SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-7336
RELM WIRELESS CORPORATION (formerly ADAGE, INC.)
(Exact name of registrant as specified in its charter)
Nevada (formerly Pennsylvania) 04-2225121
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7505 Technology Drive
West Melbourne, Florida 32904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 984-1414
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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.
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. [ ]
The aggregate market value of the voting stock of the registrant held by non-affiliates of the Registrant on March 31, 1998, based on the closing price at which such stock was sold on the NASDAQ National Market on such date, was $20,342,603.
As of March 31, 1998, 5,041,213 shares of the Registrant's only class of Common Stock were outstanding.
Documents Incorporated by Reference: None
PART I
ITEM 1. BUSINESS
Reincorporation of Adage, Inc. into RELM Wireless Corporation
RELM Wireless Corporation, a Nevada corporation ("RELM" or the "Company"), is the resulting corporation from the January 30, 1998 reincorporation merger (the "Reincorporation") of Adage, Inc., a Pennsylvania corporation ("Adage"), into RELM, its wholly owned subsidiary. The Reincorporation was approved by the shareholders of Adage at its annual meeting held on December 8, 1997. In connection with the geographical transition of the business activities of Adage out of Pennsylvania to its new headquarters in Florida and the refocusing of Adage's resources and management on the manufacturing and sale of wireless communications equipment its Board of Directors recommended approval of the Reincorporation to change its State of Incorporation and to change its corporate name to a name closely identified with the name of its principal subsidiary, RELM Communications, Inc. and the wireless communications products which it markets under the RELM identity.
Also as a result of the Reincorporation, each share of Adage common stock outstanding immediately prior to the Reincorporation was converted, effective as of January 30, 1998, into one share of RELM common stock and the trading symbol for the shares was changed from "ADGE" to "RELM". Until RELM gives notice to its shareholders to exchange their Adage share certificates for RELM share certificates, the outstanding Adage share certificates shall continue to represent the RELM shares into which they have been converted.
General
RELM Wireless Corporation (together with its subsidiaries, "RELM") is a holding company that owns, directly or indirectly, at least 80% of the capital stock of entities involved in the wireless communications equipment and commercial real estate industry segments. During 1994, RELM (references herein to RELM for periods prior to January 30, 1998 shall constitute references to its predecessor, Adage) decided to discontinue and exit the commercial real estate segment. Accordingly, it has been reported as a discontinued operation since 1994. Because RELM had not completed its
exit from this business within the 12 month time frame set forth by the Securities and Exchange Commission, the financial statements have been restated, classifying this operation as continuing for the years ended December 31, 1997, 1996 and 1995.
During the fourth quarter of 1997, RELM implemented significant restructuring plans that resulted in charges to continuing operations of $9.6 million for the year. The major components of these plans are to discontinue inadequately profitable products and product lines, close the Indiana engineering center and reestablish operations at the Florida facility, and downsize the Florida manufacturing operation. Specific information regarding these actions and the charges associated with each is contained in item 7 of this report.
Also during 1997, RELM sold its specialty manufacturing subsidiary, Allister Manufacturing Company, Inc. ("Allister") to an entity formed by Robert T. Holland, the former Chief Financial Officer of RELM. Allister manufactured and sold automatic garage door and gate control systems. Also during 1997, RELM sold its recycled paper-manufacturing subsidiary, Fort Orange Paper Company, Inc. ("Fort Orange"). Fort Orange manufactured and sold recycled paperboard used primarily in the folding paper box industry. Allister and Fort Orange are reported as discontinued operations for the years ended December 31, 1997, 1996 and 1995. The principal executive offices of RELM were relocated during 1997 from West Chester, Pennsylvania to the present executive offices in West Melbourne, Florida.
On December 1, 1997, RELM employed Richard K. Laird as President and Chief Executive Officer. Mr. Laird came to RELM following a successful 20-year career with high technology communications companies.
The principal executive offices of RELM are located at 7505 Technology Drive, West Melbourne, Florida 32904 and the telephone number if (407) 984-1414. As of December 31, 1997 RELM employed 370 people located primarily at the West Melbourne, Florida facility. RELM also has facilities located in Indiana, Virginia and Nebraska.
Sales Information about Industry Segments
As an aid to understanding the company's major product lines and their sales, the following table summarizes sales information by major product lines and industry segments.
1997 1996 1995
---- ---- ----
Land Mobile Radio $34.2 $38.9 $34.7
Digital Data Communications 3.1 4.1 4.9
Access Controls 2.3 3.9 2.6
Electronic Components 1.8 2.4 3.1
Inter-Segment Elimination -- (3.9) (2.6)
----- ----- -----
Total Wireless Comm. Equipment $41.4 $45.4 $41.9
Commercial Real Estate $ 4.0 $ 2.2 $ 2.6
----- ----- -----
Total Company $45.4 $47.6 $45.3
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Audited financial statements and detailed supplementary financial information are found in items 6, 7, and 8.
Principal Business and Products of Subsidiaries
Wireless Communications Equipment - RELM Communications, Inc.
RELM Communications, Inc. is a Florida corporation located in West Melbourne, Florida. On January 24, 1992, RELM Wireless Corporation acquired all of the outstanding stock of RELM Communications, Inc. in exchange for 1,946,183 shares of RELM Wireless Corporation common stock.
RELM operates exclusively in the wireless communications industry, designing, manufacturing, and marketing wireless communications equipment consisting of land mobile radios, utility load management systems, and base station components and subsystems. Additionally, RELM is engaged in the contract manufacture of radio control products for use in garage door and gate operators.
In September 1993, RELM purchased the assets and business of Bendix/King Mobile Communications Division of Allied Signal. This product line (BK Radio) consists of higher-specification land-mobile radios whose primary market focus is professional radio users in the government and public safety sectors. The BK products, with more extensive features and capabilities, provide a strong compliment to the original line of RELM radios.
Description of Products & Markets
Land-Mobile Radios and Accessories
These products are marketed under two product lines. The RELM product line is sold for use primarily by commercial business enterprises. The BK product line is used by government customers, including the U. S. Army and the U. S. Forestry Service, as well as public-safety customers, which include police, fire, and emergency medical services. Both product lines include base stations, mobile two-way radios for mounting in vehicles, portable (hand-held) radios, and repeaters that enable two-way radios to operate over a wider area. RELM also manufactures base station components and subsystems which are installed at radio transmitter sites to improve performance by reducing or eliminating signal interference and to enable the use of one antenna for both transmission and reception. RELM sells land-mobile products to original equipment manufacturers, government agencies, and dealers who resell the product to end-users. In 1996, RELM introduced scanner products. A scanner is a radio receiver that allows the user to listen to various radio frequencies. RELM sells scanners primarily to dealers who resell the product to end-users.
Digital Data Communications Equipment
RELM manufactures load management systems for sale to electric utility companies, dealers, and jobbers. A load management system enables its user to limit usage of electricity during peak demand periods. Using radio transmitters, a signal is sent by the utility company to individual receivers that are wired to appliances such as air conditioners and water heaters. The power to the appliances is momentarily turned-off which reduces power demand and shifts consumption to non-peak hours.
Radio Controls for the Garage Door and Gate Operator Industry
RELM manufactures small, low-powered receivers, transmitters, and control circuit boards designed by Allister Access Controls, a former subsidiary of RELM. These products control the operation of automatic garage door and gate operators and are manufactured under the Allister and Pulsar brand names. Allister sells garage door and gate operators to distributors and dealers who re-sell and install them for the end-user. The company was sold in 1997.
Electronic Components
RELM markets electronic components, primarily microprocessors and clock oscillators, to electronic component distributors and original equipment manufacturers through its RXD subsidiary. The components are used in various electronic products including computers, electronic scales, organs, keyboards, and toys.
Research and Development
RELM employed 30 people as of December 31, 1997 who devote all or a portion of their time to research and development. Expenses for sustaining engineering as well as research and development totaled $5.5 million, $3.1 million, and $2.9 million for the years ended December 31, 1997, 1996, and 1995 respectively. Engineering expenses in 1997 include charges for closing the Indiana engineering facility and reestablishing engineering and R&D operations in Florida. The company has sharply focused its R&D efforts on two projects that will yield new products in the second half of 1998 and beyond; 1) the development of APCO 25 compliant products, and 2) the replacement of aging BK analog products. As part of the re-defined focus, engineering operations were consolidated from Indiana to the company's Florida facility in February 1998 and non-strategic engineering spending will be reduced by more than $2 million annually, including a reduction in force of 16 employees.
Patents
RELM holds patents and patent licenses covering various land-mobile radio products that are currently marketed. The company also holds patents covering products in its digital communication product line. These patents cover the decoding of digital data messages, retrieval of digital data, and high-speed data transmission on FM sub-carrier frequencies. They have various expiration dates out to the year 2001. It is difficult to precisely
assess the importance of the patents and licenses, however, RELM believes that they enhance RELM's competitive position.
Raw Materials
RELM purchases component parts and raw materials for assembly into finished products from both domestic and foreign suppliers. The primary foreign suppliers are located in the pacific-rim. Certain components are only available from a single source. The amount of these components is not material relative to total component and raw material purchases. During the years ended December 31, 1995, 1996, and 1997 RELM's operations have not been impaired due to delays from single source suppliers. However, the absence of a single source component may delay the manufacture of finished products. The company manages the risk of such delays by securing second sources and redesigning products in response to component shortages or obsolescence.
Seasonal Impact
Demand for the RELM's BK land-mobile radio products is typically strongest in the summer season. This is a reflection of the increased forest fire activity during that time.
Significant Customers
In 1996, the company was awarded a contract to provide land mobile radios to the United States Army. This contract is for a term of five years and totals in excess of $40 million in revenue. Shipments commenced in 1997 and totaled $10.4 million, representing 22.9% of total sales for that year.
Backlog
The company's order backlog was approximately $4.5 million and $8.9 million as of December 31, 1997 and 1996 respectively. This included only the current portion of the U.S. Army contract.
Competition
The worldwide land mobile radio markets are estimated to be $7.5 billion with annual growth of approximately 10%. RELM competes with many domestic and foreign companies in these markets. One competitor holds an estimated market share of about 70%. The principal methods of competition are price, quality, and technology advances. The company believes that it is competitive with regard to these factors.
Employees
The company employed 370 people as of December 31, 1997.
Information Relating to Domestic and Export Sales
($ In Millions)
1997 1996 1995
---- ---- ----
United States $36.9 $39.0 $38.4
South America $ 2.1 $ 1.8 $ .8
Europe $ 1.7 $ 4.1 $ 2.6
Other International $ .7 $ .4 $ .1
----- ----- -----
Total $41.4 $45.3 $41.9
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Redgo Properties, Inc.
Redgo Properties, Inc. is a Pennsylvania Corporation engaged in developing and managing real estate. In 1995, the company decided to discontinue this segment. Real estate inventories are carried at their estimated liquidation value as of December 31, 1997.
This segment has been reported as a discontinued operation since 1995. To be classified as a discontinued operation, SEC Regulations require that the business be exited or disposed of within twelve (12) months. Although the company has made every effort to liquidate all of its Redgo holdings, several properties remain. Consequently, this segment has been reclassified as a continuing operation.
Management anticipates selling the remaining real estate assets and exiting the business in 1998.
ITEM 2. PROPERTIES
Owned
A 130,000 square foot office and industrial building on 20 acres located in West Melbourne, Florida, which includes a 30,000 square foot addition for engineering and headquarters functions. This building is utilized for the manufacture of wireless communications equipment. The facility was expanded to allow the consolidation of all operations at the West Melbourne, Florida location.
Leased
A 37,600 square foot facility located in Indianapolis, Indiana used primarily for engineering. Engineering operations have been consolidated at the Florida facility. The Indiana offices will close in April of 1998. The 1997 operating loss includes a reserve for the present value of the lease commitment. Negotiations are underway to sublease the facility.
A 5,000 square foot facility located in Norfolk, Nebraska that is used for the operations of RXD, Inc. (electronic components), a wholly owned subsidiary of RELM. Lease payments are $1,000 per month.
A 792 square foot facility located in Vienna, Virginia that is used for the company's government sales office. Lease payments are $1,848 per month.
ITEM 3. LEGAL PROCEEDINGS
On February 14, 1996, the Insurance Commissioner of the Commonwealth of Pennsylvania (the "Insurance Commissioner"), in her capacity as statutory liquidator for Corporate Life Insurance Company ("Corporate Life"), filed a complaint against multiple defendants in the Commonwealth Court of Pennsylvania, including RELM and Mr. Donald Goebert (in his capacity as an officer and Director of RELM). The specific claims alleged against RELM and Mr. Goebert in the complaint are for a preferential transfer, conspiracy and common law fraud arising from a 1987 transaction between RELM and Corporate Investment Company ("CIC"), the parent company of Corporate Life, pursuant to which RELM and CIC exchanged promissory notes in the amount of $1,700,000 (the "Note Transaction"). In connection with the Note Transaction, CIC pledged to RELM as security for
its note payment obligation its shares of stock of Corporate Life. CIC subsequently defaulted on its note. In 1991, at the demand of the Insurance Commissioner, CIC sold Corporate Life to American Homestead, Inc. ("AHI") and, in connection with such sale; RELM assigned its note receivable from CIC along with the collateral to AHI. As consideration for this assignment, AHI agreed to assume RELM's obligations under its note to CIC in the amount of $1,700,000. Accordingly, although the complaint alleges a claim for a preferential transfer. RELM received no payment of funds from CIC. The conspiracy claims are non-specific but pertain to the sale of Corporate Life to AHI in 1991. Mr. Goebert was an officer and director of CIC.
In one of two related actions, in 1994 the Trustee and statutory liquidator of CIC, in connection with the current bankruptcy proceedings of CIC, brought an adversarial proceeding in the United States District Court for the Eastern District of Pennsylvania against RELM, Mr. Goebert and other individuals and entities that were involved in the sale of Corporate Life to AHI. This adversarial proceeding alleges the same claims as in the action brought by the Insurance Commissioner in connection with the Note Transaction and the sale of Corporate Life. In the other related action, in 1993 two individual creditors of CIC filed a complaint against, among others, RELM and Mr. Goebert in the United States District Court for the Southern District of New York. The specific claims alleged against RELM and Mr. Goebert in the complaint are for fraud, fraudulent conveyance, securities fraud and RICO in connection with the Note Transaction, the sale of Corporate Life and other investments made by CIC in an effort to raise capital for Corporate Life. Each of the above-related matters is in civil suspense. RELM believes that an adjudication of the action brought by the Insurance Commissioner will in effect resolve both of the related matters on the legal principals of collateral estoppel and/or issue preclusion.
There are approximately 10 pending claims for personal injury and or property damages alleged to have resulted from the malfunction of a garage door or gate operator. The company maintains product liability insurance with coverage's of $2,000,000, subject to deductibles ranging from $75,000 to $500,000. During the times that such claims were made, the Company maintained umbrella coverage extending its insurance coverage for various periods by $3,000,000 to $10,000,000.
RELM believes that there will be no material adverse effect on the financial position of the Company as a result of these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The 1997 Annual Meeting of Shareholders of RELM was held on December 8, 1997. Of the 5,079,176 shares of common stock outstanding and entitled to vote at the meeting, 4,258,799 shares were represented in person or by proxy.
Election of Directors
On the proposal to elect Donald F. U. Goebert, Buck Scott, Robert L. MacDonald, Ralph R. Whitney, Jr., James Gale, Joel Schleicher, and George M. Benjamin, III as directors to serve until the 1998 Annual Meeting of Shareholders and until their successors are duly elected and qualified, the nominees for Director received the number of votes as set forth below.
For Withheld
--- --------
Donald F. U. Goebert 4,234,939 23,860
Buck Scott 4,240,699 18,100
Robert L. MacDonald 4,240,709 18,090
Ralph R. Whitney, Jr. 4,241,597 17,202
James C. Gale 4,240,699 18,100
Joel A. Schleicher 4,240,699 18,100
George N. Benjamin, III 4,240,699 18,100
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At a director's meeting following the annual shareholders meeting, Richard K. Laird, who was employed as President & CEO of RELM on December 1, 1997, was appointed by the Board of Directors as an additional Director.
Reincorporation
On the proposal to change the company's State of Incorporation from Pennsylvania to Nevada and to change the name of the company from Adage, Inc. to RELM Wireless Corporation, 2,568,378 shares were voted
for the proposal, 31,334 shares were voted against the proposal, and 11,797 shares abstained from the vote.
On the basis of the above vote, all of the Director nominees were elected to serve until the next annual meeting of shareholders and until their successors are duly elected and qualified. Also, the plan for re-incorporation and the name change was approved, and became effective on January 30, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT COMMON
EQUITY AND RELATED STOCKHOLDERS MATTERS
The company's stock is traded on the NASDAQ National Market. Formerly, the symbol was "ADGE". The symbol changed to "RELM" effective on January 30, 1998. The following table sets forth for the periods indicated the high and low closing sale prices of the common stock as furnished by NASDAQ.
