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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.60
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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
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<PAGE>
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
<PAGE>
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.
<PAGE>
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.
$ IN MILLIONS
------------------------
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
===== ===== =====
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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 $7.5 billion
with annual growth of approximately 10%. RELM competes with many domestic and
foreign companies in these markets. One competitor holds an estimated market
share of about 70%. The principal methods of competition are price, quality, and
technology advances. The company believes that it is competitive with regard to
these factors.
<PAGE>
Employees
The company employed 370 people as of December 31, 1997.
Information Relating to Domestic and Export Sales
($ 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
===== ===== =====
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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.
<PAGE>
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
----- ----- -----
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
----- ----- -----
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%)
===== ===== =====
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
F-1
<PAGE>
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
F-2
<PAGE>
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
F-3
<PAGE>
RELM Wireless Corporation
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31
-----------------------
1997 1996
-----------------------
<S> <C> <C>
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
=======================
</TABLE>
See accompanying notes.
F-4
<PAGE>
RELM Wireless Corporation
Consolidated Balance Sheets (continued)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31
-----------------------
1997 1996
-----------------------
<S> <C> <C>
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
=======================
</TABLE>
See accompanying notes.
F-5
<PAGE>
RELM Wireless Corporation
Statements of Consolidated Operations
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
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
==========================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
RELM Wireless Corporation
Statements of Consolidated Shareholders' Equity
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses) on
Common Stock Additional Retained Available
--------------------- Paid-In Earning For Sale
Shares Amount Capital (Deficit) Securities Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
========================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
RELM Wireless Corporation
Statements of Consolidated Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1997 1996 1995
-------------------------------------------
Cash flows from operating activities
<S> <C> <C> <C>
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.
</TABLE>
F-8
<PAGE>
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.
F-9
<PAGE>
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
F-10
<PAGE>
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.
F-11
<PAGE>
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
F-12
<PAGE>
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
========================
F-13
<PAGE>
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
===============================
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
================================
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.
F-14
<PAGE>
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
F-15
<PAGE>
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
===============================
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
===============================
F-16
<PAGE>
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1997
(In Thousands, Except Share Data)
6. Debt
The debt consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------------
1997 1996
------------------------
<S> <C> <C>
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
========================
</TABLE>
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
F-17
<PAGE>
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
======
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
=======================
F-18
<PAGE>
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
======
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
========================================
F-19
<PAGE>
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
=============================
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%
============================
F-20
<PAGE>
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
========================
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.
F-21
<PAGE>
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
F-22
<PAGE>
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
F-23
<PAGE>
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:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
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)
=============================================
</TABLE>
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.
F-24
<PAGE>
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
=======================================
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.
F-25
<PAGE>
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.
F-26
<PAGE>
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
======================================
F-27
<PAGE>
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)
=====================================
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
======
F-28
<PAGE>
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
=======
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.
F-29
<PAGE>
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.
F-30
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Principal Occupation
Name Age During Past Five Years Directorships
---- --- ---------------------- -------------
<S> <C> <C> <C>
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.
</TABLE>
<PAGE>
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
2
<PAGE>
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 $100,000 during 1997.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
------------------- ----------------------
Number of
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) ($)(1) Options(#) ($)
------------------ ---- ------- ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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 -- -- -- -- --
</TABLE>
- -------------------
(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 $50,000 per year.
3
<PAGE>
(3) Under the terms of Mr. Laird's employment he was granted options under the
Company's 1997 Stock Option Plan for the purchase of 100,000 shares of
Common Stock upon the commencement of his employment and is to be granted
options for additional increments of 50,000 shares six months, twelve
months, eighteen months and twenty-four months thereafter. Such options
will be granted at the then current market value of the shares. The options
granted and to be granted will become exercisable as to increments of 25%
of the optioned shares on the first, second, third and fourth year
anniversaries of the date of the grant. In the event of a change in
control, as defined in the Plan agreement, 50% of any otherwise unvested
options shall become vested and exercisable. Mr. Laird shall also be
eligible to receive a bonus of up to 50% of his salary upon attaining
earnings per share and/or share price goals or other performance criteria
to be mutually agreed upon with the Board of Directors.
