ Balances at February 28, 2004 14,910 $149 $ 44,486 $ - $21,550 $(822) $ 65,363 Net income - - - - 8,076 - 8,076 Change in unrealized loss on available-for- sale investments - - - - - 21 21 ------ Comprehensive income 8,097 Issuance of common stock for Vytek acquisition 8,123 81 91,090 (9,624) - - 81,547 Cancellation of escrow shares (628) (6) (7,070) 7,076 - - - Fair value of options and warrants assumed in acquisition - - 1,837 - - - 1,837 Exercise of stock options 309 3 1,053 - - - 1,056 Tax benefits from exer- cise of non-qualified stock options - - 388 - - - 388 ------ ---- ------- -------- ------- ------ -------- Balances at February 28, 2005 22,714 227 131,784 (2,548) 29,626 (801) 158,288 Net income and comprehensive income - - - - 14,562 - 14,562 Sales of common stock held in escrow - - - 16 - - 16 Exercise of stock options 516 5 2,285 - - - 2,290 Tax benefits from exer- cise of non-qualified stock options - - 1,143 - - - 1,143 Other (26) - (190) - - - (190) ------ ---- ------- -------- ------- ------ -------- Balances at February 28, 2006 23,204 232 135,022 (2,532) 44,188 (801) 176,109 Net loss - - - - (31,188) - (31,188) Change in unrealized gain on available-for- sale investments 45 45 Foreign currency trans- lation adjustments - - - - - (404) (404) ------ Comprehensive loss (31,547) Sales of common stock held in escrow - - - 2,532 - - 2,532 Issuance of restricted stock to directors, net of forfeitures 20 - - - - - - Stock-based compen- sation expense - - 2,213 - - - 2,213 Exercise of stock options and warrants 373 4 1,393 - - - 1,397 Tax benefits from exer- cise of non-qualified stock options - - 568 - - - 568 Other (2) - (21) - - - (21) ------ ---- ------- -------- ------- ------ -------- Balances at February 28, 2007 23,595 $236 $139,175 $ - $13,000 $(1,160) $151,251 ====== ==== ======== ======== ======= ====== ========
See accompanying notes to consolidated financial statements. CALAMP CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year ended February 28, ------------------------------ 2007 2006 2005 -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(31,188) $ 14,562 $ 8,076 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,920 4,372 4,340 Stock-based compensation expense 2,213 - - Write-off of in-process research and development 6,850 310 471 Impairment loss 29,848 - 241 Loss (gain) on sale of equipment 85 43 (76) Tax benefit from exercise of stock options - 1,158 388 Excess tax benefit from stock-based compensation (496) - - Deferred tax assets, net 1,485 6,236 4,201 Changes in operating assets and liabilities: Accounts receivable (3,755) (1,704) (3,192) Inventories (2,059) 4,266 (825) Prepaid expenses and other assets (2,689) 427 3,263 Accounts payable 12,962 (6,377) (1,237) Accrued liabilities (3,995) (666) (3,207) Deferred revenue 542 (247) 93 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 16,723 22,380 12,536 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,828) (2,296) (2,359) Proceeds from sale of property and equipment 16 146 1,749 Acquisition of Dataradio net of cash acquired (48,053) - - Acquisition of TechnoCom product line (2,486) - - Acquisition of Skybility business - (4,897) - Proceeds from Vytek escrow fund distribution 480 - - Acquisition of Vytek, net of cash acquired - - (1,776) Other (240) - - -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (53,111) (7,047) (2,386) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 38,000 - 2,000 Debt repayments (11,421) (2,888) (5,043) Proceeds from exercise of stock options 1,397 2,290 1,056 Excess tax benefit from stock-based compensation 496 - - -------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 28,472 (598) (1,987) -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (330) - - -------- -------- -------- Net change in cash and cash equivalents (8,246) 14,735 8,163 Cash and cash equivalents at beginning of year 45,783 31,048 22,885 -------- -------- -------- Cash and cash equivalents at end of year $ 37,537 $ 45,783 $ 31,048 ======== ======== ======== See accompanying notes to consolidated financial statements. CALAMP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business CalAmp Corp. ("CalAmp" or the "Company") is a provider of wireless communications products that enable anytime/anywhere access to critical information, data and entertainment content. CalAmp is the leading supplier of direct broadcast satellite (DBS) outdoor customer premise equipment to the U.S. satellite television market. The Company also provides wireless data communications solutions for the telemetry and asset tracking markets, private wireless networks, public safety communications, and critical infrastructure and process control applications. On April 12, 2004, the Company completed the acquisition of Vytek Corporation ("Vytek"), a privately held company. The operations of Vytek are included in the Company's consolidated financial statements since that date. Vytek's products manufacturing business was combined with the Company's Products Division, and the remainder of Vytek's operations, primarily engineering services and software products, comprised the Company's Solutions Division. Principles of Consolidation The consolidated financial statements include the accounts of the Company (a Delaware corporation) and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where significant judgments are made include, but are not limited to: allowance for doubtful accounts; inventory valuation; product warranties; deferred income tax asset valuation allowances; valuation goodwill, purchased intangible assets and other long-lived assets; and revenue recognition. Fiscal Year The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal years 2007, 2006 and 2005 fell on March 3, 2007, February 25, 2006 and February 26, 2005, respectively. In these consolidated financial statements, the fiscal year end for all years is shown as February 28 for clarity of presentation. Fiscal 2007 consisted of 53 weeks, while fiscal years 2006 and 2005 each consisted of 52 weeks. Revenue Recognition The Company's Products Division recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection of the sales price is probable. Generally, these criteria are met at the time product is shipped, except for shipments made on the basis of "FOB Destination" terms, in which case title transfers to the customer and the revenue is recorded by the Company when the shipment reaches the customer. Customers do not have rights of return except for defective products returned during the warranty period. The Company's Products Division also undertakes projects that include the design, development and manufacture of public safety communication systems that are specially customized to customers' specifications or that involve fixed site construction. Sales under such contracts are recorded under the percentage-of-completion method in accordance with Statement of Position No. 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." ("SOP 81-1"). Costs and estimated revenues are recorded as work is performed based on the percentage that incurred costs bear to estimated total costs utilizing the most recent estimates of costs. If the current contract estimate indicates a loss, provision is made for the total anticipated loss in the current period. The Solutions Division derives revenues from the following sources: software licenses; maintenance and software support; and implementation services. The recognition of software license revenue is substantially governed by the provisions of AICPA Statement of Position No. 97-2, "Software Revenue Recognition" (SOP 97-2). For software license arrangements that do not require significant modification or customization of the underlying software, software license revenue is recognized upon delivery of the software provided there is evidence of an arrangement, the fee is fixed or determinable and collection of the sales price is considered probable. A substantial portion of the Solutions Division's software license revenues are recognized in this manner. Revenues from maintenance and software support, which includes unspecified software upgrades, are recognized ratably over the period of the arrangement, typically one year. Consulting implementation services are sold and are generally accounted for separately from software license revenues because the arrangements qualify as service transactions as defined in SOP 97-2. Cash and Cash Equivalents The Company considers all highly liquid investments with remaining maturities at date of purchase of three months or less to be cash equivalents. Concentrations of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Company currently invests its excess cash in money market mutual funds and commercial paper. The Company had cash and cash equivalents in one U.S. bank in excess of federally insured amounts. Because the Company sells into markets dominated by a few large service providers, a significant percentage of consolidated revenues and consolidated accounts receivable relate to a small number of customers. Revenues from customers which accounted for 10% or more of consolidated annual revenues in any one of the last three years, as a percent of consolidated revenues, are as follows: Year ended February 28, ------------------------------ Customer 2007 2006 2005 -------- ------ ------ ------ A 48.2% 55.5% 43.4% B 18.0% 13.7% 17.1% Accounts receivable amounts at fiscal year-end from the customers referred to in the table above, expressed as a percent of consolidated net accounts receivable, are as follows: February 28, -------------------- Customer 2007 2006 -------- ------ ------ A 30.6% 40.1% B 24.4% 19.2% A third customer that did not account for 10% or more of consolidated revenues in either of the last two years accounted for 16.4% and 12.3% of consolidated accounts receivable at February 28, 2007 and 2006, respectively. Allowance for Doubtful Accounts The Company establishes an allowance for estimated bad debts based upon a review and evaluation of specific customer accounts identified as known and expected collection problems, based on historical experience, due to insolvency, disputes or other collection issues. Inventories Inventories include costs of materials, labor and manufacturing overhead. Inventories are stated at the lower of cost or net realizable value, with cost determined principally by the use of the first-in, first-out method. Investments The Company classifies investments in one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to- maturity securities are those securities that the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income until realized, or until holding losses are deemed to be other than temporary, at which time an impairment charge is recorded. Property, equipment and improvements Property, equipment and improvements are stated at cost. The Company follows the policy of capitalizing expenditures that increase asset lives, and charging ordinary maintenance and repairs to operations, as incurred. When assets are sold or disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operating income. Depreciation and amortization are based upon the estimated useful lives of the related assets using the straight-line method. Plant equipment and office equipment are depreciated over useful lives ranging from two to five years, while tooling is depreciated over 18 months. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements. Operating Leases Rent expense under operating leases is recognized on a straight-line basis over the lease term. The difference between the rent expense and the rent payment is recorded as an increase or decrease in deferred rent liability. The Company accounts for tenant allowances in lease agreements as a deferred rent liability. The liability is then amortized on a straight-line basis over the lease term as a reduction of rent expense. The deferred rent liability is included in other current liabilities and other non-current liabilities in the accompanying consolidated balance sheets. Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets and identifiable intangible assets of businesses acquired. As required under Statement of Financial Accounting Standards (SFAS) No. 142, "Accounting for Goodwill and Intangible Assets", goodwill is not amortized. Instead, goodwill is tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The cost of identified intangible assets is amortized over the assets' estimated useful lives ranging from one to seven years on a straight-line basis as no other discernable pattern of usage is more readily determinable. Accounting for Long-Lived Assets Other Than Goodwill The Company reviews property and equipment and other long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amounts of an asset may not be recoverable. Recoverability is measured by comparison of the asset's carrying amount to the undiscounted future net cash flows an asset is expected to generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount at which the carrying amount of the asset exceeds the projected discounted future cash flows arising from the asset. Capitalized Software Costs The Company capitalizes software costs once technological feasibility has been achieved based on the completion of product design and the detail program design. Periodic amortization is the greater of (1) an amount determined with reference to total estimated revenues to be generated by the product, or (2) an amount computed on a straight-line basis with reference to the product's expected life. At February 28, 2007 and 2006, capitalized software costs in the amount of $737,000 and $98,000, respectively, were included in Other Assets in the Consolidated Balance Sheet. During fiscal 2007, amortization of capitalized software costs was $82,000. This amount is included in Cost of Revenues in the Consolidated Statement of Operations. No amortization was recorded in fiscal 2006 because the software product was still under development during that period and was not yet available for general release to customers. Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate: Cash and cash equivalents, accounts receivable and accounts payable - The carrying amount is a reasonable estimate of fair value given the short maturity of these instruments. Long-term debt - The carrying value approximates fair value since the interest rate on the long-term debt approximates the interest rate which is currently available to the Company for the issuance of debt with similar terms and maturities. Warranty The Company warrants its products against defects over periods ranging from 3 to 24 months. An accrual for estimated future costs relating to products returned under warranty is recorded as an expense when products are shipped. At the end of each quarter, the Company adjusts its liability for warranty claims based on its actual warranty claims experience as a percentage of revenues for the preceding three years and also considers the impacts of the known operational issues that may have a greater impact than historical trends. See Note 10 for a table of annual increases in and reductions of the warranty liability for the last three years. Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and for income tax purposes. A deferred income tax asset is recognized if realization of such asset is more likely than not, based upon the weight of available evidence which includes historical operating performance and the Company's forecast of future operating performance. The Company evaluates the realizability of its deferred income tax assets on a quarterly basis, and a valuation allowance is provided, as necessary, in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". During this evaluation, the Company reviews its forecasts of income in conjunction with the positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is needed. Foreign Currency Translation and Accumulated Other Comprehensive Loss Account Prior to February 1, 2002, the Company's French subsidiary used the local currency as its functional currency. The local currency was the French franc until January 1, 2002 and the Euro beginning on that date. In connection with the conversion of the French subsidiary's local currency from the French franc to the Euro, effective January 1, 2002, the Company evaluated which currency, the Euro or the U.S. dollar, was best suited to be used as the functional currency. On the basis of this evaluation, management determined that the functional currency should be changed from the Euro to the U.S. dollar, and this change was made effective February 1, 2002. Accordingly, beginning in February 2002 gains and losses from remeasuring the French subsidiary's financial statements from the local currency (the Euro) into the reporting currency (the U.S. dollar) are included in the consolidated statement of operations. As a result of this 2002 change in functional currency, the foreign currency translation account balance of $801,000 included in accumulated other comprehensive loss will remain unchanged until such time as the French subsidiary ceases to be part of the Company's consolidated financial statements. No income tax expense or benefit has been allocated to this component of accumulated other comprehensive loss because the Company expects that undistributed earnings of this foreign subsidiary will be reinvested indefinitely. The Company's Canadian subsidiary uses the Canadian dollar, the local currency, as its functional currency. Its financial statements are translated into U.S. dollars using current or historical rates, as appropriate, with translation gains or losses included in the accumulated other comprehensive loss account in the stockholders' equity section of the consolidated balance sheet. The aggregate foreign transaction exchange gains (losses) included in determining income before income taxes were $362,000, $(48,000) and $35,000 in fiscal 2007, 2006 and 2005, respectively. Earnings Per Share Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. In computing diluted earnings per share, the treasury stock method assumes that outstanding options are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options. Accounting for Stock Options The Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in their financial statements. The Company adopted SFAS No. 123R at the beginning of fiscal 2007 using the modified prospective application method. Accordingly, periods prior to fiscal 2007 were not restated. Under this adoption method, the Company records stock- based compensation expense for all awards granted on or after the date of adoption of SFAS No. 123R and for the portion of previously granted awards that remained unvested at the date of adoption. Currently, the Company's stock-based compensation relates to stock options awarded to employees and directors and restricted stock awarded to directors. In the financial statements of periods prior to fiscal 2007, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the consolidated statements of cash flows. SFAS No. 123R requires the cash flows resulting from the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash flows. As a result of adopting SFAS No. 123R, $496,000 of such excess tax benefits have been classified as a financing cash inflow in the accompanying consolidated statement of cash flows for fiscal 2007. Prior to fiscal 2007, the Company applied the provisions of APB No. 25, "Accounting for Stock Issued to Employees," as permitted under SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS Statement No. 123." The following table details the effect on net income and earnings per share assuming compensation expense had been recorded in the consolidated statement of operations during fiscal years 2006 and 2005 using the fair value method prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation". Amounts are shown in thousands except per share amounts. Year ended February 28, ------------------- 2006 2005 ------ ------ Net income as reported $14,562 $8,076 Less total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,832) (1,647) ------ ----- Pro forma net income $12,730 $6,429 ====== ===== Earnings per share: Basic - As reported $.64 $.38 Pro forma $.56 $.30 Diluted - As reported $.62 $.36 Pro forma $.54 $.29 Included in the $1,832,000 stock-based employee compensation expense for fiscal 2006 was $607,000 expense, net of tax, pertaining to 82,125 options granted in February and April 2004 at exercise prices of $14.76 and $13.52 for which the vesting was accelerated in February 2006. These options were granted to employees who are not officers and directors of the Company. The Board of Directors authorized the acceleration of vesting of these out- of-the-money options to avoid the recognition of this expense in future financial statements. Recent Authoritative Pronouncements In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements", which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The Company adopted SAB No. 108 as of the end of fiscal year 2007. The adoption of SAB No. 108 had no significant impact on the Company's fiscal 2007 financial position and results of operations. In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Income Tax Uncertainties" ("FIN 48"). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authorities. FIN 48 provides guidance on the de-recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. The Company will be required to adopt FIN 48 at the beginning of its fiscal year 2008. The differences between the amounts recognized in the consolidated balance sheet prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The Company is still evaluating the impact, if any, of adopting the provisions of FIN 48 on its financial position and results of operations. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently determining the effect, if any, this pronouncement will have on its financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Company is currently determining the effect, if any, this pronouncement will have on its financial statements. Note 2 - ACQUISITIONS Dataradio Acquisition - --------------------- On May 26, 2006, the Company completed the acquisition of Dataradio Inc. ("Dataradio"), a privately held Canadian company. Under the terms of the acquisition agreement dated May 9, 2006, the Company acquired all capital stock of Dataradio for a cash payment of Canadian $60.1 million, or U.S. $54,291,000 at the effective Canadian Dollar (CAD $) to U.S. Dollar exchange rate on May 26, 2006. This acquisition expands the Company's wireless data communications business for public safety and Machine-to-Machine (M2M) applications. It also furthers the Company's strategic goals of diversifying its customer base and expanding its product offerings into higher-margin growth markets. CAD $7 million (equivalent to U.S. $6,323,397 at the effective exchange rate on May 26, 2006) of the purchase price was deposited into an escrow account. In October 2006, CAD $4 million was released from escrow to the selling stockholders of Dataradio. The remaining CAD $3 million held in escrow is available as a source for the payment of indemnification claims of the Company. The remaining amount in the escrow account, if any, after satisfying indemnification claims will be distributed to Dataradio's selling stockholders on May 26, 2008. Amounts required to pay claims by the Company that are not resolved by such date will be held in the escrow account until such claims are resolved. For financial reporting purposes the operations of Dataradio are included in the Company's Products Division business segment. Dataradio's operations are included in the accompanying fiscal 2007 consolidated statement of operations for the 40-week period from May 26, 2006 to February 28, 2007. Dataradio is currently focused in three primary business lines: wireless data systems for public safety and first response applications; wireless data modems for fixed location critical infrastructure and industrial applications; and design and manufacture of radio frequency modules. The purchase price allocation for the Dataradio acquisition is as follows (in thousands): Purchase price paid in cash $54,291 Direct costs of acquisition 474 ------ Total cost of acquisition $54,765 Fair value of net assets acquired: Current assets (including cash of $6,711) $20,306 Property and equipment 927 Intangible assets: Developed/core technology $6,980 Customer relationships 3,750 Contracts backlog 1,480 Tradename 3,880 In-process research and development ("IPR&D") 6,850 ----- Total intangible assets 22,940 Current liabilities (8,749) Deferred tax liabilities, net (5,980) Long-term liabilities (317) ------ Total fair value of net assets acquired 29,127 ------ Goodwill $25,638 ====== The Company paid a premium (i.e., goodwill) over the fair value of the net tangible and identified intangible assets acquired for a number of reasons, including the following: * Dataradio is an established provider of radio frequency ("RF") modems and systems for public safety and private network data applications. * Dataradio has a history of profitable operations. * The products of Dataradio have high gross margins. * Dataradio has a diversified customer base. * CalAmp will have access to Dataradio's engineering resources. The goodwill arising from the Dataradio acquisition is not deductible for income tax purposes. The $6,850,000 allocated to IPR&D in the purchase price allocation above was charged to expense following the acquisition. IPR&D consists of next generation products for fixed and mobile wireless applications. For purposes of valuing IPR&D, it was assumed that: (i) these products would be introduced in 2007; (ii) annual revenue in 2007 through 2011 would range between $4.2 million and $12.6 million for fixed wireless products, and between $6.7 million and $13.9 million for mobile wireless products; (iii) annual revenues from the fixed wireless products and mobile wireless products are allocated 75% and 80%, respectively, to IPR&D and 25% and 20%, respectively, to core technology; (iv) the gross margin percentage would range between 58% and 60% for fixed wireless products, and between 61% and 66% for mobile wireless products; and (v) the operating margin in years 2007 through 2011 is approximately 26% for fixed wireless products and 32% for mobile wireless products. The projected after-tax cash flows were then present valued using a discount rate of 25%. The following is supplemental pro forma information presented as if the acquisition of Dataradio had occurred at the beginning of each of the respective periods. The pro forma financial information is not necessarily indicative of what the Company's actual results of operations would have been had Dataradio been included in the Company's consolidated financial statements for all of the periods ended February 28, 2007 and 2006. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. (in thousands, except per share data) Year Ended Year Ended February 28, 2007 February 28, 2006 -------------------- ------------------- As Pro As Pro reported forma reported forma -------- -------- -------- ------- Revenue $222,339 $231,775 $217,493 $247,273 Net (loss) income $(31,188) $(24,306) $ 14,562 $ 13,628 Net (loss) income per share: Basic $ (1.34) $ (1.04) $ 0.64 $ 0.60 Diluted $ (1.34) $ (1.04) $ 0.62 $ 0.58 The pro forma adjustments for the year ended February 28, 2007 consist of adding Dataradio's estimated results of operations for the 13-week period ended May 26, 2006, because Dataradio is included in the "As reported" amounts for the 40-week period from the May 26, 2006 acquisition date to February 28, 2007. The pro forma adjustments for the year ended February 28, 2006 consist of adding Dataradio's results of operations for the 12 months ended January 31, 2006. The pro forma financial information for both periods presented above reflects the following: * Additional amortization expense of approximately $746,000 and $2,984,000 for the years ended February 28, 2007 and 2006, respectively, related to the estimated fair value of identifiable intangible assets from the purchase price allocation; and * Additional interest expense and amortization of debt issue costs in the total amount of approximately $494,000 and $1,976,000 for the years ended February 28, 2007 and 2006, respectively, related to the incremental new bank borrowings to fund part of the Dataradio purchase price. The unaudited pro forma financial information above excludes the following material, non-recurring charges or credits recorded by CalAmp or Dataradio in the quarter ended May 31, 2006: * A charge for IPR&D of $6,850,000 related to the Dataradio acquisition; * A foreign currency hedging gain of $689,000 realized by CalAmp in connection with the acquisition of Dataradio; and * A charge for Dataradio employee bonuses and related employer payroll taxes in the aggregate amount of $5,355,000, recorded as an expense in Dataradio's pre-acquisition statement of operations, for incentives paid by Dataradio to its workforce upon consummating the sale of Dataradio to CalAmp. TechnoCom Product Line Acquisition - ---------------------------------- On May 26, 2006, the Company acquired the business and certain assets of the Mobile Resource Management ("MRM") product line from TechnoCom Corporation ("TechnoCom"), a privately held company, pursuant to an Asset Purchase Agreement dated May 25, 2006 (the "Agreement"). This MRM product line, which is used to help track fleets of cars and trucks, became part of the Company's Products Division. The acquisition of the MRM product line was motivated primarily by the strategic goals of increasing the Company's presence in markets that offer higher growth and profit margin potential and diversifying the Company's business and customer base. Revenues and cost of sales generated by the MRM product line are included in the accompanying fiscal 2007 consolidated statement of operations for the 40-week period from May 26, 2006 to February 28, 2007. The Company acquired the business of the MRM product line, its inventory, intellectual property and other intangible assets. No liabilities were assumed in the acquisition. Pursuant to the Agreement, the Company made an initial cash payment of $2,439,000, of which $250,000 was set aside in an escrow account to satisfy any claims made by the Company on or before May 26, 2007. The Company also agreed to make an additional future cash payment equal to the amount of net revenues attributable to the MRM product line during the 12-month period following the acquisition that exceeds $3,100,000 (the "Earn-out Payment"). In addition, the Company agreed to license certain software from TechnoCom with a first year cost of approximately $200,000. The purchase price allocation for the TechnoCom product line acquisition is as follows (in thousands): Purchase price paid in cash $2,439 Direct costs of acquisition 47 ------ Total cost of acquisition 2,486 Fair value of net assets acquired: Inventories $ 290 Intangible assets: Developed/core technology 980 Customer relationships 810 Contracts backlog 310 Covenants not to compete 170 ----- Total fair value of net assets acquired 2,560 ------ Negative goodwill $ (74) ====== The negative goodwill of $74,000 is included in Other Accrued Liabilities in the consolidated balance sheet at February 28, 2007. Pro forma information on this acquisition has not been provided because the effects are not material to the Company's consolidated financial statements. Skybility Acquisition - --------------------- On April 18, 2005, the Company acquired the business and certain assets of Skybility, a privately held company located in Carlsbad, California, pursuant to an Asset Purchase Agreement dated April 18, 2005 (the "Agreement"). Skybility is a