1997 Quarter Ended High Low ------------------ ---- --- March 31, 1997 3.875 3.250 June 30, 1997 4.688 3.500 September 30, 1997 5.563 4.063 December 31, 1997 7.563 4.188 1996 Quarter Ended High Low ------------------ ---- --- March 31, 1996 5.000 3.7500 June 30, 1996 5.6250 3.7500 September 30, 1996 5.6250 3.7500 December 31, 1996 4.4375 3.1875 |
On March 31, 1998, the closing sale price was $5.75. On that date, there were 2,307 holders of record.
No cash dividends were paid with respect to the company's common stock during the past five years. The company intends to retain its earnings to fund growth and, therefore, does not intend to pay dividends in the foreseeable future. Additionally, the company's revolving credit agreement restricts dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
INCOME STATEMENT
Net Sales & Revenues $45,376 $47,646 $45,266 $47,010 $35,718
Income (Loss) From
Continuing Operations (11,974) (1,347) (533) (759) 29
Income (Loss) From
Discontinued Operations (2,836) (2,679) 1,645 (299) (354)
Net Income (Loss) $(14,810) $(4,026) $1,112 $(1,058) $(325)
Earnings (Loss) Per Share From
Continuing Operations $(2.36) $(0.26) $(0.10) $(0.15) $0.01
Earnings (Loss) Per Share From
Discontinued Operations $(0.56) $(0.52) $0.32 $(0.06) $(0.07)
Net Earnings (Loss) Per Share $(2.92) $(0.78) $0.22 $(0.21) $(0.06)
BALANCE SHEET
Working Capital $10,307 $27,008 $29,904 $32,538 $32,450
Total Assets 31,665 54,028 64,916 87,494 87,474
Long-Term Debt 7,440 15,554 14,906 24,621 28,957
Total Shareholders Equity $14,034 $29,214 $32,620 31,236 $32,479
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The earnings (loss) per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Standards No. 128, Earnings Per Share. For further discussion of earnings per share and the impact of Statement No. 128, see the notes to the consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED WITH 1996
With the emergence of digital technology in wireless communications applications, the company has implemented plans to reposition its products and infrastructure to capitalize on new business opportunities. In connection with these plans, the company recognized charges totaling $9.6 million in 1997. Specifically, these charges relate to the following actions; 1) $2.9 million for the removal of inadequately performing product lines and the associated inventory, 2) $1.1 million for a reduction in force and related expenses at the Florida operation, 3) $1.7 million for the closing and consolidation of the company's Indiana research and development center and reestablishing research and development activities in Florida, and 4) $3.9 million for establishing additional deferred tax asset valuation allowances.
Additionally, the results of Redgo Properties, Inc., a loss of $591,000 were reclassified as continuing operations from discontinued operations. This reclassification is required because, despite the company's best efforts, its exit from the business was not completed within the allowable twelve-month time frame. The company anticipates that its exit will be completed in 1998.
The consolidated loss from continuing operations was $12.0 million for the year ended December 31, 1997. Excluding the impact of the aforementioned charges, the loss from continuing operations was $2.4 million.
As an aid to understanding the company's operating results, the following table shows items from the consolidated statement of operations expressed as a percent of sales.
Percent of Net Sales Year Ended December 31,
1997 1996 1995
---- ---- ----
Sales 100.0% 100.0% 100.0%
Cost of Sales 86.0 71.9 70.8
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Gross Margin 14.0 28.1 29.2
Selling, General, and
Administrative Expenses (26.7) (26.3) (28.5)
Restructuring Charge (4.1) -- --
Impairment Loss -- (2.7) --
Interest Expense (2.0) (1.4) (3.3)
Other Income (Expense) .9 (1.1) .6
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Pretax Income (Loss)
from Continuing Operations (17.9) (3.4) (2.0)
Income Tax (Expense) Benefit (8.5) .6 .8
----- ----- -----
Income (Loss)
from Continuing Operations (26.4%) (2.8%) (1.2%)
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Net Sales
Net Sales for the year ended December 31, 1997 decreased $2.3 million or 4.8% from the prior year. The total decrease is comprised of a $4.1 million decrease in the wireless communications equipment business and a $1.8 million increase in the commercial real estate business.
The 1997 decrease in wireless communications equipment reflects lower customer demand in the company's land mobile radio and demand side management businesses. Land mobile radio sales were adversely impacted by reduced U. S. Forestry Service purchases. Reportedly, this was the result of less-active fire season. Also, sales of traditional analog radios slowed due to uncertainty in the public safety markets as they contemplate migrating to digital technology. Demand side management sales declined for the third consecutive year as the electric utility industry approaches deregulation. Deregulation of utilities may reduce the need for managing peak demand. The company's near term strategy is to focus on the land mobile radio
business. Toward that end, products and product lines that do not fit this strategy or are not adequately profitable, have been or will be discontinued. Conversely, management anticipates introducing new product offers to replace the existing analog product line in the fourth quarter of 1998. Furthermore, the company's development of APCO 25 compliant digital products will yield additional new products in the third quarter of 1998. Although management believes the strategy of focusing in land mobile radios will yield reduced sales in 1998, cost reduction actions expected to return the company to profitability, while new product initiatives will position the company for sales growth going forward.
Cost of Sales
Cost of Sales as a percent of net sales for the year ended December 31, 1997 increased to 86.0% from 71.9% in the prior year. This increase was primarily the result of charges related to discontinuing inadequately profitable products and lines. Other contributing factors were declining volumes in the fourth quarter and the reclassification of the company's commercial real estate business as a continuing operation.
As the company executes its strategy of focusing on land mobile radios, it is anticipated that volumes will decrease in 1998. In response to these developments, the company implemented its December, 1997 plan to reduce manufacturing costs, in excess of $2.5 million annually, including a headcount reduction of approximately 50 employees.
Selling; General and Administrative Expenses
Selling, general, and administrative expenses (SG&A) consist of commissions, marketing, sales, sustaining engineering, product development, management information, accounting, and headquarters. For the year ended December 31, 1997, SG&A expenses totaled $12.1 million or 26.7% of net sales compared with $12.5 million or 26.3% for the prior year. The increase in SG&A costs was primarily the result of charges associated with closing the Indiana engineering center and reestablishing operations in Florida. Additionally, the company incurred product development costs associated with the company's engineering initiative for replacing its aging analog radio product offerings. Also, headquarters expenses increased due to the re-incorporation from Pennsylvania to Nevada and executive search and recruiting costs. Consistent with the reduced volumes explained previously, management implemented its December plan to reduce SG&A expenses by $3.4 million annually, including headcount reductions of 28 employees.
Interest Expense
Interest expense increased $254,000 for the year ended December 31, 1997 to $932,000 from $678,000 during the prior year. This increase was the result of debt for the expansion of the Florida facility and to replace obsolete surface mount manufacturing equipment. Cash flow from continuing operations and from the sale of discontinued operations enabled the company to reduce its debt level during the second half of the year. Accordingly, management expects that interest expense for 1998 will decrease.
Income Taxes
Income Taxes represented effective tax rates of 47.8%, 15.4%, and 40.1% for the years ended December 31, 1997, 1996, and 1995 respectively. These rates are made up primarily of a 34% effective federal tax rate, the respective state tax rates where the company does business, and changes in valuation allowances related to deferred tax assets. The company evaluated the deferred tax assets on its balance sheet and does not believe that it has met the more-likely-than-not criteria of SFAS No. 109, Accounting for Income Taxes, for realizing the net deferred tax assets. Therefore the company has established valuation allowances against net deferred tax assets as of December 31, 1997.
Discontinued Operations
During 1997 the company sold its specialty manufacturing and recycled paper manufacturing subsidiaries for $1.9 million and $8.6 million, respectively, in cash, securities, and notes. A $1.8 million provision for loss on disposal was recorded in 1996 with respect to the sale of the specialty manufacturing business. The actual loss on the sale totaled $2.3 million. Accordingly, an additional loss of $486,000 was recognized in 1997. A loss of $2.1 million was recognized in 1997 on the sale of the company's recycled paper manufacturing subsidiary. In 1995, the company sold its steel-processing subsidiary for $6.8 million in cash.
Liquidity and Capital Resources
The company had working capital totaling $10.3 million, a decrease of $16.7 million, from December 31, 1996. This decrease was the result of restructuring charges for discontinuing the manufacture and sale of inadequately profitable products, closing the Indiana engineering center and reestablishing operations in Florida, downsizing the manufacturing operations, and establishing a valuation allowance for deferred tax assets. Additionally, a portion of the real estate assets held for sale were sold in 1997.
Inflation and Changing Prices
Inflation and changing prices for the years ended December 31, 1997, 1996, and 1995 have contributed to increases in wages, facilites, and raw material costs. Effects of these inflationary effects were partially offset by increased
prices to customers. The company believes that it will be able to pass on most of its future inflationary increases to its customers. The company is also subject to changing foreign currency exchange rates in its purchase of some raw materials. The company employs several methods to protect against increases in costs due to currency fluctuations. It is not always possible to pass on these effects. Competitors in the land-mobile radio markets are subject to similar fluctuations.
Pension Plans
RELM sponsors a participant contributory retirement plan (401K) that is available to employees. The company's contribution to this plan is a percentage of employees' contributions and totaled $248,000 $245,000 and $429,000 for 1997, 1996, and 1995 respectively.
Year 2000 Discussion
As the year 2000 approaches, an issue has emerged with many companies regarding how existing application software programs and operating systems will accommodate this date value. Many existing software products were designed to accommodate only a two-digit date position that represents the year. As a result, the year 1999 could be the maximum date value that the systems will be able to process.
RELM installed a new enterprise-wide software package in 1997. This software is able to process the year 2000. Consequently, management does not expect to incur additional costs to resolve the year 2000 issue.
Dividends
No cash dividends were paid with respect to the company's common stock during the past five years. The company intends to retain its earnings to fund growth and, therefore, does not intend to pay dividends in the foreseeable future.
Liquidity and Capital Resources
The company has a $10 million revolving line of credit. As of December 31, 1997 available credit on this line was approximately $8.5 million. Capital expenditures for the year ended December 31, 1997, were $2.7 million. Of these expenditures, $2.3 million was for the expansion of the West Melbourne, Florida facility. The facility expansion allows the West Melbourne, Florida facility to accommodate the consolidated operations
from Kansas and Indiana.
Capital expenditures for 1998 are expected to be approximately $1.4 million. These expenditures will support the company's two primary new product initiatives. The current line of credit agreement contains capital expenditure restrictions. The company believes that the restrictions will not impact the execution of its capital investment plans. Capital expenditure will be funded through operating cash flow and financing sources. Subsequent to the completion of these new product initiatives, management expects that capital expenditures will decrease.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe-harbor created by such sections. Such forward-looking statements concern the Company's operations, economic performance and financial condition. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; changes in customer preferences; competition; changes in technology; the integration of any acquisitons; changes in business strategy; the indebtedness of the Company; quality of management, business abilities and judgment of the Company's personnel; the availability, terms and deployment of capital; and various other factors referenced in this Report. The forward-looking statements are made as of the date of this Report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.
Item 8. FINANCIAL STATEMENTS
(b) Reports on Form 8-K. The items reported and dates of reports on Form 8-K filed by the Registrant during the last quarter of the period covered by this Report were as follows:
1. Item 4, dated November 14, 1997.
2. Item 5, dated November 19, 1997.
3. Item 4, dated December 2, 1997.
4. Item 5, dated December 3, 1997.
RELM Wireless Corporation
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
Contents
Report of Independent Certified Public Accountants--Ernst & Young LLP........F-2
Report of Independent Certified Public Accountants--MacDade Abbott LLP.......F-3
Consolidated Financial Statements
Consolidated Balance Sheets..................................................F-4
Statements of Consolidated Operations........................................F-6
Statements of Consolidated Stockholders' Equity..............................F-7
Statements of Consolidated Cash Flows........................................F-8
Notes to Consolidated Financial Statements...................................F-9
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Ernst & Young LLP
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
RELM Wireless Corporation
We have audited the accompanying consolidated balance sheet of RELM Wireless Corporation (formerly Adage, Inc.) and subsidiaries as of December 31, 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RELM Wireless Corporation and subsidiaries at December 31, 1997, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles.
Orlando, Florida
March 31, 1998
MacDade Abbott LLP
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
RELM Wireless Corporation
We have audited the accompanying consolidated balance sheet of RELM Wireless Corporation (formerly Adage, Inc.) and subsidiaries as of December 31, 1996, and the related statements of operations, shareholders' equity and cash flows for each of the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 RELM Wireless Corporation and subsidiaries at December 31, 1996, and the results of their operations and their cash flows for each of the two years then ended, in conformity with generally accepted accounting principles.
Paoli, Pennsylvania
March 7, 1997
RELM Wireless Corporation
Consolidated Balance Sheets
(In Thousands)
December 31
-----------------------
1997 1996
-----------------------
Assets
Current assets:
Cash and cash equivalents $ 213 $ 599
Accounts receivable (net of allowance for doubtful
accounts of $133 in 1997 and $165 in 1996) 5,379 11,536
Inventories 11,504 16,219
Investment securities--trading 881 723
Notes receivable 400 -
Real estate investments held for sale 1,833 4,710
Prepaid expenses and other current assets 288 511
Deferred income tax asset - 1,970
-----------------------
20,498 36,268
Property, plant and equipment:
Land 233 342
Buildings and improvements 4,150 5,455
Machinery and equipment 9,020 21,896
Accumulated depreciation (4,598) (15,165)
-----------------------
8,805 12,528
Capital projects in progress - 104
-----------------------
8,805 12,632
Notes receivable, less current portion 2,200 -
Other assets 162 251
Net assets of discontinued operations - 2,977
Deferred income tax asset - 1,900
-----------------------
Total assets $31,665 $54,028
=======================
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See accompanying notes.
RELM Wireless Corporation
Consolidated Balance Sheets (continued)
(In Thousands, Except Share Data)
December 31
-----------------------
1997 1996
-----------------------
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term liabilities $ 1,584 $ 868
Accounts payable 1,935 4,986
Accrued compensation and related taxes 3,017 1,540
Accrued expenses and other current liabilities 756 1,866
Accrued restructuring liability 1,872 -
Accrued research costs 1,027 -
-----------------------
Total current liabilities 10,191 9,260
Long-term liabilities, less amounts classified as current
liabilities:
Loans, notes and mortgages 5,405 14,425
Capital lease obligations 2,035 1,129
-----------------------
7,440 15,554
Commitments and contingencies - -
Stockholders' equity:
Common stock; $.60 par value; 10,000,000 authorized
shares: issued and outstanding shares 5,035,779 at
December 31, 1997 and 5,129,150 at December 31, 1996 3,021 3,076
Additional paid-in capital 20,185 20,500
Retained earnings (deficit) (9,172) 5,638
-----------------------
Total stockholders' equity 14,034 29,214
-----------------------
Total liabilities and stockholders' equity $31,665 $54,028
=======================
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See accompanying notes.
RELM Wireless Corporation
Statements of Consolidated Operations
(In Thousands, Except Share Data)
Year ended December 31
-----------------------------------------
1997 1996 1995
-----------------------------------------
Sales $45,376 $47,646 $45,266
Expenses:
Cost of products 39,003 34,252 32,055
Selling, general and administrative 12,099 12,537 12,908
Restructuring charge 1,872 - -
Impairment loss - 1,300 -
------------------------------------------
52,974 48,089 44,963
------------------------------------------
Operating income (loss) (7,598) (443) 303
Other income (expense):
Interest expense (932) (678) (1,463)
Net gains (losses) on investments 158 (643) 184
Other income 268 151 88
------------------------------------------
(506) (1,170) (1,191)
------------------------------------------
Loss from continuing operations before income taxes (8,104) (1,613) (888)
Income tax expense (benefit) 3,870 (266) (355)
------------------------------ ------------
Loss from continuing operations (11,974) (1,347) (533)
Discontinued operations:
Gain (loss) from discontinued operations net of
income taxes (benefit) (266) (847) 452
Gain (loss) on disposal of discontinued segments
net of income taxes (benefit) (2,570) (1,832) 1,193
------------------------------------------
(2,836) (2,679) 1,645
------------------------------------------
Net income (loss) $(14,810) $(4,026) $ 1,112
==========================================
Earnings (loss) per share--basic and diluted:
Continuing operations $ (2.36) $ (.26) $ (.10)
Discontinued operations (.56) (.52) .32
------------------------------------------
Net income (loss) $ (2.92) $ (.78) $ .22
==========================================
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See accompanying notes.