Stock Option Grants
The following table contains information concerning the grant of stock
options under the Company's 1997 Stock Option Plan to the executive officers
named in the Summary Compensation Table above (the "Named Officers") during
1997.
<TABLE>
<CAPTION>
Option Grants in 1997
Individual Grants
Potential Realizable
Value (3) at Assumed
Number of Annual Rates of Stock
Securities % of Total Exercise Price Appreciation for
Underlying Options Granted or Base Option Term
Options Granted to Employees in Price Expiration -----------------------
Name (# of Shares)(1)(2) 1997 ($/Sh) Date(2) 5%($)(3) 10%($)(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald F.U. Goebert -- -- -- -- -- --
Richard K. Laird 100,000 100 $6.25 12/01/07 $393,059 $996,089
</TABLE>
- -------------------
(1) These are options granted under the 1997 Stock Option Plan to acquire
shares of Common Stock. Options with respect to 64,000 shares are incentive
stock options ("ISOs") under ss.422 of the Internal Revenue Code of 1986,
as amended and options with respect to 36,000 shares are non-qualified
stock options. The options are exercisable with respect to increments of
25% of the optioned shares (prorated among the ISOs and the non-qualified
options) as of the first, second, third and fourth anniversaries of the
option grant date. These options were granted at fair market value on the
date of the grant.
(2) These options could expire earlier in certain situations.
4
<PAGE>
(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 $43,591,369 from the market value
of such shares at the close of business on December 31, 1997. The 5% and
10% appreciation rates are set forth in the Securities and Exchange
Commission Rules and no representation is made that the Common Stock will
appreciate at these assumed rates or at all.
The Company does not currently have (and has not previously had) any plan
pursuant to which any stock appreciation rights ("SARs") may be granted.
Stock Option Exercises and Holdings
The following table sets forth information relating to options exercised
during 1997 by each of the Named Officers and the number and value of options
held on December 31, 1997 by such individuals.
Aggregated Option Exercises in 1997 and Option Values at December 31, 1997
<TABLE>
<CAPTION>
Shares
Acquired
on Number of Securities Value of Unexercised
Exercise Value Underlying Unexercised In-the-Money Options at
Name (#) Realized ($) Options at Dec. 31 1997 (#) Dec. 31, 1997 ($)(1)
---- ------ ------------ --------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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
5
<PAGE>
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
6
<PAGE>
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").
7
<PAGE>
[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
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.
<TABLE>
<CAPTION>
Amount Beneficially Percent
Name of Beneficial Owner Owned of Class(1)
------------------------ -------------------- -----------
<S> <C> <C>
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
</TABLE>
- -----------------------
* Less than 1%
8
<PAGE>
(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
9
<PAGE>
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.
10
<PAGE>
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
- ------------------
* Filed herewith.
** Compensatory plan required to be filed pursuant to Item 601(b)(10)(iii)
of Regulation S-K.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
Page 1 of 10
<PAGE>
(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.
Page 2 of 10
<PAGE>
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;
Page 3 of 10
<PAGE>
(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
Page 4 of 10
<PAGE>
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
Print Name: Robert N. Blackford
------------------------------
Notary Stamp Title: Notary Public
Serial No. (if any) CC684644
---------------------
Commission Expires:
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:
Page 5 of 10
<PAGE>
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.
Page 6 of 10
<PAGE>
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
Page 7 of 10
<PAGE>
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
Page 8 of 10
<PAGE>
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
Page 9 of 10
<PAGE>
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
Page 10 of 10
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.
<PAGE>
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
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
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.
-2-
<PAGE>
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
-------------------------
-3-
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
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.
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
(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
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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
12
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
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