developer and supplier of embedded cellular transceivers used in telemetry and asset tracking applications that operate on the Global System for Mobile Communications (GSM) network and the Advanced Mobile Phone Service (AMPS) network. The Skybility business operates as the Machine-to-Machine ("M2M") product line of the Company's Products Division. Skybility's operations are included in the accompanying fiscal 2006 consolidated statement of operations for the 45-week period from April 18, 2005 to February 28, 2006. The acquisition of Skybility was motivated primarily by the strategic goals of increasing the Company's presence in markets that offer higher growth and profit margin potential, and diversifying the Company's business and customer base beyond its current dependence on the two major U.S. DBS system operators. The Company acquired the business of Skybility, its inventory, fixed assets, intellectual property and other intangible assets. No liabilities were assumed in the acquisition. Pursuant to the Agreement, the Company made an initial cash payment of $4,829,000 and agreed to make a future cash payment if certain financial performance targets during the 12-month period ending April 18, 2006 were attained. These performance targets were not met. Following is the purchase price allocation (in thousands): Purchase price paid in cash $4,829 Direct costs of acquisition 68 ------ Total cost of acquisition $4,897 ====== Fair value of net assets acquired: Inventories $1,080 Property and equipment 360 Developed/core technology 1,683 Customer lists 993 Covenants not to compete 321 Contracts backlog 150 In-process research and development 310 ----- Total fair value of net assets acquired $4,897 ====== The $310,000 allocated to in-process research and development in the purchase price allocation above was charged to expense following the acquisition. Vytek Acquisition - ----------------- On April 12, 2004, the Company acquired Vytek Corporation, a privately held company headquartered in San Diego, California. Vytek was a provider of technology integration solutions involving a mix of professional services and proprietary software and hardware products, serving the needs of enterprise customers and original equipment manufacturers. Pursuant to the acquisition agreement, the Company issued approximately 8,123,400 shares of common stock as the purchase consideration, of which 854,700 shares were originally placed into an escrow account and approximately 7,268,700 shares were issued to the selling shareholders of Vytek. The Company also assumed all fully vested Vytek stock options and stock purchase warrants that were outstanding at the time of the merger. For purchase accounting purposes, the fair market value per share used to value the 7,268,700 shares issued to the Vytek selling stockholders was $11.26 per share, which was the average closing price of the Company's common stock on the NASDAQ National Market for the period beginning two trading days before and ending two trading days after December 23, 2003, the day that the merger terms were agreed to and announced. The Company entered into an escrow agreement with a designated representative of the selling stockholders of Vytek and an independent escrow agent. Under the terms of the escrow agreement, the 854,700 shares of CalAmp's common stock deposited into the escrow account were to serve as security for potential indemnity claims by the Company under the acquisition agreement. The acquisition agreement provided that in the event Vytek's balance sheet as of the acquisition date reflected working capital (as defined in the acquisition agreement) of less than $4 million, then CalAmp could recover such deficiency from the escrow account (the "Working Capital Adjustment"). In November 2004, the Company and the selling stockholders of Vytek reached an agreement on the final Working Capital Adjustment of $4,907,000, which equated to 628,380 shares of CalAmp's common stock based on its average share price (as defined in the acquisition agreement). These 628,380 shares were canceled and were returned to the status of authorized, unissued shares. In November 2005, the escrow agent sold 1,444 shares from the escrow account to pay for the legal fees of the Vytek Stockholder Representative. As of February 28, 2006, there were 224,876 shares of CalAmp's common stock remaining in the escrow account. In April 2006, as permitted by the terms of the escrow agreement, the Vytek Stockholder Representative directed the escrow agent to sell 46,000 shares of common stock from the escrow account. The net cash proceeds of approximately $523,000 were deposited to the escrow account. Also in April 2006, to resolve certain indemnification issues which had been in dispute, the Company and the Vytek Stockholder Representative entered into an agreement whereby the escrow agent paid the Company $480,000 in cash from the escrow account. The escrow agent also paid legal fees of the Vytek Stockholder Representative and the remaining cash and common stock in the escrow account was released to the selling stockholders of Vytek in June 2006. The common shares deposited to the escrow account were, for accounting purposes, treated as contingent consideration, and accordingly were excluded from the purchase price determination until April 2006 when the remaining escrow fund assets became distributable to the Vytek selling stockholders, as described above. The release of the escrow fund assets was recorded as additional goodwill in the amount of $2,052,000 during fiscal 2007. The goodwill that resulted from the Vytek acquisition in the original amount of $71,896,000 was apportioned between the Company's two reporting units (the Products Division and the Solutions Division) because both reporting units were expected to benefit from the synergies of the merger. An independent valuation specialist was engaged to perform this goodwill apportionment analysis. This analysis resulted in an apportionment of the total Vytek acquisition goodwill to the Products Division and the Solutions Division in the amounts of $36,847,000 and $35,049,000, respectively. The goodwill arising from the Vytek acquisition is not deductible for income tax purposes. The $471,000 allocated to in-process research and development in the purchase price allocation above was charged to expense immediately following the acquisition. NOTE 3 - INVENTORIES Inventories consist of the following (in thousands): February 28, ----------------------- 2007 2006 ------- ------ Raw materials $21,256 $14,375 Work in process 505 380 Finished goods 3,968 3,524 ------- ------- $25,729 $18,279 ======= ======= NOTE 4 - PROPERTY, EQUIPMENT AND IMPROVEMENTS Property, equipment and improvements consist of the following (in thousands): February 28, ----------------------- 2007 2006 ------- ------ Leasehold improvements $ 1,425 $ 1,415 Plant equipment and tooling 19,099 15,434 Office equipment, computers and furniture 4,994 5,751 ------- ------- 25,518 22,600 Less accumulated depreciation and amortization (19,210) (17,162) ------- ------- $ 6,308 $ 5,438 ======= ======= Note 5 - GOODWILL AND OTHER INTANGIBLE ASSETS Changes in goodwill of each reporting unit are as follows (in thousands): Products Solutions Total -------- --------- --------- Balance as of February 28, 2004 $ 20,938 $ - $ 20,938 Goodwill from Vytek acquisition (see Note 2) 36,847 35,049 71,896 -------- --------- --------- Balance as of February 28, 2005 57,785 35,049 92,834 Realized deferred tax assets from Vytek acquisition (1,219) (1,219) Removal of goodwill associated with the sale of assets - (230) (230) Other change - 1 1 -------- --------- -------- Balance as of February 28, 2006 57,785 33,601 91,386 Distribution of escrow shares as additional purchase price for the 2004 Vytek acquisition 1,052 1,000 2,052 Goodwill associated with Dataradio acquisition 25,638 - 25,638 Impairment writedown - (29,012) (29,012) Other changes 100 (163) (63) -------- --------- -------- Balance as of February 28, 2007 $ 84,575 $ 5,426 $ 90,001 ======== ========= ======== Impairment tests of goodwill associated with the Products Division and the Solutions Division are conducted annually as of December 31 and April 30, respectively. The annual Products Division tests conducted in the last three fiscal years indicated no impairment of that division's goodwill. The initial annual impairment test of the goodwill associated with the Solutions Division was performed as of April 30, 2005, which indicated that there was no impairment of Solutions Division goodwill at that date. The annual impairment test of the Solutions Division goodwill as of April 30, 2006 indicated that there was an impairment of Solutions Division goodwill at that date. The goodwill impairment test is a two-step process. Under the first step, the fair value of the Solutions Division was compared with its carrying value (including goodwill). The fair value of the Solutions Division using a discounted cash flow approach was $29,848,000 less than its carrying value, which indicated that a goodwill impairment existed and which required the Company to perform step two of the impairment test. In the second step, the implied fair value of the Solutions Division's goodwill was calculated and then compared to the carrying amount of that goodwill. The goodwill carrying amount exceeded the implied fair value by $29,012,000 which was recognized as an impairment loss. The implied goodwill amount was determined by allocating the fair value of the Solutions Division to all of the assets and liabilities of the Solutions Division as if the Solutions Division had been acquired in a business combination as of the date of the impairment test. In connection with the second step of the Solutions Division goodwill impairment test, fair value was allocated to tangible net assets and to recognized intangible assets as of the test date. There were no unrecognized intangible assets as of the testing date. The undiscounted future net cash flows of the recognized intangible assets were less than their carrying amount, which indicated that the assets were impaired. Accordingly, the Company recognized an impairment loss of $836,000 related to these intangible assets. The $29,848,000 impairment loss recognized in fiscal 2007 is the sum of the $29,012,000 impairment of goodwill and the $836,000 impairment of intangible assets. Factors that led to the impairment of goodwill and other intangible assets of the Solutions Division as of April 30, 2006 include the following: * Throughout fiscal 2006, the quarterly revenue of the Solutions Division had not been growing, but instead was declining due to the loss of key customers and management's decision to exit low margin business with certain other customers in order to reduce operating losses in this division. During fiscal 2006, the Company forecasted that it would be able to replace these customers with new business to grow revenues and make the Solutions Division profitable. However, the Solutions Division was unable to book sufficient new business to reverse the decline in revenue and this situation, along with the continued sluggish revenue performance in the first quarter of fiscal 2007, led Company management to conclude that the revenue projection for fiscal 2007 and later years as reflected in the prior year's goodwill impairment test conducted as of April 30, 2005 was not achievable. * Substantially all of the quarter-to-quarter revenue declines of the Solutions Division during fiscal 2006 through the first quarter of fiscal 2007 were attributable to its Information Technology ("IT") professional consulting business. Failure to gain new major customers, the small amount of backlog and new order pipeline and low margin business led to management's decision to exit the Solutions Division's IT professional consulting business near the end of the fiscal 2007 first quarter. * The cost structure and limited availability of critical engineering resources of the IT professional consulting business made this unit unable to compete with large consulting companies that have multiple design centers in lower cost regions of the United States and foreign technology centers such as India. * The Company's financial projections as of April 30, 2006 included the operations of its software business unit only, because of the decision to exit the IT professional consulting business. The loss of projected revenues and operating income from the IT professional consulting business contributed to the decline in the projected cash flows. Intangible assets are comprised as follows (in thousands): February 28, 2007 February 28, 2006 ------------------------ ------------------------- Amorti- Gross Accum. Gross Accum. zation Carrying Amorti- Carrying Amorti- Period Amount zation Net Amount zation Net ----- ------ ------ ----- ------ ------ ----- Developed/core technology 5-7 yrs. $12,992 $3,816 $9,176 $5,032 $1,561 $3,471 Customer lists 5-7 yrs. 6,680 1,848 4,832 2,120 601 1,519 Contracts backlog 1 yr. 1,790 1,378 412 995 995 - Covenants not to compete 4-5 yrs. 491 148 343 721 457 264 Licensing right 2 yrs. 200 200 - 200 150 50 Tradename N/A 3,880 - 3,880 - - - ------ ------ ------ ------ ------ ------ $26,033 $7,390 $18,643 $9,068 $3,764 $5,304 ====== ====== ====== ====== ====== ====== Amortization expense of intangible assets was $4,185,000, $1,871,000 and $1,693,000 for the years ended February 28, 2007, 2006 and 2005, respectively. Estimated amortization expense for the fiscal years ending February 28 is as follows: 2008 $3,542,000 2009 $3,130,000 2010 $2,578,000 2011 $1,996,000 2012 $1,660,000 Thereafter $1,857,000 NOTE 6 - FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS Long-term Debt Long-term debt consists of the following (in thousands): February 28, ---------------------- 2007 2006 ------ ------ Bank term loan payable and working capital line of credit with US Bank, repaid in full in May 2006 $ - $ 7,642 Term loan with Bank of Montreal 34,250 - Capital lease obligations 8 37 ------- ------- Total debt 34,258 7,679 Less portion due within one year (2,944) (2,168) ------- ------- Long-term debt $31,314 $ 5,511 ======= ======= The Company's credit agreement with U.S. Bank National Association ("US Bank") was terminated during fiscal 2007. On May 26, 2006, the Company entered into a Credit Agreement (the "Credit Agreement") with Bank of Montreal, as administrative agent, and the other financial institutions that from time to time may become parties to the Credit Agreement. The credit facility is comprised of a term loan and a $10 million working capital line of credit. The Company initially borrowed $35 million under the term loan and $3 million under the line of credit. Borrowings are secured by substantially all of the assets of CalAmp Corp. and its domestic subsidiaries. Of the total proceeds of $38 million, $7 million was used to pay off the Company's existing loans with US Bank and the remaining $31 million, plus cash on hand of approximately $23 million, was used to fund the purchase price for the Dataradio acquisition as described in Note 2. In the fiscal 2007 third quarter, the Company made a principal repayment of $750,000 on the term loan and repaid in full the $3,000,000 principal balance of the line of credit. At February 28, 2007, $2,375,000 of the line of credit was reserved for outstanding irrevocable stand-by letters of credit, and $7,625,000 was available to borrow. The term loan principal is payable in quarterly installments on the last day of March, June, September and December in each year commencing on March 31, 2007 with a final payment of $8,563,000 on May 26, 2011. The maturity date of the line of credit is also May 26, 2011. Scheduled principal payments by fiscal year are as follows: Fiscal Year Term Loan ----------- --------- 2008 $ 2,936,000 2009 4,893,000 2010 6,850,000 2011 8,807,000 2012 10,764,000 ---------- $34,250,000 =========== At the Company's option, borrowings under the Credit Agreement bear interest at bank's prime rate ("Prime Based Loans") plus a margin ranging from 0% to 0.25% (the "Prime Rate Margin") or LIBOR ("LIBOR Based Loans") plus a margin ranging from 0.75% to 1.25% (the "LIBOR Margin"). The Prime Rate Margin and the LIBOR Margin vary depending on the Company's ratio of debt to earnings before interest, taxes, depreciation, amortization and other noncash charges (the "Leverage Ratio"). Interest is payable on the last day of the calendar quarter for Prime Based Loans and at the end of the fixed rate LIBOR period (ranging from 1 to 12 months) in the case of LIBOR Based Loans. Under the Credit Agreement, the Company is also obligated to pay a commitment fee on the unused portion of the $10 million line of credit. During fiscal 2007, the commitment fee amounted to $14,000. The Credit Agreement contains certain financial covenants and ratios that the Company is required to maintain, including a fixed charge coverage ratio of not less than 1.50, a leverage ratio of not more than 2.75, and minimum net worth of at least $141,394,000. At February 28, 2007, the Company was in compliance with all such covenants. The Credit Agreement includes customary affirmative and negative covenants including, without limitation, negative covenants regarding additional indebtedness, investments, maintenance of the business, liens, guaranties, transfers and sales of assets, and the payment of dividends and other restricted payments. The Credit Agreement also contains certain events of default, including the failure to make timely payments under the Credit Agreement or other material indebtedness and the failure to adhere to certain covenants, that would permit the bank to accelerate borrowings under the Credit Agreement in the event that a default were to occur and not be cured within applicable grace periods. Contractual Cash Obligations Following is a summary of the Company's contractual cash obligations as of February 28, 2007 (in thousands): Future Cash Payments Due by Fiscal Year --------------------------------------- Contractual There- Obligations 2008 2009 2010 2011 2012 after Total - --------------- ------ ------ ------ ------ ------ ------ ------ Debt $ 2,936 $4,893 $6,850 $ 8,807 $10,764 - $34,250 Capital leases 9 - - - - - 9 Operating leases 2,420 2,209 1,654 1,526 382 23 8,214 Purchase obligations 38,397 35 - - 39 - 38,471 ------- ------ ------ ------ ------ ----- ------ Total contractual cash obligations $43,762 $7,137 $8,504 $10,333 $11,185 $ 23 $80,944 ======= ====== ====== ====== ====== ===== ====== Purchase obligations consist of obligations under non-cancelable purchase orders, primarily for inventory purchases of raw materials, components and subassemblies. Rent expense under operating leases was $2,545,000, $2,291,000 and $2,363,000 for fiscal years 2007, 2006 and 2005, respectively. NOTE 7 - INCOME TAXES The Company's income (loss) before income taxes consists of the following (in thousands): Year ended February 28, --------------------------------- 2007 2006 2005 ------- ------ ------ Domestic $(27,929) $24,319 $13,089 Foreign (478) 110 (161) -------- ------- ------- $(28,407) $24,429 $12,928 ======== ======= ======= The tax provision consists of the following (in thousands): Year ended February 28, -------------------------------- 2007 2006 2005 ------ ------ ------ Current: Federal $ 363 $ 2,056 $ 185 State 114 265 200 Foreign 29 151 (121) ------- ------ ------ Total current 506 2,472 264 ------- ------ ------ Deferred: Federal 2,179 4,082 2,940 State (694) 2,155 1,202 ------- ------- ------- Total deferred 1,485 6,237 4,142 ------- ------- ------- Charge in lieu of taxes attributable to tax benefit from stock options and warrants 790 1,158 446 ------- ------- ------- $ 2,781 $ 9,867 $ 4,852 ======= ======= ======= Differences between the income tax provision and income taxes computed using the statutory U.S. federal income tax rate are as follows (in thousands): Year ended February 28, -------------------------------- 2007 2006 2005 ------ ------ ------ Income tax at U.S. statutory federal rate (35% in 2007 and 2006 and 34% in 2005) $(9,942) $ 8,550 $ 4,395 State income taxes, net of federal income tax effect 255 1,350 800 Foreign taxes 192 113 (66) In-process research and development 2,398 - 160 Impairment of goodwill 10,154 - - Valuation allowance reductions - - (630) Other, net (276) (146) 193 ------- ------- ------- $ 2,781 $ 9,867 $ 4,852 ======= ======= ======= The components of the net deferred income tax asset (liability) at February 28, 2007 and 2006 for U.S. income tax purposes are as follows (in thousands): February 28, ---------------------- 2007 2006 ------ ------ Inventory reserve $ 537 $ 838 Allowance for doubtful accounts 192 82 Warranty reserve 507 194 Compensation and vacation accruals 486 170 Goodwill amortization (2,863) (2,267) Depreciation and amortization of other intangible assets 753 (90) Capitalized R&D cost amortization 135 227 Stock-based compensation 781 - Net operating loss carryforward 1,283 8,272 Financial accounting basis of net assets of acquired companies different than tax basis (7,152) (1,841) Research and development credits 2,490 982 Other tax credits 1,690 1,277 Other, net 188 383 ------- ------ (973) 8,227 Valuation allowance (1,841) (1,841) ------- ------ Net deferred tax asset (liability) (2,814) 6,386 Less current portion 4,637 4,042 ------- ------ Non-current portion $(7,451) $2,344 ======= ====== The Company also has deferred tax assets for Canadian income tax purposes arising from the acquisition of Dataradio amounting to $3,375,000 at February 28, 2007 which relate primarily to research and development tax credits for Canadian federal and Quebec provincial income taxes. Of this total Canadian deferred tax assets amount, $2,196,000 existed at the time of the Dataradio acquisition in May 2006 and $1,179,000 arose subsequent to the acquisition. The Company has provided a 100% valuation allowance against these Canadian deferred tax assets at February 28, 2007. If in the future a portion or all of the $3,375,000 valuation allowance for the Canadian deferred tax assets is no longer deemed to be necessary, reductions of the valuation allowance up to $2,196,000 will decrease the goodwill balance associated with the Dataradio acquisition, and reductions of the valuation allowance in excess of $2,196,000 will reduce the income tax provision. At February 28, 2007, the Company had an aggregate net deferred tax credit balance of $2,814,000. The current portion of this amount is a deferred tax asset of $4,637,000 and the noncurrent portion is a deferred tax liability of $7,451,000. The noncurrent portion of deferred income taxes is comprised primarily of (i) a deferred tax liability of $4,878,000 associated with acquired intangible assets of Dataradio and (ii) a deferred tax liability of $2,863,000 related to goodwill arising from certain acquisitions in prior years that is amortizable for income tax purposes but not for financial reporting purposes. Vytek, which was acquired by the Company in April 2004, has tax loss carryforwards and other tax assets that the Company believes will be utilizable to some extent in the future, subject to change of ownership limitations pursuant to Section 382 of the Internal Revenue Code and to the ability of the combined post-merger company to generate sufficient taxable income to utilize the benefits before the expiration of the applicable carryforward periods. At February 28, 2007, the Company has a deferred tax asset valuation allowance of $1,841,000 relating to the assets acquired in the Vytek purchase. If in the future a portion or all of the $1,841,000 valuation allowance is no longer deemed to be necessary, reductions of the valuation allowance will decrease the goodwill balance associated with the Solutions Division. Conversely, if in the future the Company were to change its realization probability assessment to less than 50%, the Company would provide an additional valuation allowance for all or a portion of the net deferred income tax asset, which would increase the income tax provision. At February 28, 2007, the Company had net operating loss carryforwards ("NOLs") of approximately $10.4 million and $17.7 million for federal and state purposes, respectively. The federal NOLs expire at various dates through fiscal 2023, and the state NOLs expire at various dates through fiscal 2014. As of February 28, 2007, the Company had foreign tax credit carryforwards of $633,000 expiring at various dates through 2013 and research and development tax credit carryforwards of $1,566,000 and $1,421,000 for federal and state income tax purposes, respectively, expiring at various dates through 2027. The Company has not provided withholdings and U.S. federal income taxes on undistributed earnings of its foreign subsidiaries because such earnings are or will be reinvested indefinitely in such subsidiaries or will be approximately offset by credits for foreign taxes paid. It is not practical to determine the U.S. federal income tax liability, if any, that would be payable if such earnings were not reinvested indefinitely. NOTE 8 - STOCKHOLDERS' EQUITY Stock Options Effective July 30, 2004, the Company adopted the 2004 Incentive Stock Plan (the "2004 Plan"). Under the 2004 Plan, stock options can be granted at prices not less than 100% of the fair market value at the date of grant. Option grants become exercisable on a vesting schedule established by the Compensation Committee of the Board of Directors at the time of grant, usually over a four-year period. Options can no longer be granted under the Company's 1999 Stock Option Plan, the 1989 Key Employee Stock Option Plan, or the 2000 Vytek stock option plan that was assumed by the Company in the Vytek acquisition. Option grants are issued at market value on the date of grant and generally become exercisable in four equal annual installments beginning one year from the date of grant. Option grants expire 10 years after the date of grant. The Company treats an option grant with graded vesting as a single award for expense attribution purposes and recognizes compensation cost on a straight-line basis over the requisite service period of the entire award. The following table summarizes the option activity for fiscal years 2007, 2006 and 2005 (in thousands except dollar amounts): Weighted Number of Average Options Option Price -------- -------- Outstanding at February 28, 2004 2,578 $10.05 Granted 762 9.44 Assumed in Vytek acquisition 149 42.87 Exercised (309) 3.41 Forfeited or expired (536) 18.25 ----- ------ Outstanding at February 28, 2005 2,644 $10.46 Granted 743 6.21 Exercised (516) 4.43 Forfeited or expired (248) 14.16 ----- ------ Outstanding at February 28, 2006 2,623 $10.09 Granted 667 12.23 Exercised (341) 4.10 Forfeited or expired (488) 15.99 ----- ------ Outstanding at February 28, 2007 2,461 $10.33 ===== ====== Exercisable at February 28, 2007 1,370 $11.16 ===== ====== Changes in the shares of the Company's nonvested restricted stock during the year ended February 28, 2007 were as follows (in thousands except dollar amounts): Weighted Number of Average Shares Fair Value -------- ---------- Outstanding at February 28, 2006 - $ - Granted 24 6.51 Vested - - Forfeited (4) 6.51 ----- Outstanding at February 28, 2007 20 $ 6.51 ===== At February 28, 2007, there were 1,694,101 award units available for grant under the 2004 Plan. The grant of one stock option is equal to one award unit. In the event other forms of equity awards, such as restricted stock units (RSUs) or shares of restricted stock, are granted under the 2004 Plan, they will reduce the amount of award units available to grant under the 2004 Plan at the rate of 1.2 award units for each RSU or share of restricted stock granted. The fair value of options at date of grant was estimated using the Black-Scholes option pricing model with the following assumptions: Year ended February 28, Black-Scholes -------------------------------- Valuation Assumptions (1) 2007 2006 2005 - ------------------------ ------ ------ ------ Expected life (years) (2) 6 5 5 Expected volatility (3) 69%-81% 68%-95% 135%-136% Risk-free interest rates (4) 4.6%-5.2% 3.9%-4.6% 3.3%-4.8% Expected dividend yield 0% 0% 0% (1) Beginning on the date of adoption of SFAS No. 123R, forfeitures are estimated based on historical experience; prior to the date of adoption, forfeitures were recorded as they occurred. (2) The expected life of stock options is estimated based on historical experience. (3) The expected volatility is estimated based on historical volatility of the Company's stock price. (4) Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options. The weighted average fair value for stock options granted in fiscal years 2007, 2006 and 2005 (2005 excludes the options and warrants assumed in the Vytek acquisition) was $8.63, $4.51 and $8.06, respectively. The weighted average remaining contractual term and the aggregate intrinsic value of options outstanding as of February 28, 2007 was 6.7 years and $4.8 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value of options exercisable as of February 28, 2007 was 5.3 years and $3.4 million, respectively. The total intrinsic value for stock options exercised during the year ended February 28, 2007 was $1,463,000. Net cash proceeds from the exercise of stock options for the year ended February 28, 2007 was $1,397,000 and the associated income tax benefit was $568,000 for that same time period. Stock-based compensation expense for the year ended February 28, 2007 was $2,213,000. Such expense is included in the following captions of the consolidated statement of operations: Cost of revenues $ 114 Research and development 265 Selling 263 General and administrative 1,571 ------ $2,213 ====== As of February 28, 2007, there was $5.9 million of total unrecognized stock-based compensation cost related to nonvested stock options and nonvested restricted stock. That cost is expected to be recognized over a weighted-average remaining vesting period of 3.0 years. Preferred Stock Purchase Rights At February 28, 2007, 23,595,091 preferred stock purchase rights are outstanding. Each right may be exercised to purchase one-hundredth of a share of Series A Participating Junior Preferred Stock at a purchase price of $50 per right, subject to adjustment. The rights may be exercised only after commencement or public announcement that a person (other than a person receiving prior approval from the Company) has acquired or obtained the right to acquire 20% or more of the Company's outstanding common stock. The rights, which do not have voting rights, may be redeemed by the Company at a price of $.01 per right within ten days after the announcement that a person has acquired 20% or more of the outstanding common stock of the Company. In the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of a right shall have the right to receive that number of shares of common stock of the surviving company which at the time of the transaction would have a market value of two times the exercise price of the right. 