RELM Wireless Corporation
Statements of Consolidated Shareholders' Equity
(In Thousands, Except Share Data)
Unrealized
Gains
(Losses) on
Common Stock Additional Retained Available
--------------------- Paid-In Earning For Sale
Shares Amount Capital (Deficit) Securities Total
------------------------------------------------------------------------
Balances at January 1, 1995 5,098,555 $3,059 $20,349 $ 8,552 $(724) $31,236
Sale of common stock 22,980 14 128 - - 142
Increase in aggregate market value
of available for sale securities - - - - 130 130
Net income - - - 1,112 - 1,112
------------------------------------------------------------------------
Balances at December 31, 1995 5,121,535 3,073 20,477 9,664 (594) 32,620
Sale of common stock 7,615 3 23 - - 26
Available for sale securities
reclassified as trading - - - - 594 594
Net loss - - - (4,026) - (4,026)
------------------------------------------------------------------------
Balances at December 31, 1996 5,129,150 3,076 20,500 5,638 - 29,214
Purchase of common stock (93,371) (55) (315) - - (370)
Net loss - - - (14,810) - (14,810)
------------------------------------------------------------------------
Balances at December 31, 1997 5,035,779 $3,021 $20,185 $(9,172) $ - $14,034
========================================================================
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See accompanying notes.
RELM Wireless Corporation
Statements of Consolidated Cash Flows
(In Thousands)
Year ended December 31
-------------------------------------------
1997 1996 1995
-------------------------------------------
Cash flows from operating activities
Net income (loss) $(14,810) $(4,026) $1,112
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,796 2,762 2,375
Loss on disposal of discontinued segments 2,570 1,832 (1,992)
Gain on disposal of property and equipment, and
other assets - (354) (12)
Net (gain) loss on investment securities (158) 643 74
Deferred income taxes 3,870 (700) 449
Valuation allowance on real estate - 1,300 -
Other 39 39 14
Changes in current assets and liabilities:
Accounts receivable 3,327 (2,002) 1,634
Inventories 3,508 2,323 (1,109)
Accounts payable (2,049) (1,463) (3,034)
Other current assets and liabilities 1,898 183 (1,134)
Real estate investments held for sale 2,677 1,076 537
Discontinued segments--noncash charges and
working capital charges 545 (572) 321
-------------------------------------------
Cash provided by (used in) operating activities 3,213 1,041 (765)
Cash flows from investing activities
Purchases of property and equipment (2,694) (1,352) (734)
Proceeds from disposals of property and equipment - 700 18
Net cash from sale of subsidiaries 7,643 - 6,789
Sales of real estate - 100 -
Investing activities of discontinued segments - (182) -
-------------------------------------------
Cash provided by (used in) investing activities 4,949 (734) 6,073
Cash flows from financing activities
Repayment of debt and capital lease obligations (2,248) (3,079) (3,964)
Proceeds from debt 4,802
Net increase (decrease) in revolving credit lines (11,071) 3,195 (1,559)
Deferred financing charges - (100) (50)
Proceeds from issuance of common stock - 26 142
Retirement of stock (31) - -
Financing activities of discontinued segments - (87) -
-------------------------------------------
Cash used in financing activities (8,548) (45) (5,431)
-------------------------------------------
Increase (decrease) in cash (386) 262 (123)
Cash and cash equivalents, beginning of year 599 337 460
-------------------------------------------
Cash and cash equivalents, end of year $ 213 $ 599 $ 337
===========================================
Supplemental disclosure
Interest paid $ 1,266 $ 1,352 $1,835
Income taxes paid 12 4 42
Capital lease additions 1,755 355 920
See accompanying notes.
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
1. Summary of Significant Accounting Policies
Description of Business
The Company's primary business is the designing, manufacturing, and marketing of wireless communications equipment consisting of land mobile radios, utility load management systems, and base station components and subsystems. In 1995, the Company formed a plan to discontinue its real estate development and management business (see Note 5).
Principles of Consolidation
The accounts of the Company and its subsidiaries have been included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated.
Inventory
Inventories are stated at the lower of cost or market, determined by the average cost method.
Investment Securities
Investments that are purchased and held principally for the purpose of selling them in the near term are classified as "trading securities" and carried at fair value, with unrealized gains and losses included in earnings. Realized gains and losses are computed by the specific identification method on a trade-date basis. The classification of investment securities is determined by management at the date of purchase. When the Company subsequently changes its purpose for holding the security, it is transferred among classifications at the fair value at the date reclassified.
Property and Equipment
Property and equipment is carried at cost. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is reflected in operations for the period.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
1. Summary of Significant Accounting Policies (continued)
Depreciation is generally computed on the straight-line method using lives of 3 to 20 years on machinery and equipment and 5 to 30 years on buildings and improvements. The Company revised the estimated useful life of some of its equipment from 5 to 8 years as of January 1, 1996. This decreased the Company's 1996 operating loss by $117, net loss by $73 and loss per share by $.02. Depreciation expense on property, plant, and equipment for 1997, 1996 and 1995 was $1,220, $1,066 and $1,041, respectively.
Impairment of Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which establishes criteria for the recognition and measurement of impairment losses associated with long-lived assets.
Cash Equivalents
Cash and cash equivalents includes time deposits, certificates of deposit and highly liquid marketable securities with original maturities of less than three months.
Revenue Recognition
Revenues and expenses are recognized as goods are shipped. Real estate revenues are recognized upon closing of a sale.
Income Taxes
The Company files a consolidated federal income tax return with its subsidiaries in which it owns 80% or more of the outstanding capital stock. The Company follows the liability method of accounting for income taxes.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash, accounts receivables and investments. The Company places its cash
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
1. Summary of Significant Accounting Policies (continued)
and investments in accounts with major financial institutions. Concentrations of credit risk with respect to accounts receivable are generally diversified due to the large number of customers comprising the Company's customer base. Accordingly, the Company believes that its accounts receivable credit risk exposure is limited.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of 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.
Fair Value of Financial Instruments
The Company's management believes the carry amounts of cash, notes receivable, investments and short-term and long-term debt approximates their fair values.
Advertising Costs
The cost for advertising is expensed as incurred. The total advertising expense for 1997, 1996 and 1995 was $456, $319 and $270, respectively.
Research and Development Costs
Included in selling, general and administrative expenses for 1997, 1996 and 1995 are research and development costs of $5,466, $3,065 and $2,860, respectively.
Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employee and related interpretations in accounting for its stock-based compensation plans rather than the alternative fair value accounting provided under SFAS No. 123, Accounting for Stock-Based Compensation.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
1. Summary of Significant Accounting Policies (continued)
Earnings (Loss) Per Share
In 1997, the FASB issued SFAS No. 128, Earnings per Share. This statement replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings (loss) per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements.
Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 becomes effective for fiscal years beginning after December 15, 1997 and requires reclassification of earlier financial statements for comparative purposes. SFAS No. 130 requires that changes in the amounts of certain items, including foreign currency translation adjustments and gains and losses on certain securities be shown in the financial statements. SFAS No. 130 does not require a specific format for the financial statement in which comprehensive income is reported, but does require that an amount representing total comprehensive income be reported in that statement.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This Statement will change the way public companies report information about segments of their business in annual financial statements and requires them to report selected segment information in their quarterly reports issued to stockholders. It also
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
1. Summary of Significant Accounting Policies (continued)
requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Statement is effective for fiscal years beginning after December 15, 1997.
The Company intends to adopt the provisions of SFAS 130 and 131 in 1998 and does not expect their application to have a material impact on the financial statements of the Company.
Reclassifications
In accordance with Staff Accounting Bulletin No. 93, the Company's real estate operations previously reported as discontinued operations in prior years have been reclassified to continuing operations (see Note 5 and Note 15 for reclassifications related to discontinued operations).
Certain other amounts in prior years have been reclassified to conform to current year presentation.
2. Inventory
Inventory consisted of the following:
December 31
------------------------
1997 1996
------------------------
Raw materials $ 4,139 $ 7,424
Work in process 2,245 3,286
Finished goods 5,120 5,509
------------------------
$11,504 $16,219
========================
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
3. Allowance for Doubtful Accounts
The allowance for doubtful accounts is composed of the following:
Year ended December 31
-------------------------------
1997 1996 1995
-------------------------------
Balance, beginning of period $165 $381 $634
Provision for doubtful accounts 140 194 22
Uncollectible accounts written off (147) (200) (181)
Recoveries - 1 68
Discontinued operations (25) (211) (162)
-------------------------------
Balance, end of period $133 $165 $381
===============================
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4. Investment Securities
Investment securities, which consist of marketable equity securities, had a market value of $881 and $723 and a cost basis of $550 and $550 at December 31, 1997 and 1996, respectively. Realized gains and changes in unrealized gains or losses included in investment income were as follows:
Year ended December 31
--------------------------------
1997 1996 1995
--------------------------------
Realized gains on investment securities $ - $ 39 $108
Reduction in cost of available for sale
investment transferred to trading - (855) -
Unrealized gains on trading investment
securities 158 173 76
--------------------------------
$158 $(643) $184
================================
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During 1996, investment securities classified as available for sale, had a market decline which was considered other than temporary and management reclassified this investment as current trading. The market decline was recognized as a reduction in cost and reported with net (gains) losses on investments in the statement of consolidated operations.
During 1995, gross unrealized losses on investment securities classified as available for sale and included in stockholders' equity totaled $594.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
5. Real Estate Assets Held for Sale
In 1995, the Company formulated a plan to discontinue its real estate development and management business and began accounting for the business as a discontinued operation. The real estate business has not been completely disposed of as of December 31, 1997. Staff Accounting Bulletin No. 93 stipulates, among other things, that a Company's disposal of a business must be completed within one year of the adoption of the plan of disposal for purposes of accounting for the business as a discontinued operation. Accordingly, the Company has reclassified the operations of its real estate business to continuing operations for all periods presented. Despite such treatment, the Company continues its vigorous efforts to dispose of the real estate assets and has classified such assets as real estate held for sale in the accompanying balance sheets. The real estate assets include subdivided units of commercial land, completed
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
5. Real Estate Assets Held for Sale (continued)
residential properties, and commercial properties, and are presented net of valuation allowances of $1,005 and $2,920 at December 31, 1997 and 1996, respectively. The real estate valuation allowances are composed of the following:
Year ended December 31
--------------------------------
1997 1996 1995
-------------------------------
Balances, beginning of period $2,920 $ 1,620 $2,450
Provision for impairment losses - 1,300 -
Reduction due to sales (1,915) - (830)
-------------------------------
Balance, end of period $1,005 $ 2,920 $1,620
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The summarized results of operations of the real estate business are as follows:
Year ended December 31
-------------------------------
1997 1996 1995
-------------------------------
Sales $3,937 $ 2,130 $2,615
Cost of sales 4,006 1,911 1,715
Impairment loss - 1,300 -
Selling, general and administrative expenses 522 269 543
-------------------------------
Operating income (loss) $ (591) $(1,350) $ 357
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
6. Debt
The debt consisted of the following:
December 31
------------------------
1997 1996
------------------------
Revolving line of credit. $1,500 $12,571
Notes payable to banks secured by real estate. Interest rate at
December 31, 1997 was 9.25%. Monthly interest payments are
due through July 1998 with the principal due in July 1998. 162 750
Note payable to bank secured by the fixtures, equipment, and
building bearing interest at LIBOR plus 1.75% (7.75% at
December 31, 1997) with monthly payments of $24 plus
interest due through August 2012. 4,193 -
Notes payable to third parties secured by real estate. Fixed
interest rate at December 31, 1997 was 10.5%. Payments due
upon sale of real estate units. 443 731
Financing obligations secured by equipment of the paper
manufacturing business due in monthly installments to 1999.
Interest rate was 9.95%. - 666
------------------------
Total debt 6,298 14,718
Amounts classified as current liabilities (893) (293)
------------------------
Long-term debt $5,405 $14,425
========================
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The bank revolving line of credit agreement expires February 27, 1999 and provides availability based on collateral levels to $10,000 reduced by outstanding letters of credit and bank acceptances funded by the line. The agreement is secured or guaranteed by substantially all the assets of the Company. Interest varies according to a selection of market interest rates on amounts outstanding (7.94% at December 31, 1997). There is an annual fee of .25% on the unused portion of the line. The credit agreement requires, among other things, maintenance of financial ratios and limits certain expenditures.
The $4,193 note agreement contains a cash flow and a net worth requirement. The Company was in violation of these covenants at December 31, 1997. The bank has provided a waiver of the
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
6. Debt (continued)
cash flow covenant for 1997 and a waiver of the tangible net worth requirement through January 1, 1999.
As of December 31, 1997 and 1996, the Company had approximately $8,500 and $500 of unused lines of credit available.
The Company capitalized $38 of interest in 1997.
Maturities of long-term debt for years succeeding December 31, 1997 are as follows:
1998 $ 893
1999 1,788
2000 287
2001 287
2002 288
Thereafter 2,755
------
$6,298
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7. Leases
The Company occupied certain properties under long-term operating leases which expire at various dates. Certain of these operating leases were assumed by the buyers of the Company's paper and specialty manufacturing businesses which were sold in 1997. The Company recorded charges of $345 in 1997 and $110 in 1996 related to the abandonment of certain leases and the write-off of leasehold improvements. Total rental expenses for all operating leases for 1997, 1996 and 1995 was $397, $614 and $609, respectively.
Property, plant and equipment includes equipment purchased under capital leases at December 31 as follows:
1997 1996
-----------------------
Cost $3,672 $2,058
Accumulated depreciation 1,098 403
-----------------------
$2,574 $1,655
=======================
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
7. Leases (continued)
Amortization of equipment under capital leases is included in depreciation expense.
During 1997, the Company revised the estimated useful life of one of its leased assets from eight to five years (the life of the lease) and recorded an additional charge of $317 related to this change. This revision increased the 1997 net loss by $317 and loss per share by $.06.
At December 31, 1997, the future minimum payments for the capital leases are as follows:
1998 $ 913
1999 757
2000 757
2001 593
2002 249
------
Total minimum lease payments 3,269
Less amounts representing interest (543)
------
Present value of net minimum lease payments 2,726
Less current maturities (691)
------
Long-term obligations under capital-leases $2,035
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8. Income Taxes
The provisions for income taxes for the years ended December 31 are based on income (loss) from continuing operations before income taxes as follows.
1997 1996 1995
----------------------------------------
Current:
Federal $ - $ - $255
State - - 40
----------------------------------------
- 295
Deferred:
Federal 3,309 (670) 371
State 561 (30) 78
----------------------------------------
3,870 (700) 449
----------------------------------------
$3,870 $(700) $744
========================================
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
8. Income Taxes (continued)
The provision for income taxes is provided in the statement of consolidated operations as follows:
1997 1996 1995
-----------------------------
Income (loss) from continuing operations
$3,870 $(266) $(355)
Loss from discontinued operations - (434) 300
Gain (loss) on disposal of
discontinued segment - - 799
-----------------------------
$3,870 $(700) $ 744
=============================
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The components of consolidated income taxes (benefit) for the years ended December 31 are as follows:
1997 1996 1995
----------------------------
Federal income taxes (benefit) at
statutory rates (34.0)% (34.0)% 34.0%
State income taxes (benefit) net of
federal income tax benefit (3.5) (3.6) 4.0
Change in valuation allowance 86.0 18.1 -
Limited use capital losses - 1.9 -
Permanent differences and other (0.7) 2.2 2.1
----------------------------
Effective income tax rate 47.8% (15.4)% 40.1%
============================
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
8. Income Taxes (continued)
The deferred tax effect of temporary differences between financial and tax reporting at December 31 is as follows:
1997 1996
------------------------
Deferred tax assets:
Operating loss carryovers $ 6,972 $3,388
Tax credits 129 -
Unrealized capital losses:
Disposal of segment 670 670
Investment losses - 230
Asset reserves:
Bad debts 50 123
Inventory reserve 1,073 388
Inventory capitalization 128 208
Real estate sales 378 988
Accrued expenses:
Compensated absences 171 318
Health insurance claims 752 161
Restructuring accrual 704 -
All other - 209
Valuation allowances (10,177) (2,200)
------------------------
850 4,483
Deferred tax liabilities:
Depreciation (726) (613)
Unrealized capital gain (124) -
------------------------
Net deferred tax assets $ - $3,870
========================
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In accordance with SFAS Statement No. 109, Accounting for Income Taxes, valuation allowances are provided against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has evaluated the realizability of the deferred tax assets on its balance sheet and has established a valuation allowance in the amount of $10,177 against its net deferred tax assets.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
8. Income Taxes (continued)
Part of the federal loss carryforward is attributed to the prior operation of
the wireless electronic subsidiary. This loss carryforward is limited to a tax
benefit of approximately $320 per year. If unused, the federal and state tax
loss carryforward benefit (at current rates) expires in the following years:
2004--$1,177; 2005--$1,436; 2006--$363; 2009--$5; 2010--$81; 2011--$459;
2012--$3,451.
9. Pension Plans
The Company sponsors participant contributory retirement plans (401k) which are available to employees not covered by union plans, the Company's contributions to these plans is either a percentage of the participants salary (50% of the participants' contributions up to a maximum of 6%) or a discretionary amount. Total contributions made by the Company were $248, $245 and $429 for 1997, 1996 and 1995, respectively.
