Legal Proceedings and Other Matters

3 Months Ended

Oct. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings and Other Matters

Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

On October 25, 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company’s current directors, the Company (as nominal defendant), White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was amended on November 1, 2021. On November 10, 2021, the parties filed a Stipulation and Proposed Order in the Franchi matter, pursuant to which, among other things, the parties agreed, that: (a) Plaintiff’s claims that Comtech's preliminary proxy statement omitted material information regarding the White Hat and Magnetar investments would be dismissed with prejudice and claim that such investments included an implied voting agreement in connection with the 2021 Annual Meeting would be dismissed without prejudice; (b) Plaintiff withdrew his motion seeking expedited proceedings and an order directing the parties to negotiate a schedule leading to a preliminary injunction hearing; (c) Comtech agreed to make additional disclosures about the preferred stock transaction and Plaintiff’s lawsuit in its definitive proxy statement for the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”); (d) Comtech agreed that the voting obligations imposed by the voting agreements with White Hat and Magnetar will not apply with respect to director elections during the terms of the voting agreements; (e) if White Hat and or Magnetar’s votes of the Convertible Preferred Stock are outcome-determinative in the director elections at the 2021 Annual Meeting and if Plaintiff thereafter brings an action containing a claim challenging the election of the directors at the 2021 Annual Meeting, the Defendants agreed to accept service of such a complaint and agreed to ask the court to schedule a final merits-based hearing within 60 days of the filing of the complaint; (f) Plaintiff reserved the right to pursue claims for money damages or other, non-expedited equitable remedies relating to the Convertible Preferred Stock transaction after the 2021 Annual Meeting; and (g) Comtech agreed to provide Plaintiff with certain agreed-upon document discovery. While we disputed all Plaintiff’s allegations and believed them to be without merit, we believed that entering into the aforementioned Stipulation and Proposed Order would avoid unnecessary litigation and is in the best interests of Comtech’s stockholders.

Other Matters

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts to indemnify, hold harmless and reimburse such customers for certain losses, including but not limited to losses related to third-party claims of intellectual property infringement arising from the customer’s use of our products or services. We may also, from time to time, receive indemnification requests from customers related to third-party claims that 911 calls were improperly routed during an emergency. We evaluate such claims as and when they arise. We do not always agree with customers that they are entitled to indemnification and in such cases reject their claims. Despite maintaining that we have properly carried out our duties, we may seek coverage under our various insurance policies; however, we cannot be sure that we will be able to maintain or obtain insurance coverage at acceptable costs or in sufficient amounts or that our insurer will not disclaim coverage as to such claims. Accordingly, pending or future claims asserted against us by a party that we agree to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

There are certain other pending and threatened legal actions which arise in the normal course of business. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.

Employment Change of Control and Indemnification Agreements

We have an employment agreement and change of control agreement with Fred Kornberg, our Chief Executive Officer ("CEO") and Chairman of the Board. The employment agreement generally provides for an annual salary and bonus award. We have also entered into change of control agreements with certain of our executive officers and certain key employees. All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or a termination of the employee.

In October 2021, we announced that our Board of Directors has appointed Michael D. Porcelain, our President and Chief Operating Officer, to be CEO by the end of calendar 2021, at which point Mr. Porcelain will also join our Board of Directors and continue as President. Mr. Kornberg will serve as non-executive Chairman and is expected to take on a technology advisory role. Costs associated with this leadership transition will be announced once they are finalized.