750,000 shares of Series A Junior Participating Cumulative Preferred Stock, $.01 par value, are authorized. Note 9 - EARNINGS PER SHARE Following is a summary of the calculation of basic and diluted weighted average shares outstanding for fiscal 2007, 2006 and 2005 (in thousands): Year ended February 28, -------------------------------- 2007 2006 2005 ------ ------ ------ Weighted average shares: Basic weighted average number of common shares outstanding 23,353 22,605 21,460 Effect of dilutive securities: Stock options - 628 632 Shares held in escrow - 182 101 ------ ------ ------ Diluted weighted average number of common shares outstanding 23,353 23,415 22,193 ====== ====== ====== Options outstanding at February 28, 2007 were excluded from the computation of diluted earnings per share for the year then ended because the Company reported a year-to-date net loss and the effect of inclusion would be antidilutive (i.e., including such options would result in a lower loss per share). Outstanding stock options in the amount of 533,000 and 836,000 at February 28, 2006 and 2005, respectively, which had exercise prices ranging from $10.49 to $304.67 and $7.95 to $304.67, respectively, were not included in the computation of diluted earnings per share for the years then ended because the exercise price of these options was greater than the average market price of the common stock and accordingly the effect of inclusion would be antidilutive. In connection with the acquisition of Vytek, at February 28, 2006, 224,876 shares of common stock were held in an escrow account to satisfy indemnification claims by the Company as further described in Note 2 herein. These shares held in escrow were excluded from the basic weighted average number of common shares outstanding. However, the dilutive impact of these shares was included in the diluted weighted average number of common shares outstanding in 2006 and 2005. NOTE 10 - OTHER FINANCIAL INFORMATION "Net cash provided by operating activities" in the consolidated statements of cash flows includes cash payments for interest and income as follows (in thousands): Year ended February 28, -------------------------------- 2007 2006 2005 ------ ------ ------ Interest paid $ 1,964 $ 453 $ 462 Income taxes paid (net refunds received) $(1,364) $2,721 $ 78 Following is the supplemental schedule of non-cash investing and financing activities (in thousands): Year ended February 28, -------------------------------- 2007 2006 2005 ------ ------ ------ Company common stock issued from escrow fund as additional purchase consideration for the 2004 Vytek acquisition $ 2,052 $ - $ - Fair value of Company common stock received as consideration from the sale of assets $ - $ 190 $ - Company common stock issued from escrow fund to reimburse legal fees of the Vytek Stockholder Representative $ - $ 16 $ - Issuance of common stock and assumption of stock options and warrants as consideration for acquisition of Vytek Corporation, net of common stock held in escrow $ - $ - $83,384 Valuation and Qualifying Accounts Following is the Company's schedule of valuation and qualifying accounts for the last three years (in thousands): Charged Balance at (credited) Balance beginning to costs and at end of period expenses Deductions Others of period --------- -------- --------- --------- -------- Allowance for doubtful accounts: - ------------------------------- Fiscal 2005 211 192 (236) 310 (1) 477 Fiscal 2006 477 (71) (203) - 203 Fiscal 2007 203 116 (56) 84 (2) 347 Warranty reserve: - ---------------- Fiscal 2005 159 234 (514) 867 (1) 746 Fiscal 2006 746 223 (492) - 477 Fiscal 2007 477 1,708 (981) 91 (2) 1,295 (1) These represent amounts of allowances and reserves pertaining to the assets acquired from Vytek. (2) These represent amounts of allowances and reserves pertaining to the assets acquired from Dataradio. NOTE 11 - COMMITMENTS AND CONTINGENCIES Operating Lease Commitments The Company leases the building that houses its corporate office, Products Division offices and manufacturing plant in Oxnard, California under an operating lease that expires June 30, 2011. The lease agreement requires the Company to pay all maintenance, property taxes and insurance premiums associated with the building. In addition, the Products Division leases small facilities in California, Minnesota and France. In connection with the May 2006 acquisition of Dataradio, the Company assumed facility leases in Canada, Minnesota and Georgia. The Solutions Division leases offices in California. The Company also leases certain manufacturing equipment and office equipment under operating lease arrangements. A summary of future operating lease commitments is included in the contractual cash obligations table in Note 6. DBS Product Field Performance Issues During fiscal 2007, the Company received notification from Echostar, its largest customer, that it was encountering field performance issues with a DBS product that the Company shipped during calendar years 2004 through 2006. After examining the various component parts used in the manufacture of these products, it was determined by the Company that the performance issues were the result of a deterioration of the laminate material used in the printed circuit boards of these products. During fiscal 2007, Echostar returned approximately 250,000 units to the Company for testing and possible rework, the majority of which were received by the Company during the fourth quarter of fiscal 2007. An additional 113,000 units have been returned by Echostar to the Company subsequent to fiscal 2007, and it is possible that additional units may be returned to the Company in the future. From the time the problem was isolated to the laminate material until March 2007, the Company worked with the supplier of the laminate material and with Echostar to identify a corrective action. Notwithstanding these efforts, on March 26, 2007 the laminate supplier filed a Complaint for Declaratory Relief in the State of Massachusetts in which it claimed that it is not responsible for the field performance issues of these DBS products. Also in March 2007, the Company learned that Echostar had awarded its orders for this DBS product for future requirements beginning in June 2007 to other suppliers. The Company believes that the field performance issues were the primary reason for the loss of this business. The Company has continued to work with Echostar to mitigate the impact of these performance issues and to identify and implement a corrective action plan. The Company believes that this matter will adversely affect its sales volume with Echostar for fiscal 2008. On May 16, 2007, the Company filed a lawsuit against the laminate supplier in the U.S. District Court for the Central District of California for negligence, strict product liability, intentional misrepresentation and negligent interference with prospective economic advantage, among other causes of action. The Company has established a warranty reserve as of February 28, 2007 that it believes is adequate to cover the resolution of these field performance issues with Echostar. However, if the ultimate resolution of this matter causes the reserve amount to be exceeded, it could have a material adverse effect on the Company's financial position and results of operations. NOTE 12 - LEGAL PROCEEDINGS A lawsuit was filed against the Company on September 15, 2006 by CN Capital, the seller of the assets of Skybility which the Company acquired in April 2005. The lawsuit contends that the Company owes CN Capital approximately $1.6 million under the earn-out provision of the Skybility Asset Purchase Agreement dated April 18, 2005. On February 26, 2007, the Company filed a cross-complaint against CN Capital for breach of contract, negligent interference with prospective economic advantage, and contract rescission. The Company believes the lawsuit filed by CN Capital is without merit and intends to vigorously defend against this action. No loss accrual has been made in the accompanying financial statements for this matter. In addition to the foregoing matter, the Company from time to time is a party, either as plaintiff or defendant, to various legal proceedings and claims which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company's consolidated financial position or results of operations. In May 2001, the Securities and Exchange Commission ("SEC") commenced an investigation into the circumstances surrounding the misstatements in the Company's consolidated financial statements for its 2000 and 2001 fiscal years caused by its former controller. In April 2004, the SEC concluded its investigation and issued a cease and desist order directing the Company to not violate federal securities laws in the future. NOTE 13 - SEGMENT AND GEOGRAPHIC DATA Information by business segment is as follows: Year Ended Year Ended February 28, 2007 February 28, 2006 ------------------------------------ ------------------------------------ Operating Segments Operating Segments ------------------- ------------------- Products Solutions Products Solutions Division Division Corporate Total Division Division Corporate Total -------- ------- ------- ----- -------- ------ ------- ----- Revenues: Products $211,474 $ 2,972 $214,446 $196,908 $ 4,363 $201,271 Services 1,730 6,163 7,893 - 16,222 16,222 ------- ----- ------- ------- ------ ------- Total $213,204 $ 9,135 $222,339 $196,908 $20,585 $217,493 ====== ====== ======= ======= ====== ======= Gross profit: Products $ 45,207 $ 2,627 $ 47,834 $ 45,589 $ 3,349 $ 48,938 Services 330 1,237 1,567 - 3,808 3,808 ------- ------ ------- ------- ----- ------- Total $ 45,537 $ 3,864 $ 49,401 $ 45,589 $ 7,157 $ 52,746 ======= ======= ======= ======= ===== ======= Gross margin: Products 21.4% 88.4% 22.3% 23.2% 76.8% 24.3% Services 19.1% 20.1% 19.9% - 23.5% 23.5% Total 21.4% 42.3% 22.2% 23.2% 34.8% 24.3% Operating income (loss) $ 9,800 $(32,928) $(5,853) ($ 28,981) $ 31,361 $(3,190) $(4,278) $ 23,893 ======= ======= ===== ======= ====== ===== ====== ====== Identifiable assets $219,095 $10,608 $ - $229,703 $162,128 $42,218 $ - $204,346 ======= ====== ===== ======= ======= ====== ====== =======
Year Ended February 28, 2005 ------------------------------------ Operating Segments ------------------- Products Solutions Division Division Corporate Total ------- ------ ------- ----- Revenues: Products $194,835 $ 5,263 $200,098 Services - 19,929 19,929 ------- ------ ------- Total $194,835 $25,192 $220,027 ======= ====== ======= Gross profit: Products $ 35,765 $ 1,179 $ 36,944 Services - 4,434 4,434 ------- ----- ------- Total $ 35,765 $ 5,613 $ 41,378 ======= ===== ======= Gross margin: Products 18.4% 22.4% 18.5% Services - 22.2% 22.2% Total 18.4% 22.3% 18.8% Operating income (loss) $ 25,316 $(8,051) $(4,217) $ 13,048 ======= ===== ====== ======= Identifiable assets $150,996 $45,759 $ - $196,755 ======= ====== ====== ======= The Company considers operating income (loss) to be the primary measure of profit or loss of its business segments. The amount shown for each period in the "Corporate" column above for operating income (loss) consists of corporate expenses not allocated to the business segments. Unallocated corporate expenses include salaries for the CEO, CFO and several other corporate staff members, and expenses such as audit fees, investor relations, stock listing fees, director and officer liability insurance, and board of director fees and expenses. The Company does not have significant long-lived assets outside the United States. The Company's revenues were derived mainly from customers in the United States, which represented 94%, 95% and 97% of consolidated revenues in fiscal 2007, 2006 and 2005, respectively. NOTE 14 - QUARTERLY FINANCIAL INFORMATION (unaudited) The following summarizes certain quarterly statement of operations data for each of the quarters in fiscal years 2007 and 2006 (in thousands, except percentages and per share data): Fiscal 2007 --------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ------ Revenues $46,313 $57,934 $61,092 $57,000 $222,339 Gross profit 10,927 14,011 12,702 11,761 49,401 Gross margin 23.6% 24.2% 20.8% 20.6% 22.2% Net income(loss) (34,051) 1,235 896 732 (31,188) Net income (loss) per diluted share (1.47) 0.05 0.04 0.03 (1.34) Fiscal 2006 --------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ------ Revenues $47,580 $57,661 $64,463 $47,789 $217,493 Gross profit 10,698 13,415 16,464 12,169 52,746 Gross margin 22.5% 23.3% 25.5% 25.5% 24.3% Net income 1,977 3,681 5,439 3,465 14,562 Net income per diluted share 0.09 0.16 0.23 0.15 0.62 The net loss in the fiscal 2007 first quarter is the result of the Solutions Division impairment loss of $29,848,000 and the IPR&D write-off of $6,850,000 associated with the acquisition of Dataradio. Note 15 - RELATED PARTY TRANSACTIONS Dataradio leases its facility in Montreal from a lessor that is controlled by Dataradio's former President, who is now an employee of the Company. The Company believes that the terms of this facility lease are commercially reasonable and comparable to market terms. NOTE 16 - SUBSEQUENT EVENTS In March 2007, the Company split the Products Division into two separate operating units: the Satellite Division and the Wireless DataCom Division. The Satellite Division consists of the Company's DBS business, and the Wireless DataCom Division consists of the remaining businesses of the Products Division, including Dataradio, MRM, M2M and CalAmp's legacy wireless businesses other than DBS. The Company plans to use these two new divisions, and the existing Solutions Division, as its reporting segments commencing with the fiscal 2008 first quarter ending May 31, 2007. On March 16, 2007, the Company acquired Aircept, a vehicle tracking business, from AirIQ Inc., a Canadian company ("AirIQ"), for cash consideration of $19 million. The source of funds for the purchase price was the Company's cash on hand. Aircept's business involves the sale of Global Positioning Satellite (GPS) and cellular-based wireless asset tracking products and services to vehicle lenders that specialize in automobile financing for high credit risk individuals. Aircept, which has approximately 35 employees, will become part of the Company's new Wireless DataCom Division. Aircept had revenues of approximately $15 million and a gross profit margin of approximately 35% during calendar 2006. On April 4, 2007, the Company acquired the business and substantially all the assets of SmartLink Radio Networks, a privately-held company, for $8.1 million cash. The source of funds for the purchase price was the Company's cash on hand. Smartlink provides proprietary interoperable radio communications platforms and integration services for public safety and critical infrastructure needs. Based on a software defined switch, SmartLink's platform provides interoperability without the need to replace the installed base of land mobile radios. SmartLink generated unaudited revenues of approximately $2.9 million during the trailing 12 month period ended March 31, 2007. SmartLink is currently in the process of deploying its platform for several important customers including Solano County, Calif., the U.S. Department of Justice in San Francisco and Grand Bahama Power Company. Depending on the size and scope of a deployment, a SmartLink system sale generates revenues in the range of one hundred thousand dollars to several million dollars. CalAmp expects significant revenue growth for the Smartlink business during the next 12 months based on the current backlog of approximately $3.5 million and additional expected near-term deployments. CalAmp will transition SmartLink's operations in Connecticut to its Dataradio facilities in Montreal, Canada and Atlanta, Georgia over the next several months. Smartlink will become part of the Company's new Wireless DataCom Division. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company's principal executive officer and principal financial officer have concluded, based on their evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of February 28, 2007, that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission. Management's Report on Internal Control over Financial Reporting The report of management of the Company regarding internal control over financial reporting is set forth in Item 8 of this Annual Report on Form 10-K under the caption "Management's Report on Internal Control over Financial Reporting" and incorporated herein by reference. Attestation Report of Independent Registered Public Accounting Firm The attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting is set forth in Item 8 of this Annual Report on Form 10-K under the caption "Report of Independent Registered Public Accounting Firm" and incorporated herein by reference. Changes in Internal Control over Financial Reporting There were no changes in the Company's internal control over financial reporting during the fourth quarter of fiscal 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information about executive officers is included in Part I, Item 1 of this Annual Report on Form 10-K. The following information will be included in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on August 1, 2007 and is incorporated herein by reference in response to this item: * Information regarding directors of the Company who are standing for reelection. * Information regarding the Company's Audit Committee and designated "audit committee financial experts". * Information on the Company's "Code of Business Conduct and Ethics" for directors, officers and employees. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Executive Compensation" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on August 1, 2007 is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information under the caption "Stock Ownership" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on August 1, 2007 is incorporated herein by reference in response to this item. Securities Authorized for Issuance under Equity Compensation Plans At February 28, 2007, the Company had four stock option plans, the "1989 Plan", the "1999 Plan", the "2000 Plan" and the "2004 Plan". Options to purchase the Company's common stock have been granted to both employees and non-employee directors. Options can no longer be granted under the 1989, 1999 and 2000 Plans. The 1989, 1999 and 2004 Plans were approved by the Company's stockholders. The 2000 Plan and outstanding employee stock options thereunder were assumed by the Company in connection with the acquisition of Vytek on April 12, 2004. Further information about these plans is set forth in Note 8 to the consolidated financial statements. Certain information about the plans is as follows: Number of Number of securities securities to be Weighted-average remaining available for issued upon exercise price future issuance under exercise of of outstanding equity compensation outstanding options, plans (excluding options, warrants warrants and securities reflected in and rights rights the first column) ----------- ---------- ------------- 2,461,000 $10.33 1,694,000 =========== ========== ============= ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information contained under the captions "Certain Relationships and Related Transactions" and "Director Independence" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on August 1, 2007 is incorporated herein by reference in response to this item. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information contained under the caption "Independent Public Accountants" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on August 1, 2007 is incorporated herein by reference in response to this item. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Report: 1. The following consolidated financial statements of CalAmp Corp. and subsidiaries are filed as part of this report under Item 8 - Financial Statements and Supplementary Data: Form 10-K Page No. -------- Management's Report on Internal Control Over Financial Reporting 36 Reports of Independent Registered Public Accounting Firm 37-39 Consolidated Balance Sheets 40 Consolidated Statements of Operations 41 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) 42 Consolidated Statements of Cash Flows 43 Notes to Consolidated Financial Statements 44 2. Financial Statements Schedules: ------------------------------ Schedule II - Valuation and Qualifying Accounts is included in the consolidated financial statements which are filed as part of this report under Item 8 - Financial Statements and Supplementary Data. All other financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3. Exhibits -------- Exhibits required to be filed as part of this report are: Exhibit Number Description ------ ----------- 2.1 Agreement and Plan of Merger and Reorganization dated December 23, 2003 between the Company and Vytek Corporation (incorporated by reference to Exhibit 2.1 of the Company's Registration Statement No. 333-112851 on Form S-4). 3.1 Amended and Restated Certificate of Incorporation reflecting the change in the Company's name to CalAmp Corp. and the increase in authorized common stock from 30 million to 40 million shares (incorporated by reference to Exhibit 3.1 of the Company's Report on Form 10-Q for the period ended August 31, 2004). 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended February 28, 2005). 4.1 Amended and Restated Rights Agreement, amended and restated as of September 5, 2001, by and between Registrant and Mellon Investor Services LLC, as Rights Agent (filed herewith). 4.2 Registration Rights agreement dated February 11, 2004, as Exhibit H to the Agreement and Plan of Merger and Reorganization dated December 23, 2003 among the Registrant, Mobile Acquisition Sub, Inc., Vytek Corporation, and James E. Ousley, as Stockholder Representative (incorporated by reference to Exhibit 2.1 of the Registrant's Registration Statement on Form S-4 filed on February 13, 2004). 10. Material Contracts: (i) Other than Compensatory Plan or Arrangements: 10.1 Building lease dated June 10, 2003 between the Company and Sunbelt Enterprises for a facility in Oxnard, California (incorporated by reference to Exhibit 10-1 filed with the Company's Report on Form 10-Q for the quarter ended May 31, 2003). 10.2 Credit Agreement dated as of May 26, 2006 between and among the Company, certain subsidiaries of the Company and Bank of Montreal as administrative agent (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on June 2, 2006). 10.3 Form of Directors and Officers Indemnity Agreement (incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended February 28, 2005). (ii) Compensatory Plans or Arrangements required to be filed as Exhibits to this Report pursuant to Item 15 (b) of this Report: 10.4 1989 Key Employee Stock Option Plan (incorporated by reference to Exhibit 4.4 of the Company's Registration Statement No. 33-31427 on Form S-8). 10.4.1 Amendment No. 1 to the 1989 Key Employee Stock Option Plan (incorporated by reference to Exhibit 4.7 of the Company's Registration Statement No. 33-36944 on Form S-8). 10.4.2 Amendment No. 2 to the 1989 Key Employee Stock Option Plan (incorporated by reference to Exhibit 4.8 of the Company's Registration Statement No. 33-72704 on Form S-8). 10.4.3 Amendment No. 3 to the 1989 Key Employee Stock Option Plan (incorporated by reference to Exhibit 4.10 of the Company's Registration Statement No. 33-60879 on Form S- 8). 10.5 The 1999 Stock Option Plan (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement No. 333-93097 on Form S-8). 10.6 CalAmp Corp. 2004 Stock Incentive Plan as amended and Restated (filed herewith). 10.7 Vytek Wireless, Inc. 2000 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-4 as filed February 13, 2004). 10.8 Employment Agreement between the Company and Patrick Hutchins dated May 31, 2002 (incorporated by reference to Exhibit 10.6 filed with Company's Annual Report on Form 10-K for the year ended February 28, 2004). 10.9 Employment Agreement between the Company and Fred Sturm dated May 31, 2002 (incorporated by reference to Exhibit 10.7 filed with Company's Annual Report on Form 10-K for the year ended February 28, 2004). 10.10 Employment Agreement between the Company and Richard Vitelle dated May 31, 2002 (incorporated by reference to Exhibit 10.9 filed with Company's Annual Report on Form 10-K for the year ended February 28, 2004). 21 Subsidiaries of the Registrant. 23 Consent of Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form is filed as part of Item 15(a)(3)Exhibits and specifically identified as such. (c) Other Financial Statement Schedules. None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 17, 2007. CALAMP CORP. By: /s/ Fred M. Sturm __________________________ Fred M. Sturm Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Richard Gold Chairman of the May 17, 2007 ______________________ Board of Directors ___________________ Richard Gold /s/ Arthur Hausman Director May 17, 2007 ______________________ ___________________ Arthur Hausman /s/ A.J. Moyer Director May 17, 2007 ______________________ ___________________ A.J. Moyer /s/ Thomas Pardun Director May 17, 2007 ______________________ ___________________ Thomas Pardun /s/ Frank Perna, Jr. Director May 17, 2007 ______________________ ___________________ Frank Perna, Jr. /s/ Fred M. Sturm President, Chief Executive May 17, 2007 ______________________ Officer and Director ___________________ Fred M. Sturm (principal executive officer) /s/ Richard Vitelle VP Finance, Chief Financial May 17, 2007 ______________________ Officer and Treasurer ___________________ Richard Vitelle (principal accounting officer) 79 EX-4 2 exhibit_4-1.txt AMENDED AND RESTATED RIGHTS AGREEMENT EXHIBIT 4.1 AMENDED AND RESTATED RIGHTS AGREEMENT amended and restated as of September 5, 2001 by and between CALIFORNIA AMPLIFIER, INC. and MELLON INVESTOR SERVICES LLC as Rights Agent TABLE OF CONTENTS
PAGE SECTION 1. CERTAIN DEFINITIONS..............................................................1 SECTION 2. APPOINTMENT OF RIGHTS AGENT......................................................5 SECTION 3. ISSUANCE OF RIGHT CERTIFICATES...................................................6 SECTION 4. FORM OF RIGHT CERTIFICATES.......................................................8 SECTION 5. COUNTERSIGNATURE AND REGISTRATION................................................8 SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES: MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES..........................9 SECTION 7. EXERCISE OF RIGHTS...............................................................9 SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES..............................11 SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK...................................12 SECTION 10. SECURITIES RECORD DATE..........................................................12 SECTION 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES ISSUABLE UPON EXERCISE OF RIGHTS OR NUMBER OF RIGHTS......................................................13 SECTION 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER OF SHARES ISSUABLE UPON EXERCISE OF RIGHTS..............................................................18 SECTION 13. CONSOLIDATION...................................................................18 SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL................................................20 SECTION 15. RIGHTS OF ACTION................................................................21 SECTION 16. AGREEMENT OF RIGHT HOLDERS......................................................21 SECTION 17. RIGHT HOLDER AND RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER..............22 SECTION 18. CONCERNING THE RIGHTS AGENT.....................................................22 SECTION 19. MERGER OR CONSOLIDATION OR CHANCE OF NAME OF RIGHTS AGENT.......................23 SECTION 20. DUTIES OF RIGHTS AGENT..........................................................23 SECTION 21. CHANGE OF RIGHTS AGENT..........................................................25
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PAGE SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES..............................................26 SECTION 23. REDEMPTION OF RIGHTS............................................................26 SECTION 24. EXCHANGE OF RIGHTS..............................................................27 SECTION 25. NOTICE OF CERTAIN EVENTS........................................................28 SECTION 26. NOTICES.........................................................................29 SECTION 27. SUPPLEMENTS AND AMENDMENTS......................................................29 SECTION 28. CERTAIN COVENANTS...............................................................30 SECTION 29. SUCCESSORS......................................................................30 SECTION 30. BENEFITS OF THIS AGREEMENT......................................................30 SECTION 31. SEVERABILITY....................................................................30 SECTION 32. GOVERNING LAW...................................................................30 SECTION 33. COUNTERPARTS....................................................................31 SECTION 34. DESCRIPTIVE HEADINGS............................................................31 SECTION 35. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.......................31
TABLE OF EXHIBITS Exhibit A -- Form of Certificate of Designations Exhibit B -- Form of Right Certificate ii TABLE OF DEFINED TERMS
TERM DEFINED SECTION PAGE 20% Ownership Date.................................1(x).......................5 20% Stockholder....................................1(y).......................5 Adjustment Shares..................................11(a)(ii).................14 Affiliate..........................................1(a).......................1 Agreement..........................................Introduction...............1 Associate..........................................1(a).......................1 Beneficial Own.....................................1(b).......................1 Beneficial Owner...................................1(b).......................1 Board of Directors.................................Recitals...................1 Business Day.......................................1(c).......................2 Close of Business..................................1(d).......................2 Closing Price......................................1(e).......................2 Common Share Equivalents...........................11(a)(iii)................14 Common Share.......................................1(F).......................3 Company (following a Section 13(a) Event)..........13(a)(iii)................19 Company............................................Introduction...............1 Current Market Price...............................1(g).......................3 Distribution Date..................................3(a).......................6 Exchange Act.......................................1(i).......................3 Exchange Ratio.....................................24(a).....................27 Exercise Price.....................................1(j).......................4 Expiration Date....................................1(k).......................4 NASDAQ.............................................1(e).......................3 Person.............................................1(m).......................4 Preferred Share Equivalents........................11(b).....................14 Preferred Share....................................1(n).......................4 Record Date........................................Recitals...................1 Redemption Date....................................1(p).......................4 Redemption Price...................................23(a).....................26 Right..............................................Recitals...................1 Rights Agent.......................................Introduction...............1 Section 11(a)(ii) Event............................11(a)(ii).................13 Section 13(a) Event................................13(a).....................18 Securities Act.....................................1(t).......................4 Subsidiary.........................................1(u).......................4 Surviving Person...................................13(a).....................18 Trading Day........................................1(v).......................4 Unavailable Adjustment Shares......................11(a)(iii)................14 Unavailable Exchange Shares........................24(c).....................28 Voting Share.......................................1(w).......................4