The Company participated in a multi-employer pension plan through June 16, 1997, the date of sale of its paper manufacturing business. The plan provides defined benefits for those employees covered by two collective bargaining agreements. Contributions for employees are based on hours worked at rates set in the bargaining agreements. If the Company curtailed employment or withdrew from the multi-employer plans, a withdraw liability may be incurred. The buyer of the paper manufacturing business agreed to assume such withdrawal liability, if any. The Company agreed to be secondarily liable if the buyer withdraws from the plan through June 16, 2002. The amount of such liability, if any, cannot presently be determined. Total amounts charged to pension expense and contributed to the multi-employer plan were $70, $145 and $174 for 1997, 1996 and 1995 respectively.
10. Related Party Transactions
The specialty manufacturing subsidiary leased its manufacturing and office facility from a corporation controlled by an officer of the Company. This subsidiary was sold on June 4, 1997. Rental payments under this lease were approximately $88 for the period January 1, 1997 through the sale date. Rental payments were $230 and $239 for 1996 and 1995, respectively.
During the years ended December 31, 1996 and 1995, the Company's commercial real estate subsidiary managed rental properties that were owned by other entities that were controlled by an
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data
10. Related Party Transactions (continued)
officer of the Company. For this service, the Company received fees related to a percentage of gross rents plus a percentage of new leases signed. Property management fees received by the Company during 1996 and 1995 from related parties totaled $133 and $124, respectively. See Note 5.
During 1997, the Company's commercial real estate subsidiary sold real estate to an entity that was controlled by the Company's principal shareholder for $1,733. As part of the sale, unsecured notes receivable were established totaling $200 and are outstanding at December 31, 1997. Interest is payable quarterly at 7% and the principal is due in 2004.
11. Restructuring
In 1997, the Company recorded a $1,872 charge related to restructuring. The restructuring consisted of consolidating operations and reducing operating expenses. In consolidating operations, the Company accrued $446 related to the closing of a research and development facility in Indiana which will be moved to Florida by June 1998. In addition, the Company accrued $1,426 relating to the termination of both factory and support employees in Indiana and Florida. These costs have been included in loss from continuing operations.
12. Significant Customers
Sales to the United States government and to foreign markets as a percentage of the Company's total sales were as follows:
1997 1996 1995
---------------------------------------
U.S. government 32% 21% 21%
Foreign markets 10 13 7
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
13. Earnings (Loss) Per Share
The following table sets the computation of basic and diluted earnings (loss) per share from continuing operations:
Year ended December 31
--------------------------------------------
1997 1996 1995
--------------------------------------------
Numerator:
Net income (numerator for basic and diluted
earnings (loss) per share) $ (11,974) $ (1,347) $ (533)
---------------------------------------------
Denominator:
Denominator for basic earnings per
share-weighted average shares 5,076,438 5,116,304 5,098,063
Effect of dilutive securities:
Options - - -
---------------------------------------------
Dilutive potential shares - - -
---------------------------------------------
Denominator for diluted earnings (loss) per
share-adjusted weighted average shares 5,076,438 5,116,304 5,098,063
=============================================
Basic earnings (loss) per share $ (2.36) $ (.26) $ (.10)
=============================================
Diluted earnings (loss) per share $ (2.36) $ (.26) $ (.10)
=============================================
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Shares related to options are not included in the computation of earnings (loss) per share because to do so would have been anti-dilutive for the periods presented.
14. Stock Option and Other Stock Plans
The Company has two plans whereby eligible officers, directors and employees can be granted options for future purchases of Company common stock at the market price on the grant date. The options, if not exercised within a five year period, expire. Other conditions and terms apply to stock option plans.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
14. Stock Option and Other Stock Plans (continued)
The following is a summary of all stock option plans:
Weighted
Shares Option Average
Under Price Per Exercise
Option Share Price
---------------------------------------
Balance at January 1, 1995 329,295 $3.61-$7.87 $5.61
Options exercised (2,674) 3.61 3.61
Options expired or terminated (65,418) 7.87 7.87
---------------------------------------
Balance at December 31, 1995 261,203 3.61- 7.87 5.06
Options granted 33,191 4.00- 4.06 4.01
Options exercised (7,640) 3.61 3.61
Options expired or terminated (9,096) 5.62- 7.87 6.49
---------------------------------------
Balance at December 31, 1996 277,658 3.61- 6.88 4.90
Options granted 130,000 4.06- 6.25 5.74
Options expired or terminated (114,135) 3.61- 6.88 4.97
---------------------------------------
Balance at December 31, 1997 293,523 $4.00-$6.88 $5.28
=======================================
Exercisable at December 31, 1997 108,838 $4.00-$6.88 $5.04
=======================================
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The weighted average contractual life of stock options outstanding at December 31, 1997 was 2.4 years.
At December 31, 1997, 338,061 of unissued options were available under the two plans.
Pro forma information regarding net income or loss is required by SFAS Statement 123, Accounting for Stock-Based Compensation, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair values for these options were estimated at the date of grant using the Black-Scholes option-pricing model minimum value method with the following weighted-average assumptions for 1997: expected volatility of 44%; risk-free interest rate of 6%; dividend yield of 0%; and a weighted-average expected life of the options of 3.5 years.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
14. Stock Option and Other Stock Plans (continued)
For purposes of pro forma disclosures, the estimated fair value is amortized to expense over the options' vesting period. The Company's pro forma net loss for 1997 was $14,835 or $2.92 loss per share. The proforma net loss reflects only options granted in 1995, 1996 and 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS Statement No. 123 is not reflected in the proforma net loss amounts because compensation cost is reflected over the vesting periods and compensation cost for options granted prior to January 1, 1995 is not considered. The weighted average fair value of options granted during 1997 was $2.41. The option price equaled the market price on the date of grant for all options granted in 1997.
Adoption of SFAS Statement No. 123 had no material effect on pro forma net income or loss or earnings (loss) per share for 1996 and 1995.
15. Discontinued Operations
Paper Manufacturing
On June 16, 1997, the Company sold the assets and certain liabilities of its paper manufacturing business, Fort Orange Paper Co., Inc. (Fort Orange), to the former president of Fort Orange. The purchase price totaled $8,619 and consisted of cash of $6,219 and a note for $2,400. A loss of $2,084 was recorded on the transaction. The note is receivable over five years in annual payments of $400 for the first four years and $800 in the final year and is secured by the assets of Fort Orange. Interest at 11.5% is receivable quarterly.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
15. Discontinued Operations (continued)
The operations of Fort Orange were reclassified to discontinued operation for all periods presented. Summarized results of Fort Orange's discontinued operations were as follows:
Through Year ended December 31
June ----------------------
1997 1996 1995
--------------------------------------
Net revenues $10,335 $23,134 $28,585
Operating profit (loss) (415) 232 1,319
Income (loss) before income taxes (335) 459 1,319
Income taxes - (156) (528)
--------------------------------------
Net income (loss) from discontinued
operations $ (335) $ 303 $ 791
======================================
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
15. Discontinued Operations (continued)
Specialty Manufacturing
In December 1996, the Company agreed in principal to sell its specialty manufacturing business, Allister Manufacturing Company, Inc. (Allister), to an officer and director of the Company. The sale, which was conditional upon the buyer obtaining the necessary financing, was finalized on June 4, 1997 for a total purchase price of approximately $1,946 including cash of $1,592 and the assignment of approximately 83,000 shares of common stock of the Company. The book value of the net assets sold were $2,432 at the date of sale. A loss on the sale of $1,832 (pre-tax and other tax) was recorded in 1996 and an additional loss on sale of $486 was recorded in 1997.
The operations of Allister were reclassified to discontinued operations for all periods presented. Summarized results of Allister's discontinued operations were as follows:
Through Year ended December 31
May ----------------------
1997 1996 1995
-------------------------------------
Net revenues $4,332 $11,212 $10,952
Operating profit (loss) 69 (715) (898)
Income (loss) before income taxes 69 (1,738) (1,740)
Income tax benefits - (590) (698)
--------------------------------------
Net income (loss) from discontinued
operations $ 69 $(1,148) $(1,042)
=====================================
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The net assets of Allister's discontinued operations at December 31, 1996 were as follows:
Current assets $4,679
Net property and equipment 311
Current liabilities (1,113)
Valuation allowance (900)
------
Net assets of discontinued operations $2,977
======
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RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
15. Discontinued Operations (continued)
Steel Processing
In August 1995, the Company sold its steel processing business, Niagara Cold Drawn Corporation (Niagara) for $6,789 in cash. A gain on the sale of $1,193 after income tax expense of $779 was recorded.
The operations of Niagara were reclassified to discontinued operations. Summarized results of Niagara's discontinued operations were as follows:
Through
August
1995
-------
Net revenues $34,285
Operating profit 5,095
Income before income taxes 1,173
Income taxes 470
-------
Net income from discontinued operations $ 703
=======
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16. Contingent Liabilities
From time to time, the Company may become liable with respect to pending and threatened litigation, tax, environmental and other matters.
General Insurance
Under the Company's insurance programs, coverage is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. It has been the policy of the Company to retain a significant portion of certain expected losses related primarily to workers' compensation, physical loss to property, business interruption resulting from such loss and comprehensive general, product, and vehicle liability. Provisions for losses expected under these programs were recorded based upon the Company's estimates of the aggregate liability for claims incurred. Such estimates utilize certain actuarial assumptions followed in the insurance industry and were included in accrued compensation and related taxes in the balance sheets.
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
16. Contingent Liabilities (continued)
Former Affiliate
In 1993, a civil action was brought against the Company by a plaintiff to recover losses sustained on notes of a former affiliate. The plaintiff alleges violations of federal security and other laws by the Company in collateral arrangements with the former affiliate. In response, the Company filed a motion to dismiss the complaint in the fall of 1993, which the court has yet to rule. In February 1994, the plaintiff executed and circulated for signature, a stipulation of voluntary dismissal. After the stipulation was executed the plaintiff refused to file the stipulation with the court. Subsequently the Company and others named in the complaint filed a motion to enforce their agreement with the plaintiff. The court has also yet to rule on that motion.
In a second related action, an adversarial action in connection with the bankruptcy proceedings of the former affiliate has been filed. In response to that complaint the Company filed a motion to dismiss for failure to state a cause of action. Although the motion for dismissal was filed during 1995, the bankruptcy court has not yet ruled on the motion. The range of potential loss, if any, as a result of these actions cannot be presently determined.
In February 1986, the liquidator of the former affiliate filed a complaint claiming intentional and negligent conduct by the Company and others named in the complaint caused the former affiliate to suffer millions of dollars of losses leading to its ultimate failure. The complaint does not specify damages but an unfavorable outcome could have a material adverse impact on the Company's financial position. The range of potential loss, if any, cannot be presently determined.
Management, with the advice of counsel, believes the Company has meritorious defenses and the likelihood of an unfavorable outcome in each of these actions is remote.
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company dismissed MacDade Abbott LLP as its certifying accountants on November 7, 1997. Ernst and Young LLP was named as certifying accountants on November 13, 1997. The information required by this item was included in the company's 8-K filing dated December 2, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding the Company's directors and executive officers:
Principal Occupation
Name Age During Past Five Years Directorships
---- --- ---------------------- -------------
Donald F.U. Goebert 61 Chairman of the Board of Directors of the Progress Financial
Company and its predecessor since March Corporation; Investors
1968; President of the Company's predecessor Insurance Group, Inc.
from March 1968 to October 1988 and
President and CEO of the Company April 1993
to December 1997.
Richard K. Laird 50 President and CEO of the Company since
December 1997; Executive Vice President and
Chief Operating Officer of Antec Corp. From
January 1994 to December 1996; Chairman and
CEO of Keptel Inc. 1983 to January 1994.
Director since December 1997.
William P. Kelly 41 Vice President, Chief Financial Officer and
Secretary of the Company since June 30,
1997; Vice President and Chief Financial
Officer of RELM Communications, Inc. since
October 1995; International Operations
Financial Manager of Harris Corporation from
June 1992 to October 1995.
Buck Scott 68 Private investor since January 1995;
President of Electrical Energy Enterprises,
Inc. from 1991 through 1994. Director of
Company since 1980 (including its
predecessor).
Robert L. MacDonald 70 Retired, Director of Financial Aid Wharton
Graduate Division and Lecturer in
Management, Wharton School, University of
Pennsylvania 1953 to March 1993. Director
of Company since February 1991.
Ralph R. Whitney, Jr. 63 President and CEO of Hammond Kennedy Whitney IFR Systems, Inc.; Excel
& Co., Inc. a private investment banking Industries, Inc.; Baldwin
firm with offices at 230 Park Avenue. New Technologies Inc.; Control
York, New York. Director of Company since Devices, Inc.; Selas
January 1992. Corporation of America
James C. Gale 48 Managing Director of Gruntal & Co., LLC from Latshaw Enterprises, Inc.
1992 to present. Director of Company since
October 1993.
Joel A. Schleicher 45 Private investor and advisor to LBO firms NovAtel, Inc.
since July 1997 and for a period from July
1995 thru May 1996; President and CEO for
Pro Communications, Inc. from May 1996
to July 1997; Chief Operating Officer of
Nextel Communications, Inc. prior
to July 1995.
George N. Benjamin, III 60 Management Consultant of Trig Systems, LLC;
President and CEO of Tie/Communications,
Inc. from April 1992 to November 1995; Group
Vice President of The Marmon Group, Inc.
prior to April 1992; Director since January
1996.
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Each of the members of the Board of Directors, other than Mr. Laird, was elected at the annual meeting of shareholders. Mr. Laird, whose employment with the Company commenced on December 1, 1997, after the distribution of the proxy materials for the December 8, 1997 annual meeting, was appointed as a director at the organizational meeting of the Board following the shareholders' meeting. Mr. Laird's appointment as a director was made in accordance with the agreement pursuant to which he was employed as the Company's President and Chief Executive Officer. Each of the Executive Officers, including Mr. Laird, was elected to office by the Board at its organizational meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, the "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Company with copies of these reports. Based on the Company's review of the copies of these reports received by it, and from written representations received from the Reporting Persons, the Company believes that, with the exception of the filing by William P. Kelly and Richard K. Laird, in each case, of an initial statement of beneficial ownership more than ten days after his appointment as an executive officer of the Company, all filings required to be made by the Reporting Persons for the period January 1, 1997 through December 31, 1997 were made on a timely basis.
Committees of the Board of Directors
The Board of Directors has a Compensation Committee and an Audit Committee. The Company does not have an Executive Committee or Nominating Committee. During 1997, Messrs. Gale, Schleicher and Benjamin served as members of the Compensation Committee and Messrs. Scott, MacDonald, Whitney, Gale and Schleicher serve as members of the Audit Committee.
Compensation of Directors
During 1997 the Company paid to each of its non-employee directors meeting fees of $1,000 for attendance at each Board meeting and $500 for attendance at each meeting of any committee of the Board of Directors which is not held in conjunction with a meeting of the Board. Beginning with the 1997 fiscal year, as a result of approval by the shareholders of the 1996 Non-Employee Directors Option Plan, compensation for non-employee directors was modified to provide for the grant of stock options in lieu of a quarterly retainer for service as a director. Pursuant to the terms of the 1996 Non-Employee Directors Option Plan, beginning in 1997, a grant of a stock option for the purchase of 5,000 shares is made to each non-employee director on the date of each annual meeting of shareholders at which such person is elected or reelected as a director (or if such annual meeting has not been held by June 30 of such year such grant is made as of such June 30 to each such person who has been a non-employee director for at least three months). Such options are granted at an exercise price equal to the fair market value of the Common Stock on the date of grant and become
fully exercisable eleven months after the date of the grant or, if earlier, upon a change of control as defined in the Plan. Such options were granted to the Company's non-employee directors as of June 30, 1997 at an exercise price of $4.06 per share. The expiration date of the options which were granted will be June 29, 2002.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation paid during each of the last three years to Messrs. Goebert and Laird, each of whom served as the Company's President and Chief Executive Officer during 1997. No other executive officer of the Company was paid salary and bonus compensation which exceeded $100,000 during 1997.
Long-Term Compensation
----------------------
Annual Compensation Awards
------------------- ----------------------
Number of
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) ($)(1) Options(#) ($)
------------------ ---- ------- ----- ------------ ----------- ------------
Donald F. U. Goebert 1997 $150,000 $ -- $ -- $ -- $ --
President and CEO,
Chairman (2) 1996 150,000 -- -- -- --
1995 150,000 -- -- -- --
Richard K. Laird 1997 11,538 -- -- -- --
President and CEO (2)(3) 1996 -- -- -- -- --
1995 -- -- -- -- --
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(1) Neither of the named executive officers received any other annual compensation not categorized as salary or bonus except for perquisites and other personal benefits which in the aggregate did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for such named executive officer.
(2) Mr. Goebert served as President and CEO until December 1, 1997, when Mr. Laird assumed the office of President and CEO. Mr. Goebert continues to serve as Chairman of the Board. Mr. Laird was employed at a salary rate of $200,000 per year, effective December 1, 1997. Effective January 1, 1998, Mr. Goebert's salary as Chairman of the Board became $50,000 per year.
(3) Under the terms of Mr. Laird's employment he was granted options under the Company's 1997 Stock Option Plan for the purchase of 100,000 shares of Common Stock upon the commencement of his employment and is to be granted options for additional increments of 50,000 shares six months, twelve months, eighteen months and twenty-four months thereafter. Such options will be granted at the then current market value of the shares. The options granted and to be granted will become exercisable as to increments of 25% of the optioned shares on the first, second, third and fourth year anniversaries of the date of the grant. In the event of a change in control, as defined in the Plan agreement, 50% of any otherwise unvested options shall become vested and exercisable. Mr. Laird shall also be eligible to receive a bonus of up to 50% of his salary upon attaining earnings per share and/or share price goals or other performance criteria to be mutually agreed upon with the Board of Directors.
Stock Option Grants
The following table contains information concerning the grant of stock options under the Company's 1997 Stock Option Plan to the executive officers named in the Summary Compensation Table above (the "Named Officers") during 1997.
Option Grants in 1997
Individual Grants
Potential Realizable
Value (3) at Assumed
Number of Annual Rates of Stock
Securities % of Total Exercise Price Appreciation for
Underlying Options Granted or Base Option Term
Options Granted to Employees in Price Expiration -----------------------
Name (# of Shares)(1)(2) 1997 ($/Sh) Date(2) 5%($)(3) 10%($)(3)
--------------------------------------------------------------------------------------------------------------------
Donald F.U. Goebert -- -- -- -- -- --
Richard K. Laird 100,000 100 $6.25 12/01/07 $393,059 $996,089
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(2) These options could expire earlier in certain situations.
(3) The potential realizable value of the options, if any, granted in 1997 was calculated by multiplying those options by the excess of (a) the assumed market value, at December 1, 2007, of Common Stock if the market value of Common Stock were to increase 5% or 10% in each year of the option's 10-year term over (b) the base price shown. This calculation does not take into account any taxes or other expenses which might be owed. The assumed market value at a 5% assumed annual appreciation rate over the 10-year term is $10.18 and such value at a 10% assumed annual appreciation rate over that term is $16.21. At $ 10.18 the total market value of the shares of Common Stock outstanding on March 31, 1998 would be $51,319,548 which would be an increase of $13,192,854 from the market value of such shares at the close of business on December 31, 1997. At $16.21, the total market value of the shares of Common Stock outstanding on March 31, 1998 would be $81,718,063 which would be an increase of $43,591,369 from the market value of such shares at the close of business on December 31, 1997. The 5% and 10% appreciation rates are set forth in the Securities and Exchange Commission Rules and no representation is made that the Common Stock will appreciate at these assumed rates or at all.
The Company does not currently have (and has not previously had) any plan pursuant to which any stock appreciation rights ("SARs") may be granted.
Stock Option Exercises and Holdings
The following table sets forth information relating to options exercised during 1997 by each of the Named Officers and the number and value of options held on December 31, 1997 by such individuals.
Aggregated Option Exercises in 1997 and Option Values at December 31, 1997
Shares
Acquired
on Number of Securities Value of Unexercised
Exercise Value Underlying Unexercised In-the-Money Options at
Name (#) Realized ($) Options at Dec. 31 1997 (#) Dec. 31, 1997 ($)(1)
---- ------ ------------ --------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Donald F. U. Goebert 0 $ 0 87,500 12,500 $256,638 $36,663
Richard K. Laird (2) 0 0 0 100,000 0 131,300
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(1) Total value of unexercised options is based upon the difference between the last sales price of the Company's Common Stock on the NASDAQ on December 31, 1997, which was $7.563 per share, and the exercise price of the options, multiplied by the number of option shares.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's compensation program for the Named Officers, as well as for its other executive officers, is administered by the Board of Directors with the advice and counsel of the Compensation
Committee of the Board. The members of the Compensation Committee provide such advice and counsel through their participation as directors in meetings of the Board and as members of the Committee in meetings of the Committee held separate and apart from meetings of the Board. The Compensation Committee, consists of three outside directors, James C. Gale, Chairman, Joel A. Schleicher and George N. Benjamin, III. The Compensation Committee did not hold any separate meetings during 1997.
The principal actions taken by the Board with respect to executive compensation during 1997 were approval of the compensation package pursuant to which Mr. Laird was employed as President and Chief Executive Officer on December 1, 1997 and the approval of a change in the compensation of Mr. Goebert for the year beginning January 1, 1998 to reflect the change in his responsibilities from Chairman of the Board, President and Chief Executive Officer to Chairman of the Board. All of the members of the Committee approved these actions and neither Mr. Laird nor Mr. Goebert participated in the Board action which affected his compensation.
The Company's officer compensation is composed of base salary, incentive compensation in the form of an annual cash bonus and discretionary long-term incentive compensation in the form of stock options. Each officer is also a participant in medical life insurance, non-contributory 401(k) and other plans which are generally made available to employees of the Company or of the business units managed by such officer.
The Compensation Committee and the Board of Directors strive to offer to the Company's officers a compensation package consisting of base salary and incentive compensation which will attract, retain, motivate, and reward talented executives. To achieve its objectives, the Committee and the Board evaluate the performance of the Company's officers and consider data on other companies in its industry which are comparable in size, location and financial performance. The Committee and the Board intend to base a significant portion of the compensation of senior executives upon the Company's financial success so that the Company's officers are rewarded on the same basis as the Company's shareholders.
Consistent with the compensation objectives of the Committee and the Board, the use of stock options has been a material part of the compensation package for the Company's President and Chief Executive Officer. The compensation package agreed upon for the employment of Mr. Laird as President and Chief Executive Officer included, in addition to his salary, the grant to him, upon commencement of employment, of an option under the Company's 1997 Stock Option Plan for the purchase of up to 100,000 shares of the Company's Common Stock, and for the grant to him of additional options for increments of up to 50,000 shares each six months, twelve months, eighteen months and twenty-four months thereafter. Such options will vest and become exercisable during his employment at the rate of 25% of the optioned shares on each of the first, second, third and fourth anniversaries of the grant date. Similarly, in 1994, Mr. Goebert, who served as President and Chief Executive Officer of the Company until December 1, 1997, was granted options under the Company's 1988 Stock Option Plan for the purchase of 100,000 shares which became vested and exercisable over a five year period. In light of the 1994 grants, the Committee determined for fiscal years since 1994
to maintain the 1994 level of base salary compensation for Mr. Goebert. Stock options, constituting a less material element of overall compensation, have also been granted to William P. Kelly, the other executive officer of the Company, and to other key employees of the Company and its subsidiaries.
From time to time the Board, upon the recommendation of the Committee, implements bonus plans or grants discretionary bonus payments to its executive and other officers based upon performance criteria and the results of the Company's operations. It is the continuing philosophy of the Compensation Committee to include corporate goals, stock price, and financial results measured by return on shareholder equity as determinants of total executive compensation. The terms of Mr. Laird's employment provide for the payment of a bonus of up to 50% of his salary based upon earnings and/or share price goals or other performance criteria to be mutually agreed upon with the Board of Directors.
Recent amendments to the Internal Revenue Code provide that publicly-held corporations may not deduct, for federal income tax purposes, non-performance based compensation for its chief executive officer and certain other executive officers to the extent that such compensation exceeds $1,000,000 for the executive. The Compensation Committee and the Board intend to take such actions as are appropriate to qualify compensation paid to executives for deductibility under these recent amendments. In this regard, base salary and bonus levels are expected to remain well below the $1,000,000 limitation in the foreseeable future. Options granted under the Company's Stock Option Plans are designed to constitute performance-based compensation, which would not be included in calculating compensation for purposes of the $1,000,000 limitation.
Members of the Compensation Committee
James C. Gale, Chairman George N. Benjamin, III Joel A. Schleicher
Compensation Committee Interlocks and Insider Participation
During 1997, the Compensation Committee of the Company's Board of Directors was composed of Messrs. Gale, Benjamin and Schleicher, all of whom are independent, outside directors of the Company. As noted above, the Company's compensation program for its executives is administered by the Board of Directors with the advice and counsel of the Compensation Committee. As a result, Messrs. Goebert and Laird provide input to the deliberations by the Committee and the Board concerning executive compensation. Neither Mr. Goebert nor Mr. Laird, each of whom is a director of the Company, voted as a member of the Board in the Board action which affected his compensation.
STOCK PERFORMANCE GRAPH
The graph below compares the five-year cumulative total shareholder return on the Company's Common Stock with the five-year cumulative total return of the Nasdaq Stock Index, U.S. ("Nasdaq") and the Nasdaq non-financial stocks index ("Composite").
[GRAPHIC]
In the printed document, there is a line chart representing the following:
Annual Returns Ending
December 31,
NASDAQ COMPOSITE RELM
------ --------- ----
1992 100 100 100
1993 114.7932 115.4545052 112.195122
1994 112.2085 111.0153274 95.12195122
1995 158.6839 154.7107292 82.92682927
1996 195.1942 187.9706742 65.85365854
1997 239.6321 220.7663684 147.5707317
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The table below sets forth certain information as of March 15, 1998 regarding the beneficial ownership, as defined in regulations of the Securities and Exchange Commission, of Common Stock of (i) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company's Common Stock, (ii) each director of the Company, including the Named Officers, and (ii) all directors and executive officers as a group. Unless otherwise specified, the named beneficial owner has sole voting and investment power. The information in the table below was furnished by the persons listed.
Amount Beneficially Percent
Name of Beneficial Owner Owned of Class(1)
------------------------ -------------------- -----------
Dimensional Fund Advisors 307,433(2) 6.1
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Donald F.U. Goebert ...................................... 1,711,234(3)(4) 33.4
400 Willowbrook Lane
West Chester, PA 19382
Richard K. Laird ......................................... 0 *
Ralph R. Whitney, Jr ..................................... 46,187 *
Buck Scott ............................................... 10,000 *
James C. Gale ............................................ 4,166(5) *
Joel A. Schleicher ....................................... 3,124(5) *
George N. Benjamin, III .................................. 1,922(6) *
Robert L. MacDonald ...................................... 0 *
All executive officers and directors as a group
(9 persons) ........................................... 1,777,883(3)(4)(5)(6) 34.6
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(1) Based upon 5,037,440 outstanding shares as of March 15, 1998 and, with respect to each holder of options exercisable within 60 days, the shares represented by such options.
(2) According to the Schedule 13G filed by Dimensional Fund Advisor Inc. (the "Reporting Person") dated February 6, 1997, the Reporting Person had sole voting power with respect to 193,738 of the reported shares and sole investment power with respect to 307,433 of the reported shares and all of the reported shares were owned by advisory clients of the Reporting Person.
(3) Includes 188,971 shares owned by Investors Insurance Group, Inc., a subsidiary of a company controlled by Mr. Goebert; 85,942 shares owned by Chester County Fund, Inc., the majority shareholder of which is Mr. Goebert; and 60,000 shares owned by a partnership controlled by Mr. Goebert. Also includes 87,500 shares subject to immediately exercisable options or options exercisable within 60 days and 11,840 shares held in trust for Mr. Goebert's children.
(4) Includes 23,366 shares held in a custodial account for the Company's Employee Stock Purchase Program, of which Mr. Goebert is a Custodian, and 789 shares held in a Trust under the Adage, Inc. 401(k) Retirement-Investment Plan, of which Mr. Goebert is a Trustee.
(5) Represents shares subject to immediately exercisable options or options exercisable within 60 days.
(6) Includes 1,822 shares subject to immediately exercisable options or options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leased its headquarters and a manufacturing facility from entities owned principally by Messrs. Goebert and Scott during 1997. The lease was terminated on June 5, 1997 concurrently with the sale of the Allister assets referred to in the following paragraph. Rentals under these leases were $83,000 for the year ended December 31, 1997.
On June 5, 1997 the Company sold all of the assets of its specialty
manufacturing subsidiary, Allister Manufacturing Company, Inc. ("Allister") to
c.p. Allstar Corporation ("Allstar"), a corporation owned by Robert T. Holland,
who was until that date a director and executive officer of the Company.
Allister was primarily engaged in the manufacturing of automatic garage door and
gate control systems. For the fiscal years ended December 31, 1994, 1995 and
1996 Allister had incurred operating losses of $395,000, $898,000 and $715,000,
respectively. Under the terms of the Asset Purchase Agreement dated April 22,
1997 (the AAgreement") between Allister and Allstar the assets of Allister were
purchased for an aggregate purchase price, after adjustments of $1,946,000 which
was paid at closing by payment in cash of $1,592,000 and delivery to the Company
of 83,327 shares of Common Stock and options for the purchase of 75,000 shares
of Common Stock at an agreed upon aggregate value of $696,029 based upon the
book value of the shares on the date of the Agreement. and the possible future
value of the options. The approximate book value and the market value of the
Common Stock on the date of the Agreement were $5.60 per share and $3.625 per share, respectively, and the average exercise price under the options was $4.63 per share. The pre-adjustment purchase price of $1,800,000 was based upon an assumed closing date net book value of $2,700,000 and adjusted to increase or decrease the purchase price from $1,800,000 on a dollar for dollar basis to the extent that the closing date net book value was greater than or less than $2,700,000 and to increase or decrease the purchase price by any decrease or increase in earnings before interest, taxes, depreciation and amortization for the period from March 1, 1997 until June 5, 1997, the date of closing of the purchase transaction. The Company's basis in the net assets was $3,763,681 and the purchase price was determined by the Board of Directors based upon net book value of tangible assets, less a discount. During 1996 the Board of Directors determined to divest the Company of its specialty manufacturing and recycled paper manufacturing subsidiaries in order to concentrate the Company's management and financial resources on its principal business, the manufacture and sale of wireless communications products. The sale of the assets of Allister resulted in the disposition of the Company's specialty manufacturing business. On June 16, 1997, the Company sold Fort Orange Paper Co., Inc., its recycled paper manufacturing subsidiary to an unaffiliated third party.
During 1997 the Board of Directors approved the sale to affiliates of Mr. Goebert of the real estate which consisted of most the remaining assets of the Company's commercial real estate operations, which the Company elected to discontinue in 1994. These properties constituted land located in the Naaman's Creek Center. Four of the properties were sold during 1997 for an aggregate purchase price, after adjustment of $1,733,000 which was paid at closing by payment in cash of $ 1,533,000 and delivery to the Company of a seven year, 7% promissory note in the amount of $ 200,000. The Company's cost basis in these properties was $1,965,114 and the purchase price was determined based upon their market value as determined by independent appraisal. In April, 1998 an additional property was sold for $549,000. The remaining property is expected to be sold during April, 1998. The Company's basis in these properties is approximately the same as the selling proce.
In general, the Company believes that the terms of the transaction described in this section are at least as favorable as those that might have been obtained from unaffiliated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: See Index to the Consolidated Financial Statements on Page F-1 hereof.
2. Financial Statement Schedules: All schedules have been omitted because they are inapplicable or not material, or the information called for thereby is included in the Consolidated Financial Statements and Notes thereto.
3. Exhibits: The Exhibits listed below are filed as a part of, or incorporated by reference into this Report:
Number Exhibit
(2) * Articles of Merger merging Adage, Inc. with and unto RELM
Wireless Corporation effective January 30, 1998.
(3)(i) * Articles of Incorporation of RELM Wireless corporation filed
October 24, 1997.
(3)(ii)* By-Laws of RELM Wireless Corporation.
(10)(e)*** Adage, Inc. 1997 Stock Option Plan
(21) * Subsidiaries of the Registrant
(27.1) * Financial Data Schedule for the year ended December 31, 1997
(27.2) * Financial Data Schedule Restated for the year ended
December 31, 1996
------------------
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* Filed herewith.
** Compensatory plan required to be filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized.
Date: 4/15/98 RELM, INC.
By: /s/ Richard K. Laird
------------------------------
Richard K. Laird
President & C.E.O.
|
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 or the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/Donald F. U. Goebert Chairman 4/15/98
-------------------------
Donald F. U. Goebert
/s/Richard K. Laird President and Chief 4/15/98
------------------------- Executive Officer
Richard K. Laird
/s/William P. Kelly Vice President - Finance 4/15/98
------------------------- Secretary
William P. Kelly
/s/Buck Scott Director 4/15/98
-------------------------
Buck Scott
/s/James C. Gale Director 4/15/98
-------------------------
James C. Gale
/s/Robert L. MacDonald Director 4/15/98
-------------------------
Robert L. MacDonald
/s/Ralph R. Whitney, Jr. Director 4/15/98
-------------------------
Ralph R. Whitney, Jr.
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SIGNATURES TITLE DATE
---------- ----- ----
/s/Joel A. Schleicher Director 4/15/98
--------------------------
Joel A. Schleicher
/s/George N. Benjamin, III Director 4/15/98
--------------------------
George N. Benjamin, III
|
Exhibit Index
(2) Articles of Merger merging Adage, Inc. with and unto RELM Wireless Corporation effective January 30, 1998.