iii AMENDED AND RESTATED RIGHTS AGREEMENT This Amended and Restated Rights Agreement ("Agreement") made and entered into as of the 5th day of September, 1991, by and between California Amplifier, Inc., a Delaware corporation (the "Company"), and Manufacturers Hanover Trust Company, is hereby amended and restated as of September 5, 2001, by and between the Company and Mellon Investor Services LLC, a New Jersey limited liability company (the "Rights Agent"), the successor-in-interest to Manufacturers Hanover Trust Company. WHEREAS, the Board of Directors of the Company (the "Board of Directors") has authorized and declared a dividend of one preferred stock purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company, which dividend was payable on September 16, 1991 (the "Record Date") to the holders of record of Common Shares as of the Close of Business (as hereinafter defined) on such date; WHEREAS, the Board of Directors of the Company has further authorized and directed the issuance of one (subject to adjustment of such number as provided in this Agreement) Right for (A) each Common Share that shall be issued by the Company at any time after the Record Date and prior to the earliest of the date of the first Section 11(a)(ii) Event, the date of the first Section 13(a) Event, the Redemption Date or the Expiration Date (as such terms are hereinafter defined), and (B) each Common Share that shall be issued by the Company at any time on or after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date pursuant to the exercise of conversion rights, exchange rights, rights (other than Rights), warrants or options that shall have been issued or granted prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event, unless the Board of Directors shall provide otherwise at the time of the issuance or grant of such conversion rights, exchange rights, rights (other than Rights), warrants or options; and WHEREAS, in connection with the matters referred to herein, the Company desires to appoint the Rights Agent to act on behalf of the Company and the Rights Agent is willing so to act; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements set forth herein, the parties hereto hereby agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof. (b) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "Beneficially Own": (i) any securities that such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly, for purposes of Section 13(d) of the 1 Exchange Act and Rule 13d-3 promulgated under the Exchange Act, in each case as in effect on the date hereof; (ii) any securities that such Person or any of such Person's Affiliates or Associates has the right to acquire (whether such right is exercisable immediately, or only after the passage of time, compliance with regulatory requirements, the fulfillment of a condition, or otherwise) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise, provided that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, securities tendered pursuant to a tender offer or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; (iii) any securities that such Person or any of such Person's Affiliates or Associates has the right to vote, alone or in concert with others, pursuant to any agreement, arrangement or understanding, provided that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any security if the agreement, arrangement or understanding to vote such security (A) arises solely from a revocable proxy given to such Person or any of such Person's Affiliates or Associates in response to a public proxy solicitation made pursuant to and in accordance with the applicable rules and regulations of the Exchange Act, and (B) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); (iv) any securities that are Beneficially Owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than voting pursuant to a revocable proxy as described in the proviso to Section l(b)(iii) hereof) or disposing of any securities of the Company; and (v) on any day on or after the Distribution Date, all Rights that prior to such date were represented by certificates for Common Shares that such Person Beneficially Owns on such day. Notwithstanding anything to the contrary in this Section 1(b), a Person engaged in business as an underwriter of securities shall not be deemed to be the Beneficial Owner of, or to Beneficially Own, any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. (c) "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the States of New York or California are authorized or obligated by law or executive order to close. (d) "Close of Business" on any given date shall mean 5:00 o'clock p.m., California time, on such date; provided, however, that if such date is not a Business Day, it shall mean 5:00 o'clock p.m., California time, on the next succeeding Business Day. (e) "Closing Price" of a stock or other security on any day shall be the last sale price, regular way, per share of such stock or unit of such other security on such day or, in 2 case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such stock or other security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such stock or other security is listed or admitted to trading or, if such stock or other security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use or, if on any such date such stock or other security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker that makes a market in such stock or other security and that is selected by the Board of Directors of the Company. (f) "Common Share" shall mean one share of the Common Stock, par value $.01 per share, of the Company, unless used with reference to a Person other than the Company, in which case it shall mean one share of the class of common stock of such Person having the greatest voting power per share or, if such Person is a Subsidiary of another Person, one Common Share of the Person that ultimately controls such Person. (g) "Current Market Price" per share of a stock or unit of any other security on any date shall mean the average of the daily Closing Prices of such stock or other security for the 30 consecutive Trading Days through and including the Trading Day immediately preceding the date in question; provided, however, that if any event shall have caused the Closing Price on any Trading Day during such 30 day period not to be fully comparable with the Closing Price on the date in question (or, if no Closing Price is available on the date in question, on the Trading Day immediately preceding the date in question), then each such noncomparable Closing Price so used shall be appropriately adjusted by the Board of Directors in order to make the Closing Price on each Trading Day during the period used for the determination of the Current Market Price fully comparable with the Closing Price on such date in question (or, if applicable, the immediately preceding Trading Day). "Current Market Price" per share of any stock or unit of such other security that is not publicly held or so listed or traded, and "Current Market Price" of any other property, shall mean the fair value per share of such stock or unit of such other security, or the fair value of such other property, respectively, as determined in good faith by the Board of Directors of the Company based upon such appraisals or valuation reports of such independent experts as the Board of Directors shall in good faith determine appropriate, which determination shall be described in a statement filed by the Company with the Rights Agent (who may assume that such determination was made in good faith). (h) "Distribution Date" shall have the meaning ascribed to it in Section 3 hereof. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 3 (j) "Exercise Price" shall have the meaning ascribed to it in Section 7(c) hereof. (k) "Expiration Date" shall mean September 5, 2011. (m) "Person" shall mean any individual, firm, partnership, corporation, limited liability company, joint venture, organization, trust, association, group (as such term is used in Rule 13d-5 promulgated under the Exchange Act as in effect on the date hereof) or other entity, and shall include any successor (by merger or otherwise) of such entity. (n) "Preferred Share" shall mean one share of the Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share, of the Company, which shall have the rights and preferences set forth in the form of Certificate of Designations attached hereto as Exhibit A. (o) "Record Date" shall have the meaning ascribed to it in the recitals hereto. (p) "Redemption Date" shall mean the date of the action that a majority of the Board of Directors direct the Company to redeem the Rights pursuant to Section 23(a) hereof or exchange the Rights pursuant to Section 24(a) hereof. (q) "Redemption Price" shall have the meaning ascribed to it in Section 23(a) hereof. (r) "Section 11(a)(ii) Event" shall have the meaning ascribed to it in Section 11(a)(ii) hereof. (s) "Section 13(a) Event" shall have the meaning ascribed to it in Section 13(a) hereof. (t) "Securities Act" shall mean the Securities Act of 1933, as amended. (u) "Subsidiary" of any Person shall mean any corporation or other Person of which equity securities or equity interests representing a majority of the voting power are owned, directly or indirectly, or which is effectively controlled, by such Person. (v) "Trading Day" shall mean, as to any stock or other security, a day on which the principal national securities exchange on which such stock or other security is listed or admitted to trading is open for the transaction of business or, if such stock or other security is not listed or admitted to trading on any national securities exchange, a Business Day. (w) "Voting Share" shall mean (i) a Common Share of the Company and (ii) any other share of capital stock of the Company entitled to vote generally in the election of directors or entitled to vote together with the Common Shares in respect of any merger, consolidation, sale of all or substantially all of the Company's assets, liquidation, dissolution or winding up. References in this Agreement to a percentage or portion of the outstanding Voting Shares shall be deemed a reference to the percentage or portion of the total votes entitled to be cast by the holders of the outstanding Voting Shares. 4 (x) "20% Ownership Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or a 20% Stockholder containing the facts by virtue of which a Person has become a 20% Stockholder. (y) "20% Stockholder" shall mean any Person that, together with all Affiliates and Associates of such Person, hereafter acquires Beneficial Ownership of, in the aggregate, a number of Voting Shares of the Company equal to 1% or more of the Voting Shares then outstanding and thereupon or thereafter Beneficially Owns 20% or more of the Voting Shares of the Company then outstanding; provided, however, that the term "20% Stockholder" shall not include: (i) the Company, any wholly owned Subsidiary of the Company, any employee benefit plan of the Company or of a Subsidiary of the Company, or any Person holding Voting Shares for or pursuant to the terms of any such employee benefit plan; or (ii) any Person if such Person would not otherwise be a 20% Stockholder but for a reduction in the number of outstanding Voting Shares resulting from a stock repurchase program or other similar plan of the Company or from a self tender offer of the Company, which plan or tender offer commenced on or after the date hereof, provided, however, that the term "20% Stockholder" shall include such Person from and after the first date upon which (A) such Person, since the date of the commencement of such plan or tender offer, shall have acquired Beneficial Ownership of, in the aggregate, a number of Voting Shares of the Company equal to 1% or more of the Voting Shares of the Company then outstanding and (B) such Person, together with all Affiliates and Associates of such Person, shall Beneficially Own 20% or more of the Voting Shares of the Company then outstanding. In calculating the percentage of the outstanding Voting Shares that are Beneficially Owned by a Person for purposes of this subsection (y), Voting Shares that are Beneficially Owned by such Person shall be deemed outstanding, and Voting Shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, rights (other than Rights), warrants or options shall not be deemed outstanding. Notwithstanding the foregoing, at any time prior to the occurrence of a Section 11(a)(ii) Event, the Board of Directors of the Company may determine that a Person who may otherwise be a 20% Stockholder pursuant to the foregoing provisions of this definition, shall not be so deemed for purposes of this Agreement, and no 20% Ownership Date shall be deemed to have occurred, under the following circumstances: (i) such Person has become such inadvertently, or (ii) such Person has become such solely as the result of an agreement arrangement or understanding among two or more stockholders of the Company, none of whom is individually the Beneficial owner of 20% or more of the Company's stock other than by reason of subparagraph D of the definition of the term Beneficial Owner herein; and (iii) such Person ceases to be a 20% Stockholder or enters into such agreement, arrangement, or understanding as the Board of Directors of the Company may approve or the Board of Directors is otherwise satisfied that such determination is in the best interest of the Company and its stockholders. Any determination made by the Board of Directors as to whether any Person is or is not a 20% Stockholder shall be conclusive and binding upon all holders of Rights. Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. The Rights Agent shall 5 have no duty to supervise, and in no event shall be liable for, the acts or omissions of any such co-rights Agent. Section 3. ISSUANCE OF RIGHT CERTIFICATES. (a) "Distribution Date" shall mean the date, after the date hereof, that is the earliest of (i) the tenth Business Day (or such later day as shall be designated by a majority of the Board of Directors following the date of the commencement of, or the first public announcement of the intent of any Person (other than the Company, any wholly owned Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person holding Common Shares for or pursuant to the terms of any such employee benefit plan) to commence, a tender offer or exchange offer, the consummation of which would cause any Person to become a 20% Stockholder, (ii) the date of the first Section 11(a)(ii) Event or (iii) the date of the first Section 13(a) Event. (b) Until the Distribution Date, (i) the Rights shall be represented by certificates for Common Shares (all of which certificates for Common Shares shall be deemed to be Right Certificates) and not by separate Right Certificates, (ii) the record holder of the Common Shares represented by each of such certificates shall be the record holder of the Rights represented thereby and (iii) the Rights shall be transferable only in connection with the transfer of Common Shares. Until the earliest of the Distribution Date, the Redemption Date or the Expiration Date, the surrender for transfer of such certificates for Common Shares shall also constitute the surrender for transfer of the Rights represented thereby. (c) As soon as practicable after the Distribution Date, the Company shall promptly notify the Rights Agent of the occurrence thereof and, if the Rights Agent is not then also the transfer agent and registrar for the Common Stock, provide the Rights Agent with the names and addresses of all record holders of Common Stock, and after notification by the Company, the Rights Agent shall send by first class, postage prepaid mail to each record holder of Common Shares, as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, provided that the Company has provided the Rights Agent with the list of such record holders, a Right Certificate substantially in the form of Exhibit B hereto representing one Right for each Common Share so held. Until such notice is received by the Rights Agent, the Rights Agent may presume conclusively for all purposes that the Distribution Date has not occurred. From and after the Distribution Date, the Rights shall be represented solely by such Right Certificates and may only be transferred by the transfer of such Right Certificates, and the holders of such Right Certificates, as listed in the records of the Company or any transfer agent or registrar for such Rights, shall be the record holders of such Rights. (d) As soon as practicable after the Record Date, the Company shall send a copy of a Summary of the Rights by first class, postage prepaid mail to each record holder of Common Shares as of the Close of Business on the Record Date at the address of such holder shown on the records of the Company. (e) Certificates for Common Shares issued at any time after the Record Date and prior to the earliest of the Distribution Date, the Redemption Date or the Expiration Date, 6 shall have (to the extent feasible) impressed on, printed on, written on or otherwise affixed to them substantially the following legend: This certificate also represents Rights that entitle the holder hereof to certain rights as set forth in an Amended and Restated Rights Agreement dated as of September 5, 1991, and amended and restated as of September 5, 2001 by and between the Corporation and Mellon Investor Services LLC (the "Rights Agreement"), the terms and conditions of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances specified in the Rights Agreement, such Rights will be represented by separate certificates and will no longer be represented by this certificate. Under certain circumstances specified in the Rights Agreement, Rights beneficially owned by certain persons may become null and void. The Corporation will mail to the record holder of this certificate a copy of the Rights Agreement without charge promptly following receipt of a written request therefor. (f) Certificates for Common Shares issued at any time on or after the Distribution Date and prior to the earlier of the Redemption Date or the Expiration Date shall have (to the extent feasible) impressed on, printed on, written on or otherwise affixed to them substantially the following legend: This certificate does not represent any Right issued pursuant to the terms of an Amended and Restated Rights Agreement dated as of September 5, 1991, and amended and restated as of September 5, 2001 by and between the Corporation and Mellon Investor Services LLC as Rights Agent. (g) In the event that at any time on or after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date, the Company shall issue any Common Shares pursuant to the exercise of conversion rights, exchange rights, rights (other than Rights), warrants or options that shall have been issued or granted prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event, then, unless the Board of Directors of the Company shall have provided otherwise at the time of the issuance or grant of such conversion rights, exchange rights, rights (other than Rights), warrants or options, the Rights Agent shall, upon notification by the Company, and as soon as practicable after the date of such event (and receipt of written notification thereof), send by first class, postage prepaid mail to the record holder of such Common Shares, at the address of such holder as shown on the records of the Company, a Right Certificate substantially in the form of Exhibit B hereto representing one Right for each Common Share so issued. (h) Notwithstanding the foregoing provisions of this Section 3, the Rights Agent shall not send any Right Certificate to any Person if the Company has notified the Rights Agent that such Person is a 20% Stockholder or one of its Affiliates or Associates or that the Rights held by such Person are Beneficially Owned by a 20% Stockholder or to any of its Affiliates or Associates. Any determination made by a majority of the Board of Directors as to 7 whether any Common Shares are or were Beneficially Owned at any time by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder shall be conclusive and binding upon all holders of Rights. Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates and the form of assignment, including certificate, and the form of election to purchase, including certificate, printed on the reverse thereof, when, as and if issued, shall be substantially the same as Exhibit B hereto, and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate (but which do not affect the rights, duties or responsibilities of the Rights Agent) and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange upon which the Rights or the securities of the Company issuable upon exercise of the Rights may from time to time be listed, or to conform to usage. Subject to Section 22 hereof, Right Certificates, whenever issued, that are issued in respect of Common Shares that were issued and outstanding as of the Close of Business on the Distribution Date, shall be dated as of the Distribution Date. Section 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and may have affixed thereto the Company's seal or a facsimile thereof attested by its Secretary or any Assistant Secretary, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates may nevertheless be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company. Any Right Certificate may be signed on behalf of the Company by any Person who at the actual date of such execution shall be a proper officer of the Company to sign such Right Certificate, even though such person was not such an officer at the date of the execution of this Agreement. (b) On the Distribution Date, if the Rights Agent is not the sole transfer agent for the Company's Common Shares, the Company shall furnish the Rights Agent with the name, address and number of Rights held by each holder of Rights. Following the Distribution Date and receipt by the Rights Agent of notice to that effect and all other relevant information, the Rights Agent shall keep or cause to be kept at its offices designated for such purposes books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of Right Certificates, the number of Rights represented on its face by each Right Certificate and the date of each Right Certificate. 8 Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES: MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the provisions of Sections 6(c), 7(d) and 14 hereof, at any time after the Close of Business on the Distribution Date, and so long as the Rights represented thereby remain outstanding, any one or more Right Certificates may be transferred, split up, combined or exchanged for one or more Right Certificates representing the same aggregate number of Rights as the Right Certificates surrendered. Any registered holder desiring to transfer, split up, combine or exchange one or more Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose with the form of assignment, including certificate, on the reverse side thereof properly completed and duly executed, or with a written instrument of transfer in form satisfactory to the Rights Agent enclosed with such Rights Certificates, with signature guaranteed. Thereupon, the Rights Agent shall countersign and deliver to the Person entitled thereto one or more Right Certificates, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. The Rights Agent shall have no duty or obligation under this Section 6 or any other similar provision of this Agreement unless and until it is satisfied that all such taxes and/or governmental charges have been paid in full. (b) Upon receipt by the Company and the Rights Agent of evidence satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security satisfactory to them and, at the Company's or the Rights Agent's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of such Right Certificate if mutilated, the Company shall issue and deliver to the Rights Agent for delivery to the record holder of such Right Certificate a new Right Certificate of like tenor in lieu of such lost, stolen, destroyed or mutilated Right Certificate. (c) If with respect to any Rights Certificate surrendered to the Rights Agent for transfer, the certificate attached to the form of assignment has not been completed, the Rights Agent shall not take any further action with respect to such requested transfer until it has received instructions with respect thereto from the Company. In addition, the Rights Agent shall not countersign and deliver a Right Certificate to any Person if such Rights Certificate indicates such Person is a 20% Stockholder, or if the Company has notified the Rights Agent, or the Rights Agent otherwise has been informed, that such Right Certificate represents, or would represent when held by such Person, Rights that had become or would become null and void pursuant to Section 7(d) hereof. Section 7. EXERCISE OF RIGHTS. (a) Until the Distribution Date, no Right may be exercised. (b) Subject to Section 7(d) and (g) hereof and the other provisions of this Agreement, at any time after the Close of Business on the Distribution Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date, the registered 9 holder of any Right Certificate may exercise the Rights represented thereby in whole or in part upon surrender of such Right Certificate, with the form of election to purchase, including certificate, on the reverse side thereof properly completed and duly executed, with signature guaranteed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the Exercise Price for each Right exercised. Upon the exercise of an exercisable Right and payment of the Exercise Price in accordance with the provisions of this Agreement, the holder of such Right shall be entitled to receive, subject to adjustment as provided herein, one one-hundredth of a Preferred Share (or, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares and/or other securities). (c) The Exercise Price for the exercise of each Right shall initially be fifty dollars ($50.00) and shall be payable in lawful money of the United States of America in accordance with Section 7(f) hereof. The Exercise Price and the number of Preferred Shares (or, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares, other securities, cash and/or other property) to be acquired upon exercise of a Right shall be subject to adjustment from time to time as provided in Sections 7(e), 11 and 13 hereof and the other provisions of this Agreement. (d) Notwithstanding anything in this Agreement to the contrary, from and after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event any Rights that are or were Beneficially Owned by a 20% Stockholder or any Affiliate or Associate of a 20% Stockholder at any time on or after the Distribution Date shall be null and void, and for all purposes of this Agreement such Rights shall thereafter be deemed not to be outstanding, and any holder of such Rights (whether or not such holder is a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder) shall thereafter have no right to exercise or exchange such Rights. (e) Prior to the Distribution Date, if a majority of the Board of Directors shall have determined that such action adequately protects the interests of the holders of Rights, the Company may, in its discretion, substitute for all or any portion of the Preferred Shares that would otherwise be issuable (after the Close of Business on the Distribution Date) upon the exercise of each Right and payment of the Exercise Price, (i) cash, (ii) other equity securities of the Company, (iii) debt securities of the Company, (iv) other property or (v) any combination of the foregoing, in each case having an aggregate Current Market Price equal to the aggregate Current Market Price of the Preferred Shares for which substitution is made. Subject to Section 7(d) hereof, in the event that the Company takes any action pursuant to this Section 7(e), such action shall apply uniformly to all outstanding Rights. (f) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase, including certificate, properly completed and duly executed, with signature guaranteed, accompanied by payment of the Exercise Price for each Right to be exercised and an amount equal to any applicable tax or governmental charge required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check or cashier's check payable to the order of the Company, the Rights Agent shall thereupon promptly (i) requisition from the transfer agent of the Preferred Shares (or, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares, other securities, cash and/or other property), certificates for the number of Preferred Shares (or such other securities) to be 10 purchased, and the Company hereby irrevocably authorizes such transfer agent to comply with all such requests, and/or, as provided in Section 14 hereof, requisition from the depositary agent described therein depositary receipts representing such number of one-hundredths of a Preferred Share (or such other securities) as are to be purchased (in which case certificates for the Preferred Shares (or such other securities) represented by such receipts shall be deposited by the transfer agent with such depositary agent) and the Company hereby directs such depositary agent to comply with such request, (ii) when necessary to comply with this Agreement, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional Preferred Shares (or such other securities) in accordance with Section 14 hereof, (iii) after receipt of such certificates, depositary receipts or cash, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when necessary to comply with this Agreement, after receipt thereof, deliver such cash to or upon the order of the registered holder of such Right Certificate. (g) Notwithstanding the foregoing provisions of this Section 7, the exercisability of the Rights shall be suspended for such period as shall reasonably be necessary for the Company to register under the Securities Act and any applicable securities law of any jurisdiction the Preferred Shares to be issued pursuant to the exercise of the Rights; provided, however, that nothing contained in this Section 7 shall relieve the Company of its obligations under Section 9(c) hereof. Upon any such suspension, the Company shall notify the Rights Agent. (h) In case the registered holder of any Right Certificate shall exercise less than all of the Rights represented thereby, a new Right Certificate representing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to such holder's duly authorized assigns, subject to the provisions of Section 14 hereof. (i) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action whatsoever with respect to a registered holder of Rights upon the occurrence of any purported exercise as set forth in this Section 7 unless the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise shall have been duly completed and signed by the registered holder thereof an the Company and the Rights Agent shall have been provided with such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company or the Rights Agent shall request. (j) Neither the Company nor the Rights Agent shall have any liability to any holder of Rights or any other Person as a result of the Company's failure to make any determination under this Section 7 or any other section with respect to a 20% stockholder or an Affiliate or Associate of a 20% stockholder or transferees hereunder. Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, 11 and no Right Certificates shall be issued in lieu thereof except as expressly permitted by this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company or shall, at the written request of the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) Subject to Section 7(e) and 9(f) hereof, the Company shall cause to be reserved and kept available out of its authorized and unissued equity securities (or out of its authorized and issued equity securities held in its treasury), the number of such equity securities that will from time to time be sufficient to permit the exercise in full of all outstanding Rights. (b) In the event that any securities issuable upon exercise of the Rights are listed on any national securities exchange, the Company shall use its best efforts, from and after such time as the Rights become exercisable, to cause all such securities issued or reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) If necessary to permit the issuance of securities upon exercise of the Rights, the Company shall use its best efforts, from and after the Distribution Date, to register such securities under the Securities Act and any applicable securities laws and to keep such registration effective until the earlier of the Redemption Date or the Expiration Date. (d) The Company shall take all such action as may be necessary to ensure that all securities delivered upon exercise of the Rights shall, at the time of delivery of the certificates for such securities (subject to payment of the Exercise Price), be duly and validly authorized and issued and fully paid and nonassessable securities. (e) The Company shall pay when due and payable any and all taxes and charges that may be payable in respect of the issuance or delivery of the Right Certificates or of any securities upon the exercise of Rights. The Company shall not, however, be required to pay any tax or charge that may be payable in respect of any transfer or delivery of a Right Certificate to a Person other than, or the issuance or delivery of a certificate for securities in respect of a name other than that of, the registered holder of the Right Certificate representing Rights surrendered for exercise, or to issue or deliver any certificate for securities upon the exercise of any Right until any such tax or charge shall have been paid (any such tax or charge being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax or charge is due. (f) With respect to the Common Shares and/or other securities issuable pursuant to Section 11(a)(ii) and (iii) hereof, the foregoing covenants shall be applicable only upon and following the occurrence of a Section 11(a)(ii) Event. Section 10. SECURITIES RECORD DATE. Each person in whose name any certificate for securities of the Company is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the securities represented thereby on, and such certificate 12 shall be dated, the date upon which the Right Certificate representing such Rights was duly surrendered and payment of the Exercise Price (and any applicable taxes or charges) was made; provided, however, that if the date of such surrender and payment is a date upon which the securities transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such securities on, and such certificate shall be dated, the next succeeding Business Day on which the securities transfer books of the Company are open. Section 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES ISSUABLE UPON EXERCISE OF RIGHTS OR NUMBER OF RIGHTS. The Exercise Price, the number and kind of securities that may be purchased upon exercise of a Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event that the Company shall at any time after the Close of Business on the Record Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date (A) declare or pay any dividend on the Preferred Shares payable in Preferred Shares or Voting Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue Preferred Shares or Voting Shares in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then, and upon each such event, the number and kind of Preferred Shares or other securities issuable upon the exercise of a Right on the date of such event shall be proportionately adjusted so that the holder of any Right exercised on or after such date shall be entitled to receive, upon the exercise thereof and payment of the Exercise Price, the aggregate number and kind of Preferred Shares or other securities or other property, as the case may be, that, if such Right had been exercised immediately prior to such date and at a time when such Right was exercisable and the transfer books of the Company were open, such holder would have owned upon such exercise and would have been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs that would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section l1(a)(ii) hereof. (ii) In the event (a "Section 11(a)(ii) Event") that a 20% Ownership Date shall have occurred and neither the Redemption Date nor the Expiration Date shall have occurred prior to the tenth Business Day following such 20% Ownership Date, then, and upon each such event, proper provision shall be made so that except as provided in Section 7(d) hereof, each holder of a Right shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Agreement and payment of the then current Exercise Price, in lieu of the securities or other property otherwise purchasable upon such exercise, such number of Common Shares of the Company as shall equal the result obtained by multiplying the then current Exercise Price by the then number of one-hundredths of a Preferred Share for which a Right was exercisable (or, if the Distribution Date shall not have occurred prior to the date of such Section 11(a)(ii) Event, the number of one-hundredths of a Preferred Share for which a Right would have been exercisable if the Distribution Date had occurred on the Business Day immediately preceding the date of such Section 11(a)(ii) Event) immediately prior to such Section 11(a)(ii) Event, and dividing that product by 50% of the Current Market Price (determined pursuant to Section 11(d) hereof) of a Common Share on the date of 13 occurrence of the relevant Section 11(a)(ii) Event (such number of shares being hereinafter referred to as the "Adjustment Shares"). Successive adjustments shall be made pursuant to this paragraph each time a Section l1(a)(ii) Event occurs. (iii) In the event that on the date of a Section 11(a)(ii) Event the aggregate number of Common Shares that are authorized by the Company's Certificate of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is less than the aggregate number of Adjustment Shares thereafter issuable upon the exercise in full of the Rights in accordance with Section 11(a)(ii) hereof (the excess of such number of Adjustment Shares over and above such number of Common Shares being hereinafter referred to as the "Unavailable Adjustment Shares"), then, and upon each such event, the Company shall substitute for the pro rata portion of the Unavailable Adjustment Shares that would otherwise be issuable thereafter upon the exercise of each Right and payment of the Exercise Price, (A) cash, (B) other equity securities of the Company (including, without limitation, shares of preferred stock of the Company or units of such shares having the same Current Market Price as one Common Share (a "Common Share Equivalent")), (C) debt securities of the Company, (D) other property or (E) any combination of the foregoing, in each case having an aggregate Current Market Price equal to the aggregate Current Market Price of the Unavailable Adjustment Shares for which substitution is made. Subject to Section 7(d) hereof, in the event that the Company takes any action pursuant to this Section 11(a)(iii), such action shall apply uniformly to all outstanding Rights. (b) In the event that the Company shall, at any time after the Close of Business on the Record Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date, fix a record date prior to the earlier of the Redemption Date or the Expiration Date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them initially to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("Preferred Share Equivalents")) or securities convertible into Preferred Shares or Preferred Share Equivalents, at a price per Preferred Share or Preferred Share Equivalent (or having a conversion price per share, if a security convertible into Preferred Shares or Preferred Share Equivalents) less than the Current Market Price per Preferred Share on such record date, then, and upon each such event, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be equal to the sum of the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares that the aggregate offering price of the total number of Preferred Shares and/or Preferred Share Equivalents to be so offered (and/or the aggregate initial conversion price of the convertible securities to be so offered) would purchase at such Current Market Price, and the denominator of which shall be equal to the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or Preferred Share Equivalents to be offered for subscription or purchase (or into which the convertible securities to be so offered are initially convertible); provided, however, that if such rights, options or warrants are not exercisable immediately upon issuance but become exercisable only upon the occurrence of a specified event or the passage of a specified period of time, then the adjustment to the Exercise Price shall be made and become effective only upon the occurrence of such event or such passage of time, and such adjustment shall be made as if the record date for the issuance of such rights, options or warrants had been the business day immediately preceding 14 the date upon which such rights, options or warrants became exercisable. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment to the Exercise Price shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Exercise Price shall be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed. (c) In the event that the Company shall, at any time after the Close of Business on the Record Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date, fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of securities or assets (other than a distribution of securities for which an adjustment is required under Section 11(a)(i) or (b) hereof or a regular quarterly cash dividend), then the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be equal to the excess of the Current Market Price per Preferred Share on such record date over and above the fair market value of the portion of the securities or assets to be so distributed with respect to one Preferred Share, and the denominator of which shall be equal to such Current Market Price per Preferred Share. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such a distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed. (d) For the purpose of any computation under this Section 11, if the Preferred Shares are not publicly held or traded, the "Current Market Price" per Preferred Share shall be conclusively deemed to be the Current Market Price per Common Share multiplied by 100. (e) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price; provided, however, that any adjustments that by reason of this Section 11(e) are not required to be made shall be cumulated and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one-thousandth of a Common Share or other share or one-millionth of a Preferred Share, as the case may be. (f) If, as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any securities of the Company other than Preferred Shares, the number of such other securities so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Preferred Shares contained in this Section 11, and the other provisions of this Agreement with respect to Preferred Shares shall apply on like terms to any such other securities. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Exercise Price hereunder shall represent the right to purchase, at the adjusted Exercise Price, the number of one-hundredths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. 15 (h) Unless the Company shall have exercised its election as provided in Section 11(i) below, upon each adjustment of the Exercise Price as a result of the calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately prior to the making of such adjustment shall thereafter represent the right to purchase, at the adjusted Exercise Price, that number of one-hundredths of a Preferred Share (calculated to the nearest one-millionth of a Preferred Share) obtained by multiplying (i) the number of one-hundredths of a Preferred Share purchasable upon the exercise of one Right immediately prior to such adjustment of the Exercise Price by (ii) the Exercise Price in effect immediately prior to such adjustment, and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment. (i) The Company may elect, on or after the date of any adjustment of the Exercise Price, to adjust the number of Rights instead of making any adjustment in the number of Preferred Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one-thousandth of a Right) obtained by dividing the Exercise Price in effect immediately prior to the adjustment of the Exercise Price by the Exercise Price in effect immediately after such adjustment of the Exercise Price. The Company shall notify the Rights Agent in writing and make a public announcement of its election to adjust the number of Rights pursuant to this Section 11(i), indicating the record date for the adjustment and, if known at the time, the amount of the adjustment to be made. Such record date may be the date on which the Exercise Price is adjusted or any day thereafter, but, if separate Right Certificates have been issued, it shall be at least 10 days after the date of such public announcement. If separate Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates representing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment or, at the option of the Company, cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of such adjustment, and upon surrender thereof if required by the Company, new Right Certificates representing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Exercise Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Exercise Price or the number of one-hundredths of a Preferred Share issuable upon the exercise of one Right, the Right Certificates theretofore and thereafter issued may continue to express the Exercise Price per one one-hundredth of a Preferred Share and the number of Preferred Shares issuable upon the exercise of one Right that were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Exercise Price below one one-hundredth of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action that may, in the advice or opinion of its counsel, be necessary in order that the Company may validly and 16 legally issue fully paid and nonassessable one one-hundredths of a Preferred Share at such adjusted Exercise Price. (l) In any case in which this Section 11 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer (and shall promptly notify the Rights Agent of any such election), until the occurrence of such event, the issuance to the holder of any Right exercised after such record date of the number of one-hundredths of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one-hundredths of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument representing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such further adjustments in the number of one-hundredths of a Preferred Share that may be purchased upon exercise of one Right, and such further adjustments in the Exercise Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at less than the Current Market Price thereof, (iii) issuance wholly for cash of Preferred Shares or securities that by their terms are convertible into or exchangeable for Preferred Shares, (iv) dividends on Preferred Shares payable in Preferred Shares or (v) issuance of rights, options or warrants referred to Section 11(b) hereof, hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) In the event that the Company shall, at any time after the Close of Business on the Record Date and prior to the Close of Business on the earliest of the date of the first Section 11(a)(ii) Event, the date of the first Section 13(a) Event, the Redemption Date or the Expiration Date, (i) pay any dividend on the Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares, (iii) combine the outstanding Common Shares into a smaller number of Common Shares or (iv) issue Common Shares in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then, and upon each such event, the Exercise Price to be in effect after such event shall be determined by multiplying the Exercise Price in effect immediately prior to such event by a fraction, the numerator of which shall be equal to the number of Common Shares outstanding immediately prior to such event and the denominator of which shall be equal to the number of Common Shares outstanding immediately after such event. Successive adjustments shall be made pursuant to this Section 11(n) each time such a dividend is paid or such a subdivision, combination or reclassification is effected. If an event occurs that would require an adjustment under both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(n) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. 17 Section 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER OF SHARES ISSUABLE UPON EXERCISE OF Rights. Whenever an adjustment is made as provided in Section 11 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment and a brief, reasonably detailed, statement of the facts, computations and methodology, giving rise to such adjustment, (b) file with the Rights Agent and with each transfer agent for the securities issuable upon exercise of the Rights a copy of such certificate and (c) mail a brief summary thereof to each holder of Rights in accordance with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the Company to make such certification or to give such notice shall not affect the validity or the force and effect of such adjustment. Any adjustment to be made pursuant to Sections 11 or 13 hereof shall be effective as of the date of the event giving rise to such adjustment. The Rights Agent shall be fully authorized to rely on such certificate and any adjustment contained therein and shall be deemed not to have knowledge of any such adjustment until receipt of such certificate. Section 13. CONSOLIDATION, MERGER, OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event (a "Section 13(a) Event") that, at any time on or after the 20% Ownership Date and prior to the earlier of the Redemption Date or the Expiration Date, (1) the Company shall, directly or indirectly, consolidate with or merge with and into any other Person and the Company shall not be the continuing or surviving corporation in such consolidation or merger, (2) any Person shall, directly or indirectly, consolidate with or merge with and into the Company and the Company shall be the continuing or surviving corporation in such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any Person or cash or any other property, or (3) the Company and/or any one or more of its Subsidiaries shall, directly or indirectly, sell or otherwise transfer, in one or more transactions (other than transactions in the ordinary course of business), assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons other than the Company or one or more of its wholly owned Subsidiaries (such Persons, together with the Persons described in clauses (1) and (2) above shall be collectively referred to as the "Surviving Person"), then, and in each such case, proper provision shall be made so that: (i) except as provided in Section 7(d) hereof, each holder of a Right shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Agreement and payment of the then current Exercise Price, in lieu of the securities or other property otherwise purchasable upon such exercise, such number of validly authorized and issued, fully paid and nonassessable Common Shares of the Surviving Person as shall be equal to a fraction, the numerator of which is the product of the then current Exercise Price multiplied by the number of one-hundredths of a Preferred Share purchasable upon the exercise of one Right immediately prior to the first Section 13(a) Event (or, if the Distribution Date shall not have occurred prior to the date of such Section 13(a) Event, the number of one-hundredths of a Preferred Share that would have been so purchasable if the Distribution Date had occurred on the Business Day immediately preceding the date of such Section 13(a) Event, or, if a Section 11(a)(ii) Event has occurred prior to such Section 13(a) Event, the product of the number of one-hundredths of a Preferred Share purchasable upon the exercise of a Right (or, if the Distribution Date shall not have occurred prior to the date of such Section 11(a)(ii) Event, the number of one-hundredths of a Preferred Share that would have been so purchasable if the 18 Distribution Date had occurred on the Business Day immediately preceding the date of such Section 11(a)(ii) Event) immediately prior to such Section 11(a)(ii) Event, multiplied by the Exercise Price in effect immediately prior to such Section 11(a)(ii) Event), and the denominator of which is 50% of the Current Market Price per Common Share of the Surviving Person on the date of consummation of such Section 13(a) Event; (ii) the Surviving Person shall thereafter be liable for and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term, "Company," shall thereafter be deemed to refer to the Surviving Person; and (iv) the Surviving Person shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to ensure that the provisions hereof shall thereafter be applicable to its Common Shares thereafter deliverable upon the exercise of Rights. (b) Notwithstanding the foregoing, if the Section 1.3(a) Event is the sale or transfer in one or more transactions of assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole), but less than 100% thereof, then each Person acquiring all or a portion thereof shall assume the obligations of the Company as to a fraction of each of the Rights equal to the fraction of the assets of the Company and its Subsidiaries (taken as a whole) acquired by such Person, and the obligations of the Company as to the remaining fraction of each of the Rights shall continue to be the obligations of the Company. (c) The Company shall not consummate a Section 13(a) Event unless prior thereto the Company and the Surviving Person shall have executed and delivered to the Rights Agent a supplemental agreement confirming that such Surviving Person shall, upon consummation of such Section 13(a) Event, assume this Agreement in accordance with Section 13 hereof, that all rights of first refusal or preemptive rights in respect of the issuance of Common Shares of such Surviving Person upon exercise of outstanding Rights have been waived and that such Section 13(a) Event shall not result in a default by such Surviving Person under this Agreement, and further providing that, as soon as practicable after the date of consummation of such Section 13(a) Event, such Surviving Person shall: (i) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing, use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date, and similarly comply with all applicable state securities laws; (ii) use its best efforts to list (or continue the listing of) the Rights and the Common Shares of the Surviving Person purchasable upon exercise of the Rights on a 19 national securities exchange, or use its best efforts to cause the Rights and such Common Shares to meet the eligibility requirements for quotation on NASDAQ; and (iii) deliver to holders of the Rights historical financial statements for such Surviving Person that comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act. (d) In the event that at any time after the occurrence of a Section 11(a)(ii) Event some or all of the Rights shall not have been exercised pursuant to Section 11 hereof prior to the date of a Section 13(a) Event, such Rights shall thereafter be exercisable only in the manner described in Section 13(a) hereof. In the event that a Section 11(a)(ii) Event occurs on or after the date of a Section 13(a) Event, Rights shall not be exercisable pursuant to Section 11 hereof but shall instead be exercisable pursuant to, and only pursuant to, this Section 13. (e) The provisions of this Section 13 shall apply to each successive merger, consolidation, sale or other transfer constituting a Section 13(a) Event. Section 14. FRACTIONAL RIGHTS AND FRACTIONAL. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates that represent fractional Rights. If the Company shall determine not to issue such fractional Rights, the Company shall pay to the registered holders of the Right Certificates with respect to which such fractional Rights would otherwise be issuable, at the time such fractional Rights would otherwise have been issued as provided herein, an amount in cash equal to the same fraction of the Current Market Price of a whole Right on the Business Day immediately prior to the date upon which such fractional Rights would otherwise have been issuable. (b) The Company shall not be required to issue fractions of Common Shares or Preferred Shares (other than fractions that are integral multiples of one one-hundredth of a Preferred Share) upon exercise of Rights, or to distribute certificates that represent fractional Common Shares or Preferred Shares (other than fractions that are integral multiples of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-hundredth of a Preferred Share may, at the election of the Company, be represented by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of Preferred Shares. If the Company shall determine not to issue fractional Common Shares or Preferred Shares (or depositary receipts in lieu of Preferred Shares), the Company shall pay to the registered holders of Right Certificates with respect to which such fractional Common Shares or Preferred Shares would otherwise be issuable, at the time such Rights are exercised as provided herein, an amount in cash equal to the same fraction of the Current Market Price of a whole Common Share or Preferred Share, as the case may be. For purposes of this Section 14(b), the Current Market Price of a whole Common Share or Preferred Share shall be the Closing Price per share for the Trading Day immediately prior to the date of such exercise. 20 (c) The holder of a Right, by the acceptance of such Right, expressly waives such holder's right to receive any fractional Rights or any fractional Common Shares or Preferred Shares upon exercise of such Right, except as permitted by this Section 14. (d) The Rights Agent shall have no duty or obligation with respect to this Section 14 or any other Section hereof concerning fractional shares unless and until it has received specific instructions (and sufficient cash, if required) from the Company with respect to its duties and obligations under such Sections. Section 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, except the rights of action given to the Rights Agent under Section 18 and Section 20 hereof, are vested in the respective registered holders of the Right Certificates and certificates for Common Shares representing Rights, and any registered holder of any Right Certificate or of such certificate for Common Shares, without the consent of the Rights Agent or of the holder of any other Right Certificate or any other certificate for Common Shares may, in such holder's own behalf and for such holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise the Rights represented by such Right Certificate or by such certificate for Common Shares in the manner provided in such Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance, and injunctive relief against actual or threatened violations, of the obligations of any Person under this Agreement. Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and every other holder of a Right that: (a) prior to the Distribution Date, the Rights shall be represented by certificates for Common Shares registered in the name of the holders of such Common Shares (which certificates for Common Shares shall also constitute Right Certificates), and each such Right shall be transferable only in connection with the transfer of such Common Shares; (b) after the Distribution Date, the Right Certificates shall only be transferable on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer (with all required certifications completed), and otherwise complying with the requirements set forth in this Agreement; and (c) the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate is registered as the absolute owner thereof and of the Rights represented thereby (notwithstanding any notations of ownership or writing on the Right Certificate by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; and 21 (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree, judgment or ruling (whether interlocutory or final) issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, of any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance or such obligation; PROVIDED, HOWEVER, that the Company must use its best efforts to have any such order, decree, judgment or ruling lifted or otherwise overturned as soon as possible. Section 17. RIGHT HOLDER AND RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Right or Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the securities of the Company that may at any time be issuable upon the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right or Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, to give or withhold consent to any corporate action, to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, in each case until such Right or the Rights represented by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent as compensation for all services rendered by it hereunder reasonable and customary fees and expenses (including legal fees and disbursements) incurred in the preparation, delivery, administration, execution and amendment of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense (including, without limitation, the reasonable fees and expenses of legal counsel), incurred without gross negligence, bad faith or willful misconduct (each as finally determined by a court of competent jurisdiction) on the part of the Rights Agent, for any action taken, suffered or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement or the exercise and performance of its duties hereunder, including, without limitation, the costs and expenses of defending against any claim of liability. The indemnity provided herein shall survive the termination and the expiration of this Agreement, the termination and the expiration of the Rights, and the resignation or removal of the Rights Agent. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. (b) The Rights Agent shall be authorized and protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with the acceptance and administration of, or exercise and performance of its duties under, this Agreement in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, 22 or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of its counsel as set forth in Section 20 hereof. The Rights Agent shall not be deemed to have any duty or notice unless and until the Company has provided the Rights Agent with actual written notice. Section 19. MERGER OR CONSOLIDATION OR CHANCE OF NAME OF RIGHTS AGENT. (a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the investor services, corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. If, at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and if at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in such Right Certificates, and in this Agreement. (b) If at any time the name of the Rights Agent shall be changed, and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and if at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in such Right Certificates and in this Agreement. Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent, as Rights Agent, shall have only the duties and obligations expressly set forth in this Agreement, and no other duties or obligations shall be implied by its appointment as Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance of the Rights, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted by it in accordance with such advice or opinion. 23 (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Vice Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct (each as fully determined by a court of competent jurisdiction). Anything in this Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, incidental or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Rights Agent has been advised of the possibility of such loss or damage. Any liability of the Rights Agent under this Agreement shall be limited to the amount of fees paid by the Company to the Rights Agent. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement, or in the Right Certificates (except its countersignature thereof), or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be liable for nor be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be liable for nor be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including any Rights becoming null and void pursuant to Section 7(d) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 7, 11, 13 and 23 hereof, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights represented by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares or Common Shares or other securities to be issued pursuant to this Agreement or any Right Certificate, or as to whether any Preferred Shares or Common Shares or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. 24 (g) The Rights Agent is hereby authorized and directed to accept advice or instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Vice Chairman, the President, any Vice President, the Secretary, any Assistant Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and such advice or instructions shall be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it in good faith in accordance with instructions of any such officer. The Rights Agent shall be fully authorized and protected in relying upon the most recent instructions received by any such officer. (h) The Rights Agent and any stockholder, affiliate, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniary interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal Person. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, absent gross negligence, bad faith or willful misconduct (each as finally determined by a court of competent jurisdiction) in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it believes that repayment of such funds or adequate indemnification against such risk or liability is not assured it. Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares and Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares and Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting as such, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit such holder's Right Certificate for inspection by the Company), then the Company shall become the Rights Agent and the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (i) a Person organized and doing business under the laws of 25 the United States or of the States of New York or California (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the States of New York or California, in good standing, having an office in New York or California, that is authorized under such laws to conduct investor service business and is subject to supervision or examination by federal or state authority and that has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000, (ii) or an Affiliate or Subsidiary of such Person. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose of this Agreement and so that the successor Rights Agent may appropriately act as Rights Agent hereunder. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Right Certificates to the contrary, the Company may, at its option, issue new Right Certificates in such form as may be approved by the Board of Directors in order to reflect any adjustment or change in the Exercise Price and the number or kind or class of shares or other securities or property purchasable upon exercise of the Rights in accordance with the provisions of this Agreement. Section 23. REDEMPTION OF RIGHTS. (a) Until the earliest of (i) the date of the first Section 11(a)(ii) Event, (ii) the date of the first Section 13(a) Event or (iii) the Expiration Date, a majority of the Board of Directors may, at their option, direct the Company to redeem all, but not less than all, of the then outstanding Rights at a redemption price of $.01 per Right, as such redemption price shall be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (the "Redemption Price"), and the Company shall so redeem the Rights. (b) Immediately upon the action of a majority of the Board of Directors directing the Company to redeem the Rights pursuant to subsection (a) of this Section 23, or at such time and date thereafter as they may specify, and without any further action and without any notice, the right to exercise Rights shall terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Within 10 Business Days after the date of such action, the Company shall promptly notify the Rights Agent in writing of such redemption and shall give notice of such redemption to the holders of Rights by mailing such notice to all holders of Rights at their last addresses as they appear upon the registry books of the Rights Agent or, if prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice that is mailed. in the manner herein provided shall be deemed given, whether or not the holder receives such notice, but neither the failure to give any such 26 notice nor any defect therein shall affect the legality or validity of such redemption. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may, directly or indirectly, redeem, acquire or purchase for value any Rights in any manner other than that specifically set forth in Section 24 hereof or in this Section 23, and other than in connection with the purchase of Common Shares prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event. (c) The Company may, at its option, pay the Redemption Price in cash, Common Shares, Preferred Shares, other equity securities of the Company, debt securities of the Company, other property or any combination of the foregoing, in each case having an aggregate Current Market Price on the Redemption Date equal to the Redemption Price. Section 24. EXCHANGE OF RIGHTS. (a) At any time after the 20% Ownership Date and prior to the first date thereafter upon which a 20% Stockholder, together with all Affiliates and Associates of such 20% Stockholder, shall be the Beneficial Owner of 50% or more of the Voting Shares then outstanding, a majority of the Board of Directors may, at their option, direct the Company to exchange all, but not less than all, of the then outstanding Rights for Common Shares at an exchange ratio of one Common Share per Right, as such exchange ratio shall be appropriately adjusted to reflect any stock split, stock dividend, or similar transaction involving Preferred Shares or Common Shares that occurs after the date hereof (the "Exchange Ratio"), and the Company shall so exchange the Rights. (b) Immediately upon the action of a majority of the Board of Directors directing the Company to exchange the Rights pursuant to subsection (a) of this Section 24, or at such time and date thereafter as they may specify, and without any further action and without any notice, the right to exercise Rights shall terminate and the only right thereafter of the holder of a Right shall be to receive a number of Common Shares equal to the Exchange Ratio. Within 10 Business Days after the date of such action, the Company shall promptly notify the Rights Agent in writing of such exchange and shall give notice of such exchange to the holders of Rights by mailing such notice to all holders of Rights at their last addresses as they appear upon the registry books of the Rights Agent or, if prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives such notice, but neither the failure to give any such notice nor any defect therein shall affect the legality or validity of such exchange. Each such notice of exchange shall state the method by which the Rights will be exchanged for Common Shares. Neither the Company nor any of its Affiliates or Associates may, directly or indirectly, redeem, acquire or purchase for value any Rights in any manner other than that specifically set forth in Section 23 hereof or in this Section 24, and other than in connection with the purchase of Common Shares prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event. (c) Notwithstanding the foregoing, in the event that the aggregate number of Common Shares that are authorized by the Company's Certificate of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise or exchange of the 27 Rights is less than the aggregate number of Common Shares issuable upon the exchange of the Rights in accordance with this Section 24 (the excess of such number of authorized Common Shares over and above such number of issuable Common Shares being hereinafter referred to as the "Unavailable Exchange Shares"), then the Company shall substitute for the pro rata portion of the Unavailable Exchange Shares that would otherwise be issuable upon the exchange of the Rights in accordance with this Section 24, (i) cash, (ii) other equity securities of the Company (including, without limitation, Common Share Equivalents), (iii) debt securities of the Company, (iv) other property or (v) any combination of the foregoing, in each case having an aggregate Current Market Price equal to the aggregate Current Market Price of the Unavailable Exchange Shares for which substitution is made. Subject to Section 7(d) hereof, in the event that the Company takes any action pursuant to this Section 24, such action shall apply uniformly to all outstanding Rights. Section 25. NOTICE OF CERTAIN EVENTS. (a) In the event that the Company shall propose (i) to declare or pay any dividend payable on or make any distribution with respect to its Common Shares or Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Common Shares or Preferred Shares options, rights or warrants to subscribe for or to purchase any additional shares thereof or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Common Shares or Preferred Shares (other than a reclassification involving only the subdivision of outstanding shares), (iv) to effect any consolidation or merger with or into, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) to effect the liquidation, dissolution or winding up of the Company, then and in each such case, the Company shall give to the Rights Agent and to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, that shall specify the record date for the purpose of such dividend or distribution, or the date upon which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of record of the Common Shares or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 20 days prior to the record date for determining holders of the Common Shares or Preferred Shares for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares or Preferred Shares, whichever date shall be the earlier. The failure to give the notice required by this Section 25 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. (b) As soon as practicable after the occurrence of each Section 11(a)(ii) Event and each Section 13(a) Event, the Company shall give to the Rights Agent and to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, specifying the event and the consequences of the event to holders of Rights under Sections 11 and 13 hereof. 28 Section 26. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by overnight courier or certified mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) or by facsimile transmission as follows: California Amplifier, Inc. 460 Calle San Pablo Camarillo, California 93010 Attention: Chief Executive Officer Fax: (805) 482-5842 Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by overnight courier or certified mail, postage prepaid, addressed (until another address is filed in writing with the Company) to the designated office of the Rights Agent as follows: Mellon Investor Services LLC 400 South Hope Street Los Angeles, California 90071 Attention: Relationship Manager Fax: (213) 553-9735 with a copy to: Mellon Investor Services LLC 85 Challenger Road Ridgefield Park, NJ 07660 Attention: General Counsel Fax: (201) 296-4004 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. SUPPLEMENTS AND AMENDMENTS. (a) A majority of the Board of Directors may, from time to time, without the approval of any holders of Rights, direct the Company and the Rights Agent to supplement or amend any provision of this Agreement in any manner, whether or not such supplement or amendment is adverse to any holder of Rights, and the Company and the Rights Agent shall, subject to the other provisions of this section, so supplement or amend such provision; provided, however, that from and after the earliest of (i) the date of the first Section l1(a)(ii) Event, (ii) the date of the first Section 13(a) Event, (iii) the Redemption Date or (iv) the Expiration Date, this Agreement shall not be supplemented or amended in any manner that would materially and adversely affect any holder of outstanding Rights other than a 20% Stockholder or a Surviving 29 Person. Upon delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27 and provided such supplement or amendment does not change or increase the Rights Agent's duties, rights, liabilities or obligations hereunder, the Rights Agent shall execute such supplement or amendment. (b) From and after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date, the Company shall not effect any amendment to the Certificate of Designations for the Preferred Shares that would materially and adversely affect the rights, privileges or preferences of the Preferred Shares without the prior approval of the holders of two-thirds or more of the then outstanding Rights. Section 28. CERTAIN COVENANTS. Subject to Section 27 hereof and the other provisions of this Agreement, from and after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date, the Company shall not (a) issue or sell, or permit any Subsidiary to issue or sell, to a 20% Stockholder or a Surviving Person, or any Affiliate or Associate of a 20% Stockholder or a Surviving Person, or any Person holding Voting Shares of the Company that are Beneficially Owned by a 20% Stockholder or a Surviving Person, (i) any rights, options, warrants or convertible securities on terms similar to, or that materially adversely affect the value of, the Rights or (ii) Preferred Shares, Common Shares or shares of any other class of capital stock, if such sale is intended to or would materially adversely affect the value of the Rights, or (b) take any other action that is intended to or would materially adversely affect the value of the Rights. Section 29. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent, the registered holders of the Right Certificates (other than those representing Rights that have become null and void) and the certificates for Common Shares representing Rights (other than those Rights that have become null and void) any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent, such registered holders of Right Certificates and such certificates for Common Shares representing Rights. Section 31. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 32. GOVERNING LAW. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state 30 applicable to contracts made and performed entirely within such state; provided, however, that all provisions regarding the rights, duties and obligations of the Rights Agent shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Section 33. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each such counterpart shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 35. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.. The Board of Directors shall have the exclusive power and authority to administer this Agreement and to exercise the rights and powers specifically granted to the Board of Directors or to the Company. All Such actions, calculations, interpretations and determinations that are done or made by the Board of Directors of the Company in good faith shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other Persons. The Rights Agent shall always be entitled to assume that the Company's Board of Directors acted in good faith and shall be fully protected and incur no liability in reliance thereon. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Attest: CALIFORNIA AMPLIFIER, INC. By: /s/ Richard K. Vitelle By: /s/ Fred Sturm ----------------------------------- ------------------------------ Name: Richard K. Vitelle Name: Fred Sturm Title: Vice President and Title: President and Chief Chief Financial Officer Executive Officer Attest: MELLON INVESTOR SERVICES LLC By: /s/ Raymond Torres By: /s/ Ronald Lug ----------------------------------- ------------------------------ Name: Raymond Torres Name: Ronald Lug Title: AVP Title: Vice President 31 EXHIBIT A CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK $.01 Par Value of CALIFORNIA AMPLIFIER, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Barry W. Hall, Chairman and Chief Executive Officer, and Michael R. Ferron, Corporate Secretary, of California Amplifier, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, the Board of Directors on September 5, 1991 adopted the following resolution creating a series of seven hundred fifty thousand (750,000) shares of Preferred Stock, par value $.01 per share, designated as Series A Junior Participating Cumulative Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), and the number of shares constituting such series shall be seven hundred fifty thousand (750,000). Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, $.01 per share, of the Corporation (the "Common Stock") and of any other junior stock of the Corporation that may be outstanding,- shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the 1 nearest cent) equal to the greater of (i) $.25 per share ($1.00 per annum), or (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount to which the holder of each share of Series A Preferred Stock was entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.25 per share ($1.00 per annum) on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which cases such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall cumulate but shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: 2 (a) Each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes (and each one one-hundredth of a share of Series A Preferred Stock shall entitle the holder thereof to one vote) on all matters submitted to a vote of the stockholders of the Corporation. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then and in each such event, the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided in the Certificate of Incorporation of the Corporation or herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) In addition, the holders of shares of Series A Preferred Stock shall have the following special voting rights: (i) In the event that at any time dividends on Series A Preferred Stock, whenever accrued and whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof set aside, in an amount equivalent to six quarterly dividends on all shares of Series A Preferred Stock at the time outstanding, then and in each such event, the holders of shares of Series A Preferred Stock and each other series of preferred stock row or hereafter issued that shall be accorded such class voting right by the Board of Directors and that shall have the right to elect three directors as the result of a prior or subsequent default in payment of dividends on such series (each such other series being hereinafter called "Other Series of Preferred Stock"), voting separately as a class without regard to series, shall be entitled to elect three directors at the next annual meeting of stockholders of the Corporation, in addition to the directors to be elected by the holders of all shares of the Corporation entitled to vote for the election of directors, and the holders of all shares (including the Series A Preferred Stock) otherwise entitled to vote for directors, voting separately as a class, shall be entitled to elect the remaining members of the Board of Directors, provided that the Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall not have the right to elect more than three directors. Such special voting right of the holders of shares of Series A Preferred Stock may be exercised until all dividends in default on the Series A Preferred Stock shall have been paid in full or declared and funds sufficient therefor set aside, and when so paid or provided for, such special voting right of the holders of shares of Series A Preferred Stock shall cease, but subject always to the same provisions for the vesting of such special voting rights in the event of any such future dividend default or defaults. (ii) At any time after such special voting rights shall have so vested in the holders of shares of Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of 3 Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal executive office of the Corporation shall, call a special meeting of the holders of shares of Preferred Stock so entitled to vote, for the election of the directors to be elected by them as herein provided, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called or held, the holders of shares of Preferred Stock so entitled to vote shall be entitled to exercise the special voting rights provided in this paragraph at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice given by such person, and for that purpose shall have access to the stock books of the Corporation. No such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. If, at any meeting so called or at any annual meeting held while the holders of shares of Series A Preferred Stock have the special voting rights provided for in this paragraph, the holders of not less than 40% of the aggregate voting power of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding are present in person or by proxy, which percentage shall be sufficient to constitute a quorum for the election of additional directors as herein provided, the then authorized number of directors of the Corporation shall be increased by three, as of the time of such special meeting or the time of the first such annual meeting held while such holders have special voting rights and such quorum is present, and the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall be entitled to elect the additional directors so provided for. If the directors of the Corporation are then divided into classes under provisions of the Certificate of Incorporation of the Corporation or the Bylaws, the three additional directors shall be members of those respective classes of directors in which a vacancy is created as a result of such increase in the authorized number of directors. If the foregoing expansion of the size of the Board of Directors shall not be valid under applicable law, then the holders of shares of Series A Preferred Stock and of each Other Series of Preferred Stock, voting as a class, shall be entitled, at the meeting of stockholders at which they would otherwise have voted, to elect directors to fill any then existing vacancies on the Board of Directors, and shall additionally be entitled, at such meeting and each subsequent meeting of stockholders at which directors are elected, to elect all of the directors then being elected until by such class vote three members of the Board of Directors have been so elected. (iii) Upon the election at such meeting by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, of the directors they are entitled so to elect, the persons so elected, together with such persons as may be directors or as may have been elected as directors by the holders of all shares (including Series A Preferred Stock) otherwise entitled to vote for directors, shall constitute the duly elected directors of the Corporation. The additional directors so elected by holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class,, shall serve until the next annual meeting or until their respective successors shall be elected and qualified, or if any 4 such director is a member of a class of directors under provisions dividing the directors into classes, each such director shall serve until the annual meeting at which the term of office of such director's class shall expire or until such director's successor shall be elected and shall qualify, and at each subsequent meeting of stockholders at which the directorship of any director elected by the vote of holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock under the special voting rights set forth in this paragraph is up for election, said special class voting rights shall apply in the reelection of such director or in the election of such directors successor; provided, however, that whenever the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be divested of the special rights to elect three directors as above provided, the terms of office of all persons elected as directors by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, or elected to fill any vacancies resulting from the death, resignation, or removal of directors so elected by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, shall forthwith terminate (and the number of directors shall be reduced accordingly). (iv) If, at any time after a special meeting of stockholders or an annual meeting of stockholders at which the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, have elected directors as provided above, and while the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be entitled so to elect three directors, the number of directors who have been elected by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock (or who by reason of one or more resignations, deaths or removals have succeeded any directors so elected) shall by reason of resignation, death or removal be less than three but at least one, the vacancy in the directors so elected by the holders of shares of the Series A Preferred Stock and each Other Series of Preferred Stock may be filled by the remaining director or directors elected by such holders. In the event that such election shall not occur within 30 days after such vacancy arises, or in the event that there shall not be incumbent at least one director so elected by such holders, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal office of the Corporation shall, call a special meeting of the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock so entitled to vote, for an election to fill such vacancy or vacancies, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called, the holders of shares of Preferred Stock so entitled to vote shall be entitled to fill such vacancy or vacancies at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation; no such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. 5 (d) Nothing herein shall prevent the directors or stockholders from taking any action to increase the number of authorized shares of Series A Preferred Stock, or increasing the number of authorized shares of Preferred Stock of the same class as the Series A Preferred Stock or the number of authorized shares of Common Stock, or changing the par value of the Common Stock or Preferred Stock, or issuing options, warrants or rights to any class of stock of the Corporation as authorized by the Certificate of Incorporation of the Corporation, as it may hereafter be amended. (e) Except as set forth herein, holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in the Certificate of Incorporation of the Corporation or herein or by law) for taking any corporate action. Section 4. CERTAIN RESTRICTIONS. (a) Whenever any dividends or other distributions payable on the Series A Preferred Stock as provided in Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not, directly or indirectly: (i) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on shares of the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration, directly or indirectly, any shares of stock of the 6 Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock, without designation as to series, and may be reissued as part of any series of preferred stock created by resolution or resolutions of the Board of Directors (including Series A Preferred Stock), subject to the conditions and restrictions on issuance set forth herein. Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to: (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $1.00 per share ($.01 per one one-hundredth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or (b) the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of 'Common Stock, then and in each such event, the aggregate amount to which the holder of each share of Series A Preferred Stock was entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. CONSOLIDATION, MERGER, ETC. In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, or otherwise changed, then and in each such event, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event that the Corporation 7 shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. Notwithstanding the foregoing, the Corporation may acquire shares of Series A Preferred Stock in any other manner permitted by law, the Certificate of Incorporation of the Corporation or herein. Section 9. RANK. Unless otherwise provided in the Certificate of Incorporation of the Corporation or a Certificate of Designations relating to a subsequent series of preferred stock of the Corporation, the Series A Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, and senior to the Common Stock of the Corporation. Section 10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner that would materially and adversely alter or change the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the, holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single series. Section 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in fractions of a share (in one one-hundredths (1/100) of a share and integral multiples thereof) that shall entitle the holder thereof, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of shares of Series A Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this day of September, 2001. --------------------------------------------------- Barry W. Hall, Chairman and Chief Executive Officer Attest: - - --------------------------------- Michael R. Ferron, Corporate Secretary 8 EXHIBIT B FORM OF RIGHT CERTIFICATE Certificate No. R-____ _____ Rights NOT EXERCISABLE AFTER SEPTEMBER 5, 2011 OR EARLIER IF REDEEMED OR EXCHANGED. THE RIGHTS ARE SUBJECT TO REDEMPTION AND EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY CERTAIN PERSONS OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. Right Certificate CALIFORNIA AMPLIFIER, INC. This certifies that ____________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms and conditions of the Amended and Restated Rights Agreement (the "Rights Agreement") dated as of September 5, 1991, as amended and restated as of September 5, 2001 by and between California Amplifier, Inc., a Delaware corporation (the "Company"), and Mellon Investor Services LLC, a New Jersey limited liability company (the "Rights Agent"), to purchase from the Company at any time prior to the earlier of the Redemption Date (as such term is defined in the Rights Agreement) or 5:00 o'clock p.m., Pacific time, on September 5, 2011, at the office of the Rights Agent designated for such purpose, or at the office of its successor as Rights Agent, one one-hundredth of a fully paid and nonassessable share of Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share, of the Company (a "Preferred Share") or, in certain circumstances, other securities or other property, at a purchase price of fifty dollars ($50.00) per one one-hundredth of a Preferred Share (the "Exercise Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed. The number of Rights represented by this Right Certificate and the Exercise Price set forth above are the number of Rights and the Exercise Price as of September 5, 2001, based upon the Preferred Shares as constituted on such date. As provided in the Rights Agreement, the Exercise Price and the number of Preferred Shares or other securities or other property that may be purchased upon the exercise of the Rights represented by this Right Certificate are subject to modification and adjustment upon the occurrence of certain events. The Rights Agreement contains a full description of the rights,- limitations of rights, obligations, duties and immunities of the Rights Agent, the Company and the holders of Right Certificates. This Right Certificate is subject to all the terms and conditions of the Rights 1 Agreement, which terms and conditions are hereby incorporated herein by reference and made a part hereof. Copies of the Rights Agreement are on file at the principal executive offices of the Company and at the offices of the Rights Agent designated for such purpose. This Right Certificate, with or without other Right Certificates, upon presentation and surrender at the offices of the Rights Agent designated for such purpose, with the Form of Assignment, including Certificate, on the reverse side hereof properly completed and duly executed, with signature guaranteed, may be exchanged for another Right Certificate or Right Certificates of like tenor and date representing Rights entitling the holder thereof to purchase a like aggregate number of Preferred Shares or, in certain circumstances, other securities or other property, as the Rights represented by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive, upon the surrender hereof with the Form of Election to Purchase, including Certificate, on the reverse side hereof properly completed and duly executed, with signature guaranteed, another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights represented by this Right Certificate may be redeemed by the Company, at its option, at a redemption price of $.01 per Right or, upon the occurrence of certain events, the Company, at its option, may exchange such Rights for fully paid and nonassessable shares of Common Stock, par value $.01 per share, of the Company at an exchange ratio of one share per Right, which exchange ratio is subject to adjustment upon the occurrence of certain events. No fractional securities shall be issued upon the exercise of any Right or Rights represented hereby (other than fractions of Preferred Shares that are integral multiples of one one-hundredth of a Preferred Share, that may, at the option of the Company, be represented by depositary receipts), but in lieu thereof, a cash payment shall be made, as provided in the Rights Agreement. No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, until the Right or Rights represented by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. 2 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal, dated as of September 5, 2001. Attest: CALIFORNIA AMPLIFIER, INC. By: By: -------------------------------- ------------------------------ Name: Name: Fred Sturm Title: Title: President and Chief Executive Officer Countersigned MELLON INVESTOR SERVICES LLC By: -------------------------------- Name: Title: 3 Form of Reverse of Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer any or all of the Rights represented by this Right Certificate) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto - - ------------------------------------------------------------------------------ - -- - - ------------------------------------------------------------------------------ - -- (Name, address and social security or other identifying number of transferee) _______________________________ (_________) of the Rights represented by this Right Certificate, together with all right, title and interest in and to said Rights, and hereby irrevocably constitutes and appoints __________________ attorney to transfer said Rights on the books of California Amplifier, Inc. with full power of substitution. Dated: __________________ , 20__ ------------------------------------------- (Signature) Signature Guaranteed: CERTIFICATE (to be completed, if true) The undersigned hereby certifies that the Rights represented by this Right Certificate are not Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement). Dated: __________________ , 20__ ------------------------------------------- (Signature) Signature Guaranteed: 1 NOTICE The signatures to the foregoing Assignment and the foregoing Certificate, if applicable, must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. In the event that the foregoing Certificate is not duly executed, with signature guaranteed, the Company may deem the Rights represented by this Right Certificate to be Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement), and not issue any Right Certificate or Right Certificates in exchange for this Right Certificate. 2 FORM OF ELECTION TO PURCHASE (To be executed by the registered holder if such holder desires to exercise any or all of the Rights represented by this Right Certificate) To California Amplifier, Inc.: The undersigned hereby irrevocably elects to exercise _______________________________ (______) of the Rights represented by this Right Certificate to purchase the following: (Check one of the following boxes) | | the Preferred Shares or other securities or property issuable upon the exercise of said number of Rights pursuant to Section 7(b) of the Rights Agreement. | | the shares of the Common Stock, par value $01 per share, of the Company, or other securities or property issuable upon the exercise of said number of Rights pursuant to Section 11(a)(ii) of the Rights Agreement. | | the securities issuable upon the exercise of said number of Rights pursuant to Section 13(a) of the Rights Agreement. The undersigned hereby requests that any such property and a certificate for any such securities be issued in the name of and delivered to: - - ------------------------------------------------------------------------------ - -- - - ------------------------------------------------------------------------------ - -- (Name, address and social security or other identifying number of transferee) The undersigned hereby further requests that if said number of Rights shall not be all the Rights represented by this Right Certificate, a new Right Certificate for the remaining balance of such Rights be issued in the name of and delivered to: - - ------------------------------------------------------------------------------ - -- - - ------------------------------------------------------------------------------ - -- (Name, address and social security or other identifying number of transferee) Dated: __________________ , 20__ ------------------------------------------- (Signature) Signature Guaranteed: 3 CERTIFICATE (to be completed, if true) The undersigned hereby certifies that the Rights represented by this Right Certificate are not Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement). Dated: __________________ , 20__ ------------------------------------------- (Signature) Signature Guaranteed: NOTICE The signatures to the foregoing Assignment and the foregoing Certificate, if applicable, must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. In the event that the foregoing Certificate is not duly executed, with signature guaranteed, the Company may deem the Rights represented by this Right Certificate to be Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement), and not issue any property or certificate for securities upon the exercise of this Right Certificate or issue any new Right Certificate for any remaining balance of unexercised Rights represented by this Right Certificate. EX-10 3 exhibit_10-6.txt 2004 STOCK INCENTIVE PLAN AS AMENDED CALAMP CORP. 2004 INCENTIVE STOCK PLAN AS AMENDED AND RESTATED ON APRIL 19, 2007 On April 19, 2007, CalAmp's Board of Directors approved the following changes to the Company's 2004 Incentive Stock Plan: i. The definition of "Fair Market Value" was changed to reference the closing stock price on the Incentive Award grant date instead of the closing stock price on the business day immediately preceding the grant date. ii. A modification was made to make it clear that the Compensation Committee of the Board of Directors has the same authority and flexibility to modify the terms of non-employee director equity awards as it has to modify the terms of employee awards. iii. Restricted Stock Units were added as a permissible form of equity award under the Plan. iv. The effective date of the annual non-employee director equity awards was changed to the day of the annual meeting of the stockholders instead of the first business day following the annual meeting. 1. PURPOSE OF THE PLAN The purpose of the CalAmp Corp. 2004 Stock Incentive Plan (the "Plan") is to provide a flexible framework that will permit the Board of Directors to develop and implement a variety of stock-based programs based on changing needs of CalAmp Corp. (together with its subsidiaries, the "Company"), its competitive market, and regulatory climate. The Board of Directors and senior management of the Company believe it is in the best interest of the Company's stockholders for officers, employees, and members of the Board of Directors of the Company to own stock in the Company and that such ownership will enhance the Company's ability to attract highly qualified personnel, to strengthen its retention capabilities, to enhance the long-term performance of the Company and its subsidiaries, to vest in Participants a proprietary interest in the success of the Company and its subsidiaries, and to provide certain "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code. Upon its Effective Date, as defined herein, the Plan replaces the Company's 1999 Stock Option Plan. Beginning on such date, the 1999 Stock Option Plan becomes frozen and stock options can no longer be granted thereunder. 2. DEFINITIONS As used in the Plan, the following definitions apply to the terms indicated below: (a) "Award Agreement" shall mean the written agreement between the Company and a Participant or other document approved by the Committee evidencing an Incentive Award. (b) "Board of Directors" shall mean the Board of Directors of the Company. (c) "Cause" means the occurrence or existence of any of the following with respect to a Participant, as determined by the Committee: (i) unsatisfactory performance of duties or responsibilities, provided that the Company has given the participant written notice specifying the unsatisfactory performance of his or her duties and responsibilities and afforded the participant reasonable opportunity for cure, all as determined by the Committee; (ii) a material breach by the participant of any of his or her material obligations under any employment agreement between the participant and the Company of which the Company has given participant written notice; (iii) willful failure to follow any lawful directive of the Company consistent with the participant's position and duties, after written notice and reasonable opportunity to cure, all as determined by the Committee; (iv) a material breach by the participant of his or her duty not to engage in any transaction that represents, directly or indirectly, self- dealing with the Company (or any Subsidiary) that has not been approved by a majority of the disinterested directors of the Board or of the terms of his or her employment; (v) commission of any willful or intentional act by the participant that reasonably could be expected to injure materially the property, reputation, business or business relationships of the Company or its customers; (vi) the conviction or the plea of nolo contendere or the equivalent in respect of a felony involving moral turpitude; or (vii) the abuse of any controlled substance or the abuse of alcohol or any other non- controlled substance which the Committee reasonably determines renders the participant unfit to serve in his or her capacity as an officer or employee of the Company (or any Subsidiary). (d) "Change of Control" shall mean the consummation of the first to occur of (i) the sale, lease or other transfer of all or substantially all of the assets of the Company to any person or group (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended); (ii) the adoption by the stockholders of the Company of a plan relating to the liquidation or dissolution of the Company; (iii) the merger or consolidation of the Company with or into another entity or the merger of another entity into the Company or any Subsidiary thereof with the effect that immediately after such transaction the stockholders of the Company immediately prior to such transaction (or their Related parties) hold less than 50% of the total voting power of all securities generally entitled to vote in the election of directors, managers or trustees of the entity surviving such merger of consolidation; or (iv) the acquisition by any person or group of more than 50% of the voting power of all securities of the Company generally entitled to vote in the election of directors of the Company. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended. (f) "Committee" shall mean the Compensation Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan; provided, that the Committee shall at all times consist of two or more persons, each of whom shall be a member of the Board of Directors. To the extent required for transactions under the Plan to qualify for the exemptions available under Rule 16b-3 (as defined herein), members of the Committee (or any subcommittee thereof) shall be "non-employee directors" within the meaning of Rule 16b-3. To the extent required for compensation realized from Incentive Awards (as defined herein) under the Plan to be deductible by the Company pursuant to Section 162(m) of the Code, members of the Committee (or any subcommittee thereof) shall be "outside directors" within the meaning of such section. (g) "Company Stock" shall mean the common stock, par value $.01 per share, of the Company. (h) "Disability" shall mean: (1) any physical or mental condition that would qualify a Participant for a disability benefit under the long- term disability plan maintained by the Company and applicable to him or her or (2) when used in connection with the exercise of an Incentive Stock Option (as defined herein) following termination of employment, disability within the meaning of Section 422(e)(3) of the Code. (i) "Division" shall mean a portion of the Company's overall business that is organized and managed as a separate operating unit or business segment of the Company. (j) "Effective Date" shall mean July 30, 2004. (k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (l) The "Fair Market Value" of a share of Company Stock with respect to any day shall be the closing price of Company Stock that day as reported on the Nasdaq Global Select Market or on such other securities exchange or reporting system as may be designated by the Committee. In the event that the price of a share of Company Stock shall not be so reported, the Fair Market Value of a share of Company Stock shall be determined by the Committee in its absolute discretion. (m) "Incentive Award" shall mean an Option, SAR, Restricted Stock Unit, share of Restricted Stock, share of Phantom Stock or Stock Bonus (each as defined herein) granted pursuant to the terms of the Plan. (n) "Incentive Stock Option" shall mean an Option that is an "incentive stock option" within the meaning of Section 422 of the Code. (o) "Issue Date" shall mean the date established by the Committee on which Certificates representing shares of Restricted Stock shall be issued by the Company pursuant to the terms of Section 9(e). (p) "Non-Qualified Stock Option" shall mean an Option that is not an Incentive Stock Option. (q) "Option" shall mean an option to purchase shares of Company Stock granted pursuant to Section 7. (r) "Participant" shall mean an employee, member of the Board of Directors, or consultant of the Company to whom an Incentive Award is granted pursuant to the Plan and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be. (s) "Performance Goal" shall mean vesting targets which may be established by the Committee from time to time and documented in writing in connection with an Incentive Award. Such Performance Goals include targets expressed in terms of: revenue; earnings before interest, taxes, depreciation and amortization (EBITDA); operating income; pre-or after-tax income; earnings per share, net cash flow; net cash flow per share; net income; return on sales; return on equity; return on total capital; return on assets; return on net assets employed; economic value added; share price performance; total shareholder return; improvement in or attainment of specified cost and expense levels; and improvement in or attainment of specified working capital levels, applied to the Company (or any Subsidiary or Division) as a whole, or any unit thereof, or as compared against a peer group of companies as determined by the Committee. (t) A share of "Phantom Stock" shall mean the right, granted pursuant to Section 11, to receive in cash the Fair Market Value of a share of Company Stock. (u) A share of "Restricted Stock" shall mean a share of Company Stock which is granted pursuant to the terms of Section 9 hereof and which is subject to the restrictions set forth in Section 9(c). (v) "Restricted Stock Unit" means the right, granted pursuant to Section 10, to receive shares of Company Stock or cash in lieu thereof in the future. (w) "Retirement" means termination of employment from the Company or, in the case of a member of the Board of Directors, termination of service to the Company, by a Participant whose: (i) age plus years of service with the Company equal at least 65; and (ii) years of service with the Company equal at least five (5). (x) "Rule 16b-3" shall mean the rule thus designated as promulgated under the Exchange Act. (y) "SAR" shall mean a stock appreciation right granted pursuant to Section 8. (z) "Stock Bonus" shall mean a bonus payable in shares of Company Stock granted pursuant to Section 12. (aa) "Subsidiary" shall mean any corporation or other entity in which, at the time of reference, the Company owns, directly or indirectly, stock or similar interests comprising more than 50 percent of the combined voting power of all outstanding securities of such entity. (bb) "Units" shall mean the aggregate number of Options, SARs, Restricted Stock Units, shares of Restricted Stock, shares of Phantom Stock and Stock Bonuses awarded to an individual Participant in an annual period, except that each share subject to a grant of Restricted Stock Units, Restricted Stock, Phantom Stock or Bonus Stock awarded shall count as one and two-tenths (1.2) Units. (cc) "Vesting Date" shall mean the date established by the Committee on which a Restricted Stock Unit or share of Restricted Stock or Phantom Stock may vest. 3. STOCK SUBJECT TO THE PLAN (a) Shares Available for Awards Subject to adjustment as provided in Section 3(c), the total number of shares of Company Stock with respect to which Incentive Awards may be granted shall not exceed 3,000,000 shares. Such shares may be authorized but unissued Company Stock or authorized and issued Company Stock held in the Company's treasury or acquired by the Company for the purposes of the Plan. The Committee may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan. The grant of an SAR that by its terms is to be settled in cash shall not reduce the number of shares of Company Stock with respect to which Incentive Awards may be granted pursuant to the Plan. Any Company Stock issued in connection with an award of Restricted Stock Units, Restricted Stock, Phantom Stock, or Bonus Stock shall be counted against the 3,000,000 share limit described in the preceding paragraph as one and two-tenths (1.2) shares of Common Stock for every one share of Common Stock issued in connection with such award. (b) Individual Limitation Subject to adjustment as provided in Section 3(c) hereof, the total number of Incentive Awards awarded to any one employee during any fiscal year of the Company, shall not exceed 300,000 Units. Determinations under the preceding sentence shall be made in a manner that is consistent with Section 162(m) of the Code and regulations promulgated thereunder. The provisions of this Section 3(b) shall not apply in any circumstance with respect to which the Committee determines that compliance with Section 162(m) of the Code is not necessary. (c) Adjustment for Change in Capitalization If there is any change in the outstanding shares of Company Stock by reason of a stock dividend or distribution, stock split-up, recapitalization, combination or exchange of shares, or by reason of any merger, consolidation, spinoff or other corporate reorganization in which the Company is the surviving corporation, the number of shares available for issuance both in the aggregate and with respect to each outstanding Incentive Award, the price per share under each outstanding Incentive Award, and the limitation set forth in Section 3(b), shall be proportionately adjusted by the Committee, whose determination shall be final and binding. After any adjustment made pursuant to this Section 3(c), the number of shares subject to each outstanding Incentive Award shall be rounded to the nearest whole number. (d) Re-use of Shares The following shares of Company Stock shall again become available for Incentive Awards: any shares subject to an Incentive Award that remain unissued upon the cancellation or termination of such Award for any reason whatsoever; any shares of Restricted Stock forfeited; and, if allowed by the Committee as a form of payment of the Option exercise price or the required tax withholding thereon, any shares delivered by a Participant to the Company and any shares withheld and retained by the Company. (e) No Repricing Absent prior stockholder approval, neither the Committee nor the Board of Directors shall have any authority, with or without the consent of the affected holders of Incentive Awards, to "reprice" an Incentive Award after the date of its initial grant with a lower exercise price in substitution for the original exercise price. This paragraph may not be amended, altered or repealed by the Board of Directors or the Committee without approval of the stockholders of the Company. 4. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Committee. The Committee shall from time to time designate the employees of the Company who shall be granted Incentive Awards. The Committee shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Incentive Award issued under it and to adopt such rules and regulations for administering the Plan as it may deem necessary or appropriate. The Committee shall determine whether an authorized leave of absence shall constitute termination of employment. Decisions of the Committee shall be final and binding on all parties. The Committee's determinations under the Plan may, but need not, be uniform and may be made on a Participant-by-Participant basis (whether or not two or more Participants are similarly situated). Notwithstanding anything to the contrary contained herein, the Board of Directors may, in its sole discretion, at any time and from time to time, resolve to administer the Plan, in which case the term "Committee" as used herein shall be deemed to mean the Board of Directors. The Committee may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option or SAR granted under the Plan becomes exercisable, (ii) waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option or SAR and (iii) accelerate the Vesting Date or Issue Date, or waive any condition imposed hereunder, with respect to any Restricted Stock Unit or share of Restricted Stock or Phantom Stock or otherwise adjust any of the terms applicable to such Incentive Award. No member of the Committee shall be liable for any action, omission or determination relating to the Plan, and the Company shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company. 5. ELIGIBILITY The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be such officers and salaried employees of the Company and its Subsidiaries (including employees who are also directors and prospective salaried employees conditioned on their becoming salaried employees), non-employee members of the Board of Directors, and such consultants to the Company and its Subsidiaries as the Committee shall select in its discretion. 6. AWARDS UNDER THE PLAN; AWARD AGREEMENTS The Committee may grant Options, SARs, Restricted Stock Units, shares of Restricted Stock, shares of Phantom Stock and Stock Bonuses, in such amounts and with such terms and conditions as the Committee shall determine, subject to the provisions of the Plan. Each Incentive Award granted under the Plan (except an unconditional Stock Bonus) shall be evidenced by an Award Agreement which shall contain such provisions as the Committee may in its sole discretion deem necessary or desirable. By accepting an Incentive Award, a Participant thereby agrees that the Incentive Award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement. 7. OPTIONS (a) Identification of Options Each Option shall be clearly identified in the applicable Award Agreement as either a Non-Qualified Stock Option or an Incentive Stock Option. In the absence of such identification, an Option shall be deemed to be a Non-Qualified Stock Option. (b) Exercise Price Each Award Agreement with respect to an Option shall set forth the amount (the "exercise price") payable by the holder to the Company upon exercise of the Option. The exercise price per share shall be determined by the Committee but shall in no event be less than the Fair Market Value of a share of Company Stock on the date the Option is granted, except as permitted in connection with the issuance of Options in a transaction to which Section 424(a) of the Code applies, or to the extent any compensation payable in respect of an Option is intended to qualify as performance-based compensation under Section 162(m)(4)(C) of the Code. (c) Term and Exercise of Options (1) Unless the applicable Award Agreement provides otherwise, an Option shall become cumulatively exercisable as to 25% of the shares covered thereby on each of the first, second, third and fourth anniversaries of the date of grant. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any Option, that the Participant or the Company achieves such Performance Goals as the Committee may specify. The Committee shall determine the expiration date of each Option; provided, however, that each Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan, and further provided that no Option shall be exercisable more than ten (10) years after the date of grant. (2) An Option may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no partial exercise of an Option shall be for an aggregate exercise price of less than $1,000 unless such partial exercise represents the entire unexercised portion of the Option or the entire portion of the Option that is then exercisable. The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. (3) An Option shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary (or the Secretary's designee), no less than one business day in advance of the effective date of the proposed exercise. Such notice shall be accompanied by the applicable Award Agreement, shall specify the number of shares of Company Stock with respect to which the Option is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option. Such notice may be withdrawn at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise. Payment for shares of Company Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by one or a combination of the following means: (i) in cash, by certified check, bank cashier's check or wire transfer; (ii) through a broker-assisted transaction whereby a broker selected and engaged by the Participant sells shares of Company Stock in an open market transaction and remits to the Company from the sales proceeds on behalf of the Participant the Option exercise price and the required tax withholding amounts; (iii) subject to the approval of the Committee, and at the direction of the Participant, through shares retained by the Company in an amount whose aggregate Fair Market Value is equal on the date of exercise to the exercise price, thereby surrendering as payment the portion of the Option that covers the retained shares; (iv) subject to the approval of the Committee, in shares of Company Stock owned by the Participant and valued at their Fair Market Value on the effective date of such exercise; or (v) subject to the approval of the Committee, by such other provision as the Committee may from time to time authorize. (4) Notwithstanding the foregoing, in the case of an Incentive Stock Option exercised pursuant to (3)(iii) above, the number of shares deemed to be used to satisfy the exercise price will not be treated as having been purchased through the exercise of an Incentive Stock Option. (5) No shares of Company Stock will be issued until full payment has been made. Any payment in shares of Company Stock shall be effected by the delivery of such shares to the Secretary (or the Secretary's designee) of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary (or the Secretary's designee) of the Company shall require. Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or other person entitled to receive such shares, and delivered to the Participant or such other person as soon as practicable following the effective date on which the Option is exercised. (d) No Reload Rights Options granted under this Plan shall not contain any provision entitling the optionee to the automatic grant of additional options in connection with any exercise of the original option. (e) No Loans The Company may not make loans to individual Participants for the purpose of financing the exercise of an Option. (f) Limitations on Incentive Stock Options (1) To the extent that the aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (or any "subsidiary corporation" of the Company within the meaning of Section 424 of the Code) shall exceed $100,000, or such higher value as may be permitted under Section 422 of the Code, such Options shall be treated as Non- Qualified Stock Options. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. (2) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any "subsidiary corporation" of the Company within the meaning of Section 424 of the Code), unless (i) the exercise price of such Incentive Stock Option is at least 110% of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (ii) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted. (g) Effect of Termination of Employment (1) Unless the applicable Award Agreement provides or the Committee shall determine otherwise, in the event that the employment or service of a Participant with the Company shall terminate for any reason other than Cause, Disability, Retirement or death: (i) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the date that is 90 days after such termination, on which date they shall expire; and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The 90-day period described in this Section 7(g)(1) shall be extended to one year in the event of the Participant's death during such 90-day period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (2) Unless the applicable Award Agreement provides or the Committee shall determine otherwise, in the event that the employment or service of a Participant with the Company shall terminate on account of the Disability or death of the Participant: (i) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the date that is one year after such termination, on which date they shall expire; and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (3) Unless the applicable Award Agreement provides or the Committee shall determine otherwise, in the event that the employment or service of a Participant with the Company shall terminate on account of the Retirement of the Participant: (i) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable for a period of two years from the date of termination, on which date they shall expire; and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (4) Unless the applicable Award Agreement provides or the Committee shall determine otherwise, if a Participant's employment by or service with the Company (or any Subsidiary) is terminated for Cause, any unexercised Stock Option granted to such participant shall be cancelled on the date of such termination, whether or not exercisable on such date. See also Section 20, Cancellation and Rescission of Incentive Awards. (h) Acceleration of Exercise Date Upon Change in Control In the event of a Change in Control, the Committee as constituted immediately before such Change in Control may, in its sole discretion, take action to make each Option granted under the Plan and outstanding at such time fully and immediately exercisable upon such Change in Control, and if so accelerated each Option shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan. In addition, in the event of a potential Change in Control, the Committee may in its discretion cancel any outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Options based upon the price per share of Common Stock to be received by other shareholders of the Company in the Change in Control less the exercise price of each Option. 8. SARS (a) Exercise Price The exercise price per share of an SAR shall be determined by the Committee at the time of grant, but shall in no event be less than the Fair Market Value of a share of Company Stock on the date of grant. (b) Benefit Upon Exercise At the time of granting an SAR, the Committee, in its sole and absolute discretion, shall specify whether the benefit payable upon exercise of the SAR will be paid in shares of Company Stock or in cash, and such form of payment will be made a part of the applicable Award Agreement. The exercise of an SAR with respect to any number of shares of Company Stock shall entitle the Participant to a payment, for each such share, equal to the excess of (i) the Fair Market Value of a share of Company Stock on the exercise date over (ii) the exercise price of the SAR. Payment will be made in shares of Company Stock, valued at their Fair Market Value on the date of exercise, or in cash, as specified in the applicable Award Agreement. Payments shall be made as soon as practicable following exercise of the SAR. (c) Term and Exercise of SARs (1) Unless the applicable Award Agreement provides otherwise, an SAR shall become cumulatively exercisable as to 25 percent of the shares covered thereby on each of the first, second, third and fourth anniversaries of the date of grant. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any SAR, that the Participant or the Company achieves such Performance Goals as the Committee may specify. The Committee shall determine the expiration date of each SAR. Unless the applicable Award Agreement provides otherwise, no SAR shall be exercisable prior to the first anniversary of the date of grant. (2) An SAR may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no partial exercise of an SAR shall be for an aggregate exercise price of less than $1,000. The partial exercise of an SAR shall not cause the expiration, termination or cancellation of the remaining portion thereof. (3) An SAR shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary (or the Secretary's designee), no less than one business day in advance of the effective date of the proposed exercise. Such notice shall be accompanied by the applicable Award Agreement, shall specify the number of shares of Company Stock with respect to which the SAR is being exercised, and the effective date of the proposed exercise, and shall be signed by the Participant. The Participant may withdraw such notice at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise. (d) Effect of Termination of Employment The provisions set forth in Section 7(g) with respect to the exercise of Options following termination of employment shall apply as well to such exercise of SARs. (e) Acceleration of Exercise Date Upon Change in Control In the event of a Change in Control, the Committee as constituted immediately before such Change in Control may, in its sole discretion, take action to make each SAR granted under the Plan and outstanding at such time fully and immediately exercisable upon such Change in Control, and if so accelerated each SAR shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan. 9. RESTRICTED STOCK UNITS (a) Vesting Date At the time of the grant of Restricted Stock Units, the Committee shall establish a Vesting Date or Vesting Dates with respect to such Restricted Stock Units. The Committee may divide such shares into classes and assign a different Vesting Date for each class. Provided that all conditions to the vesting of a Restricted Stock Unit imposed pursuant to Section 9(c) are satisfied, and except as provided in Section 9(d), upon the occurrence of the Vesting Date with respect to a Restricted Stock Unit, such Restricted Stock Unit shall vest. (b) Benefit Upon Vesting Upon the vesting of a Restricted Stock Unit, the Participant shall be entitled to receive one share of Company Stock or an amount in cash equal to the Fair Market Value of a share of Company Stock on the date on which such share of Restricted Stock Unit vests, as determined by the Committee. (c) Conditions to Vesting At the time of the grant of Restricted Stock Units, the Committee may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any class or classes of Restricted Stock Units, that the Participant or the Company achieves such Performance Goals as the Committee may specify. The Committee may, in its discretion, also make grants of Restricted Stock Units which vest over a period of time of at least one year. (d) Dividends on Restricted Stock Units Company Stock underlying Restricted Stock Units shall be entitled to dividends or dividend equivalents only to the extent provided by the Committee. (e) Consequences of Vesting Upon the vesting of a Restricted Stock Unit (other than a Restricted Stock Unit that is settled in cash) pursuant to the terms of the Plan and the applicable Award Agreement, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such Restricted Stock Unit was granted. Notwithstanding the foregoing, such share still may be subject to restrictions on transfer as a result of applicable securities laws. (f) Effect of Termination of Employment (1) Unless the applicable Award Agreement or the Committee provides otherwise, Restricted Stock Units that have not vested shall be forfeited upon the Participant's termination of employment for any reason other than Cause. (2) In the event of the termination of a Participant's employment for Cause, all Restricted Stock Units granted to such Participant which have not vested as of the date of such termination shall immediately be forfeited. See also Section 20, Cancellation and Rescission of Incentive Awards. (g) Effect of Change in Control In the event of a Change in Control, the Committee as constituted immediately before such Change in Control may, in its sole discretion, take action to immediately vest upon such Change in Control all outstanding Restricted Stock Units which have not theretofore vested. 10. RESTRICTED STOCK (a) Issue Date and Vesting Date At the time of the grant of shares of Restricted Stock, the Committee shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares. The Committee may divide such shares into classes and assign a different Issue Date and/or Vesting Date for each class. If the grantee is employed by the Company on an Issue Date (which may be the date of grant), the specified number of shares of Restricted Stock shall be issued in accordance with the provisions of Section 10(e). Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 10(b) are satisfied, and except as provided in Section 10(g), upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 10(c) shall cease to apply to such share. (b) Conditions to Vesting At the time of the grant of shares of Restricted Stock, the Committee may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any class or classes of shares of Restricted Stock, that the Participant or the Company achieves such Performance Goals as the Committee may specify. The Committee may, in its discretion, also make grants of Restricted Stock which vest over a period of time of at least one year. (c) Restrictions on Transfer Prior to Vesting Prior to the vesting of a share of Restricted Stock, no transfer of a Participant's rights with respect to such share, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such share, and all of the rights related thereto, shall be forfeited by the Participant. (d) Dividends on Restricted Stock The Committee in its discretion may require that any dividends paid on shares of Restricted Stock shall be held in escrow until all restrictions on such shares have lapsed. (e) Issuance of Certificates (1) Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares; provided, that the Company shall not cause such a stock certificate to be issued unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend: The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the CalAmp Corp. 2004 Stock Incentive Plan and related Award Agreement, and such rules, regulations and interpretations as the CalAmp Corp. Compensation Committee may adopt. Copies of the Plan, Award Agreement and, if any, rules, regulations and interpretations are on file in the office of the Secretary of CalAmp Corp., 1401 North Rice Avenue, Oxnard, California 93030. Such legend shall not be removed until such shares vest pursuant to the terms hereof. (2) Each certificate issued pursuant to this Section 10(e), together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be held in escrow by the Company until (i) the restrictions have lapsed and (ii) the income tax and employment tax withholding amounts have been satisfied, as provided for in Section 17 hereof. (f) Consequences of Vesting Upon the vesting of a share of Restricted Stock pursuant to the terms of the Plan and the applicable Award Agreement, the restrictions of Section 10(c) shall cease to apply to such share. Reasonably promptly after a share of Restricted Stock vests, the Company shall cause to be delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in Section 10(e). Notwithstanding the foregoing, such share still may be subject to restrictions on transfer as a result of applicable securities laws. (g) Effect of Termination of Employment (1) Unless the applicable Award Agreement or the Committee provides otherwise, during the 90 days following termination of a Participant's employment for any reason other than Cause, the Company shall have the right to require the return of any shares to which restrictions on transferability apply, in exchange for which the Company shall repay to the Participant (or the Participant's estate) any amount paid by the Participant for such shares. In the event that the Company requires such a return of shares, it also shall have the right to require the return of all dividends paid on such shares, whether by termination of any escrow arrangement under which such dividends are held or otherwise. (2) In the event of the termination of a Participant's employment for Cause, all shares of Restricted Stock granted to such Participant which have not vested as of the date of such termination shall immediately be returned to the Company, together with any dividends paid on such shares, in return for which the Company shall repay to the Participant any amount paid for such shares. See also Section 20, Cancellation and Rescission of Incentive Awards. (h) Effect of Change in Control In the event of a Change in Control, the Committee as constituted immediately before such Change in Control may, in its sole discretion, take action to immediately vest upon such Change in Control all outstanding shares of Restricted Stock which have not theretofore vested. 11. PHANTOM STOCK (a) Vesting Date At the time of the grant of shares of Phantom Stock, the Committee shall establish a Vesting Date or Vesting Dates with respect to such shares. The Committee may divide such shares into classes and assign a different Vesting Date for each class. Provided that all conditions to the vesting of a share of Phantom Stock imposed pursuant to Section 11(c) are satisfied, and except as provided in Section 11(d), upon the occurrence of the Vesting Date with respect to a share of Phantom Stock, such share shall vest. (b) Benefit Upon Vesting Upon the vesting of a share of Phantom Stock, the Participant shall be entitled to receive in cash, within 30 days of the date on which such share vests, an amount equal to the sum of (i) the Fair Market Value of a share of Company Stock on the date on which such share of Phantom Stock vests and (ii) the aggregate amount of cash dividends paid with respect to a share of Company Stock during the period commencing on the date on which the share of Phantom Stock was granted and terminating on the date on which such share vests. (c) Conditions to Vesting At the time of the grant of shares of Phantom Stock, the Committee may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any class or classes of shares of Phantom Stock, that the Participant or the Company achieves such Performance Goals as the Committee may specify. The Committee may, in its discretion, also make grants of Phantom Stock which vest over a period of time of at least one year. (d) Effect of Termination of Employment (1) Unless the applicable Award Agreement or the Committee provides otherwise, shares of Phantom Stock that have not vested, together with any dividends credited on such shares, shall be forfeited upon the Participant's termination of employment for any reason other than Cause. (2) In the event of the termination of a Participant's employment for Cause, all shares of Phantom Stock granted to such Participant which have not vested as of the date of such termination shall immediately be forfeited, together with any dividends credited on such shares. See also Section 20, Cancellation and Rescission of Incentive Awards. (e) Effect of Change in Control In the event of a Change in Control, the Committee as constituted immediately before such Change in Control may, in its sole discretion, take action to immediately vest upon such Change in Control all outstanding shares of Phantom Stock which have not theretofore vested. 12. STOCK BONUSES In the event that the Committee grants a Stock Bonus, a certificate for the shares of Company Stock comprising such Stock Bonus shall be issued in the name of the Participant to whom such grant was made and delivered to such Participant as soon as practicable after the date on which such Stock Bonus is payable. 13. NON-EMPLOYEE DIRECTOR AWARDS Each year, on the day of the annual meeting of the stockholders of the Company at which directors of the Company are elected (and, in the case that a person becomes a Non-Employee Director other than at an annual meeting, on such date that the person first becomes a Non-Employee Director), each Non-Employee Director shall receive Incentive Awards in an amount not to exceed 10,000 Units. The specific amount of Incentive Award Units to be granted to each Non-Employee Director on such dates will be as determined by the Board of Directors from time to time, subject to this limitation of 10,000 Units on each such date. If, on any date upon which Incentive Awards are to be granted pursuant to this Section 13, the number of shares of Company Stock remaining available for issuance under the Plan is less than the total number of shares of Company Stock that otherwise would be covered by such Incentive Awards, in the aggregate, then Incentive Awards for a pro rata amount of the remaining shares of Company Stock available for issuance (rounded to the nearest whole share) shall be awarded to each Non-Employee Director on such date. Incentive Awards granted pursuant to this Section 13 shall generally become exercisable one (1) year from the date of grant or over such longer or shorter period as the Board of Directors may from time to time establish, subject to the discretion of the Committee to accelerate the vesting of Incentive Awards as provided in Section 4 hereof. 14. RIGHTS AS A STOCKHOLDER No person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Incentive Award until the date of issuance of a stock certificate with respect to such shares. Except as otherwise expressly provided in Section 3(c), no adjustment to any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. 15. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD Nothing contained in the Plan or any Award Agreement shall confer upon any Participant any right with respect to the continuation of employment by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant. No person shall have any claim or right to receive an Incentive Award hereunder. The Committee's granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant any other Incentive Award to such Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other person. 16. SECURITIES MATTERS (a) The Company shall be under no obligation to affect the registration pursuant to the Securities Act of 1933 of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of the Nasdaq National Market and any other securities exchange on which shares of Company Stock are traded. Certificates evidencing shares of Company Stock issued pursuant to the terms hereof, may bear such legends, as the Committee or the Company, in its sole discretion, deems necessary or desirable to insure compliance with applicable securities laws. (b) The transfer of any shares of Company Stock hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of the Nasdaq National Market and any other securities exchange on which shares of Company Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any transfer of shares of Company stock hereunder in order to allow the issuance of such shares to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Company shall inform the Participant in writing of the Committee's decision to defer the effectiveness of a transfer. During the period of such a deferral in connection with the exercise of an Option, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 17. WITHHOLDING TAXES Whenever cash is to be paid pursuant to an Incentive Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever shares of Company Stock are to be delivered pursuant to an Incentive Award, the amount of any federal, state and local tax withholding requirements must be satisfied by the Participant prior to the issuance of shares by the Company (or, in the case of Restricted Stock, before the release of such shares from escrow). The Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, which it shall have sole discretion to grant, a Participant may satisfy the foregoing requirement by (i) electing to have the Company withhold and retain from delivery shares of Company Stock having a value equal to the amount of the tax withholding requirement, or (ii) delivering to the Company already vested and owned shares of Common Stock having a value equal to the amount of the tax withholding requirement. Such shares shall be valued at their Fair Market Value on the date as of which the amount of tax to be withheld is determined (the "Tax Date"). Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Incentive Award. To the extent required for such a withholding of stock to qualify for the exemption available under Rule 16b-3, such an election by a grantee whose transactions in Company Stock are subject to Section 16(b) of the Exchange Act shall be: (i) subject to the approval of the Committee in its sole discretion; (ii) irrevocable; (iii) made no sooner than six months after the grant of the award with respect to which the election is made; and (iv) made at least six months prior to the Tax Date unless such withholding election is in connection with exercise of an Option and both the election and the exercise occur prior to the Tax Date in a "window period" of twenty business days beginning on the third day following release of the Company's quarterly or annual summary statement of sales and earnings. 18. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE If any Participant shall, in connection with the award of Restricted Stock under the Plan, make the election permitted under Section 83(b) of the Code (i.e., an election to include in gross income in the year of award the amounts specified in Section 83(b)), such Participant shall notify the Company of such election at the time of entering into the Award Agreement pertaining to the Restricted Stock award, and shall concurrently make a payment to the Company of the aggregate income tax and employment tax withholding amount, such payment to be made in cash, by certified check, bank cashier's check or wire transfer. 19. NOTIFICATION UPON DISQUALIFYING DISPOSITION Each Award Agreement with respect to an Incentive Stock Option shall require the Participant to notify the Company of any disposition of shares of Company Stock issued pursuant to the exercise of such Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions) within ten days of such disposition. 20. CANCELLATION AND RESCISSION OF INCENTIVE AWARDS Unless the Award Agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Incentive Awards at any time if the Participant is not in compliance with all applicable provisions of the Award Agreement, or if the Participant engages in any "Detrimental Activity." For purposes of this Section 20, "Detrimental Activity" shall include: (i) the rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company; (ii) the disclosure to anyone outside the Company, or the use in other than the Company's business, without prior written authorization from the Company, of any confidential information or material, as defined in the Company's Agreement Regarding Confidential Information and Intellectual Property, relating to the business of the Company, acquired by the Participant either during or after employment with the Company; (iii) the failure or refusal to disclose promptly and to assign to the Company, pursuant to the Company's "Confidentiality, Company Property, and Non-Solicitation Agreement" (formerly known as the Company's "Confidential Invention Agreement"), all right, title and interest in any invention or idea, patentable or not, made or conceived by the Participant during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company or the failure or refusal to do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in other countries; (iv) activity that results in termination of the Participant's employment for Cause; (v) a violation of any rules, policies, procedures or guidelines of the Company, including but not limited to the Company's Code of Business Conduct and Ethics policy; (vi) any attempt directly or indirectly to induce any employee of the Company to be employed or perform services elsewhere or any attempt directly or indirectly to solicit the trade or business of any current or prospective customer, supplier or partner of the Company; (vii) the Participant being convicted of, or entering a guilty plea with respect to, a crime, whether or not connected with the Company; or (viii) any other conduct or act determined to be injurious, detrimental or prejudicial to any interest of the Company. 21. AMENDMENT OR TERMINATION OF THE PLAN The Board of Directors may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that stockholder approval shall be required if and to the extent required by Rule 16b-3 or by any comparable or successor exemption under which the Board of Directors believes it is appropriate for the Plan to qualify, or if and to the extent the Board of Directors determines that such approval is appropriate for purposes of satisfying Section 162(m) or Section 422 of the Code. Nothing herein shall restrict the Committee's ability to exercise its discretionary authority pursuant to Section 4, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant's rights under any outstanding Incentive Award. 22. NO OBLIGATION TO EXERCISE The grant to a Participant of an Option or SAR shall impose no obligation upon such Participant to exercise such Option or SAR. 23. TRANSFERS UPON DEATH; NONASSIGNABILITY Upon the death of a Participant outstanding Incentive Awards granted to such Participant may be exercised only by the executor or administrator of the Participant's estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. No transfer of an Incentive Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Incentive Award. During a Participant's lifetime, the Committee may, in its discretion, permit the transfer, assignment or other encumbrance of an outstanding Option or outstanding shares of Restricted Stock; provided that, in the case of an Incentive Stock Option, transferability may be permitted during the Participant's lifetime only to the extent that the Incentive Stock Option retains its qualified status, unless the Committee and the Participant agree otherwise. 24. EXPENSES AND RECEIPTS The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Incentive Award will be used for general corporate purposes. 25. FAILURE TO COMPLY In addition to the remedies of the Company elsewhere provided for herein, failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the applicable Award Agreement, unless such failure is remedied by such Participant (or beneficiary) within ten days after notice of such failure by the Committee, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Committee, in its sole discretion, may determine. 26. EFFECTIVE DATE AND TERM OF PLAN The Plan shall be effective as of the Effective Date. Unless earlier terminated by the Board of Directors, the right to grant Incentive Awards under the Plan will terminate on the tenth anniversary of the Effective Date. Incentive Awards outstanding at Plan termination will remain in effect according to their terms and the provisions of the Plan. 27. APPLICABLE LAW Except to the extent preempted by any applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of Delaware, without reference to the principles of conflicts of laws thereunder. EX-21 4 exhibit_21.txt SUBSIDIARIES OF REGISTRANT Exhibit 21 LIST OF SUBSIDIARIES CalAmp DataCom, Inc. - a Delaware corporation CalAmp Northstar Holdings, Inc. - a Canadian corporation * CalAmp Northstar General Partnership - a Canadian partnership CalAmp Satellite Products, Inc. - a Delaware corporation CalAmp Solutions Holdings, Inc. - a Delaware corporation * CalAmp Solutions, Inc. - a California corporation California Amplifier SARL - a French corporation Dataradio COR Ltd. - a Delaware corporation Dataradio Corporation - a Delaware corporation Dataradio Holdings, Inc. - a Delaware corporation * Dataradio Inc. - a Canadian corporation MK NY Service Corp. (inactive) - a New York corporation Vytek Products, Inc. (inactive) - a California corporation * non-operating holding company EX-23 5 exhibit_23.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors CalAmp Corp.: We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-98981 and 333-119858), Form S-4 (No. 333-112851) and Form S- 8 (Nos. 33-31427, 33-36944, 33-72704, 33-60879, 333-33925, 333-93097, 333-114873 and 333-119842) of CalAmp Corp. of our reports dated May 17, 2007, with respect to the consolidated balance sheets of CalAmp Corp. and subsidiaries as of February 28, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended February 28, 2007, management's assessment of the effectiveness of internal control over financial reporting as of February 28, 2007, and the effectiveness of internal control over financial reporting as of February 28, 2007, which reports appear in the February 28, 2007, annual report on Form 10-K of CalAmp Corp. Our report on the consolidated financial statements refers to CalAmp Corp.'s adoption of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment", effective March 1, 2006. Our report on management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of February 28, 2007, contains an explanatory paragraph that states CalAmp Corp. acquired Dataradio Inc. on May 26, 2006, and management excluded from its assessment of the effectiveness of CalAmp Corp.'s internal control over financial reporting as of February 28, 2007, Dataradio Inc.'s internal control over financial reporting associated with total assets of $56,396,000 and total revenues of $22,821,000 included in the consolidated financial statements of CalAmp Corp. and subsidiaries as of and for the year ended February 28, 2007. Our audit of internal control over financial reporting of CalAmp Corp. also excluded an evaluation of the internal control over financial reporting of Dataradio Inc. /s/KPMG LLP Los Angeles, California May 17, 2007 EX-31 6 exhibit_31-1.txt CEO CERTIFICATION EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS AMENDED I, Fred M. Sturm, certify that: 1. I have reviewed this annual report on Form 10-K of CalAmp Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 17, 2007 /s/ Fred M. Sturm ------------------------ ----------------------------- Date Fred M. Sturm Chief Executive Officer EX-31 7 exhibit_31-2.txt CFO CERTIFICATION EXHIBIT 31.2 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS AMENDED I, Richard K. Vitelle, certify that: 1. I have reviewed this annual report on Form 10-K of CalAmp Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 17, 2007 /s/ Richard K. Vitelle ------------------------ ----------------------------- Date Richard K. Vitelle Chief Financial Officer EX-32 8 exhibit_32.txt SECTION 906 CERTIFICATION EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CalAmp Corp. (the "Company") on Form 10-K for the year ended February 28, 2007 as filed with the Securities and Exchange (the "Report"), we, Fred M. Sturm, President and Chief Executive Officer of the Company, and Richard K. Vitelle, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Fred M. Sturm ----------------------------- Fred M. Sturm President and Chief Executive Officer /s/ Richard K. Vitelle ----------------------------- Richard K. Vitelle Vice President and Chief Financial Officer May 17, 2007 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----