(3)(i) Articles of Incorporation of RELM Wireless corporation filed October 24, 1997.
(3)(ii) By-Laws of RELM Wireless Corporation.
(10)(e) Adage, Inc. 1997 Stock Option Plan
(21) Subsidiaries of the Registrant
(27.1) Financial Data Schedule for the year ended December 31, 1997
(27.2) Financial Data Schedule Restated for the year ended December 31, 1996
Exhibit (2)
ARTICLES OF MERGER
For the Purpose of
Merging Adage, Inc. with and into RELM Wireless Corporation
The undersigned corporations, Adage, Inc., a Pennsylvania corporation ("Adage"), and RELM Wireless Corporation, a Nevada corporation ("RELM Wireless"), (Adage and RELM Wireless, hereinafter sometimes referred to collectively as the "Constituent Corporations") hereby adopt and execute these Articles of Merger (these "Articles of Merger") for the purpose of effecting the merger provided for herein.
ARTICLE I.
MERGER
Pursuant to Chapter 19, Subchapter C of the Pennsylvania Business Corporation Code (the "PBCL") and Sections 92A.250 and 92A.260 of the Nevada General Corporation Law (the "NGCL"), on the Effective Date (as defined in Article III) the merger provided for herein shall be effected pursuant to which Adage shall be merged with and into RELM Wireless and the separate existence of Adage shall cease (such merger being hereinafter referred to as the "Merger"). The Merger shall be carried out in accordance with the provisions of the PBCL, the NGCL, these Articles of Merger, and the Plan of Merger (as defined in Article IV).
ARTICLE II.
THE CONSTITUENT CORPORATIONS
1. RELM Wireless: The Surviving Corporation. As set forth in Section 1.01 of the Plan of Merger, when the Merger is effective on the Effective Date RELM Wireless Adage shall be merged into RELM Wireless, separate existence of Adage shall cease and RELM Wireless, as the surviving corporation (the "Surviving Corporation") shall continue to exist as a Nevada corporation.
(i) Registered Office in State of Incorporation. The address of the registered office of the Surviving Corporation in Nevada, its state of incorporation, is as follows:
RELM Wireless Corporation
502 East John Street
Carson City, Nevada 89706
(ii) Registered Office in Pennsylvania. The address of the registered office of the Surviving Corporation in Pennsylvania, a state in which it is qualified as a foreign corporation, is as follows:
RELM Wireless Corporation
319 Market Street
Harrisburg, Pennsylvania 17105
2. Adage: The Other Constituent Corporation. As set forth in Section 1.01 of the Plan of Merger, when the Merger is effective on the Effective Date the separate existence of Adage, the other Constituent Corporation, as a Pennsylvania corporation will cease.
(i) Registered Office in Pennsylvania. The address of the registered office of Adage as a domestic corporation in Pennsylvania is as follows:
Adage, Inc.
615 Willowbrook Lane
West Chester, Pennsylvania 19382
ARTICLE III
EFFECTIVE TIME OF MERGER
The Merger shall become effective on and as of the Effective Date provided in Section 7.01 of the Plan of Merger, which shall be January 30, 1998, the date on which these Articles of Merger are filed with the Secretary of State of the State of Nevada as provided under the NGCL, or the date on which these Articles of Merger are filed with the Secretary of State of Pennsylvania as provided under the PBCL, whichever such date shall be the latest to occur.
ARTICLE IV
THE PLAN OF MERGER
The plan of the Merger including, but not limited to, the terms and conditions of the Merger, the Articles of Incorporation, Bylaws, Officers and Directors of the Surviving Corporation, the effect of the Merger on the stock of the Constituent Corporations and the manner and basis of converting the shares of Adage into shares of the Surviving Corporation, and the corporate existence, powers and liabilities of the Surviving Corporation are set forth in that certain Plan and Agreement of Merger dated as of January 12, 1998 (the "Plan of Merger") between the Constituent Corporations, attached hereto as Exhibit A and made a part of these Articles of Merger.
ARTICLE V
APPROVAL OF THE PLAN OF MERGER
1. Approval by the Surviving Corporation. The Plan of Merger was approved by the Board of Directors and shareholders of RELM Wireless as follows:
(i) The Board of Directors, by unanimous written consent given on December 8, 1997, approved the Plan of Merger, directed that it be submitted for approval by the shareholders and recommended its adoption by the shareholders;
(ii) The sole shareholder and holder of one hundred percent (100%) of the 4,981,231 shares of Common Stock, $.60 par value per share, the only capital stock or other securities outstanding and entitled to vote on the Plan of Merger, by written consent given on December 8, 1997 approved the Plan of Merger; and
(iii) The authorization of the Plan of Merger by the Board of Directors and shareholders as outlined above was sufficient for approval under the NGCL, the law of the jurisdiction in which the Surviving Corporation was incorporated.
2. Approval by the Other Constituent Corporation. The Plan of Merger was approved by the Board of Directors and shareholders of Adage as follows:
(i) The Board of Directors, at a meeting duly called and held on October 13, 1997, approved the Plan of Merger, directed that it be submitted for approval by the shareholders at the annual meeting of shareholders to be held on December 8, 1997, and recommended its adoption by the shareholders at such meeting; all of such actions of the Board of Directors were thereafter ratified and confirmed by the Board of Directors by unanimous written consent immediately prior to the shareholder vote on December 8, 1997; and
(ii) The Plan of Merger was approved by the holders the shares of Common Stock, $.60 par value per share, the only capital stock or other securities outstanding and entitled to vote on the Plan of Merger, at the annual meeting of shareholders duly called and held on December 8, 1997. The number of votes entitled to be cast by the holders of such shares, the total number of votes cast on the proposal to approve the Plan of Merger, and the total number of votes cast for and against approval of the Plan of Merger were as follows:
(a) Total number of votes entitled to be cast (shares outstanding on the record date): 4,981,231;
(b) Total number of votes cast on the proposal to approve the Plan of Merger: 2,599,712;
(c) Total number of votes cast FOR approval of the Plan of Merger:
2,568,378; and
(d) Total number of votes cast AGAINST approval of the Plan of Merger: 31,334.
(iii) The authorization of the Plan of Merger by the Board of Directors and shareholders as outlined above was sufficient for approval under the PBCL, the law of the jurisdiction in which Adage was incorporated.
IN WITNESS WHEREOF, the parties to these Articles of Merger have caused them to be duly executed and acknowledged by their respective authorized officers as of the 12th day of January, 1998.
ADAGE, INC. RELM WIRELESS CORPORATION a Pennsylvania corporation a Nevada corporation By: /s/ Richard K. Laird By: /s/ Richard K. Laird ------------------------------- -------------------------------- Richard K. Laird, President Richard K. Laird, President ATTEST: ATTEST: By: /s/ William P. Kelly By: /s/ William P. Kelly ------------------------------- -------------------------------- William P. Kelly, Secretary William P. Kelly, Secretary |
Acknowledgment
STATE OF FLORIDA )
) SS:
COUNTY OF BREVARD)
The foregoing Articles of Merger were acknowledged before me this 12th day of January, 1997 by RICHARD K. LAIRD and WILLIAM P. KELLY, President and Secretary, respectively, of ADAGE, INC., a Pennsylvania corporation, on behalf of the corporation. They are personally known to me and who did not take an oath.
/s/ Robert N. Blackford
-----------------------------------------
Signature of Person Taking Acknowledgment
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Acknowledgment
STATE OF FLORIDA )
) SS:
COUNTY OF BREVARD)
The foregoing Articles of Merger were acknowledged before me this 12th day of January, 1997 by RICHARD K. LAIRD and WILLIAM P. KELLY, President and Secretary, respectively, of RELM WIRELESS CORPORATION, a Nevada corporation, on behalf of the corporation. They are personally known to me and who did not take an oath.
/s/ Robert N. Blackford
-----------------------------------------
Signature of Person Taking Acknowledgment
Print Name: Robert N. Blackford
-----------------------------
Notary Stamp Title: Notary Public
Serial No. (if any) CC684644
---------------------
Commission Expires:
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EXHIBIT "A"
AGREEMENT AND PLAN OF MERGER
THIS PLAN OF MERGER (the "Agreement"), dated as of January 12, 1998, is made and entered into by and between Adage, Inc., a Pennsylvania corporation ("Adage"), and RELM Wireless Corporation, a Nevada corporation ("RELM Wireless").
WITNESSETH:
WHEREAS, Adage is a Pennsylvania corporation; and
WHEREAS, RELM Wireless is a Nevada corporation and a wholly owned subsidiary of Adage; and
WHEREAS, the respective Boards of Directors of Adage and RELM Wireless have determined that it is desirable to merge (the "Merger") Adage with and into RELM Wireless, with RELM Wireless as the surviving corporation under the name "RELM Wireless Corporation"; and
WHEREAS, Adage, as sole shareholder of RELM Wireless, has executed a written consent approving the Merger.
NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
MERGER
1.01. On the Effective Date (as defined in Section 7.01) as provided herein, Adage shall be merged with and into RELM Wireless, the separate existence of Adage shall cease and RELM Wireless (hereinafter sometimes referred to as the "Surviving Corporation") shall continue to exist under the name "RELM Wireless," by virtue of, and shall be governed by the laws of the State of Nevada. The address of the registered office of the Surviving Corporation in the State of Nevada will be 502 East John Street, Carson City, Nevada 89706. The name of the Surviving Corporation shall be RELM Wireless Corporation.
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
2.01. From and after the Effective Date, the Articles of Incorporation (the "Nevada Articles of Incorporation") of RELM Wireless (as in effect at the Effective Date) shall be the Articles of Incorporation of the Surviving Corporation unless and until amended in accordance with applicable law.
ARTICLE III
BYLAWS OF THE SURVIVING CORPORATION
3.01. From and after the Effective Date, the Bylaws (the "Nevada Bylaws") of RELM Wireless (as in effect at the Effective Date) shall be the Bylaws of the Surviving Corporation unless and until amended in accordance with applicable law.
ARTICLE IV
EFFECT OF MERGER ON STOCK OF CONSTITUENT CORPORATIONS
4.01. On the Effective Date, each outstanding share of common stock of Adage, $0.60 par value per share ("Adage Common Stock"), shall be converted into and exchanged for one share of common stock, $0.60 par value per share of RELM Wireless ("RELM Wireless Common Stock"); and each outstanding share of RELM Wireless Common Stock held by Adage immediately before the effective time of the Merger shall be retired and canceled and assume the status of authorized but unissued shares of RELM Wireless Common Stock.
4.02. All outstanding options, warrants and other rights to acquire shares of Adage Common Stock outstanding on the Effective Date will automatically be converted into equivalent options, warrants and other rights to purchase the same number of shares of RELM Wireless Common Stock. In addition, each of Adage=s employee benefit plans shall be continued and assumed by RELM Wireless.
4.03. (a) As of the Effective Date, each holder of an outstanding certificate which immediately before the Effective Date represented shares of Adage Common Stock (an "Adage Certificate") will cease to have any right as a stockholder of Adage. At that time, such holder's sole right will be to receive in exchange for such holder's Adage Certificates, on surrender thereof to RELM Wireless, which will act as the exchange agent for Adage Certificates (the "Exchange Agent"), a certificate or certificates representing the number of RELM Wireless shares into which such shares shall have been converted pursuant to Article 4.01 of this Agreement. The stock transfer books of Adage will be closed upon effectiveness of the Merger and all subsequent transfers of records of certificates
previously representing shares of capital stock will be made in the stock transfer books of RELM Wireless.
(b) Notwithstanding any other provision of this Agreement, if any dividends are declared on any shares of RELM Wireless Common Stock converted from shares of Adage Common Stock with respect to which the Adage Certificate has not been surrendered to the Exchange Agent, such dividends, if any, will only be paid upon the surrender of such Adage Certificate for exchange as provided herein, and no interest shall be paid on any such dividends.
ARTICLE V
CORPORATE EXISTENCE, POWERS AND LIABILITIES
OF SURVIVING CORPORATION
5.01 On the Effective Date, the Merger shall have the effects set forth in Chapter 19, Subchapter C of the Pennsylvania Business Corporation Law (the "PBCL") and Sections 92A.250 and 92A.260 of the Nevada General Corporation Law (the "NGCL"). All corporate acts, plans, policies, agreements, arrangements, approvals and authorizations of Adage, its shareholders, Board of Directors and committees thereof, officers and agents that were valid and effective immediately prior to the Effective Date, shall be taken for all purposes as the acts, plans, policies, agreements, approvals and authorizations of the Surviving Corporation and shall be as effective and binding thereon as the same were with respect to Adage. The employees and agents of Adage shall become the employees and agents of the Surviving Corporation and continue to be entitled to the same rights and benefits that they enjoyed as employees and agents of Adage.
The requirements of any plans or agreements of Adage involving the issuance or purchase by Adage of certain shares of its capital stock shall be satisfied by the issuance or purchase of one share of the Surviving Corporation for every one share of the Common Stock.
5.02. Adage agrees that it will execute and deliver, or cause to be executed and delivered, all such deeds and other instruments and will take or cause to be taken such further action as the Surviving Corporation may deem necessary in order to vest in and confirm to the Surviving Corporation title to and possession of all the property, rights, privileges, immunities, powers, purposes and franchises, and all and every other interest of Adage and otherwise to carry out the intent and purposes of this Agreement.
ARTICLE VI
OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
6.01. The directors of Adage at the Effective Date shall be the directors of the Surviving Corporation until their successors shall have been duly elected and qualified or appointed and qualified or until their earlier death, resignation or removal in accordance with the RELM Wireless
Articles of Incorporation, the RELM Wireless Bylaws and applicable law. From and after the Effective Date, the officers of Adage shall be the officers of the Surviving Corporation until their successors shall have been duly appointed and qualified or until their earlier death, resignation or removal in accordance with the RELM Wireless Articles of Incorporation, the RELM Wireless Bylaws and applicable law. As of the Effective Date, the committees of the Board of Directors of the Surviving Corporation shall be the same as and shall be composed of the same persons who are serving on the committees of the Board of Directors of Adage as they existed immediately before such date.
6.02. If, upon the Effective Date, a vacancy shall exist in the Board of Directors of the Surviving Corporation, such vacancy shall be filled in the manner provided by the RELM Wireless Bylaws.
ARTICLE VII
APPROVAL BY SHAREHOLDERS, EFFECTIVE DATE,
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE DATE
7.01. As soon as practicable after approval of this Agreement by the shareholders of Adage, Adage and RELM Wireless will execute articles of merger effecting this Agreement (AArticles of Merger@) and shall cause the same to be filed with the Secretaries of State of the States of Pennsylvania and Nevada, respectively, in accordance with the PBCL and the NGCL, as appropriate. The effective date of the Merger (the AEffective Date@) shall be January 30, 1998, the date on which the Articles of Merger are adopted and filed with the Secretary of State of the State of Nevada as provided under the NGCL, or the date on which the Articles of Merger are adopted and filed with the Secretary of State of Pennsylvania as provided under the PBCL, whichever such date shall be the latest to occur.
7.02 The Boards of Directors of Adage and RELM Wireless may amend this Agreement at any time prior to the Effective Date, provided that an amendment made subsequent to the approval of the Merger by the shareholders of Adage may not change: (1) the amount or kind of shares, obligations, cash, property or rights to be received in exchange for or on conversion of all or any of the shares of the constituent corporations; (2) any term of the RELM Wireless Articles of Incorporation to be effected by the Merger; and (3) any of the terms and conditions of this Agreement if the change would adversely affect the holders of any shares of the constituent corporations.
ARTICLE VIII
TERMINATION OF MERGER
8.01. This Agreement may be terminated and the Merger abandoned at any time prior to the Effective Date, whether before or after shareholder approval of this Agreement, by the consent of the Boards of Directors of Adage and RELM Wireless. In the event of such termination and
abandonment, this Agreement shall become null and void and have no effect, without any liability on the part of any party to this Agreement or to their shareholders, directors or officers.
ARTICLE IX
MISCELLANEOUS
9.01. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original, and all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly and validly executed, as of the date first above written.
ADAGE, INC. RELM WIRELESS CORPORATION a Pennsylvania corporation a Nevada corporation /s/ Richard K. Laird /s/ Richard K. Laird ---------------------------------- --------------------------------- By: Richard K. Laird, President By: Richard K. Laird, President ATTEST: ATTEST: /s/ William P. Kelly /s/ William P. Kelly ---------------------------------- --------------------------------- William P. Kelly, Secretary William P. Kelly, Secretary |
Exhibit (3)(i)
ARTICLES OF INCORPORATION
OF
RELM Wireless Corporation
I, the person hereinafter named as incorporator, for the purpose of associating to establish a corporation, under the provisions and subject to the requirements of Title 7, Chapter 78 of Nevada Revised Statutes, and the acts amendatory thereof, and hereinafter sometimes referred to as the General Corporation Law of the State of Nevada, do hereby adopt and make the following Articles of Incorporation:
FIRST: The name of the corporation (hereinafter called the corporation) is
RELM Wireless Corporation
SECOND: The name of the corporation's resident agent in the State of Nevada is CSC Services of Nevada, Inc., and the street address of the said resident agent where process may be served on the corporation is 502 East John Street, Carson City, Nevada 89706. The mailing address and the street address of the said resident agent are identical.
THIRD: The corporation is incorporated under the General Corporate Law of the State of Nevada and shall have the unlimited power to engage in and to do any lawful act concerning any or all lawful business for which corporations may be formed under the General Corporate Law of the State of Nevada.
FOURTH: The corporation shall have perpetual existence.
FIFTH: The aggregate number of shares which the corporation shall have authority to issue is 10,000,000 shares of common stock, par value $0.60 per share and 20,000 shares of preferred stock, par value $1.00 per share.
No holder of any of the shares of any class of the corporation shall be entitled as of right to subscribe for, purchase, or otherwise acquire any shares of any class of the corporation which the corporation proposes to issue or any rights or options which the corporation proposes to grant for the purchase of shares of any class of the corporation or for the purchase of any shares, bonds, securities, or obligations of the corporation which are convertible into or exchangeable for, or which carry any rights, to subscribe for, purchase, or otherwise acquire shares of any class of the corporation; and any and all of such rights and options may be granted by the Board of Directors to such persons, firms, corporations, and associations, and for such lawful consideration, and on such terms, as the Board of Directors in its discretion may determine, without first offering the same, or any thereof, to any said holder.
SIXTH: The governing board of the corporation shall be styled as a "Board of Directors", and any member of said Board shall be styled as a "Director."
The number of members constituting the first Board of Directors of the corporation is seven (7); and the name and the post office box or street address, either residence or business, of each of said members are as follows:
NAME ADDRESS
---- -------
Donald F.U. Goebert 1170 Harmony Hill Road
Downingtown, PA 19382
Buck Scott 408 McClenaghan Mill Road
Wynnewood, PA 19096
Robert L. MacDonald 441 Iven Avenue
Wayne, PA 19087
Ralph R. Whitney, Jr. 3441 Highway 34
Wheatland, WY 82201
James C. Gale 315 West 106th Street, Apt. 4A
New York, NY 10025
Joel A. Schleicher 140 Knightsbridge
Watchung, NJ 07060
George N. Benjamin III 8260 West 116th Street
Overland Park, Kansas 66210
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SEVENTH: The name and the post office box or street address, either residence or business, of the incorporator signing these Articles of Incorporation are as follows:
NAME ADDRESS
---- -------
Robert N. Blackford 2 South Orange Avenue
Orlando, FL 32801
EIGHTH: The personal liability of the directors of the corporation is
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hereby eliminated to the fullest extent permitted by the General Corporation Law of the State of Nevada, as the same may be amended and supplemented.
NINTH: The corporation shall, to the fullest extent permitted by the General Corporation Law of the State of Nevada, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said Law from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said Law, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
TENTH: The corporation reserves the right to amend, alter, change, or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, I do hereby execute these Articles of Incorporation on October 23, 1997.
INCORPORATOR
/s/ Robert N. Blackford ------------------------------------- Robert N. Blackford |
STATE OF FLORIDA )
) SS.:
COUNTY OF ORANGE )
On this 23d day of October, 1997, personally appeared before me, a Notary Public in and for the State and County aforesaid, Robert N. Blackford, known to me to be the person described in and who executed the foregoing Articles of Incorporation, and who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned.
Witness my hand and official seal the day and year first above written.
/s/ Patricia Copley
------------------------------------
Notary Public
(Notarial Seal) Print Name Patricia Copley
-------------------------
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Exhibit (3)(ii)
RELM WIRELESS CORPORATION
BY-LAWS
ARTICLE I
SHAREHOLDERS
1.1 Meetings.
1.1.1 Place. Meetings of the shareholders shall be held at such place as may be designated by the board of directors.
1.1.2 Annual Meeting. Unless otherwise fixed by the board of directors, an annual meeting of the shareholders for the election of directors and for other business shall be held at 10:00 a.m. local time on the 4th Thursday of April in each year or, if that day is a legal holiday, on the next following business day.
1.1.3 Special Meetings. Special meetings of the shareholders may be called at any time by the president, the board of directors or the holders of at least one-fifth of the outstanding shares of stock of the corporation entitled to vote at the meeting.
1.1.4 Notice. Written notice of the time and place of all meetings of shareholders and of the general nature of the business to be transacted at each special meeting of shareholders shall be given to each shareholder entitled to vote at the meeting at least five days before the date of the meeting unless a greater period of notice is required by law in a particular case.
1.1.5 Quorum. The presence in person or by proxy of the holders of a majority of the outstanding shares of stock of the corporation entitled to vote on a particular matter shall constitute a quorum for the purpose of considering such matter. If a quorum is not present no business shall be transacted except to adjourn to a future time.
1.1.6 Adjourned Meetings. Those shareholders entitled to vote who attend a meeting called for the election of directors that has been previously adjourned for lack of a quorum, although less than a quorum as fixed in these bylaws, shall nevertheless constitute a quorum for the purposes of electing directors. Those shareholders entitled to vote who attend a meeting of shareholders that has been previously adjourned for one or more periods aggregating at least fifteen days because of an absence of a quorum, although than less than a quorum as fixed in these by-laws, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for purpose of acting upon the matter.
1.1.7 Participation. One ore more shareholders may participate in a shareholders' meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.
1.1.8 Voting Rights. Except as otherwise provided herein, the articles of incorporation or by-laws, every shareholder shall have the right at every shareholders' meeting to one vote for every share standing in his name on the books of the corporation which is entitled to vote at such meeting. Every shareholder may vote either in person or by proxy.
ARTICLE II
DIRECTORS
2.1 Number and Term. Subject to the provisions of applicable law, the board of directors shall have authority to (a) determine the number of directors to constitute the board, and (b) fix the terms of office of the directors and classify the directors with respect to the time for which they shall severally hold office. Except as otherwise fixed by the board of directors under the authority given above, the number of directors shall be five (5) and each director elected to the board shall hold office until the next annual meeting of the shareholders unless he sooner resigns or is removed or disqualified.
2.2 Powers. All corporate powers shall be exercised by or under authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors.
2.3 Meetings.
2.3.1 Place. Meetings of the board of directors shall be held at such place as may be designated by the board or in the notice of the meeting.
2.3.2 Regular Meetings. Regular meetings of the board of directors shall be held at such times as the board may designate. Notice of regular meetings need not be given.
2.3.3 Special Meetings. Special meetings of the board of directors may be called at any time by the president and shall be called by him on the written request of one-third of the directors. Notice (which need not be written) of the time and place of each special meeting shall be given to each director at least two days before the meeting.
2.3.4 Quorum. A majority of all the directors in office shall constitute a quorum for the transaction of business at any meeting and except as otherwise provided herein the acts of a majority of the directors present at any meeting at which a quorum is present shall be the acts of the board of directors.
2.3.5 Participation. One or more directors may participate in a meeting of the board or a committee of the board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.
2.4 Vacancies. Vacancies in the board of directors shall be filled by vote of a majority of the remaining members of the board.
2.5 Committees. The board of directors may by resolution adopted by a majority of the whole board designate one or more committees, each committee to consist of two or more directors and such alternate members (also directors) as may be designated by the board. To the extent provided in such resolution, any such committee shall have and exercise the powers of the board of directors. Unless otherwise determined by the board, in the absence or disqualification of any member of a committee the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member.
2.6 Limitation on Directors' Liability. Except as otherwise provided by law, a director shall not be personally liable for monetary damages as such for any action taken, or failure to take any action, unless:
2.6.1 The director has breached or failed to perform the duties of his office as provided in the Nevada General Corporation Law (the "NGCL"); and
2.6.2 The breach or failure to perform constitutes self-dealing, wilful misconduct or recklessness.
ARTICLE III
OFFICERS
3.1 Election. The board of directors shall elect a president, treasurer, secretary and such other officers as it deems advisable. Any number of offices may be held by the same person.
3.2 Authority, Duties and Compensation. The officers shall have such authority and perform such duties and serve for such compensation as may be determined by or under the direction of the board of directors. Except as otherwise provided by the board (a) the president shall be the chief executive officer of the corporation, shall have general supervision over the business and operations of the corporation, may perform any act and execute any instrument for the conduct of such business and operations and shall preside at all meetings of the board and shareholders, (b) the other officers shall have the duties usually related to their offices, and (c) the vice president (or vice presidents in the order determined by the board) shall in the absence of the president have the authority and perform the duties of the president.
ARTICLE IV
INDEMNIFICATION
4.1 Right to Indemnification.
4.1.1 Third Party Claims. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a representative of the corporation, or is or was serving at the request of the corporation as a representative of another domestic or foreign corporation for profit or not-for-profit, partnership, joint venture, trust or other enterprise (including employee benefit plans), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interest of the corporation and, with respect to any criminal proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement or conviction upon a plea nolo contendere or its equivalent shall not of itself create a presumption that the person did not act in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interest of the corporation and, with respect to any criminal proceeding, had reasonable cause to believe that his conduct was unlawful.
4.1.2 Derivative Actions. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of the corporation to procure judgment in its favor by reason of the fact that he is or was a representative of the corporation or is or was serving at the request of the corporation as a representative of another domestic or foreign corporation for profit or not-for-profit, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of the action if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interest of the corporation; provided that no indemnification shall be made under this section in respect of claim, issue or matter as to which the person has been adjudged to be liable to the corporation unless and only to extent that a court of competent jurisdiction determines that, despite the adjudication of liability but in view of the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses that such court deems proper.
4.2 Procedure for Effecting Indemnification. Unless ordered by a court, any indemnification made under Sections 4.1.1 or 4.1.2 shall be made by the corporation only as authorized in this specific case upon a determination that indemnification of the representative is proper in the circumstances because he has met the applicable standard of conduct set forth in those sections. Such determination shall be made:
4.2.1 By the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to the action or proceeding;
4.2.2 If such a quorum is not obtainable or if obtainable and a majority vote of a quorum of disinterested directors so directs, by independent legal counsel in a written opinion;
4.2.3 By the shareholders.
4.2.4 In such other manner, if any, as shall be permitted by NGCL.
4.3 Advancement of Expenses. Expenses (including attorneys' fees) incurred in defending any action or proceeding referred to in this Article may be made by the corporation in advance of the final disposition of the action or proceeding upon receipt of an undertaking by or on behalf of the representative to repay the amount if it is ultimately determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise.
ARTICLE V
OFFICERS
5.1 Share Certificates. Every shareholder of record shall be entitled to a share certificate representing the shares held by him. Every share certificate shall bear the corporate seal (which may be a facsimile) and the signature of the president or a vice president and the secretary or an assistant secretary.
5.2 Transfers. Transfers of share certificates and the shares represented thereby shall be made on the books of the corporation only by the registered holder or by duly authorized attorney. Transfer shall be made only on surrender of the share certificate or certificates
ARTICLE VI
AMENDMENTS
Except as otherwise provided by applicable law, these By-Laws may be amended at any regular or special meeting of the board of directors by the vote of a majority of all the directors in office or at any annual or special meeting of shareholders by the vote of the holders of a majority of the outstanding stock entitled to vote. Notice of any such meeting of shareholders shall set forth the proposed change or a summary thereof.
Exhibit (10)(e)
ADAGE, INC.
1997 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.01 Purpose. The purposes of this Stock Option Plan are to:
(a) closely associate the economic interests of the Employees and Directors of the Company with the economic interests of the shareholders of the Company;
(b) promote the success of the Company's business;
(c) maintain competitive compensation levels for the Employees of the Company; and
(d) provide an incentive to the Employees and Directors of the Company to continue in the employment or service of the Company.
1.02 Construction. The Plan (and the Options granted hereunder), as it
applies to Options granted to Employees of the Company, is intended to qualify
as a tax qualified, incentive stock option plan, and to be described under Code
Section 422 and Regulations issued thereunder. To the extent the Plan (and the
Options granted hereunder) applies to Directors and to Employees to whom the
Committee intends to grant nonqualified stock options, the Plan is intended to
be a nonqualified, stock option plan under Code Section 83 and Regulations
issued thereunder. The Plan, and the Options granted hereunder, shall be
interpreted and construed to achieve the intended purpose.
1.03 Effective Date. The Plan is effective as of October 13, 1997.
ARTICLE II
DEFINITIONS
As used in the Plan, capitalized words in the Plan shall be defined as follows:
2.01 "Beneficiary" means the person designated in the last will and testament of the Optionee as the beneficiary of the Optionee with respect to the Option. In the absence of such designation, the beneficiary of the Optionee shall be determined under the laws of descent and distribution of the state of domicile of the Optionee at the time of the Optionee's death.
2.02 "Board" means the Board of Directors of the Company.
2.03 "Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.04 "Committee" means the committee of individuals appointed by the Board in accordance with Section 3.01 below to administer the Plan. Such Committee shall consist of three or more individuals. In the event the Board fails to appoint a committee of individuals, however, the entire Board shall comprise the Committee.
2.05 "Common Stock" means the voting common stock of the Company.
2.06 "Company" means Adage, Inc., a Pennsylvania corporation, its parents (if any), and any present or future subsidiaries.
2.07 "Director" means a member of the Board that is not an Employee of the Company.
2.08 "Employee" means a common law employee of the Company, or any subsidiary of the Company.
2.09 "Grant Date" means the date an Option is granted to an Employee or Director and shall mean the date selected by the Committee as of which the Committee allots a specific number of Shares to an Optionee pursuant to the Plan.
2.10 "Option" means the stock option granted pursuant to the Plan, which if granted to an Employee may be designated as being intended to qualify as a tax qualified, incentive stock option within the meaning of Code Section 422, and if granted to a Director or Employee, may be designated as being intended to be treated as a nonqualified, stock option within the scope of Code Section 83.
2.11 "Option Agreement" means the written agreement between the Company and the Optionee evidencing the grant of the Option by the Company to the Optionee.
2.12 "Optionee" means an Employee or Director who has been granted an Option pursuant to the Plan, and who has executed an Option Agreement.
2.13 "Plan" means this 1997 Stock Option Plan.
2.14 "Share" means one share of Common Stock, as adjusted for recapitalization transactions in accordance with Section 7.01 below.
2.15 "Regulations" means Treasury Regulations promulgated in accordance with the Code.
ARTICLE III
ADMINISTRATION
3.01 The Committee. The Plan shall be administered by the Committee. The Committee may select one of its members as its chairperson, and shall hold meetings at such time and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. Furthermore, members of the Committee who are either (i) eligible for Options pursuant to the Plan or (ii) have been granted Options may vote on any matters affecting the administration of the Plan or the grant of any Options pursuant to the Plan. However, no such member shall vote upon the granting to himself or herself of Options, but any such member may be counted in determining the existence of a quorum at any meeting of the Committee during which action is taken with respect to the granting of Options.
3.02 Authority of Committee. The Committee shall have the authority, in its sole discretion, but subject to the terms of the Plan, to:
(a) grant Options to Employees and Directors in accordance with the terms of the Plan in such amount and on such terms as the Committee shall determine;
(b) impose such limitations, restrictions and conditions upon any such
award as the Committee shall deem appropriate, provided such limitation,
restriction and/or condition, in the case of a grant of an Option to an Employee
that is intended to be a tax qualified stock option, is consistent with Code
Section 422, the Regulations thereunder, and this Plan; and
(c) in its discretion, interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations, and take all other actions necessary or appropriate for the implementation and administration of the Plan.
3.03 Grant of Option to Members of Board. In the event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grant of an Option to a member of the Board (made at any time from the effective date of such registration until six months after the termination of such registration) must be approved by a majority of the other members of the Board; provided, however, that if a majority of the Board is eligible for selection in the Plan or in any other stock option or other stock plan of the Company, or has been so eligible at any time within the preceding year, any grant of an Option to a member of the Board must be made by, or only in accordance with the recommendation of the Committee or a committee consisting of three or more persons, who may but need not be Directors or Employees of the Company, appointed by the Board but having full authority to act in the matter, none of whom is eligible for selection in this Plan or any other stock option or other stock plan of the Company or has been eligible at any time within the preceding year. The requirements imposed
by the preceding sentence shall also apply with respect to grants to officers who are also Directors. Once appointed, such committee shall continue to serve for such purposes until otherwise directed by the Board. All grants of Options to members of the Board shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons.
3.04 Decisions Final. All actions, decisions, interpretations and determinations of the Committee on all matters relating to the administration and operation of the Plan shall be within the Committee's sole discretion and shall be final and conclusive. No members of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award thereunder.
3.05 Indemnification of Committee. The Company indemnifies and holds harmless the members of the Committee in their capacity as Committee members against all liability and expenses (including reasonable attorney, paralegal, and professional fees and court costs) arising from any threatened, pending or completed action, suit, proceeding (including administrative proceedings or investigations) or appeal, incurred by reason of the fact that such individual is or was a member of the Committee, provided that such individual (i) acted, or failed to act, in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company as well as the Employees, Directors and Optionees, or (ii) with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
ARTICLE IV
ELIGIBILITY AND SCOPE
4.01 Eligibility for Participation. Optionees under the Plan shall be selected by the Committee from amongst the Employees and Directors of the Company. In the case of an Optionee that is an Employee of the Company, such person must be employed by the Company at the time the Option is granted, and may not be a member of the Committee at such time or during the period described in Section 3.01 above. In making this selection and in determining the form and amount of awards, the Committee shall consider any factors deemed relevant, including the Employee's or Director's functions, responsibilities, value of services to the Company, and past and potential contributions to the Company's profitability and growth.
4.02 Aggregate Limitations on Awards. Subject to the recapitalization provisions of Section 7.01 below, the maximum number of Shares of Common Stock which may be issued under the Plan shall be 1,500,000. The Shares of Common Stock may be authorized but unissued Shares, or may be treasury stock of the Company. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject
to an Option shall again become available for a future grant under the Plan, unless the Plan previously shall have been terminated.
ARTICLE V
GRANT OF OPTIONS
5.01 Grant of Options. The Committee may, from time to time and subject to the provisions of the Plan and such rules and regulations as are prescribed by the Committee, grant to any Employee or Director one or more Options to purchase a stated number of Shares of Common Stock for (i) cash, (ii) the exchange for Shares of Common Stock previously acquired by the Employee or Director, (iii) in the discretion of the Committee, by delivery of the Optionee=s personal recourse promissory note bearing interest payable not less than annually at no less than 100% of the lowest applicable federal rate as specified by the Internal Revenue Code and Internal Revenue Service, or (iv) in the discretion of the Committee, by some combination of the foregoing.
5.02 Option Agreements. The grant of an Option shall be evidenced by a written Option Agreement, executed by the Company and the Optionee, stating the number of Shares of Common Stock subject to the Option evidenced thereby, and in such form as the Committee may from time to time determine. Such Option Agreement shall state on its face whether the Option is intended to be a tax qualified, incentive stock Option under Code Section 422 or a nonqualified, stock option subject to Code Section 83.
5.03 Option Price.
A. With respect to an Option granted to an Employee that is intended to be a tax qualified, incentive stock Option under Code Section 422, the price per Share of Common Stock deliverable upon the exercise of the Option shall not be less than one hundred percent (100%) of the fair market value of a Share of Common Stock on the Grant Date. Notwithstanding the foregoing, in the event an Employee to whom the Option is to be granted owns Shares of Common Stock, as of the Grant Date, that comprise more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or its parent or subsidiaries, if any, the foregoing price per Share of Common Stock shall not be less than one hundred ten percent (110%) of the fair market value of a Share of Common Stock on the Grant Date.
B. The price per Share specified in the agreement relating to each nonqualified, stock Option subject to Code Section 83 granted under the Plan shall in no event be less than the lesser of (i) the book value per Share of Common Stock as of the end of the fiscal year of the Company immediately preceding the date of such grant, or (ii) fifty percent (50%) of the fair market value per Share of Common Stock on the date of such grant.
5.04 Determination of Fair Market Value. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market List. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. Notwithstanding the foregoing, the fair market value of the Common Stock shall be determined without regard to any restrictions other than a restriction which, by its terms, will never lapse.
5.05 Maximum Amount of Grant. With respect to an Option granted to an Employee that is intended to be a tax qualified, incentive stock Option under Code Section 422, the aggregate, fair market value of the Shares of Common Stock that may be subject to an Option (and to any other incentive stock options granted by the Company or its parent or subsidiaries, if any) and that shall be exercisable for the first time by the Optionee in a calendar year shall not exceed $100,000.00. For purposes of this Section, the fair market value of the Common Stock shall be determined as of the Grant Date. Such $100,000.00 limit shall not apply to nonqualified, stock options granted to Directors or Employees.
5.06 Term of Plan. Unless the Plan is terminated earlier by the Board, no award of an Option shall be made under the Plan after the date which is ten (10) years after the earlier of the date the Plan was adopted by the Board or the date the Plan was approved by the shareholders of the Company. Provided, however, that the Plan and all Options granted under the Plan prior to the termination of the Plan shall remain in effect until such Options have been exercised, satisfied or terminated in accordance with the Plan and the terms of such Options.
5.07 Term of Options. Except as provided in Article VI below, the term of each Option shall be no more than ten (10) years from the date of the grant. Notwithstanding the foregoing, in the event the Employee to whom an Option intended to be a tax qualified, incentive stock option under Code Section 422 is to be granted owns Shares of Common Stock, as of the Grant Date, that comprise more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or its parent or subsidiaries, if any, the term of each Option to such Employee shall be no more than five (5) years from the date of the grant.
5.08 Other Terms. In addition to the foregoing terms and conditions, the Committee may impose such additional terms, conditions and restrictions, including a vesting schedule, as are not otherwise inconsistent with this Plan.
ARTICLE VI
EXERCISE OF OPTION
6.01 Procedure for Exercise.
A. Any Option granted hereunder shall be exercisable at such times and under such terms and conditions as are determined by the Committee at the time of the grant and as are consistent with the terms of the Plan. An Option shall be deemed to be exercised when written notice of such exercise, along with full payment (be it in cash, promissory note or by the transfer of other Shares, in accordance with Section 5.01 above) for the Shares, has been delivered to the Secretary of the Company in accordance with the terms of the Option. Until the issuance of the stock certificate by the Company or its transfer agent, the Optionee shall have no right to vote the Shares nor to receive dividends, and shall not have any other rights as a stockholder of the Company with respect to the Shares of Common Stock subject to the Option. The Company or its transfer agent shall issue, or cause to be issued, such Common Stock certificate promptly upon exercise of the Option.
B. The exercise of an Option in any manner shall result in a decrease in the number of Shares available for grant under the terms of the Plan and under the terms of the Option.
6.02 Termination of Employment. In the case of an Option granted to an Employee that is intended to be a tax qualified, incentive stock option under Code Section 422 (not including such an Option converted to a nonqualified stock option within the scope of Code Section 83 under Paragraph 7.07 hereunder), in the event the employment of the Optionee terminates, whether voluntarily or involuntarily, such Employee may exercise his or her Options to the extent exercisable at the time of such termination of employment. Such exercise shall occur within the earlier of the remaining term of the option or sixty (60) days from such termination of employment(or such shorter period as is specified by the Committee in the Option Agreement). To the extent that the Optionee was not entitled to exercise the Option at the effective date of the Optionee's termination of employment or service to the Company, or the Optionee fails to exercise the Option within the time specified, the Option shall terminate.
6.03 Disability of Optionee. In the case of an Option granted to an Employee that is intended to be a tax qualified, incentive stock option under Code Section 422, in the event the employment of the Optionee terminates due to the disability of the Optionee, such Optionee may exercise his or her Options to
the extent exercisable at the time of such termination of employment. Such exercise shall occur within the earlier of the remaining term of the option or one hundred eighty (180) days after the effective date of the Optionee's termination of employment. For purposes of this Section 6.03, "disability" shall be as defined in Code Section 22(e)(3) and the Regulations thereunder.
B. In the case of the death of a Director or an Option granted to an Employee that is intended to be a nonqualified stock option under Code Section 83, such Option may be exercised, to the extent exercisable at that time, at any time during the remaining term of the Option.
6.04 Death of Optionee.
A. In the event of the death of an Employee to whom an Option that is intended to be a tax qualified, incentive stock option under Code Section 422 has been granted, any Option exercisable on the date of the Optionee's death may be exercised by the Beneficiary, provided that such exercise occurs within the earlier of the remaining term of the Option or one hundred eighty (180) days from the date of the Optionee=s death. In the event the Optionee's employment had terminated prior to death, but the Option was still exercisable pursuant to Sections 6.01, 6.02 or 6.03 above, the Beneficiary shall be permitted to exercise the Option during the time periods specified in this Section 6.04.
B. In the case of the death of a Director or an Option granted to an Employee that is intended to be a nonqualified stock option under Code Section 83, such Option may be exercised, to the extent exercisable at death, at any time during the remaining term of the Option.
6.05 Options Non-Transferable. Any Option granted hereunder may not be sold, pledged, assigned, hypothecated, transferred, or disposed of, in any manner other than by the Optionee's last will or by the laws of descent and distribution, and may be exercised during the Optionee's lifetime, only by the Optionee.
6.06 Manner of Payment. Upon the exercise of an Option, the Optionee shall pay to the Company, at the Committee's discretion:
(a) the cost of the Shares of Common Stock in cash;
(b) in exchange for Shares of Common Stock previously acquired by the Optionee that at the time of such exercise have a fair market value equal to the exercise price;
(c) by delivery of a personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable federal rate as specified by the Internal Revenue Code and Internal Revenue Service; or
(d) any combination thereof.
6.07 Restrictions on Certain Shares. The Shares of Common Stock issued to an Optionee pursuant to this Plan shall be subject to any and all federal and state securities laws, rules and regulations generally applicable to the Common Stock of the Company, including without limitation, any restrictions on the sale or other transfer of the Shares of Common Stock. Any certificate representing such Shares shall contain a restrictive legend evidencing the existence of any such restrictions.
ARTICLE VII
MISCELLANEOUS
7.01 Recapitalizations.
A. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Option, and the number of Shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company. Provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Any adjustment made pursuant to this Section shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option.
B. Except as declared by the Board, in the event of the dissolution or liquidation of the Company, the Options granted under the Plan immediately shall terminate.
C. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless such successor corporation does not agree to assume the Option or to substitute an equivalent option, in which case the Optionee shall retain the right to exercise the Option (which right shall no longer be subject to restrictions, including vesting provisions) as to all of the Shares of Common Stock subject to the Option through the date of the sale of
the assets or the merger of the Company. Thereafter, the Option shall terminate. In the event any of the Options are not fully vested at the time of such sale or merger, such Options shall become fully vested and exercisable at that time.
D. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph C above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price upon such exercise the securities he would have received if he had exercised his Option prior to such recapitalization or reorganization.
E. Except as expressly provided herein, no issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class shall affect, and no adjustment by reason thereof shall be made with respect to the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company.
F. No fractional shares shall be issued under the Plan and the Optionee shall receive from the Company cash in lieu of such fractional shares.
7.02 Withholding Taxes. Whenever the Company is required to issue or transfer Shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company any amount sufficient to satisfy any required federal, state and/or local withholding taxes prior to the delivery of any certificate or certificates for such Shares. Alternatively, the Company may issue or transfer such Shares of Common Stock, net of the number of Shares of Common Stock sufficient to satisfy the withholding requirements. For withholding tax purposes, the Shares of Common Stock shall be valued on the date the withholding obligation is incurred.
7.03 Right to Terminate Employment. Nothing in the Plan or Option, or in any agreement entered into pursuant to the Plan shall confer upon any Employee or Director the right to continue in the employ or service of the Company or effect any right which the Company may have to terminate the employment or service of such Employee or Director regardless of the effect of such termination of employment or service on the rights of the Employee or Director under the Plan or any Option.
7.04 Non-Uniform Determinations. The Committee's determinations under the Plan (including without limitation determinations of the Employees or Directors to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same) need not be
uniform and may be made by the Committee selectively among Employees or Directors who receive, or who are eligible to receive, awards under the Plan, whether or not such persons are similarly situated.
7.05 Leaves of Absence. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such Optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company to continue the employment of the Optionee after the approved period of absence. Options under the Plan shall not be affected by any change of employment within or among the Company, so long as the Optionee continues to be an employee of the Company. Notwithstanding the foregoing, the Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by an Optionee.
7.06 Amendment of Plan.
A. The Board may, without further action by the shareholders of the Company, and without receiving any further consideration from the Optionees, amend this Plan or condition or modify awards under this Plan in respect to changes in securities, taxation or other laws or rules, regulations, or regulatory interpretations thereof applicable to this Plan, or to comply with stock exchange rules or requirements.
B. The Committee may at any time, and from time to time, terminate, modify or amend the Plan (including modifying the mix of Shares to be issued pursuant to Code Sections 422 and 83) in any respect, except that without shareholder approval, the Committee may not (i) increase the aggregate, maximum number of Shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 7.01), (ii) extend the period during which any award may be granted or exercised, or (iii) extend the term of the Plan. Except as required or permitted by the preceding paragraph, the termination, modification or amendment of the Plan shall not affect an Optionee's rights under an award previously granted to such Optionee.
7.07 Conversion of Qualified Options Into Non-Qualified Options. The Committee, at the written request of any Optionee may, in its discretion, take such actions as may be necessary to convert such Optionee's tax qualified, incentive stock option within the meaning of Code Section 422 (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into nonqualified, stock options within the scope of Code Section 83 at any time prior to the expiration of such Qualified Options, regardless of whether the Optionee is an Employee of the Company at the time of such conversion. Such actions may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments
of such Options. At the time of such conversion, the Committee (with the consent of the Optionee) may impose such conditions on the exercise of the resulting nonqualified options as the Committee, in its discretion, may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Optionee the right to have such Optionee's tax qualified, incentive stock option converted into a nonqualified option, and no such conversion shall occur until and unless the Committee takes appropriate action.
7.08 Application of Funds. The proceeds received by the Company from the sale of Shares pursuant to Options granted and purchases authorized under the Plan shall be used for general corporate purposes.
7.09 Notice to Company of Disqualifying Disposition. Each Employee who
receives a tax qualified, incentive stock option within the meaning of Code
Section 422 must agree to notify the Company in writing immediately after the
Employee makes a "disqualifying disposition" of any Shares of Common Stock
acquired pursuant to the exercise of a tax qualified, incentive stock option. A
disqualifying disposition is any disposition (including any sale) of such Shares
of Common Stock before the later of (a) two (2) years after the date the
Employee was granted the tax qualified, incentive stock option or (b) one (1)
year after the date the Employee acquired Shares of Common Stock by exercising
the tax qualified, incentive stock option. If the Employee has died before such
Shares of Common Stock are sold, these holding period requirements do not apply
and no disqualifying disposition can occur thereafter.
7.10 Governing Law; Construction. The validity and construction of the Plan and no instrument is evidencing Stock Rights shall be governed by the laws of the Commonwealth of Massachusetts. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires.
7.11 Shareholder Approval. In the event this Plan is not adopted by the shareholders of the Company by October 13, 1998, the Plan shall remain in effect, but all options granted hereunder, or to be granted hereunder, shall be nonqualified stock options under Code Section 83 and Regulations issued thereunder.
Adopted by the Board of Directors as of October 13, 1997
Exhibit (21)
Subsidiaries of the Registrant
Relm Communications, Inc., a Florida corporation ("Relm")
RXD, Inc., an Indiana corporation (a subsidiary of Relm)
Redgo Properties, Inc., a Pennsylvania corporation
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD START | JAN 01 1997 |
| PERIOD END | DEC 31 1997 |
| CASH | 213 |
| SECURITIES | 881 |
| RECEIVABLES | 5,379 |
| ALLOWANCES | 133 |
| INVENTORY | 11,504 |
| CURRENT ASSETS | 20,498 |
| PP&E | 8,805 |
| DEPRECIATION | 4,598 |
| TOTAL ASSETS | 31,665 |
| CURRENT LIABILITIES | 10,191 |
| BONDS | 0 |
| PREFERRED MANDATORY | 3,021 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 11,013 |
| TOTAL LIABILITY AND EQUITY | 31,665 |
| SALES | 45,376 |
| TOTAL REVENUES | 45,376 |
| CGS | 39,003 |
| TOTAL COSTS | 52,974 |
| OTHER EXPENSES | (426) |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 932 |
| INCOME PRETAX | (8,104) |
| INCOME TAX | 3,870 |
| INCOME CONTINUING | (11,974) |
| DISCONTINUED | (2,836) |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (14,810) |
| EPS PRIMARY | (2.92) |
| EPS DILUTED | (2.92) |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| RESTATED: |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | JAN 01 1996 |
| PERIOD END | DEC 31 1996 |
| CASH | 599 |
| SECURITIES | 723 |
| RECEIVABLES | 11,536 |
| ALLOWANCES | 165 |
| INVENTORY | 16,219 |
| CURRENT ASSETS | 36,268 |
| PP&E | 12,632 |
| DEPRECIATION | 15,165 |
| TOTAL ASSETS | 54,028 |
| CURRENT LIABILITIES | 9,260 |
| BONDS | 0 |
| PREFERRED MANDATORY | 3,076 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 26,138 |
| TOTAL LIABILITY AND EQUITY | 54,028 |
| SALES | 47,646 |
| TOTAL REVENUES | 47,646 |
| CGS | 34,252 |
| TOTAL COSTS | 48,089 |
| OTHER EXPENSES | 492 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 678 |
| INCOME PRETAX | (1,613) |
| INCOME TAX | (266) |
| INCOME CONTINUING | (1,347) |
| DISCONTINUED | (2,679) |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (4,026) |
| EPS PRIMARY | (.78) |
| EPS DILUTED | (.78) |